6-K 1 d6k.htm FORM 6-K FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15b-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May, 2004

 

Alto Palermo S.A. (APSA)

(Exact name of Registrant as specified in its charter)

 

Republic of Argentina

(Jurisdiction of incorporation or organization)

 

Moreno N°877 22nd Floor (C1091AAQ)

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

 



ALTO PALERMO S.A. (APSA) (THE “COMPANY”)

 

REPORT ON FORM 6-K

 

Attached is an English translation of the Unaudited Consolidated Financial Statements

For the nine-month period ended as of March 31, 2004


ALTO PALERMO S.A. (APSA)

 

Unaudited Consolidated Financial Statements

For the nine-month period ended as of March 31, 2004

in comparative format


Name of the Company:

   ALTO PALERMO S.A. (APSA)

Corporate domicile:

   Moreno 877 22º Floor - Autonomous City of Buenos Aires

Principal activity:

   Real estate investment and development

 

Unaudited Financial Statements for the nine-month period

ended March 31, 2004

compared with the same period of the previous year

Fiscal year No.114 beginning July 1, 2003

 

Expressed in Argentine Pesos (See Note 1 of Unaudited Financial Statements)

 

DATE OF REGISTRATION WITH THE PUBLIC REGISTRY OF COMMERCE

 

Of the By-laws:    October 1, 1889
Of last amendment:    October 21, 1999
Registration number with the Superintendence of Corporations:    511
Duration of the Company:    Until August 28, 2087
Information related to subsidiary companies is shown in Schedule C.

 

CAPITAL COMPOSITION (Note 4 of unaudited financial statements)

 

Type of stock


   Authorized for Public Offer of
Shares


   Subscribed Ps.

  

Paid up

Ps.


Common stock,1 vote each

   727.568.134    72.756.813    72.756.813

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

1


ALTO PALERMO S.A. (APSA)

 

Unaudited Consolidated Balance Sheets as of March 31, 2004 and June 30, 2003

 

    

31.03.04

(Notes 1 and 3)
Ps.


  

30.06.03

(Notes 1 and 3)
Ps.


ASSETS

         

CURRENT ASSETS

         

Cash and banks (Note 4.a)

   43,100,224    22,973,645

Investments (Note 4.b)

   11,942,649    13,014,036

Accounts receivable, net (Note 4.d)

   32,989,987    28,961,402

Other receivables and prepaid expenses (Note 4.e)

   9,212,436    4,851,462

Inventory (Note 4.f)

   718,521    759,201
    
  

Total Current Assets

   97,963,817    70,559,746
    
  

NON-CURRENT ASSETS

         

Accounts receivable, net (Note 4.d)

   2,588,130    2,340,774

Other receivables and prepaid expenses, net (Note 4.e)

   56,078,686    47,681,566

Inventory, net (Note 4.f)

   25,033,414    25,030,000

Fixed assets, net (Note 4.g)

   892,519,692    918,697,764

Investments, net (Note 4.c)

   14,056,263    11,094,539

Intangible assets, net (Note 4.h)

   1,623,656    2,402,626
    
  

Subtotal Non-Current Assets

   991,899,841    1,007,247,269
    
  

Goodwill, net (Note 4.i)

   22,911,848    26,530,010
    
  

Total Non Current Assets

   1,014,811,689    1,033,777,279
    
  

Total Assets

   1,112,775,506    1,104,337,025
    
  

LIABILITIES

         

CURRENT LIABILITIES

         

Trade accounts payable (Note 4.j)

   25,620,513    19,478,694

Short-term debt (Note 4.k)

   48,366,196    24,699,280

Salaries and social security payable (Note 4.l)

   3,038,569    3,783,026

Taxes payable (Note 4.m)

   8,236,438    5,812,218

Customer advances (Note 4.n)

   15,255,841    11,212,118

Related parties (Note 5)

   7,622,229    7,444,981

Dividends payable

   337,956    337,678

Other liabilities (Note 4.o)

   2,667,764    5,649,942
    
  

Total Current Liabilities

   111,145,506    78,417,937
    
  

NON-CURRENT LIABILITIES

         

Trade accounts payable (Note 4.j)

   2,963,160    3,609,629

Long-term debt (Note 4.k)

   189,817,944    218,138,833

Taxes payable (Note 4.m)

   5,595,099    —  

Customer advances (Note 4.n)

   27,247,580    25,318,125

Other liabilities (Note 4.o)

   754,752    913,924
    
  

Total debts

   226,378,535    247,980,511
    
  

Provisions (Note 4.p)

   3,897,285    3,927,125
    
  

Total Non-Current Liabilities

   230,275,820    251,907,636
    
  

Total Liabilities

   341,421,326    330,325,573
    
  

Minority interest

   15,045,066    14,760,545

SHAREHOLDERS’ EQUITY

   756,309,114    759,250,907
    
  

Total Liabilities and Shareholders’ Equity

   1,112,775,506    1,104,337,025
    
  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

2


ALTO PALERMO S.A. (APSA)

 

Unaudited Consolidated Statements of Income

For the nine-month periods ended March 31, 2004 and 2003

 

     31.03.04
(Notes 1 and 3)
Ps.


   

31.03.03
(Notes 1 and 3)

Ps.


 

Sales:

            

Leases and services

   81,909,928     65,118,292  

Sales and development properties

   —       462,020  

Credit card operations

   21,488,064     18,696,868  
    

 

Total sales

   103,397,992     84,277,180  
    

 

Costs:

            

Leases and services

   (42,790,184 )   (41,873,806 )

Sales and development properties

   —       (693,897 )

Credit card operations

   (8,001,137 )   (6,321,418 )
    

 

Total costs

   (50,791,321 )   (48,889,121 )
    

 

Gross profit (loss):

            

Leases and services

   39,119,744     23,244,486  

Sales and development properties

   —       (231,877 )

Credit card operations

   13,486,927     12,375,450  
    

 

Total gross profit

   52,606,671     35,388,059  
    

 

Selling expenses

   (7,093,734 )   (10,881,412 )

Administrative expenses

   (12,844,768 )   (10,852,669 )

Net loss in credit card trust

   (158,706 )   (3,778,346 )

Torres de Abasto unit contracts’ rescissions

   —       5,240  
    

 

     (20,097,208 )   (25,507,187 )
    

 

Operating income

   32,509,463     9,880,872  
    

 

Net loss in equity investments

   (1,167,866 )   (3,075,373 )
    

 

Amortization of goodwill

   (3,619,983 )   (3,620,293 )
    

 

Financial results generated by assets:

            

Interest income

   3,767,055     5,667,563  

Interest income from related parties (Note 5)

   10,227     114,941  

Loss on exposure to inflation

   —       (11,577,511 )
    

 

Subtotal

   3,777,282     (5,795,007 )
    

 

Financial results generated by liabilities:

            

Results from derivative instruments

   13,866,832     53,257,995  

Interest expense

   (21,156,160 )   (23,633,217 )

Exchange differences, net

   (2,718,618 )   49,361,923  

Interest with related parties (Note 5)

   (585,231 )   9,028,253  

Gain on early redemption of debt

   —       6,749,106  

Gain on exposure to inflation

   —       12,165,691  
    

 

Subtotal

   (10,593,177 )   106,929,751  
    

 

Financial results, net

   (6,815,895 )   101,134,744  
    

 

Other income, net (Note 4.q.)

   2,140,923     13,037,078  
    

 

Income before taxes and minority interest

   23,046,642     117,357,028  
    

 

Income tax

   (17,977,468 )   (44,589,744 )

Minority interest

   (284,806 )   1,932,477  
    

 

Net income

   4,784,368     74,699,761  
    

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

3


ALTO PALERMO S.A. (APSA)

 

Unaudited Consolidated Statements of Cash Flows (1)

For the nine-month periods ended March 31, 2004 and 2003

 

     31.03.04
(Notes 1 and 3)
Ps.


   

31.03.03

(Notes 1 and 3)
Ps.


 

CHANGES IN CASH AND CASH EQUIVALENTS

            

Cash and cash equivalents as of beginning of years

   28,287,319     14,845,130  
    

 

Cash and cash equivalents as of the end of period

   48,631,978     14,732,696  
    

 

Net increase (decrease) in cash and cash equivalents

   20,344,659     (112,434 )
    

 

CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

            

CASH FLOW FROM ACTIVITIES

            

Income for the period

   4,784,368     74,699,761  

Adjustments to reconcile net income to cash flow from operating activities

            

•      Financial results

   (7,259,050 )   (118,482,678 )

•      Depreciation of fixed assets

   40,800,995     40,945,121  

•      Amortization of deferred financing costs

   1,407,625     7,000,992  

•      Amortization of impairment of fixed assets

   (1,217,045 )   (2,242,566 )

•      Amortization of impairment of intangible assets

   (53,711 )   —    

•      Amortization of intangible assets

   1,040,284     5,383,315  

•      Gain from sale of intangible assets

   —       (2,097,878 )

•      Allowance for doubtful accounts

   613,886     7,676,751  

•      Gain from sale of fixed assets

   —       (33,637 )

•      Provision for contingencies

   75,914     2,067,082  

•      Amortization of goodwill

   3,619,983     3,620,293  

•      Recovery of allowance for doubtful accounts

   (1,297,214 )   (1,873,414 )

•      Result from advance settlement of debt

   (784,560 )   —    

•      Gain on early redemption of debt

   —       (25,092,955 )

•      Net loss in investments companies

   1,167,866     3,075,373  

•      Net (gain) loss in credit card trust

   (38,908 )   1,221,635  

•      Minority interest

   284,806     (1,932,477 )

•      Income tax

   17,977,468     44,589,744  

Changes in certain assets and liabilities, net of non-cash transactions and the effects of acquisitions

            

•      Increase in accounts receivable

   (9,282,652 )   (5,667,756 )

•      (Increase) Decrease in other receivables and prepaid expenses

   (6,757,116 )   4,652,116  

•      Increase in intangible assets

   (240,314 )   (501,543 )

•      Decrease in investments

   —       870,348  

•      Decrease in inventory

   40,680     752,846  

•      Increase (decrease) in trade accounts payable

   5,495,350     (2,450,291 )

•      Increase in customer advances

   5,973,178     9,245  

•      Decrease in taxes payable

   (4,580,164 )   (7,047,368 )

•      (Decrease) increase in salaries and social security payable

   (744,457 )   691,191  

•      Decrease of provision for contingencies

   (105,754 )   —    

•      Decrease in other liabilities

   (3,141,350 )   (4,568,536 )

•      Increase in related parties

   177,248     2,155,904  

•      (Decrease) Increase in accrued interest

   (2,064,785 )   584,265  
    

 

Net cash provided by operating activities

   45,892,571     28,004,883  
    

 

CASH FLOWS FROM INVESTING ACTIVITIES:

            

•      Acquisition of fixed assets

   (13,374,988 )   (2,215,152 )

•      Decrease (increase) in investments

   2,686,141     (1,441,651 )

•      Sale of fixed assets

   —       33,637  

•      Sale of intangible assets

   —       2,097,878  

•      Acquisition of inventory

   (3,414 )   (6,729 )
    

 

Net cash used in investing activities

   (10,692,261 )   (1,532,017 )
    

 

CASH FLOWS FROM FINANCING ACTIVITIES:

            

•      Payment of short-term and long-term debt

   (10,655,651 )   (9,123,837 )

•      Payment of dividends

   (10,000,000 )   —    

•      Proceeds from short-term and long-term debt

   5,800,000     67,192,054  

•      Redemption of debt

   —       (84,426,269 )

•      Financing costs

   —       (227,248 )
    

 

Net cash used in financing activities

   (14,855,651 )   (26,585,300 )
    

 

Net Increase (decrease) in cash and cash equivalents

   20,344,659     (112,434 )
    

 

 

(1) Includes cash, banks and investments with a realization term not exceeding three months.

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

4


ALTO PALERMO S.A. (APSA)

 

Unaudited Consolidated Statements of Cash Flows (Continued)

For the nine-month periods ended March 31, 2004 and 2003

 

    

31.03.04

Ps.


  

31.03.03

Ps.


Additional information

         

Non-cash activities

         

-    Issuance of credit card receivables

   4,368,196    2,057,275

-    Liquidation of interest in credit card receivables

   1,321,843    1,939,715

-    Conversion of unsecured convertible Notes into ordinary share

   2,273,839    148,624

-    Increase in customer advances through a decrease in other liabilities

   —      2,836,049

-    Conversion of balances dwith related parties into unsecured convertible Notes

   —      118,663,132

-    Computation of asset tax credits on account of income tax.

   2,180,810    —  

-    Increase in fixed assets through a decrease in intangible assets

   30,890    —  

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

5


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements

For the nine-month periods ended March 31, 2004 and 2003

 

NOTE 1: PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

 

The Company has consolidated its Balance Sheets at March 31, 2004 and June 30, 2003 and the statements of income and cash flow for the nine-month periods ended March 31, 2004 and 2003 line by line with the financial statements of its controlled companies, following the procedure established in Technical Resolution No. 21 of the Argentine Federation of Professional Councils in Economic Sciences and approved by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires and the National Securities Commission.

 

The unaudited financial statements have been prepared in constant monetary units, reflecting the overall effects of inflation through August 31, 1995. As from that date, in accordance with professional accounting standards and the requirements of the control authorities, restatement of the financial statements has been discontinued until December 31, 2001. As from January 1, 2002, in accordance with professional accounting standards, recognition of the effects of inflation in these unaudited financial statements has been reestablished, considering that the accounting measurements restated due to changes in the purchasing power of the currency until August 31, 1995 as well as those arising between that date and December 31, 2001 are stated in currency of the latter date.

 

On March 25, 2003, the National Executive Branch issued Decree No. 664 establishing that the financial statements for years ending as from that date must be stated in nominal currency. Consequently, in accordance with Resolution No. 441 issued by the National Securities Commission, the Company discontinued the restatement of its financial statements as from March 1, 2003. This criterion is not in line with current professional accounting standards which establish that the financial statements must be restated through to September 30, 2003. At March 31, 2004, however, this deviation has not had a material effect on the financial statements.

 

The rate used for restatement of items in these unaudited financial statements is the domestic wholesale price index published by the National Institute of Statistics and Census.

 

6


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 1: (Continued)

 

Comparative information

 

According to the new Technical Resolutions mentioned in Note 2.3 of Unaudited Financial Statements, the Balance Sheet is disclosed in comparative format with the year ended June 30, 2003.

 

Comparative balances at March 31, 2003 shown in these unaudited consolidated financial statements for comparative purposes result from restating the amounts in the consolidated financial statements at those dates following the guidelines detailed in Note 2.2. to the unaudited financial statements.

 

Certain amounts in the financial statements at March 31, 2003 and for the period then ended were reclassified for disclosure on a comparative basis with those for the current period.

 

NOTE 2: CORPORATE CONTROL

 

The following table shows the data concerning the corporate control:

 

Company


   Percentage of capital
stock owned as of


   31.03.04

   30.06.03

Emprendimiento Recoleta S.A.

   51    51

Tarshop S.A.

   80    80

Shopping Neuquén S.A.

   94.623    94.623

Inversora del Puerto S.A.

   99.9917    99.9917

Alto Research and Development S.A. (formerly Alto Invest S.A.)

   100    100

Shopping Alto Palermo S.A.

   99.9999    99.9999

Fibesa S.A.

   99.9999    99.9999

 

7


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

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 Alto Palermo S.A..

 

  a. Revenue recognition

 

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.

 

  b. Investments

 

  b.1. Current

 

Current investments include a retained interest in transferred credit card receivables pursuant to the securitization program of credit card receivables of Tarshop S.A. with a realization term not exceeding twelve months. Government bonds have been valued at quotation value in force at period end.

 

  b.2. Interest in other companies

 

Includes equity investments in E-Commerce Latina S.A. and Pérez Cuesta S.A.C.I., which have been accounted for under the equity method.

 

Includes retained interest in transferred credit card receivables and Trust debt certificates pursuant to the securitization program of credit card receivables of Tarshop S.A..

 

8


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: BREAKDOWN OF THE MAIN CAPTIONS

 

The breakdown of the main captions is as follows:

 

  a) Cash and banks:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Cash in local currency

   645,011    606,055

Cash in foreign currency

   1,664,477    2,143,526

Banks in local currency

   14,372,385    4,776,914

Banks in foreign currency

   26,000,348    13,835,199

Saving accounts

   418,003    1,611,951
    
  
     43,100,224    22,973,645
    
  

 

  b) Investments:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Retained interest in transferred credit card receivable (i)

   6,115,731    4,719,057

Mutual funds

   5,531,754    5,313,674

Government bonds (i)

   295,164    2,981,305
    
  
     11,942,649    13,014,036
    
  

 

(i) Not considered as cash equivalent for purpose of the statements of cash flow.

 

  c) Investments, net:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Non-current

         

Pérez Cuesta S.A.C.I.

   5,158,685    5,628,135

E-Commerce Latina S.A.

   1,998,109    2,899,210

Retained interest in transferred credit card receivable

   6,899,469    2,567,194
    
  
     14,056,263    11,094,539
    
  

 

9


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

  d) Accounts receivable, net:

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Current

            

Leases and services and credit card receivable

   33,589,548     40,094,813  

Debtors under legal proceedings

   21,366,036     22,054,254  

Checks to be deposited

   9,000,375     6,177,030  

Pass-through expenses receivable

   5,303,873     5,422,451  

Notes receivable

   410,289     213,808  

Mortgage receivable

   262,621     305,895  

Credit card receivable

   35,632     26,039  

Less:

            

Allowance for doubtful accounts

   (36,978,387 )   (45,332,888 )
    

 

Total

   32,989,987     28,961,402  
    

 

Non-current

            

Leases and services and credit card receivable

   1,627,651     1,235,845  

Mortgage receivable

   1,003,639     1,158,850  

Less:

            

Allowance for doubtful accounts

   (43,160 )   (53,921 )
    

 

Total

   2,588,130     2,340,774  
    

 

     35,578,117     31,302,176  
    

 

 

10


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

  e) Other receivables and prepaid expenses, net:

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Current

            

Prepaid services

   2,400,151     330,356  

Prepaid expenses

   1,446,175     284,824  

Accounts receivable credit card trust

   943,604     506,772  

Income tax

   785,179     51,418  

Guarantee deposits

   362,029     383,179  

Interest rate swap receivable

   359,085     306,867  

Asset tax

   357,203     —    

Prepaid gross sales tax

   340,852     247,415  

Prepaid property tax

   225,549     —    

Related parties (Note 5)

   195,143     1,093,466  

Dividends receivable (Note 5)

   75,000     75,000  

Other tax credits

   60,856     112,200  

Other

   1,661,610     1,459,965  
    

 

Total

   9,212,436     4,851,462  
    

 

Non-Current

            

Asset tax

   27,503,573     25,763,022  

Interest rate swap receivable

   18,789,877     8,172,241  

Deferred income tax

   6,795,403     12,173,390  

Mortgage receivable

   2,208,275     2,208,275  

Accounts receivable credit card trust

   1,580,950     —    

Income tax

   —       31,468  

Value Added Tax (“VAT”) receivable

   550,658     550,381  

Prepaid gross sales tax

   415,070     318,153  

Guarantee deposits

   49,370     655,000  

Prepaid expenses

   375,874     —    

Other

   17,911     17,911  

Less:

            

Allowance for doubtful mortgage receivable

   (2,208,275 )   (2,208,275 )
    

 

Total

   56,078,686     47,681,566  
    

 

     65,291,122     52,533,028  
    

 

 

11


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

  f) Inventory, net:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Torres de Abasto

   555,153    555,153

Resale merchandise

   76,708    98,674

Other

   86,660    105,374
    
  

Total

   718,521    759,201
    
  

Non-Current

         

Alcorta Plaza

   15,953,414    15,950,000

Air space Supermercado Coto – Agüero 616

   9,080,000    9,080,000
    
  

Total

   25,033,414    25,030,000
    
  
     25,751,935    25,789,201
    
  

 

12


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4 : (Continued)

 

  g) Fixed assets, net:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Properties:

         

Shopping Centers:

         

- Abasto

   205,196,101    210,848,296

- Alto Palermo

   233,712,224    247,477,956

- Alto Avellaneda

   99,314,508    105,133,444

- Paseo Alcorta

   69,907,545    72,689,577

- Patio Bullrich

   122,686,575    127,554,349

- Alto NOA

   22,808,431    23,810,474

- Buenos Aires Design

   23,996,815    25,840,064

- Neuquén

   6,694,513    6,694,513

Caballito plots of land

   8,821,673    8,821,673

Rosario plots of land

   41,100,446    41,100,446

Other properties

   10,622,679    10,742,882

Leasehold improvements

   1,054,905    425,572

Facilities

   1,460,142    2,170,834

Furniture and fixture

   1,760,200    1,959,384

Computer equipment

   2,107,083    2,512,778

Software

   815,865    1,244,161

Work in progress:

         

- Caballito

   17,178,328    17,178,328

- Rosario

   14,509,468    10,400,195

- Neuquén

   1,844,421    1,844,421

- Patio Bullrich

   551,589    248,417

- Suppliers advances-Rosario

   6,376,181    —  
    
  

Total

   892,519,692    918,697,764
    
  

 

13


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

  h) Intangible assets, net:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Pre-operating expenses

   1,290,657    1,526,875

Trademarks

   247,654    267,137

Expenses related to securitization of receivables

   46,590    334,565

Torres de Abasto advertising expenses

   38,755    38,755

Tenant list Patio Bullrich

   —      235,294
    
  

Total

   1,623,656    2,402,626
    
  

 

  i) Goodwill, net:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


- Fibesa S.A.

   13,260,640    14,851,803

- Ex Alto Palermo S.A.

   8,621,631    10,466,951

- Tarshop S.A.

   258,766    305,993

- Inversha S.A.

   498,884    583,822

- Pentigrás S.A.

   271,927    321,441
    
  

Total

   22,911,848    26,530,010
    
  

 

  j) Trade accounts payable:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Suppliers

   20,259,125    16,130,519

Accruals

   4,390,333    2,384,358

Imports payable

   971,055    963,817
    
  

Total

   25,620,513    19,478,694
    
  

 

14


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Non-current

         

Imports payable

   2,963,160    3,609,629
    
  

Total

   2,963,160    3,609,629
    
  
     28,583,673    23,088,323
    
  

 

  k) Short-term and long-term debt:

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Current

            

- Banks

            

Banco Macro Bansud loan

   5,500,000     —    

HSBC Bank loan

   —       272,245  

Industrial de Azul Bank loan

   1,000,000     700,000  

Scotiabank loan

   —       3,000,000  

Reference stabilization index (“CER”)

   —       1,329,335  

Other loans

   —       158,742  

Accrued interest

   17,075     523,448  
    

 

Subtotal

   6,517,075     5,983,770  
    

 

- Financial

            

Senior Notes

   25,686,501     4,801,335  

Accrued interest for Notes, Senior Notes and unsecured convertible Notes

   6,884,955     8,497,521  

Unaccrued deferred financing costs

   (1,673,459 )   (1,873,143 )

Other loans

   5,262,212     1,755,272  

Seller financing

   5,001,930     4,900,195  

Accrued interest for Seller financing

   645,191     591,036  

Mortgage loans

   41,791     43,294  
    

 

Subtotal

   41,849,121     18,715,510  
    

 

Total

   48,366,196     24,699,280  
    

 

 

15


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Non current

            

- Financial

            

Unsecured convertible Notes

   140,338,513     139,561,845  

Notes

   49,621,000     49,621,000  

Senior Notes

   —       25,206,998  

Unaccrued deferred financing costs

   (141,569 )   (1,349,510 )

Other loans

   —       5,098,500  
    

 

Subtotal

   189,817,944     218,138,833  
    

 

Total

   189,817,944     218,138,833  
    

 

     238,184,140     242,838,113  
    

 

 

  l) Salaries and social security payable:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Provision for vacation and bonuses

   1,971,106    2,605,921

Social security payable

   526,671    651,521

Salaries payable

   417,011    360,886

Other

   123,781    164,698
    
  
     3,038,569    3,783,026
    
  

 

16


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

  m) Taxes payable:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Income tax, net

   4,451,228    263,697

VAT payable, net

   1,899,344    2,069,899

Other tax withholdings

   618,403    575,858

Gross sales tax provision

   586,185    461,569

Asset tax payable, net

   467,510    2,117,320

Gross sales tax withholdings

   205,915    261,305

Property tax provision

   —      34,211

Other taxes

   7,853    28,359
    
  

Total

   8,236,438    5,812,218
    
  

Non current

         

Deferred income tax

   5,504,962    —  

Asset tax payable

   90,137    —  
    
  

Total

   5,595,099    —  
    
  
     13,831,537    5,812,218
    
  

 

  n) Customer advances:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Admission rights

   10,276,103    7,442,488

Lease advances

   4,083,500    3,320,211

Customer advances

   848,436    393,617

Guarantee deposits

   47,802    55,802
    
  

Total

   15,255,841    11,212,118
    
  

Non-current

         

Admission rights

   16,886,867    14,044,014

Lease advances

   10,304,337    11,198,147

Guarantee deposits

   56,376    75,964
    
  

Total

   27,247,580    25,318,125
    
  
     42,503,421    36,530,243
    
  

 

17


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 4: (Continued)

 

  o) Other liabilities:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Donations payable

   1,408,305    1,558,305

Contributed leasehold improvements

   212,220    212,220

Accrual for directors fees, net

   95,703    3,164,123

Other

   951,536    715,294
    
  

Total

   2,667,764    5,649,942
    
  

Non-current

         

Contributed leasehold improvements

   742,752    901,924

Withholdings and guarantee deposits

   12,000    12,000
    
  

Total

   754,752    913,924
    
  
     3,422,516    6,563,866
    
  

 

  p) Provisions:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Provision for contingencies

   3,897,285    3,927,125
    
  
     3,897,285    3,927,125
    
  

 

  q) Other income, net:

 

    

31.03.04

Ps.


   

31.03.03

Ps.


 

Provision for contingencies, net

   (75,914 )   (2,067,082 )

Recovery of allowance for doubtful accounts

   683,328     —    

Gain from sale of fixed assets

   72,461     —    

Result from advance settlement of debt

   784,560     —    

Donations

   (132,598 )   (5,325 )

Gain from sale of intangible assets

   —       2,131,515  

Gain on early redemption of debt

   —       12,935,505  

Other

   809,086     42,465  
    

 

Total

   2,140,923     13,037,078  
    

 

 

18


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES

 

The following is a summary of the balances and transactions with related parties:

 

Company


  

Relation


  

Description of transaction/
caption


   Income (expense) included
in the statements of income
for the nine-month periods
ended


  

Balance receivable
(payable)

as of


 
        

31.03.2004

Ps.


   

31.03.2003

Ps.


  

31.03.2004

Ps.


   

30.06.2003

Ps.


 
IRSA Inversiones y Representaciones Sociedad Anónima    Shareholder    Other current receivables and prepaid expenses    —       —      72,238     121,869  
IRSA Inversiones y Representaciones Sociedad Anónima    Shareholder    Interest income    —       114,941    —       —    
IRSA Inversiones y Representaciones Sociedad Anónima    Shareholder    Interest (expense) income and exchange differences    (411,460 )   6,003,139    —       —    
IRSA Inversiones y Representaciones Sociedad Anónima    Shareholder    Current payable with related parties    —       —      (4,767,815 )   (4,585,754 )
Inversora Bolívar S.A.    Subsidiary of IRSA Inversiones y Representaciones Sociedad Anónima    Other current receivables and prepaid expenses    —       —      —       680,049  
Inversora Bolívar S.A.    Subsidiary of IRSA Inversiones y Representaciones Sociedad Anónima    Current payable with related parties    —       —      (22,273 )   —    
Inversora Bolívar S.A.    Subsidiary of IRSA Inversiones y Representaciones Sociedad Anónima    Interest income    10,227     —      —       —    
Dalor S.A.    Shareholder of Tarshop S.A., a majority-owned subsidiary of the Company    Current payable with related parties    —       —      (166,825 )   (172,661 )
Dolphin Fund Limited    Shareholder    Other current receivables and prepaid expenses    —       —      4,898     —    
Dolphin Fund Limited    Shareholder    Current payable with related parties    —       —      (184,503 )   (184,503 )
Goldman Sachs and Co.    Shareholder    Current payable with related parties    —       —      (6,512 )   (6,512 )
Parque Arauco S.A.    Shareholder    Interest (expense) income and exchange differences    (173,771 )   3,025,114    —       —    
Parque Arauco S.A.    Shareholder    Current payable with related parties    —       —      (2,328,741 )   (2,154,970 )
Pérez Cuesta S.A.C.I.    Equity investee    Dividends receivable    —       —      75,000     75,000  
E-Commerce Latina S.A.    Equity investee    Other current receivables and prepaid expenses    —       —      14,566     16,566  
Altocity.com S.A.    Subsidiary of E-Commerce Latina S.A.    Other current receivables and prepaid expenses    —       —      37,657     58,417  
Altocity.com S.A.    Subsidiary of E-Commerce Latina S.A.    Current payable with related parties    —       —      (91,436 )   (79,198 )
Cresud S.A.    Shareholder of IRSA Inversiones y Representaciones S.A.    Other current receivables and prepaid expenses    —       —      65,784     216,565  
Cresud S.A.    Shareholder of IRSA Inversiones y Representaciones S.A.    Current payable with related parties    —       —      (54,124 )   (261,383 )
Directors fees    —      Other current liabilities    —       —      (95,703 )   (3,164,123 )
Directors fees    —      Administrative expenses    (1,652,153 )   —      —       —    

 

19


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 6: SEGMENT INFORMATION

 

     Leases and
Services Ps.


    Credit card
Ps.


    Other Ps.

    Total Ps.

    Eliminations
Ps.


    Total as of
31.03.04 Ps.


    Total as of
31.03.03 Ps.


 

Sales

   82,095,494     21,488,064     26,460     103,610,018     (212,026 )   103,397,992     84,277,180  

Costs

   (42,762,966 )   (9,399,807 )   (27,218 )   (52,189,991 )   1,398,670     (50,791,321 )   (48,889,121 )
    

 

 

 

 

 

 

Total gross profit (loss) as of 31.03.04

   39,332,528     12,088,257     (758 )   51,420,027     1,186,644     52,606,671     —    
    

 

 

 

 

 

 

Total gross profit (loss) as of 31.03.03

   23,586,687     10,629,010     (319,595 )   33,896,102     1,491,957     —       35,388,059  
    

 

 

 

 

 

 

Selling expenses

   (4,276,866 )   (2,947,755 )   (7,530 )   (7,232,151 )   138,417     (7,093,734 )   (10,881,412 )

Administrative Expenses

   (7,197,619 )   (5,624,048 )   (23,101 )   (12,844,768 )   —       (12,844,768 )   (10,852,669 )

Net loss in credit card trust

   —       (158,706 )   —       (158,706 )   —       (158,706 )   (3,778,346 )

Torres de Abasto unit contracts’ rescissions

   —       —       —       —       —       —       5,240  
    

 

 

 

 

 

 

Operating income (expense) as of 31.03.04

   27,858,043     3,357,748     (31,389 )   31,184,402     1,325,061     32,509,463     —    
    

 

 

 

 

 

 

Operating income (expense) as of 31.03.03

   14,972,102     (6,208,175 )   (375,012 )   8,388,915     1,491,957     —       9,880,872  
    

 

 

 

 

 

 

Net loss in equity investments

   (266,765 )   —       (901,101 )   (1,167,866 )   —       (1,167,866 )   (3,075,373 )

Amortization of Goodwill

   (3,438,283 )   (181,700 )   —       (3,619,983 )   —       (3,619,983 )   (3,620,293 )

Financial results, net

   (5,870,724 )   130,819     110,654     (5,629,251 )   (1,186,644 )   (6,815,895 )   101,134,744  

Other income (expense), net

   1,489,911     789,598     (169 )   2,279,340     (138,417 )   2,140,923     13,037,078  
    

 

 

 

 

 

 

Income (loss) before taxes and Minority interest as of 31.03.04

   19,772,182     4,096,465     (822,005 )   23,046,642     —       23,046,642     —    
    

 

 

 

 

 

 

Income (loss) before taxes and Minority interest as of 31.03.03

   125,284,778     (5,729,099 )   (2,198,651 )   117,357,028     —       —       117,357,028  
    

 

 

 

 

 

 

Income tax

   (16,228,312 )   (1,734,978 )   (14,178 )   (17,977,468 )   —       (17,977,468 )   (44,589,744 )

Minority interest

   223,831     (508,637 )   —       (284,806 )   —       (284,806 )   1,932,477  
    

 

 

 

 

 

 

Net income (expense) as of 31.03.04

   3,767,701     1,852,850     (836,183 )   4,784,368     —       4,784,368     —    
    

 

 

 

 

 

 

Net income (expense) as of 31.03.03

   79,691,523     (3,730,031 )   (1,261,731 )   74,699,761     —       —       74,699,761  
    

 

 

 

 

 

 

Depreciation and amortization as of 31.03.04

   40,175,442     1,647,570     18,271     41,841,283     —       41,841,283     —    
    

 

 

 

 

 

 

Depreciation and amortization as of 30.06.03

   49,489,053     4,893,095     302,253     54,684,401     —       —       54,684,401  
    

 

 

 

 

 

 

Additions of fixed assets as of 31.03.04

   12,681,018     693,970     —       13,374,988     —       13,374,988     —    
    

 

 

 

 

 

 

Additions of fixed assets as of 30.06.03

   2,145,272     661,009     28,606     2,834,887     —       —       2,834,887  
    

 

 

 

 

 

 

Minority interest as of 31.03.04

   13,723,135     1,321,931     —       15,045,066     —       15,045,066     —    
    

 

 

 

 

 

 

Minority interest as of 30.06.03

   13,947,248     813,297     —       14,760,545     —       —       14,760,545  
    

 

 

 

 

 

 

Operating assets as of 31.03.04

   856,656,955     23,330,528     28,554,729     908,542,212     —       908,542,212     —    
    

 

 

 

 

 

 

Operating assets as of 30.06.03

   870,859,020     20,788,426     3,122,850     894,770,296     —       —       894,770,296  
    

 

 

 

 

 

 

Non operating assets as of 31.03.04

   183,733,464     18,214,551     2,285,279     204,233,294     —       204,233,294     —    
    

 

 

 

 

 

 

Non operating assets as of 30.06.03

   169,919,809     13,816,991     25,829,929     209,566,729     —       —       209,566,729  
    

 

 

 

 

 

 

Total Assets as of 31.03.04

   1,040,390,419     41,545,079     30,840,008     1,112,775,506     —       1,112,775,506     —    
    

 

 

 

 

 

 

Total Assets as of 30.06.03

   1,040,778,829     34,605,417     28,952,779     1,104,337,025     —       —       1,104,337,025  
    

 

 

 

 

 

 

 

20


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 6: (Continued)

 

General 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 three reportable segments. These segments are Leases and services, Credit card and Others. The latter comprises Sales and development properties and E-commerce activities.

 

A general description of each segment follows:

 

  Leases and services

 

This segment includes the operating results of the Company’s shopping centers principally comprised of lease and service revenues from tenants.

 

  Credit card operations

 

This segment manages the Company’s portfolio of credit card accounts issued by its majority-owned subsidiary, Tarshop.

 

  Others

 

  Sales and development properties: this segment includes the operating results of the Company’s construction and ultimate sale of residential buildings business.

 

  E-commerce activities: this segment includes developing stage activities primarily consisting of the Company’s on-line investment initiatives related to Alto Research and Development S.A. (formerly Alto Invest S.A.). Alto Research and Development S.A. was a web-based provider of comprehensive investing tools, planning and financial information and primarily generated its revenues from website advertising fees and commissions charged to customers for on-line trading. Effective May 2001 Alto Research and Development S.A. ceased operations and is actively pursuing to evaluate alternative investment projects and providing corporate, commercial and economic information and training services.

 

The results of E-commerce Latina S.A., a company obtaining revenue from sales of on-line products, are also disclosed.

 

Although results of e-commerce operations are separated for management internal reporting purposes, all related revenues and associated costs are included in leases and services line of the Company’s consolidated statements of income.

 

The Company’s primary operations are located in Argentina. All revenues and long-lived assets are attributable to the Company’s country of domicile.

 

21


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 6: (Continued)

 

The accounting policies of the segments are the same as those described in Note 3. The column titled eliminations includes the eliminations of inter-segment activities.

 

NOTE 7: RESTRICTED ASSETS

 

  a) At March 31, 2004, Shopping Neuquén S.A. included Ps. 41,791 from a mortgage on the land purchased for Ps. 3.3 million within the short-term debt caption.

 

  b) On January 18, 2001 Shopping Alto Palermo S.A. issued Senior Notes that will be guaranteed through the trust transfer in favor of the holders of 100% of the Company’s shares.

 

  c) In March 2004, Banco Macro Bansud granted two loans to Tarshop S.A. amounting to Ps. 5,500,000 (Ps. 3,500,000 and Ps. 2,000,000, respectively). In guarantee of those loans Tarshop S.A. assigned and transferred collection rights to the Bank for a total amount of Ps. 6,875,140, corresponding to coupons issued for charges to be made on certain users of Tarjeta Shopping, a credit card issued by the Company.

 

NOTE 8: TARSHOP CREDIT CARD RECEIVABLES SECURITIZATION PROGRAM

 

The Company has ongoing revolving period securitization programs through which Tarshop, a majority-owned subsidiary of the Company, transfers a portion of its customer credit card receivable balances to a master trust (the “Trust”) that issues certificates to public and private investors.

 

To the extent the certificates are sold to third parties, the receivables transferred qualify as sales for financial statement purposes and are removed from the Company’s balance sheet. The remaining receivables in the Trust which have not been sold to third parties are reflected on the Company’s balance sheet as a retained interest in transferred credit card receivables. Under these programs, the Company acts as the servicer on the accounts and receives a fee for its services.

 

22


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited consolidated financial statements (Continued)

 

NOTE 8: (Continued)

 

Under the securitization programs, the Trust may issue two types of certificates representing undivided interests in the Trust – Títulos de Deuda Fiduciaria (“TDF”) and Certificados de Participación (“CP”), which represent debt, and equity certificates, respectively. Interest and principal services are paid periodically to the TDF holders throughout the life of the security. CPs are subordinated securities which entitle the CP holders to share pro rata in the cash flows of the securitized credit card receivables, after principal and interest on the TDFs and other fees and expenses have been paid. During the revolving period no payments are made to TDF and CP holders. Principal collections of the underlying financial assets are used by the Trust to acquire additional credit card receivables throughout the revolving period. Once the revolving period ends, a period of liquidation occurs during which (i) no further assets are purchased and (ii) all cash collections are used to fulfill the TDF service requirements and (iii) the remaining proceeds are used to fulfill the CPs service requirements.

 

The Company entered into two-year revolving-period securitization programs, through which Tarshop sold an aggregate amount of Ps. 102.7 million of its customer credit card receivable balances to Trusts. Under the securitization programs, the Trusts issued Ps. 14.5 million nominal value subordinated CPs, Ps. 26.7 million 12% fixed-rate interest TDFs, Ps. 22.5 million 18% fixed-rate interest TDFs, and Ps. 17.1 million variable rate interest TDFs. Tarshop acquired all the CPs at an amount equal to their nominal value while the TDFs were sold to other investors through a public offering in Argentina, except for Ps. 0.4 million, which were acquired by Tarshop S.A.. As a credit protection for investors, Tarshop has established cash reserves for losses amounting to Ps. 1.3 million.

 

23


ALTO PALERMO S.A. (APSA)

 

Unaudited Financial Statements

For the nine-month period

ended as of March 31, 2004

in comparative format

 


ALTO PALERMO S.A. (APSA)

Unaudited Balance Sheets as of March 31, 2004 and June 30, 2003

 

     31.03.04 (Notes
1 and 2) Ps.


   30.06.03 (Notes
1 and 2) Ps.


ASSETS

         

CURRENT ASSETS

         

Cash and banks (Note 3.a and Schedule G)

   25,734,442    15,804,445

Investments (Schedules D and I)

   1,416    1,961,435

Accounts receivable, net (Note 3.b and Schedule I)

   9,208,050    8,466,375

Other receivables and prepaid expenses (Note 3.c and Schedules G and I)

   19,609,880    18,212,973

Inventory (Note 3.d and Schedule F)

   641,813    660,527
    
  

Total Current Assets

   55,195,601    45,105,755
    
  

NON-CURRENT ASSETS

         

Accounts receivable (Note 3.b and Schedule I)

   1,003,639    1,158,850

Other receivables and prepaid expenses, net (Note 3.c and Schedules G and I)

   38,678,113    27,523,926

Inventory, net (Note 3.d and Schedule F)

   26,056,419    26,053,005

Fixed assets, net (Schedule A)

   624,129,214    633,971,072

Investments, net (Schedule C)

   296,436,753    302,376,383

Intangible assets, net (Schedule B)

   460,889    519,285
    
  

Total Non-Current Assets

   986,765,027    991,602,521
    
  

Total Assets

   1,041,960,628    1,036,708,276
    
  

LIABILITIES

         

CURRENT LIABILITIES

         

Trade accounts payable (Note 3.e and Schedules G and I)

   9,437,025    7,803,673

Short-term debt (Note 3.f and Schedules G and I)

   21,260,271    12,854,499

Salaries and social security payable (Note 3.g and Schedule I)

   1,800,244    2,354,287

Taxes payable (Note 3.h and Schedule I)

   4,788,327    3,319,387

Customer advances (Note 3.i and Schedule I)

   10,179,684    7,982,348

Related parties (Note 5 and Schedule I)

   9,690,038    9,831,717

Other liabilities (Note 3.j and Schedule I)

   1,819,313    4,398,554
    
  

Total Current Liabilities

   58,974,902    48,544,465
    
  

NON-CURRENT LIABILITIES

         

Trade accounts payable (Note 3.e and Schedules G and I)

   2,963,160    3,609,629

Long-term debt (Note 3.f and Schedules G and I)

   189,817,944    198,060,464

Taxes payable (Note 3.h and Schedule I)

   5,504,962    —  

Customer advances (Note 3.i and Schedule I)

   23,738,509    22,401,762

Other liabilities (Note 3.j and Schedule I)

   754,752    913,924
    
  

Total debts

   222,779,327    224,985,779
    
  

Provisions (Note 3.k and Schedule E)

   3,897,285    3,927,125
    
  

Total Non-Current Liabilities

   226,676,612    228,912,904
    
  

Total Liabilities

   285,651,514    277,457,369
    
  

SHAREHOLDERS’ EQUITY

   756,309,114    759,250,907
    
  

Total Liabilities and Shareholders’ Equity

   1,041,960,628    1,036,708,276
    
  

 

The accompanying notes and schedules are an integral part of these unaudited financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

24


ALTO PALERMO S.A. (APSA)

 

Unaudited Statements of Income

For the nine-month periods

ended March 31, 2004 and 2003

 

     31.03.04
(Notes 1 and 2)
Ps.


    31.03.03
(Notes 1 and 2)
Ps.


 

Sales:

            

Leases and services

   53,188,558     42,661,907  

Sales and development properties

   —       462,020  
    

 

Total sales

   53,188,558     43,123,927  
    

 

Costs:

            

Leases and services (Schedule F)

   (24,855,454 )   (23,874,873 )

Sales and development properties (Schedule F)

   —       (693,897 )
    

 

Total costs

   (24,855,454 )   (24,568,780 )
    

 

Gross profit (loss):

            

Leases and services

   28,333,104     18,787,024  

Sales and development properties

   —       (231,877 )
    

 

Total gross profit

   28,333,104     18,555,147  
    

 

Selling expenses (Schedule H)

   (2,050,587 )   (1,801,634 )

Administrative expenses (Schedule H)

   (4,415,470 )   (4,932,403 )

Torres de Abasto unit contracts’ rescissions

   —       5,240  
    

 

     (6,466,057 )   (6,728,797 )
    

 

Operating income

   21,867,047     11,826,350  
    

 

Net loss in equity investments (Note 6)

   (2,878,314 )   (1,693,533 )
    

 

Financial results generated by assets:

            

Interest income from related parties (Note 5)

   1,298,383     1,606,898  

Interest income

   2,773,719     4,224,762  

Loss on exposure to inflation

   —       (10,053,970 )
    

 

Subtotal

   4,072,102     (4,222,310 )
    

 

Financial results generated by liabilities:

            

Exchange differences, net

   (2,931,955 )   48,740,098  

Results from derivative instruments

   13,866,832     53,257,995  

Interest with related parties (Note 5)

   (890,923 )   8,929,547  

Gain on exposure to inflation

   —       6,522,974  

Gain on early redemption of debt

   —       3,217,435  

Interest expense

   (18,283,987 )   (17,958,026 )
    

 

Subtotal

   (8,240,033 )   102,710,023  
    

 

Financial results, net

   (4,167,931 )   98,487,713  
    

 

Other income, net (Note 3.l)

   987,070     6,799,638  
    

 

Income before taxes

   15,807,872     115,420,168  
    

 

Income tax (Note 11)

   (11,023,504 )   (40,720,407 )
    

 

Net income

   4,784,368     74,699,761  
    

 

Net basic earnings per share (Note 10)

   0.0067     0.1067  
    

 

Net diluted earnings per share (Note 10)

   0.0064     0.0291  
    

 

 

The accompanying notes and schedules are an integral part of these unaudited financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

25


ALTO PALERMO S.A. (APSA)

Unaudited Statements of Changes in Shareholders’ Equity

 

For the nine-month periods

ended March 31, 2004 and 2003

 

     Shareholders’ contributions

                          

Items


   Common
Stock
(Note 4)
Ps.


   Inflation
adjustment
of common
stock
Ps.


   Additional
paid-in-
capital
Ps.


   Total
Ps.


   Appraisal
revaluation
Ps.


   Legal
reserve
Ps.


   Accumulated
retained
earnings
Ps.


    Total as of
March 31,
2004
Ps.


    Total as of
March 31,
2003
Ps.


Balances as of beginning of the years

   70,482,974    84,620,909    522,805,043    677,908,926    3,952,571    4,401,179    72,988,231     759,250,907     681,415,760

Issuance of common stock

   2,273,839    —      —      2,273,839    —      —      —       2,273,839     148,624

Cash dividends approved by Ordinary Shareholders’ Meeting held on October 31, 2003

   —      —      —      —      —      —      (10,000,000 )   (10,000,000 )   —  

Increase in legal reserve approved by Ordinary Shareholders’ Meeting held on October 31, 2003

   —      —      —      —      —      3,649,412    (3,649,412 )   —        

Net income for the periods

   —      —      —      —      —      —      4,784,368     4,784,368     74,699,761
    
  
  
  
  
  
  

 

 

Balances as of March 31, 2004

   72,756,813    84,620,909    522,805,043    680,182,765    3,952,571    8,050,591    64,123,187     756,309,114     —  
    
  
  
  
  
  
  

 

 

Balances as of March 31, 2003

   70,141,975    84,620,909    522,810,124    677,573,008    3,952,571    4,401,179    70,337,387     —       756,264,145
    
  
  
  
  
  
  

 

 

 

The accompanying notes and schedules are an integral part of these unaudited financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

26


ALTO PALERMO S.A. (APSA)

Unaudited Statements of Cash Flows (1)

For the nine-month periods

ended March 31, 2004 and 2003

 

     31.03.04
(Notes 1 and 2)
Ps.


    31.03.03
(Notes 1 and 2)
Ps.


 

CHANGES IN CASH AND CASH EQUIVALENTS

            

Cash and cash equivalent at the beginning of the year

   17,765,881     2,396,776  
    

 

Cash and cash equivalent at the end of the period

   25,735,858     2,478,992  
    

 

Net increase in cash and cash equivalents

   7,969,977     82,216  
    

 

CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

            

CASH FLOWS FROM OPERATING ACTIVITIES:

            

Income for the period

   4,784,368     74,699,761  

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

            

•      Financial results

   (7,734,162 )   (109,249,412 )

•      Amortization of deferred financing costs

   605,189     1,459,000  

•      Amortization of impairment of fixed assets

   (1,217,045 )   (2,242,566 )

•      Amortization of impairment of intangible assets

   (53,711 )   —    

•      Depreciation of fixed assets

   23,299,594     23,280,494  

•      Amortization of intangible assets

   321,981     3,335,381  

•      Gain from sale of intangible assets

   —       (2,097,878 )

•      Provision for contingencies

   75,914     2,094,063  

•      Gain on early redemption of debt

   —       (10,301,970 )

•      Recovery of allowance for doubtful accounts

   (604,935 )   (237,919 )

•      Net loss in equity investments

   2,878,314     1,693,533  

•      Income tax

   11,023,504     40,720,407  

Changes in certain assets and liabilities, net of non-cash transactions and the effects of acquisitions:

            

•      Decrease (increase) in accounts receivable

   18,471     (253,012 )

•      (Increase) decrease in other receivables and prepaid expenses

   (5,241,599 )   1,015,547  

•      Increase in intangible assets

   (240,764 )   (133,255 )

•      Decrease in inventory

   18,714     760,116  

•      Increase (decrease) in trade accounts payable

   986,883     (4,676,485 )

•      Increase (decrease) in customer advances

   3,534,083     (2,029,242 )

•      (Decrease) increase in salaries and social security payable

   (554,043 )   600,092  

•      Decrease in taxes payable

   (374,713 )   (4,874,300 )

•      Decrease in other liabilities

   (2,738,413 )   (3,641,822 )

•      Decrease in provisions

   (105,754 )   —    

•      (Decrease) increase in related parties

   (162,066 )   3,353,415  

•      (Decrease) increase in accrued interest

   (1,503,008 )   1,984,519  
    

 

Net cash provided by operating activities

   27,016,802     15,258,467  
    

 

CASH FLOWS FROM INVESTING ACTIVITIES:

            

•      Acquisition of fixed assets

   (12,209,801 )   (1,545,681 )

•      Acquisition of inventory

   (3,414 )   (6,729 )

•      Increase in investments

   (108,957 )   (43,859,453 )

•      Sale of intangible assets

   —       2,097,878  
    

 

Net cash used in investing activities

   (12,322,172 )   (43,313,985 )
    

 

CASH FLOWS FROM FINANCING ACTIVITIES:

            

•      Proceeds from loans

   —       69,928,890  

•      Proceeds from loans granted by related parties

   3,275,347     —    

•      Payment of short-term and long-term debt

   —       (7,859,557 )

•      Financing costs

   —       (227,248 )

•      Redemption of debt

   —       (33,704,351 )

•      Payment of dividends

   (10,000,000 )   —    
    

 

Net cash (used in) provided by financing activities

   (6,724,653 )   28,137,734  
    

 

Net Increase in cash and cash equivalents

   7,969,977     82,216  
    

 

 

(1) Includes cash, banks and investments with a realization term not exceeding three months.

 

The accompanying notes and schedules are an integral part of these unaudited financial statements.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

27


ALTO PALERMO S.A. (APSA)

 

Unaudited Statements of Cash Flows (Continued)

For the nine-month periods

ended March 31, 2004 and 2003

 

    

31.03.04

Ps.


  

31.03.03

Ps.


Additional information

         

Non-cash activities

         

-    Offsetting of related parties debts and credits

   3,254,960    —  

-    Conversion of unsecured convertible Notes into ordinary shares

   2,273,839    148,624

-    Computation of asset tax credits on account of income tax

   2,180,810    —  

-    Dividends declared pending collection

   590,976    —  

-    Receivable from sale of shares of Alto Research and Development S.A. (formerly Alto Invest S.A.)

   192,136    —  

-    Increase in fixed assets through a decrease in intangible assets

   30,890    —  

-    Increase in customer advances through a decrease in other liabilities

   —      2,836,049

-    Conversion of balances with related parties into unsecured convertible Notes

   —      118,663,132

-    Irrevocable contributions in related parties through a decrease in other non-current receivables with related parties

   —      16,552,287

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 

28


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements

For the nine-month periods

ended March 31, 2004 and 2003

(expressed in Argentine Pesos)

 

NOTE 1: PREPARATION OF FINANCIAL STATEMENTS

 

  a) Basis of presentation

 

These unaudited financial statements are stated in Argentine pesos and were prepared in accordance with disclosure and valuation criteria contained in the Technical Resolutions issued by the Argentine Federation of Professional Councils in Economic Sciences, approved with certain amendments by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires, in accordance with the resolutions issued by the National Securities Commission.

 

The financial statements for the nine-month periods ended March 31, 2004 and 2003 have not been audited. The Company’s management considers that they include all the necessary adjustments to reasonably present the financial result for the periods referred to.

 

The financial result for the period ended March 31, 2004 does not necessarily reflect proportionality the Company’s results for the complete financial years.

 

NOTE 2: MOST RELEVANT ACCOUNTING POLICIES

 

Below are the most relevant accounting standards used by the Company to prepare these unaudited financial statements:

 

  1. New technical Resolutions

 

The Professional Council in Economic Sciences of the Autonomous City of Buenos Aires approved Technical Resolution No. 16 “Conceptual framework for professional accounting standards”, No. 17: “Professional accounting standards: development of some general application issues”, No. 18 : “Professional accounting standards: development of some particular application issues”, No. 19: “Amendments to Technical Resolutions Nos. 4, 5, 6, 8, 9, 11 and 14” and No. 20: “Derivatives and hedging transactions” through Resolutions C 238/01, C 243/01, C 261/01, C 262/01 and C 187/02, respectively; establishing that those Technical Resolutions and amendments to them will come into force for fiscal years commencing as from July 1, 2002, except for Technical Resolution No. 20, whose effective date tallies with the financial years commencing January 1, 2003.

 

The National Securities Commission, through Resolution 434/03, has adopted the Technical Resolutions referred to with certain exceptions and modifications, which shall apply to the financial years commencing on January 1, 2003.

 

29


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

Furthermore, the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires approved Technical Pronouncement No. 21 “Proportional equity value consolidation of financial statements—information to be disclosed referred to related parties” through MD Resolution No. 5/2003. The mentioned Technical Pronouncement and amendments thereto took effect for years commenced as from April 1, 2003. Furthermore the National Securities Commission has adopted that regulation, incorporating certain changes to it and establishing that it is applicable to years commenced as from April 1, 2004, admitting advance application.

 

The main amendments introduced by the new Technical Resolutions involving significant adjustments to the Company’s unaudited financial statements are:

 

  a. Adoption of an accounting model in which the intention of the Company prevails in defining the valuation criteria to be used. In this context, only assets for sale were valued at their current values. Receivables and payables were generally recognized at their discounted values.

 

  b. Incorporation of strict guidelines for purposes of comparison against recoverable values.

 

  c. Obligatory requirement regarding application of the deferred tax method for recognition of income tax.

 

  d. Research, development, trademarks, advertising, reorganization and other costs cannot be capitalized. Only organization and pre-operating costs that meet certain requirements can be capitalized. Furthermore, certain limitations on the useful lives of intangible assets are defined.

 

  e. Determination of guidelines for recognition, measurement and disclosure of derivatives and hedge operations.

 

  f. Incorporation of guidelines to be followed to determine whether certain transactions (financial instruments issued by the Company, irrevocable contributions, preferred shares) must be classified under liabilities or shareholders’ equity.

 

  g. Incorporation of new disclosure requirements, including information by segment, earnings per share and comparative information to be filed.

 

A detail of prior periods’ adjustments resulting from application of the new accounting standards is included in the following table:

 

Item


  

Effect on
results at
31.03.03
(comparative)

Ps.


 

Application of deferred tax method (vs. current tax)

   (40,720,407 )

Recording of adjustment to prior periods’ results in subsidiaries under long-term investments

   (3,023,387 )

Recording of financial derivatives at estimated settlement cost (See Note 9)

   36,160,392  
    

Total

   (7,583,402 )
    

 

30


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  2. Recognition of the effects of inflation

 

The financial statements have been prepared in constant monetary units, reflecting the overall effects of inflation through August 31, 1995. As from that date, in accordance with professional accounting standards and the requirements of the control authorities, restatement of the financial statements has been discontinued until December 31, 2001. As from January 1, 2002, in accordance with professional accounting standards, recognition of the effects of inflation in these unaudited financial statements has been reestablished, considering that the accounting measurements restated due to changes in the purchasing power of the currency until August 31, 1995 as well as those arising between that date and December 31, 2001 are stated in currency of the latter date.

 

On March 25, 2003, the National Executive Branch issued Decree No. 664 establishing that the financial statements for years ending as from that date must be stated in nominal currency. Consequently, in accordance with Resolution No. 441/03 issued by the National Securities Commission, the Company discontinued the restatement of its financial statements as from March 1, 2003. This criterion is not in line with current professional accounting standards, which establish that the financial statements must be restated through to September 30, 2003. At March 31, 2004, however, this deviation has not had a material effect on the financial statements.

 

The rate used for restatement of items in these unaudited financial statements is the domestic wholesale price index published by the National Institute of Statistics and Census.

 

  3. Comparative information

 

According to the new Technical Resolutions mentioned in Note 2.1., the Balance Sheet is disclosed in comparative format with the year ended June 30, 2003.

 

Comparative balances at March 31, 2003 shown in these unaudited financial statements for comparative purposes result from restating the amounts in the financial statements at those dates following the guidelines detailed in Note 2.2.

 

Certain amounts in the unaudited financial statements at March 31, 2003 and for the period then ended were reclassified for disclosure on a comparative basis with those for the current period.

 

31


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  4. Use of estimates

 

The preparation of these unaudited financial statements requires that Management make estimates and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at the date of issue of the financial statements, as well as income and expenses recorded during the period. Management makes estimates to calculate, for example, the allowance for doubtful accounts, depreciation and amortization, the recoverable value of assets, the income tax charge and the provision for contingencies.

 

Actual results might differ from the estimates and evaluations made at the date of preparation of these unaudited financial statements.

 

  5. Revenue recognition

 

  5.1. Leases and services

 

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 nine months, upon not less than 60 days’ written notice, subject to penalties which vary from one to one and a half months rent if the tenant rescinds during the first year of its lease, and one month of rent if the tenant rescinds after the first year of its lease.

 

32


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (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 or 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.

 

In September 2000, the Company completed the acquisition of the 99.99% equity interest of FIBESA, a related company. FIBESA acts as the leasing agent for the Company bringing together the Company and potential lessees for the retail space available in certain of the Company’s shopping centers. FIBESA’s revenues are derived primarily from success fees calculated as a percentage of the final rental income value for both the lessee and the Company. Revenues related to success fees are recognized at the time that the transaction is successfully concluded. A transaction is considered successfully concluded when both parties have signed the related lease contract.

 

  5.2. Sales and development properties

 

The Company records revenue from the sale of properties classified as inventory when all of the following criteria are met:

 

  1. the sale has been consummated;

 

  2. the Company has determined that the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property;

 

  3. the Company’s receivable is not subject to future subordination; and

 

  4. the Company has transferred to the buyer the risk of ownership, and does not have a continuing involvement in the property.

 

33


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

The Company uses 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.

 

  5.3. E-commerce activities

 

The Company primarily conducts e-commerce activities through E-Commerce Latina, a holding company organized in Argentina in December 1999 as an Internet joint venture between the Company and Telefónica de Argentina S.A.. E-commerce Latina S.A. owns Altocity.Com.S.A. The main sources of revenue of this company are sales of own products and commissions from sales on consignment, monthly maintenance fees charged to suppliers, from sales of products on its website and, to a lesser extent, from sales of advertising and sponsorships. The Company accounts for its indirect investment in Altocity.Com S.A. under the equity method of accounting.

 

For the nine-month periods ended March 31, 2004 and 2003, net revenues from Altocity.Com S.A. totaled Ps. 1.3 million and Ps. 0.5 million and had a net loss of Ps. 1.8 million and Ps. 4.2 million, respectively.

 

  5.4. Corporate, commercial and economic information and training services

 

The Company holds 89.2747% of the shares of Alto Research and Development S.A. (formerly Alto Invest S.A.). This Company originally provided information services and performed on-line and off-line transactions on the financial market. On May 31, 2001, the web page ceased to provide those services and to maintain off-line operations, as economies of scale were insufficient. In the current period Alto Research and Development S.A. (formerly Alto Invest S.A.) started to provide advisory and consultancy services, for which purposes it is repositioning the human resources structure and has changed its corporate name and extended its corporate purpose.

 

34


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  6. Investments

 

  6.1. Current investments

 

Mutual funds have been valued at quotation value in force at period end.

 

See the breakdown of current investments in Schedule D.

 

  6.2. Non-current investments

 

Equity investments in controlled and affiliated companies have been accounted for under the equity method. See the breakdown of non-current investments in Schedule C.

 

The value thus obtained, net of allowances, does not exceed the respective estimated recoverable value at the end of the period.

 

The unaudited consolidated financial statements as of and for the nine-month period ended March 31, 2004 of Alto Palermo S.A. and its subsidiaries, Emprendimiento Recoleta S.A., Tarshop S.A., Shopping Neuquén S.A., Inversora del Puerto S.A., Alto Research and Development S.A. (formerly Alto Invest S.A.), Fibesa S.A. and Shopping Alto Palermo S.A. are presented.

 

  7. Inventory

 

Real estate acquired for development and further sale is classified as real estate for sale.

 

Inventories have been valued at their acquisition cost, adjusted for inflation at the end of the period, as defined in Note 2.2.

 

As an integral part of inventory costs, the Company includes financial expenses, either implicit or explicit, generated by third party financing for the construction of long-term projects, until their completion.

 

The Company values the real estate in development, with a building process that extends over time and for which purchase/sales contracts have been signed, at their net realizable value in proportion to their percentage of completion attained. The real estate that has not been sold as stated in Note 2.5.2. has been valued at its acquisition cost, adjusted for inflation at the end of the period.

 

The net carrying value of properties for sale, in the aggregate, does not exceed their estimated recoverable value.

 

The Company anticipates the construction of an office-building complex on the land located near Paseo Alcorta Shopping Center denominated “Alcorta Plaza”.

 

35


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  8. Fixed assets

 

Properties purchased for rental purposes are classified as fixed assets.

 

Fixed assets have been valued at cost, adjusted for inflation at the end of the period, as defined in Note 2.2., less accumulated depreciation.

 

Furthermore, there are a parcel of land acquired prior to June 30, 1986, which was originally recorded at its appraised value as of such date. This appraisal increased the carrying value of the land by Ps. 4.0 million, which was recorded against an appraisal revaluation reserve account in the shareholders’ equity.

 

This appraisal revaluation reserve will be amortized to income once the land is disposed of or its value becomes impaired.

 

As an integral part of fixed assets costs, the Company includes financial expenses, either implicit or explicit, generated by third party financing for the construction of long-term projects, until the date they are in a condition to start-up or be sold.

 

Depreciation charges were calculated following the straight-line method and on the basis of the useful life assigned to the assets, using the criterion of full year of addition, apportioned to the months elapsed until the closing of the period.

 

The value of the fixed assets, in the aggregate, does not exceed their estimated recoverable value.

 

  9. Intangible assets

 

Intangible assets have been valued at cost, adjusted for inflation at the end of the period, as defined in Note 2.2., net of accumulated amortization at period end.

 

See the breakdown of intangible assets in Schedule B.

 

  9.1. Trademarks

 

Trademarks represent fees and expenses related to their registration.

 

  9.2. Pre-operating expenses

 

Pre-operating expenses represent direct expenses incurred relating to specific shopping centers prior to the opening of such centers. These expenses are amortized on a straight-line basis over a three-year period commencing upon the opening of the shopping center.

 

36


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  9.3. Advertising expenses

 

Advertising expenses relate to the Torres Abasto project and the opening of Abasto Shopping. The expenses incurred in relation to Torres Abasto project are recognized in the statements of income as determined under the percentage- of-completion method. Other advertising expenses are amortized under the straight-line method over a term of 3 years.

 

  9.4. Investment projects

 

Investment projects represent expenses incurred by the Company in projects connected with sales made through mass media which are amortized under the straight-line method as from the start-up of the project. These expenses are written off upon abandonment or disposal of project.

 

  9.5. Tenant list - Patio Bullrich

 

This item represents the acquired tenant list of the Patio Bullrich shopping mall which is stated at cost adjusted for inflation at the end of the period, as described in Note 2.2. and is amortized using the straight-line method over a five years period.

 

Intangible assets include advertising expenses that cannot be capitalized in accordance with current accounting standards, which will be amortized in the current year as a result of the application of the transition rules mentioned in Note 2.1.

 

The value of the intangible assets, does not exceed its estimated recoverable value at the end of the period.

 

  10. Goodwill

 

This item represents the difference between the purchase price and the market value of assets acquired restated into period-end currency following the guidelines mentioned in Note 2.2., being amortized by the straight-line method over a term not exceeding 10 years. Goodwill recorded under this caption was generated by the purchase of shares in Tarshop S.A., Inversha S.A., Pentigras S.A. and Fibesa S.A.

 

The residual value of goodwill generated by the acquisition of investments in corporations is shown under non-current investments. Set forth Schedule C.

 

37


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

Amortization is shown in Note 6 and in “Net loss in equity investments” in the Statements of Income.

 

  11. Monetary assets and liabilities

 

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

 

  12. Foreign currency assets and liabilities

 

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

 

  13. Receivables from leases and services and trade payables

 

Receivables from leases and services and trade payables were valued at the price applicable to spot operations at the time of the transaction plus interest and implicit financial components accrued at the internal rate of return determined at that moment.

 

  14. Financial receivables and payables

 

Financial receivables and payables were valued at the amount deposited and collected, respectively, net of operating costs, plus financial results accrued based on the rate estimated at that time.

 

  15. Other receivables and liabilities

 

  Asset tax was valued based on the best estimate of the amount receivable and payable, respectively, discounted at the interest rate applicable to freely available savings accounts published by the Argentine Central Bank in effect at the time of incorporation to assets and liabilities, respectively.

 

  As established by the regulations of the National Securities Commission, deferred tax assets and liabilities have not been discounted. This criterion is not in accordance with current accounting standards, which require that those balances be discounted. The effect resulting from this difference has not had a material impact on the unaudited financial statements.

 

  The remaining sundry receivables and payables were valued based on the best estimate of the nominal value of the amount receivable and payable, respectively.

 

38


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  16. Balances corresponding to financial transactions and sundry receivables and payables with related parties

 

Receivables and payables with related parties generated by financial transactions and other sundry transactions were valued in accordance with the terms agreed by the parties.

 

  17. Allowances and provisions

 

  For doubtful accounts and doubtful mortgage receivable: set up based on an individual analysis for recoverability of the loan portfolio. Increases or decreases for the period are shown in Schedule E.

 

  For impairment of inventories, fixed assets, intangible assets and non-current investments in other companies: the Company has estimated the recoverable values of inventories, fixed assets and non-current investments in other companies at June 30, 2003 and 2002 based on their economic values to the business determined on the basis of projections of future discounted cash flows.

 

Based on those estimates, the Company has reversed or recognized impairment losses as detailed in Schedule E to these unaudited financial statements.

 

  For contingencies: set up to cover labor and commercial contingencies and other sundry risks that could give rise to obligations to the Company. The opinion of the Company’s legal counsel has been taken into account in estimating the amounts and probability of occurrence. Furthermore, insurance coverage taken out by the Company has also been considered.

 

Increases or decreases for the period are shown in Schedule E.

 

At the date of issue of these unaudited financial statements, management understands that there are no elements to foresee potential contingencies having a negative impact on these unaudited financial statements.

 

39


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  18. Hedging instruments

 

From time to time, the Company utilizes certain financial instruments to manage its foreign currency and interest rate exposures. The Company does not engage in trading or other speculative use of these financial instruments. Also, the Company has not utilized financial instruments to hedge anticipated transactions. For details on the Company’s derivative instruments activity, see Note 9.

 

  Interest rate swaps

 

Interest rate swaps are used to effectively hedge certain interest rate exposures. Liabilities generated by the interest rate swap have been valued at estimated settlement cost.

 

Differences generated by application of the mentioned criteria to assets and liabilities under swaps for derivatives were recognized in the results for the period.

 

  19. Income tax provision

 

The Company has recognized the charge for income tax by the deferred tax liability method, recognizing timing differences between measurements of accounting and tax assets and liabilities.

 

To determine deferred assets and liabilities, the tax rate expected to be in effect at the time of reversal or use has been applied to timing differences identified and tax loss carry-forwards, considering the legal regulations approved at the date of issue of these unaudited financial statements.

 

  20. Asset tax provision

 

The Company calculates asset tax provision by applying the current 1% rate on computable assets at the end of the period. This tax complements income tax. The Company’s tax obligation in each year will coincide with the higher of the two taxes. However, if asset tax provision exceeds income tax in a given year, that amount in excess will be computable as payment on account of income tax arising in any of the following ten years.

 

The Company has recognized asset tax provision accrued during the period and paid in previous years as a credit as the Company estimates that it will be computable as payment on account of income tax in future years.

 

  21. Shareholders’ equity

 

Initial balances and movements in shareholders’ equity accounts are shown in currency of the month to which they correspond, and were restated as mentioned in Note 2.2.

 

The balance of the “Appraisal revaluation” corresponds to the greater value of fixed assets generated by computation of the technical appraisals mentioned in Note 2.8.

 

40


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2: (Continued)

 

  22. Results for the period

 

Statements of Income accounts are shown in currency of the month to which they correspond, restated as mentioned in Note 2.2., except for charges for assets used (higher investment value amortization, cost of real property, depreciation of fixed assets and amortization of intangible assets), which were valued at the amount recorded for those assets.

 

Significant implicit financial components included in profit and loss accounts have been duly segregated.

 

  23. Advertising expenses

 

The Company generally recognizes advertising and promotion expenses as incurred, except for those incurred in the sale of real estate projects. For further detail see Note 2.5.2.. Advertising and promotion expenses amounted to Ps. 18,077 and Ps. 15,967 during the nine-month periods ended March 31, 2004 and 2003, respectively.

 

  24. Retirement plans

 

The Company does not maintain any retirement plan. Argentine laws establish the payment of retirement benefits to retirees under government retirement plans and private pension fund administrators chosen by employees to make their contributions.

 

The Company does not sponsor employee stock ownership plans.

 

  25. Vacation expenses

 

Vacation expenses are fully accrued in the period of service giving rise to the right to enjoy vacation.

 

41


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: BREAKDOWN OF THE MAIN CAPTIONS

 

The breakdown of the main captions is as follows:

 

  a) Cash and banks:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Cash in local currency

   148,489    247,912

Cash in foreign currency (Schedule G)

   661,240    1,838,409

Banks in local currency

   7,604,899    1,945,155

Banks in foreign currency (Schedule G)

   17,289,814    10,943,253

Saving accounts

   30,000    829,716
    
  
     25,734,442    15,804,445
    
  

 

  b) Accounts receivable, net:

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Current

            

Leases and services receivable

   7,968,372     12,897,894  

Checks to be deposited

   5,854,319     3,921,239  

Debtors under legal proceedings

   16,546,759     18,027,063  

Pass-through expenses receivable

   2,958,395     3,718,272  

Notes receivable

   403,114     164,373  

Mortgage receivable

   262,621     305,895  

Credit card receivable

   2,580     5,592  

Less:

            

Allowance for doubtful accounts (Schedule E)

   (24,788,110 )   (30,573,953 )
    

 

Total

   9,208,050     8,466,375  
    

 

Non-current

            

Mortgage receivable

   1,003,639     1,158,850  
    

 

Total

   1,003,639     1,158,850  
    

 

     10,211,689     9,625,225  
    

 

 

42


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

  c) Other receivables and prepaid expenses, net:

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Current

            

Related parties (Note 5)

   12,347,950     15,292,798  

Prepaid expenses

   994,013     191,274  

Dividends receivable (Note 5)

   1,017,437     426,461  

Prepaid services

   1,991,169     330,356  

Prepaid property tax

   225,549     —    

Interest rate swap receivable (Schedule G)

   359,085     306,867  

Guarantee deposits (i)

   341,943     307,123  

Prepaid gross sales tax

   237,126     176,765  

Income tax credit

   702,555     —    

Other tax credits

   4,358     35,030  

Other

   1,388,695     1,146,299  
    

 

Total

   19,609,880     18,212,973  
    

 

(i)       Includes founds which are restricted (see Note 7.a.)

            

Non-current

            

Asset tax credits

   19,559,648     19,003,786  

Interest rate swap receivable (ii) (Schedule G)

   18,789,877     8,172,241  

Deferred income tax

   —       67,040  

Mortgage receivable

   2,208,275     2,208,275  

Prepaid gross sales tax

   310,733     231,539  

Income tax

   —       31,468  

Other

   17,855     17,852  

Less:

            

Allowance for doubtful mortgage receivable (Schedule E)

   (2,208,275 )   (2,208,275 )
    

 

Total

   38,678,113     27,523,926  
    

 

     58,287,993     45,736,899  
    

 

 

(ii) Corresponds to: 1) US$ 50 million for guarantees granted to Morgan Guaranty Trust Company of New York and 2) US$ 43.43 million arising from the Swap agreement estimated settlement cost (See Note 7.c) and 9).

 

43


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

  d) Inventory, net:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Torres de Abasto

   555,153    555,153

Other

   86,660    105,374
    
  

Total

   641,813    660,527
    
  

Non-current

         

Alcorta Plaza

   16,976,419    16,973,005

Air space Supermercado Coto - Agüero 616

   9,080,000    9,080,000
    
  

Total

   26,056,419    26,053,005
    
  
     26,698,232    26,713,532
    
  

 

  e) Trade accounts payable:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Suppliers

   5,072,164    4,936,795

Accruals

   3,393,806    1,903,061

Imports payable (Schedule G)

   971,055    963,817
    
  

Total

   9,437,025    7,803,673
    
  

Non-current

         

Imports payable (Schedule G)

   2,963,160    3,609,629
    
  

Total

   2,963,160    3,609,629
    
  
     12,400,185    11,413,302
    
  

 

44


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

  f) Short-term and long-term debt:

 

    

31.03.04

Ps.


   

30.06.03

Ps.


 

Short-term debt

            

Seller financing (i)

   5,001,930     4,900,195  

Accrued interest for seller financing (i)

   645,191     591,036  

Senior Notes (ii)

   9,785,333     —    

Accrued interest for Notes, Senior Notes and unsecured convertible Notes (ii) (Schedule G)

   6,609,334     8,166,496  

Unaccrued deferred financing costs (iii)

   (781,517 )   (803,228 )
    

 

Total

   21,260,271     12,854,499  
    

 

Long-term debt

            

Notes and unsecured convertible Notes (ii) (Schedule G)

   189,959,513     198,785,511  

Unaccrued deferred financing costs (iii)

   (141,569 )   (725,047 )
    

 

Total

   189,817,944     198,060,464  
    

 

     211,078,215     210,914,963  
    

 

 

  (i) Includes Ps. 3,265,010 par value related to seller financing obtained in connection with the acquisition of Shopping Neuquén on July 6, 1999 and Ps. 1,736,920 related to a reference stabilization index (CER). Such loan accrues interest at six-month LIBOR. As of March 31, 2004 the six-month LIBOR was 1.16%.

 

  (ii) Includes:

 

  a) Ps. 49.6 million 14.875% unsecured Notes due April 7, 2005. Interest on the Notes are payable semiannually on April 7 and October 7 each year, commencing October 7, 2000. On April 1, 2004 the Company settled semiannually interest accrued at the end of the period.

 

  b) Ps. 6.7 par value million Senior Notes due January 13, 2005. Interest accrue at a corrected Badlar rate plus 395 base points.

 

Under the terms of Decree No. 214/02, debts in U.S. dollars in the financial system were converted to pesos at the exchange rate of Ps. 1 per US$ 1 or its equivalent in such other currency. As from February 3, 2002 a reference stabilization index (CER) and an interest rate were applied to these debts. As of March 31, 2004, the rate applied to this debts was 8% per annum.

 

Interest on the Senior Notes are payable semiannualy beginning on April 18, 2001. On April 16, 2004 the Company settled semiannualy interest accrued at the end of the period.

 

45


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

These Senior Notes are guaranteed by the trust transfer in favor of its holders of all the shares of Shopping Alto Palermo S.A.’s equity.

 

The Company applied the net funds arising from offering the securities to the settlement of bank loans and redemption of Senior Notes Class A-2, thus fulfilling the plan for allocating funds previously submitted to the National Securities Commission.

 

The conditions of the Senior Notes require that the Company maintain certain financial ratios and conditions, indexes and levels of indebtedness, as well as setting limits on the obtaining of new loans.

 

  c) The amount of Ps. 140.3 million corresponding to the issue of Series I of unsecured convertible Notes for up to US$ 50 million which were fully subscribed.

 

The Notes are convertible into ordinary shares of the Company at the option of the holder. The issue terms and conditions include a conversion price equivalent to the higher of the result from dividing the nominal value of the Company’s shares (0.1) by the exchange rate and US$ 0.0324, which means that each note may be exchanged for 30,864 shares with a par value of Ps. 0.1, interest accrues at an annual rate of 10% and is payable semiannually and at a subscription price of 100% of the principal amount of the Notes. These Notes will fall due on July 19, 2006.

 

On January 15, 2004 the Company settled interest accrued at the end of the period.

 

The Company applied the funds arising from offering the unsecured convertible Notes to the settlement of expenses and related fees to the issuing and placing of unsecured convertible notes, payment of liabilities with shareholders and redemption of Senior Notes Class A-2 and Class B-2, the latter corresponding to its subsidiary Shopping Alto Palermo S.A., thus fulfilling the plan for allocating funds previously submitted to the National Securities Commission.

 

  (iii) Fees and expenses related to issue of debt, which will be amortized over the term of settlement of the debt corresponding to negotiable obligations. The rate ranges between 20 and 25% per annum. Amortization for the nine-month period totaled Ps. 605,189.

 

46


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

  g) Salaries and social security payable:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Provision for vacation and bonuses

   1.436.974    1.842.520

Social security payable

   278.329    387.838

Other

   84.941    123.929
    
  
     1.800.244    2.354.287
    
  

 

  h) Taxes payable:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

VAT payable, net

   940,645    1,185,544

Asset tax payable, net

   —      1,427,040

Income tax

   3,270,694    —  

Gross sales tax provision

   263,591    229,343

Gross sales tax withholdings

   197,841    253,817

Other tax withholdings

   115,556    161,073

Property tax provision

   —      34,211

Other taxes

   —      28,359
    
  

Total

   4,788,327    3,319,387
    
  

Non-current

         

Deferred income tax

   5,504,962    —  
    
  

Total

   5,504,962    —  
    
  
     10,293,289    3,319,387
    
  

 

  i) Customer advances:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Admission rights (i)

   6,818,594    5,060,469

Lease advances (ii)

   3,313,288    2,866,077

Guarantee deposits

   47,802    55,802
    
  

Total

   10,179,684    7,982,348
    
  

 

47


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Non-current

         

Admission rights (i)

   13,409,012    11,127,651

Lease advances (ii)

   10,273,121    11,198,147

Guarantee deposits

   56,376    75,964

Total

   23,738,509    22,401,762
    
  
     33,918,193    30,384,110
    
  

 

  (i) The balance of admission rights mostly corresponds to key-money paid by Shopping Mall tenants. The non-current balance includes Ps. 4,500,000 corresponding to advances granted by NAI International II, INC for application to goodwill to be accrued corresponding to sites for the construction of cinema theater complexes in Shopping Rosario.

 

No interest is accrued on this advance as long as the Company does not suspend work on the Rosario project.

 

  (ii) The balance of advances on leases and services includes Ps. 1,220,000 and Ps. 7,469,105 current and non-current, respectively, related to advances received from Hoyts Cinemas (“Hoyts”) for the construction of the cinema theater complexes at the Abasto and Alto Noa.

 

These advances accrue interest at six-month London Inter-Bank Offered Rate (“LIBOR”) plus 2-2.25%. As of March 31, 2004 the six-month LIBOR was 1.16%. Based on an agreement between the Company and Hoyts Cinemas, the advances made are being repaid by offsetting of lease amounts otherwise due for the space used by Hoyts Cinemas.

 

  j) Other liabilities:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Donations payable

   663,305    813,305

Contributed leasehold improvements (i)

   212,220    212,220

Accruals for directors fees, net (Note 5)

   —      2,680,000

Other

   943,788    693,029
    
  

Total

   1,819,313    4,398,554
    
  

Non-current

         

Contributed leasehold improvements (i)

   742,752    901,924

Withholdings and guarantee deposits

   12,000    12,000
    
  

Total

   754,752    913,924
    
  
     2,574,065    5,312,478
    
  

 

  (i) Contributed leasehold improvements relate to installations constructed by a tenant in the general area of the Abasto Shopping Center. The Company has recorded the installations as fixed asset based on construction costs incurred with a corresponding liability. Contributed leasehold improvements are amortized to income over the term of lease. Such amortization, net of the related depreciation of the leasehold improvement, was immaterial for the nine-month periods ended March 31, 2004 and 2003.

 

48


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 3: (Continued)

 

  k) Provisions:

 

    

31.03.04

Ps.


  

30.06.03

Ps.


Current

         

Provision for contingencies (i) (Schedule E)

   3,897,285    3,927,125
    
  

Total

   3,897,285    3,927,125
    
  

 

(i) In the opinion of management and based on consultation with external legal counsel, the Company has established provisions for amounts which are probable of adverse occurrence and which, according to estimates developed by the Company’s legal counsel, would meet all related contingencies and corresponding fees relating to these claims.

 

  l) Other income, net:

 

    

31.03.04

Ps.


   

31.03.03

Ps.


 

Recovery of allowance for doubtful accounts

   604,935     237,919  

Provision for contingencies, net

   (75,914 )   (2,094,063 )

Gain from sale of fixed assets

   64,386     —    

Gain from sale of intangible assets

   —       2,097,878  

Gain on early redemption of debt

   —       6,400,653  

Donations

   (132,598 )   (5,235 )

Other

   526,261     162,486  
    

 

     987,070     6,799,638  
    

 

 

49


ALTO PALERMO S.A. (APSA)

 

Notes to the unaudited financial statements (Continued)

 

NOTE 4: COMMON STOCK

 

As of March 31, 2004, the capital stock consisted of 727,568,134 common shares with a par value of Ps. 0.1 per share entitled to one vote each and was as follows:

 

     Par Value

  

Approved by


   Date of
record with
the Public
Registry of
Commerce


       

Body


   Date

  

Shares issued for cash

   400   

Extraordinary Shareholders´ Meeting

   29.10.87    29.12.1987

Shares issued for cash

   1,600   

Extraordinary Shareholders´ Meeting

   26.10.88    29.12.1988

Shares issued for cash

   38,000   

Extraordinary Shareholders´ Meeting

   25.10.89    05.02.1990

Shares issued for cash

   9,460,000   

Ordinary and Extraordinary Shareholders´ Meeting

   31.08.95    15.03.1996

Shares issued for cash

   16,000,000   

Ordinary and Extraordinary Shareholders´ Meeting

   29.10.96    15.05.1998

Shares issued for cash

   38,000,000   

Ordinary and Extraordinary Shareholders´ Meeting

   10.03.98    21.10.1999

Shares issued for cash

   581,061   

Ordinary and Extraordinary Shareholders´ Meeting

   06.08.99    Pending

Shares issued for cash

   5,918,939   

Ordinary and Extraordinary Shareholders´ Meeting

   06.08.99    Pending

Shares issued for cash

   2,756,813    (*)         Pending
    
              
     72,756,813               

 

(*) Shares subscribed in connection with the conversion of unsecured convertible notes. See note 13.

 

On November 9, 2000, the U.S. Securities and Exchange Commission (SEC) authorized the public offering of the shares in the U.S.. Additionally, the Nasdaq authorized the quotation of the ADRs (American Depository Receipt) on the U.S. market as from November 15, 2000.

 

50


ALTO PALERMO S.A. (APSA)

 

Notes to the financial statements (Continued)

 

NOTE 5: BALANCES AND TRANSACTIONS WITH RELATED PARTIES

 

The following is a summary of the balances and transactions with related parties:

 

Company


 

Relation


 

Description of
transaction/caption


  Income (expense)
included in the
statements of income for
the periods ended


   

Balance receivable
(payable)

as of


 
     

31.03.2004

Ps.


   

31.03.2003

Ps.


   

31.03.2004

Ps.


   

30.06.2003

Ps.


 
IRSA Inversiones y Representaciones Sociedad Anónima   Shareholder   Current payable with related parties   —       —       (2,089,197 )   (2,047,407 )
IRSA Inversiones y Representaciones Sociedad Anónima   Shareholder   Other current receivables and prepaid expenses   —       —       70,627     120,258  
IRSA Inversiones y Representaciones Sociedad Anónima   Shareholder   Interest income   —       114,941     —       —    
IRSA Inversiones y Representaciones Sociedad Anónima   Shareholder   Interest (expense) income   (212,704 )   6,069,260     —       —    
Goldman Sachs and Co.   Shareholder   Current payable with related parties   —       —       (6,512 )   (6,512 )
Parque Arauco S.A.   Shareholder   Interest (expense) income   (73,167 )   3,058,583     —       —    
Parque Arauco S.A.   Shareholder   Current payable with related parties   —       —       (980,522 )   (907,357 )
Tarshop S.A.   Subsidiary   Leases   183,171     191,466     —       —    
Tarshop S.A.   Subsidiary   Interest income   1,186,644     1,491,957     —       —    
Tarshop S.A.   Subsidiary   Other current receivables and prepaid expenses   —       —       11,249,455     11,924,701  
Pérez Cuesta S.A.C.I.   Equity investee   Dividends receivable   —       —       75,000     75,000  
Emprendimiento Recoleta S.A.   Subsidiary   Other current receivables and prepaid expenses   —       —       188,444     1,232,482  
Emprendimiento Recoleta S.A.   Subsidiary   Current payable with related parties   —       —       (11,724 )   (982,231 )
Emprendimiento Recoleta S.A.   Subsidiary   Administration fees   108,000     109,008     —       —    
Emprendimiento Recoleta S.A.   Subsidiary   Dividends receivable   —       —       351,461     351,461  
Emprendimiento Recoleta S.A.   Subsidiary   Interest income   101,512     —       —       —    
Emprendimiento Recoleta S.A.   Subsidiary   Interest expense   (58,187 )   (11,412 )   —       —    
Fibesa S.A.   Subsidiary   Administration fees   90,000     90,840     —       —    
Fibesa S.A.   Subsidiary   Other current receivables and prepaid expenses   —       —       50,311     474  
Fibesa S.A.   Subsidiary   Interest expense   (124,062 )   (186,164 )   —       —    
Fibesa S.A.   Subsidiary   Current payable with related parties   —       —       (70 )   (2,114,590 )
Fibesa S.A.   Subsidiary   Dividends receivable   —       —       590,976     —    
E-Commerce Latina S.A.   Equity investee   Other current receivables and prepaid expenses   —       —       14,566     16,566  
E-Commerce Latina S.A.   Equity investee   Administration fees   4,500     4,542     —       —    
Altocity.com S.A.   Subsidiary of E-Commerce Latina S.A.   Other current receivables and prepaid expenses   —       —       34,330     58,417  
Altocity.com S.A.   Subsidiary of E-Commerce Latina S.A.   Current payable with related parties   —       —       (76,625 )   (70,276 )
Altocity.com S.A.   Subsidiary of E-Commerce Latina S.A.   Administration fees   31,500     31,782     —       —    
Alto Research and Development (formerly Alto Invest S.A.)   Subsidiary   Current payable with related parties   —       —       (76,217 )   (90,692 )
Alto Research and Development (formerly Alto Invest S.A.)   Subsidiary   Interest expense   (8,860 )   (720 )   —       —    
Shopping Alto Palermo S.A.   Subsidiary   Other current receivables and prepaid expenses   —       —       669,535     1,043,286  
Shopping Alto Palermo S.A.   Subsidiary   Current payable with related parties   —       —       (6,091,106 )   (3,061,766 )
Shopping Alto Palermo S.A.   Subsidiary   Interest expense   (413,943 )   —       —       —    
Inversora del Puerto S.A.   Subsidiary   Current payable with related parties   —       —       (105,000 )   (105,000 )
Cresud S.A.   Shareholder of IRSA Inversiones y Representaciones S.A.   Other current receivables and prepaid expenses   —       —       65,784     216,565  
Cresud S.A.   Shareholder of IRSA Inversiones y Representaciones S.A.   Current payable with related parties   —       —       (54,124 )   (261,383 )
Inversora Bolívar S.A.   Subsidiary of IRSA Inversiones y Representaciones S.A.   Other current receivables and prepaid expenses   —       —       —       680,049  
Inversora Bolívar S.A.   Subsidiary of IRSA Inversiones y Representaciones S.A.   Current payable with related parties   —       —       (14,438 )   —    
Inversora Bolívar S.A.   Subsidiary of IRSA Inversiones y Representaciones S.A.   Interest income   10,227     —       —       —    
Dolphin Fund Limited   Shareholder   Other current receivables and prepaid expenses   —       —       4,898     —    
Dolphin Fund Limited   Shareholder   Current payable with related parties   —       —       (184,503 )   (184,503 )
Directors fees   —     Other current liabilities   —       —       —       (2,680,000 )

 

51


ALTO PALERMO S.A. (APSA)

 

Notes to the financial statements (Continued)

 

NOTE 6: NET LOSS IN EQUITY INVESTMENTS

 

The breakdown of the net loss in equity investments is the following:

 

    

31.03.04

Ps.


   

31.03.03

Ps.


 

(Loss) income in equity investments

   (1,105,451 )   216,607  

Amortization of Tarshop S.A., Inversha S.A., Pentigras S.A. and Fibesa S.A. goodwill

   (1,772,863 )   (1,910,140 )
    

 

     (2,878,314 )   (1,693,533 )
    

 

 

NOTE 7: RESTRICTED ASSETS

 

Further to the comments in Note 3.f) (ii) b), the Company owns the following restricted assets:

 

  a) At March 31, 2004, in the other current receivables and prepaid expenses caption, the Company has funds amounting to Ps. 107,922 that are restricted by the National Lower Labor Court No. 40 – Court employee’s office, concerning the case “Del Valle Soria, Delicia c/New Shopping S.A.”, re dismissal without legal justification and Ps. 185,424 restricted by the National Court on Civil Matters No. 6, Secretariat 12, in connection with the case “Metal Design SRL against Alto Palermo S.A. (APSA)” due to unpaid invoices.

 

  b) At March 31, 2004, there was Ps. 14.2 million in the non-current investments caption corresponding to pledged shares of Emprendimiento Recoleta S.A..

 

  c) At March 31, 2004 there is a balance of US$ 50 million in the caption other non-current receivables and prepaid expenses corresponding to funds guaranteeing derivative instruments transactions. See Note 3.c (ii).

 

NOTE 8: MERGER WITH CONTROLLED COMPANIES

 

  a) The mergers through absorption by Alto Palermo S.A. (APSA) (absorbing company) of Alto Shopping S.A., Pentigras S.A. and Inversha S.A. (absorbed companies) were approved and the corresponding prior agreements to merge were signed on September 30, 1999.

 

The date of the merger was set for tax and financial purposes as from July 1, 2000.

 

The merger proceedings are currently pending approval by the Corporate Control Bodies.

 

  b) The merger through absorption by Alto Palermo S.A. (APSA) (absorbing company) of Tres Ce S.A. (absorbed company) was approved and the corresponding prior agreement to merge was signed on September 29, 2000, to come into force as from July 1, 2000 for tax and financial purposes.

 

The merger proceedings are currently pending approval by the Corporate Control Bodies.

 

52


ALTO PALERMO S.A. (APSA)

 

Notes to the financial statements (Continued)

 

NOTE 9: DERIVATIVE INSTRUMENTS

 

The Company utilizes various hedge instruments, primarily interest rate swaps contracts. The counter parties 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 counter parties to meet the terms of their contracts. The Company does not expect any losses as a result of counterpart defaults.

 

At March 31, 2004 and 2003, the Company had the following derivative activity:

 

(i) Interest rate swap

 

In order to minimize its financing costs and to manage interest rate exposure, during fiscal year 2000 the Company entered into an interest rate swap agreement to effectively convert a portion of its peso-denominated fixed-rate debt to peso-denominated floating rate debt. As of March 31, 2001, the Company had an interest rate swap agreement outstanding with an aggregate notional amount of Ps. 85.0 million with maturity in April 2005. This swap agreement initially allowed the Company to reduce the net cost of its debt. However, subsequent to June 30, 2001, the Company modified the swap agreement due to an increase in interest rates as a result of the economic situation. Under the terms of the revised agreement, the Company converted its peso-denominated fixed rate debt to U.S. dollar-denominated floating rate debt for a notional amount of US$ 69.1 million with maturities through April 2005 that as of March 31, 2004 it estimated settlement cost was of US$ 43.43 million. Any differential to be paid or received under this agreement is accrued and is recognized as an adjustment to interest expense in the statements of income. During the periods ended March 31, 2004 and 2003, the Company recognized a gain of Ps. 13.87 million and Ps. 53.26 million, respectively.

 

The Company’s risk related to the swap agreement is represented by the cost of replacing such agreement at prevailing market rates. Such cost would increase in the event of a continued devaluation of the Argentine Peso.

 

NOTE 10: EARNINGS PER SHARE

 

Below is a reconciliation between the weighted average of ordinary outstanding shares and the weighted average of diluted ordinary shares. The latter has been determined considering the possibility of holders of Unsecured Convertible Notes into Ordinary Shares of the Company, exercising their right to convert the bonds held by them into shares.

 

    

31.03.04

Ps.


  

31.03.03

Ps


Weighted average outstanding shares

   712,723,643    700,352,347

Conversion of securities into debt

   1,403,385,120    1,488,629,200

Weighted average diluted ordinary shares

   2,116,108,763    2,085,755,434

 

53


ALTO PALERMO S.A. (APSA)

 

Notes to the financial statements (Continued)

 

NOTE 10: (Continued)

 

Below is a reconciliation between net income for the periods and the result used as basis for calculation of the basic and diluted earnings per share.

 

    

31.03.04

Ps.


   

31.03.03

Ps


 

Result for calculation of basic earnings per share

   4,784,368     74,699,761  

Interest

   10,480,096     11,292,576  

Exchange difference

   3,049,077     (32,791,931 )

Income tax

   (4,735,210 )   7,524,774  
    

 

Result for calculation of diluted earnings per share

   13,578,331     60,725,180  
    

 

Net basic earnings per share

   0.0067     0.1067  

Net diluted earnings per share

   0.0064     0.0291  

 

NOTE 11: DEFERRED INCOME TAX

 

The evolution and breakdown of deferred tax assets and liabilities are as follows:

 

Items


  

Balances at the
beginning of year

Ps.


   

Changes for
the period

Ps.


   

Balances at
period-end

Ps.


 

Deferred assets and liabilities

                  

Cash and banks

   22,472     (22,472 )   —    

Accounts receivables

   5,653,860     (1,449,506 )   4,204,354  

Other receivables and prepaid expenses

   211,202     (172,875 )   38,327  

Inventories

   (147,061 )   —       (147,061 )

Short-term and long-term debt

   (287,440 )   214,095     (73,345 )

Other liabilities

   1,237,838     (123,909 )   1,113,929  

Fixed assets

   (9,021,861 )   (400,468 )   (9,422,329 )

Intangible assets

   (1,300,638 )   81,801     (1,218,837 )

Tax loss carry-forward

   3,698,668     (3,698,668 )   —    
    

 

 

Total net deferred assets (liabilities)

   67,040     (5,572,002 )   (5,504,962 )
    

 

 

 

Net liabilities at the end of the nine-month period, derived from the information included in the above table, amount to Ps. 5,504,962.

 

Below is a reconciliation between income tax expensed and that resulting from application of the current tax rate to the accounting income for the nine-month periods ended March 31, 2004 and 2003, respectively:

 

54


ALTO PALERMO S.A. (APSA)

 

Notes to the financial statements (Continued)

 

NOTE 11: (Continued)

 

Items


  

31.03.2004

Ps.


   

31.03.2003

Ps.


 

Result for the period (before income tax)

   15,807,872     115,420,168  

Current income tax rate

   35 %   35 %

Result for the period at the tax rate

   5,532,755     40,397,058  

Permanent differences at the tax rate:

            

- Restatement into uniform currency

   8,048,216     173,397  

- Difference in the provision for fiscal year 2003 and 2002

   (1,557,379 )   1,167,514  

- Amortization of higher investment value

   566,299     630,279  

- Amortization of goodwill

   371,926     462,960  

- Amortization of intangible assets

   6,719     5,430  

- Donations

   —       (57,563 )

- Net loss in equity investments

   (3,285,315 )   (1,586,037 )

- Other

   1,340,283     (472,631 )
    

 

Total income tax charge for the nine-month period

   (1)11,023,504     40,720,407  
    

 

 

(1) Includes Ps. 5,572,002 related to deferred income tax and Ps. 5,451,502 related to current tax.

 

NOTE 12: COMMITMENTS AND OPTIONS GRANTED AT RELATED COMPANIES

 

The Company and Telefónica de Argentina S.A. have committed to make capital contributions in E-Commerce Latina S.A. amounting to Ps. 10 million, payable during April 2001, according to their respective holdings and to make, if approved by the Board of Directors of E-Commerce Latina S.A., an optional capital contribution to pursue new lines of business of up to Ps. 12 million, of which Telefónica de Argentina S.A. would contribute 75%.

 

On April 30, 2001, the Company and Telefónica de Argentina S.A. made the Ps. 10 million contribution, according to their respective holdings.

 

Additionally, E-Commerce Latina S.A. has granted Consultores Internet Managers Ltd., a special-purpose Cayman Islands´ corporation created to act on behalf of Altocity.com´s management and represented by an independent attorney-in-fact, an irrevocable option to purchase Class B shares of Altocity.com S.A. representing 15% of the latter’s capital, for an eight-year period beginning on February 26, 2000 at a price equal to the present and future contributions to Altocity.com S.A. plus a rate of 14% per year in dollars, capitalizable yearly.

 

55


ALTO PALERMO S.A. (APSA)

 

Notes to the financial statements (Continued)

 

NOTE 13: ISSUE OF UNSECURED CONVERTIBLE NOTES

 

On July 19, 2002, the Company issued Series I of unsecured convertible Notes for up to US$ 50.0 million.

 

After the end of the year granted to exercise the accretion right, the unsecured convertible Notes for US$ 50.0 million were fully subscribed and paid-up.

 

This issuance was resolved at the Ordinary and Extraordinary Meeting of Shareholders held on December 4, 2001, approved by the National Securities Commission Resolution No. 14,196 dated March 15, 2002 and authorized to list for trading on the Buenos Aires Stock Exchange on July 8, 2002.

 

The main issue terms and conditions of the unsecured convertible Notes are as follows:

 

  Issue currency: US dollars.

 

  Due date: July 19, 2006.

 

  Interest: at a fixed nominal rate of 10% per annum. Interest is payable semi-annually.

 

  Payment currency: US dollars or its equivalent in pesos.

 

  Conversion right: the notes will be converted at the option of each holder into ordinary book entry shares at a conversion price equivalent to the higher of the result from dividing the nominal value of the Company’s shares (0.1) by the exchange rate and US$ 0.0324, which means that each Note is potentially exchangeable for 30,864 shares of Ps. 0.1 par value each.

 

  Right to collect dividends: the shares underlying the conversion of the Notes will be entitled to the same right to collect any dividends to be declared after the conversion as the shares outstanding at the time of the conversion.

 

The unsecured convertible Notes were paid in cash or by using liabilities due from the Company on the subscription date.

 

The Company applied the funds arising from offering the unsecured convertible notes to the settlement of expenses and related fees to the issuing and placing of unsecured convertible notes, payment of liabilities with shareholders and redemption of Senior Notes Class A-2 and Class B-2, the latter corresponding to its subsidiary Shopping Alto Palermo S.A., thus fulfilling with the plan for allocating funds previously submitted to the National Securities Commission.

 

At March 31, 2004 holders of Unsecured Convertible Notes in ordinary shares of the Company, exercised their right to convert them for a total of US$ 930,590 leading to the issuing of ordinary shares of Ps. 0.1 face value each, as disclosed in Note 4.

 

At March 31, 2004 Unsecured Convertible Notes amounted to US$ 49.07 million.

 

56


ALTO PALERMO S.A. (APSA)

 

Fixed Assets

For the nine-month period ended March 31, 2004

compared with the year ended June 30, 2003

 

Schedule A

 

     Original value

   Depreciation

               
                                     For the period

                     

Items


  

Value as of
beginning of
year

Ps.


  

Increases

Ps.


  

Decreases

and

Transfers

Ps.


   

Value as of
end of the
period

Ps.


   Accumulated
as of
beginning of
year Ps.


   Rate
%


   

Amount

Ps. (1)


  

Decreases

Ps.


   

Accumulated as
of end of the
period

Ps.


  

Impairment

Ps.


   

Net carrying
value as of
March 31,
2004

Ps.


  

Net carrying
value as of
June 30, 2003

Ps.


Properties:

                                                               

Shopping centers:

                                                               

- Abasto

   251,398,791    160,882    —       251,559,673    40,550,495    ( *)   5,813,077    —       46,363,572    —       205,196,101    210,848,296

- Alto Avellaneda

   176,464,806    57,143    —       176,521,949    60,442,747    ( *)   6,601,987    —       67,044,734    (10,162,707 )   99,314,508    105,133,444

- Paseo Alcorta

   104,640,559    113,158    —       104,753,717    31,950,982    ( *)   2,895,190    —       34,846,172    —       69,907,545    72,689,577

- Patio Bullrich

   158,461,876    36,900    —       158,498,776    30,907,527    ( *)   4,904,674    —       35,812,201    —       122,686,575    127,554,349

- Alto Noa

   42,955,955    16,150    —       42,972,105    8,216,675    ( *)   1,488,812    —       9,705,487    (10,458,187 )   22,808,431    23,810,474

Caballito plots of land

   8,821,673    —      —       8,821,673    —      —       —      —       —      —       8,821,673    8,821,673

Rosario plots of land

   41,100,446    —      —       41,100,446    —      —       —      —       —      —       41,100,446    41,100,446

Other

   12,152,843    —      —       12,152,843    547,871    ( *)   140,721    —       688,592    (841,572 )   10,622,679    10,742,882

Leasehold improvements

   2,722,155    649,338    —       3,371,493    2,572,821    ( *)   167,583    —       2,740,404    —       631,089    149,334

Facilities

   1,782,664    93,249    —       1,875,913    464,008    10     165,195    —       629,203    —       1,246,710    1,318,656

Furniture and fixtures

   4,756,050    217,922    —       4,973,972    3,537,683    10     214,450    —       3,752,133    —       1,221,839    1,218,367

Vehicles

   125,341    —      (45,612 )   79,729    125,341    33     —      (45,612 )   79,729    —       —      —  

Computer equipment

   10,030,829    72,667    —       10,103,496    8,195,629    33     485,570    —       8,681,199    —       1,422,297    1,835,200

Software

   3,120,880    38,781    (4,125 )   3,155,536    2,199,446    20     422,335    —       2,621,781    —       533,755    921,434

Work in progress:

                                                               

- Caballito

   27,726,483    —      —       27,726,483    —      —       —      —       —      (10,548,155 )   17,178,328    17,178,328

- Rosario

   15,166,471    4,078,383    (3)30,890     19,275,744    —      —       —      —       —      (4,766,276 )   14,509,468    10,400,195

- Patio Bullrich

   248,417    303,172    —       551,589    —      —       —      —       —      —       551,589    248,417

- Suppliers advances-Rosario

   —      6,376,181    —       6,376,181    —      —       —      —       —      —       6,376,181    —  

Other

   1,572    —      —       1,572    1,572    —       —      —       1,572    —       —      —  
    
  
  

 
  
  

 
  

 
  

 
  

Total as of March 31, 2004

   861,677,811    12,213,926    (18,847 )   873,872,890    189,712,797    —       23,299,594    (45,612 )   (2)212,966,779    (36,776,897 )   624,129,214    —  
    
  
  

 
  
  

 
  

 
  

 
  

Total as of June 30, 2003

   859,813,612    1,769,178    (4)95,021     861,677,811    158,641,538    —       31,071,259    —       189,712,797    (37,993,942 )   —      633,971,072
    
  
  

 
  
  

 
  

 
  

 
  

 

(*) Depreciation expense is determined using the straight-line method over the estimated useful life of each property.

 

(1) The allocation of period depreciation charges in the statements of income is included in Schedule H.

 

(2) Net of the amortization of the period of Ps. 1,217,045. See Schedule E.

 

(3) Reclassified from intangible assets.

 

(4) Includes Ps. 112,231 reclassified from intangible assets and Ps. 17,210 reclassified to inventory.

 

57


ALTO PALERMO S.A. (APSA)

 

Intangible Assets

For the nine-month period ended March 31, 2004

compared with the year ended June 30, 2003

 

Schedule B

 

    Original value

  Amortization

             
                                      For the period

                 

Items


 

Value as of
beginning of
year

Ps.


 

Increases

Ps.


 

Decreases

Ps.


   

Transfers

Ps.


   

Value as of
end of the
period

Ps.


 

Accumulated
as of
beginning of
year

Ps.


 

Decreases

Ps.


   

Rate

%


   

Amount

Ps. (1)


 

Accumulated
as of end of
the period

Ps.


 

Impairment

Ps.


   

Net
carrying
value as
of March
31, 2004

Ps.


 

Net
carrying
value as
of June
30, 2003

Ps.


Trademarks

  494,546   25,279   —       —       519,825   182,027   —       10     42,306   224,333   (57,953 )   237,539   245,236

Pre-operating expenses:

                                                             

- Abasto Shopping

  9,818,569   —     —       —       9,818,569   9,818,569   —       33     —     9,818,569   —       —     —  

- Caballito

  1,052,322   145,803   —       —       1,198,125   —     —       —       —     —     (1,052,322 )   145,803   —  

- Rosario Project

  456,488   69,682   —       (30,890 )   495,280   —     —       —       —     —     (456,488 )   38,792   —  

- Alto shopping

  26,319   —     —       —       26,319   26,319   —       —       —     26,319   —       —     —  

Advertising:

                                                             

- Torres Abasto

  4,167,541   —     —       —       4,167,541   4,128,786   —       (2 )   —     4,128,786   —       38,755   38,755

- Abasto

  1,538,727   —     —       —       1,538,727   1,538,727   —       33     —     1,538,727   —       —     —  

Investment projects:

                                                             

- Multiespacio

  90,112   —     —       —       90,112   90,112   —       —       —     90,112   —       —     —  

Tenant list Patio Bullrich

  4,706,707   —     —       —       4,706,707   4,471,413   —       20     235,294   4,706,707   —       —     235,294

Other

  159,777   —     —       —       159,777   102,081   —       33     44,381   146,462   (13,315 )   —     —  
   
 
 

 

 
 
 

 

 
 
 

 
 

Total as of March 31, 2004

  22,511,108   240,764   —       (3)(30,890)     22,720,982   20,358,034   —       —       321,981   20,680,015   (4)(1,580,078)     460,889   —  
   
 
 

 

 
 
 

 

 
 
 

 
 

Total as of June 30, 2003

  55,329,250   196,438   (32,902,349 )   (3)(112,231)     22,511,108   52,186,494   (32,902,277 )   —       1,073,817   20,358,034   (1,633,789 )   —     519,285
   
 
 

 

 
 
 

 

 
 
 

 
 

 

(1) The accounting application of the amortization for the period is set forth in Schedule H.

 

(2) They are amortized under the percentaje-of-completion method.

 

(3) Reclassified to fixed assets.

 

(4) Net of the amortization of the period of Ps. 53,711. Set forth Schedule E.

 

58


ALTO PALERMO S.A. (APSA)

 

Interest in other companies

Balance Sheets as of March 31, 2004 and June 30, 2003

 

Schedule C

 

                       

Issuer´s information


 
                       

Last financial statement


 
 

Issuer and type
of securities


  F.V.

  Shares
owned


 

Value
recorded as of

31.03.2004

Ps.


   

Value
recorded as of

30.06.2003

Ps.


   

Main activity


 

Legal

Address


  Date

 

Common

stock

Ps.


 

Income
(loss) for the
period

Ps.


   

Share holders´
equity

Ps.


  Interest
in
common
stock


 

Non-current Investments

                                                   

Pérez Cuesta S.A.C.I. – Equity value

  1   2,500,000   5,158,685     5,628,135     Real estate investments   Av. Acceso Este 3280 – Mendoza   31.03.04   13,225,000   (1,411,466 )   27,924,633   18.90 %

Pérez Cuesta S.A.C.I. – Higher investment value (2)

          —       —                                    

Tarshop S.A. – Equity value

  1   4,000,000   4,847,996     2,813,445     Credit card   Lavalle 1290 – 7º Floor – Bs.As.   31.03.04   5,000,000   2,543,187     6,609,564   80 %

Tarshop S.A. – Irrevocable contributions

          439,636     439,636                                  

Tarshop S.A. – Goodwill

          1,029,577     1,211,256                                  

Emprendimiento Recoleta S.A. – Equity value

  1   6,765,150   14,181,254     14,410,499     Building   Av. Pueyrredón 2501 – Bs.As.   31.03.04   13,265,000   (449,501 )   27,806,380   51 %

Shopping Neuquén S.A. - Equity value

  1   2,081,706   1,719,526     1,786,073     Development of   Rivadavia 86 3º Floor Of.9-   31.03.04   2,200,000   (70,327 )   6,580,351   94.623 %

Shopping Neuquén S.A. - Higher investment value (1)

          3,380,889     3,380,889     Undertakings   Neuquén                        

Shopping Neuquén S.A. - Irrevocable contributions

          4,763,112     4,654,176                                  

Inversora del Puerto S.A. - Equity value

  1   11,999   (888,335 )   (888,335 )   Real estate investments   Florida 537 – 18º Floor – Bs.As. Capital Federal   31.03.04   12,000   —       134,596   99.9917 %

Shopping Alto Palermo S.A. - Equity value

  1   63,233,264   181,878,974     185,576,723     Real estate investment   Moreno 877 22º Floor - Bs.As.   31.03.04   63,233,265   (3,697,749 )   242,100,327   99.9999 %

Shopping Alto Palermo S.A. – Irrevocable contributions

          60,221,350     60,221,350     and development                            

Alto Research and Development S.A. (formerly Alto Invest S.A.) - Equity value

  1   1,667,000   (1,543,539 )   (1,725,083 )   Corporate, commercial and economic information and training services   25 de Mayo 359 12º Floor– Bs.As.   31.03.04   1,867,271   (3,894 )   1,779,324   89.2747 %

Alto Research and Development S.A. (formerly Alto Invest S.A.) - Irrevocable contributions

          3,131,942     3,508,217                                  

E-Commerce Latina S.A. - Equity value

  1   12,000   (8,992,801 )   (8,091,700 )   Holding   Florida 537 – 18º Floor Bs.As.   31.03.04   24,000   (1,802,200 )   3,996,217   50 %

E-Commerce Latina S.A. – Irrevocable contributions

          10,990,910     10,990,910                                  

Fibesa S.A. - Equity value

  0.00000001   999,900   2,856,937     3,608,389     Agent   Moreno 877 22º Floor – Bs.As.   31.03.04   0.01   2,024,206     2,857,223   99.99 %

Fibesa S.A. – Goodwill

          13,260,640     14,851,803                                  

Total

          296,436,753     302,376,383                                  

 

(1) Includes an impairment of Ps. 3.6 million. See Schedule E.

 

(2) Includes an impairment of Ps. 7.5 million. See Schedule E.

 

59


ALTO PALERMO S.A. (APSA)

 

Other Investments

Balance Sheet as of March 31, 2004 and June 30, 2003

 

Schedule D

 

Items


  

Value as of

31.03.2004

Ps.


  

Value as of

30.06.2003

Ps.


Current

         

Mutual Funds

   1,416    1,961,435
    
  

Total

   1,416    1,961,435
    
  

 

60


ALTO PALERMO S.A. (APSA)

 

Allowances and Provisions

For the nine-month period ended March 31, 2004

compared with the year ended June 30, 2003

 

Schedule E

 

Items


  

Balances as of
beginning of
year

Ps.


  

Increases

Ps.


  

Decreases

Ps.


   

Carrying value
as of

March 31, 2004

Ps.


  

Carrying
value as of
June 30,
2003

Ps.


Deducted from assets:

                         

Allowance for doubtful accounts

   30,573,953    —      (1) (5,785,843)     24,788,110    30,573,953

Allowance for doubtful mortgage receivable

   2,208,275    —      —       2,208,275    2,208,275

Impairment of non-current inventory

   6,154,771    —      —       (3) 6,154,771    6,154,771

Impairment of fixed assets

   37,993,942    —      (2) (1,217,045)     36,776,897    37,993,942

Impairment of intangible assets

   1,633,789    —      (4) (53,711)     1,580,078    1,633,789

Impairment of non-current investments

   11,120,367    —      —       (5) 11,120,367    11,120,367

Included in liabilities:

                         

Provision for contingencies

   3,927,125    (6) 75,914    (7) (105,754)     3,897,285    3,927,125
    
  
  

 
  

Total as of March 31, 2004

   93,612,222    75,914    (7,162,353 )   86,525,783    —  
    
  
  

 
  

Total as of June 30, 2003

   107,811,709    13,709,905    (27,909,392 )   —      93,612,222
    
  
  

 
  

 

(1) Includes Ps. 604,935 related to recovery of allowance for doubtful accounts allocated in Note 3.l. and Ps. 5,180,908 related to off sets.

 

(2) Set forth in Schedule A.

 

(3) Set forth in Schedule F.

 

(4) Set forth in Schedule B.

 

(5) Set forth in Schedule C.

 

(6) Set forth in Note 3.l.

 

(7) Related to off sets of the period.

 

61


ALTO PALERMO S.A. (APSA)

 

Cost of leases and services and sales and development properties

For the nine-month periods

ended March 31, 2004 and 2003

 

Schedule F

 

    

31.03.04

Ps.


   

31.03.03

Ps.


 

Cost of leases and services

            

Expenses (Schedule H)

   24,855,454     23,874,883  
    

 

Cost of leases and services

   24,855,454     23,874,883  
    

 

Cost of sales and development properties

            

Stock as of beginning of years (1)

   26,713,532     27,218,381  

Purchases of the period

   3,414     6,729  

Expenses (Schedule H)

   —       42,169  

Properties delivered

   —       (108,389 )

Bonus project assets delivered

   (18,714 )   —    

Stock as of end of the period (1) (3.d)

   (26,698,232 )   (26,464,993 )
    

 

Cost of sales and development properties

   —       693,897  
    

 

 

(1) Includes Ps. 6,154,771 of impairment of non-current inventory allocated in Schedule E.

 

62


ALTO PALERMO S.A. (APSA)

 

Foreign Currency Assets and Liabilities

Balance Sheets as of March 31, 2004 and June 30, 2003

 

Schedule G

 

Items


   Class

   Amount

  

Prevailing
exchange
rate

Ps.


  

Total as of

March 31, 2004

Ps.


  

Total as of

June 30, 2003

Ps.


Assets

                        

Current Assets

                        

Cash and banks

   US$    6,365,622    2.82    17,951,054    12,781,662

Other receivables and prepaid expenses, net (*)

   US$    127,335    2.82    359,085    306,867
         
       
  
          6,492,927         18,310,139    13,088,529
         
       
  

Non-Current Assets

                        

Other receivables and prepaid expenses, net (*)

   US$    6,569,887    2.86    18,789,877    8,172,241
         
       
  
          6,569,887         18,789,877    8,172,241
         
       
  

Total Assets as of March 31, 2004

        13,062,814         37,100,016    —  
         
       
  

Total Assets as of June 30, 2003

        7,762,203         —      21,260,770
         
       
  

Liabilities

                        

Current Liabilities

                        

Trade accounts payable

   US$    339,530    2.86    971,055    963,817

Short-term debt

   US$    1,011,427    2.86    2,892,682    6,308,960
         
       
  
          1,350,957         3,863,737    7,272,777
         
       
  

Non-current Liabilities

                        

Trade accounts payable

   US$    1,036,070    2.86    2,963,160    3,609,629

Long-term debt

   US$    49,069,410    2.86    140,338,513    139,561,845
         
       
  
          50,105,480         143,301,673    143,171,474
         
       
  

Total Liabilities as of March 31, 2004

        51,456,437         147,165,410    —  
         
       
  

Total Liabilities as of June 30, 2003

        53,730,089         —      150,444,251
         
       
  

 

(*) Includes receivables and liabilities in foreign currency originated by the interest rate swap agreement. See Note 3.c.(ii).

 

63


ALTO PALERMO S.A. (APSA)

 

Information required by Law N° 19,550, section 64, paragraph b)

For the nine-month periods

ended March 31, 2004 and 2003

 

Schedule H

 

                    Expenses

    

Items


   Total as of
March 31, 2004
Ps.


  

Cost of leases and
services

Ps.


  

Cost of sales and
development
properties

Ps.


   Administrative
Ps.


  

Selling

Ps.


  

Total as of
March 31, 2003

Ps.


Depreciation and amortization

   22,240,993    22,181,401    —      59,592    —      21,825,541

Taxes, rates, contributions and services

   3,085,092    1,279    —      1,061,142    2,022,671    2,748,012

Parking

   1,451,311    1,451,311    —      —      —      1,063,983

Fees and payments for services

   1,272,870    —      —      1,272,870    —      814,640

Condominium expenses

   1,141,555    1,141,555    —      —      —      1,326,355

Salaries and bonuses

   733,225    —      —      733,225    —      815,644

Insurance

   335,719    —      —      335,719    —      424,242

Bank charges

   185,251    —      —      185,251    —      178,437

Stationery

   130,068    —      —      130,068    —      152,563

Maintenance and repairs

   145,811    13,742    —      132,069    —      379,568

Control authorities expenses

   114,579    —      —      114,579    —      134,796

Personnel

   88,401    —      —      88,401    —      164,494

Social security contributions

   72,578    —      —      72,578    —      142,978

Rental

   65,867    65,867    —      —      —      281,447

Advertising

   18,077    —      —      —      18,077    15,967

Freight and transportation

   —      —      —      —      —      40,987

Other

   240,114    299    —      229,976    9,839    141,435
    
  
  
  
  
  

Total as of March 31, 2004

   31,321,511    24,855,454    —      4,415,470    2,050,587    —  
    
  
  
  
  
  

Total as of March 31, 2003

   —      23,874,883    42,169    4,932,403    1,801,634    30,651,089
    
  
  
  
  
  

 

64


ALTO PALERMO S.A. (APSA)

 

Breakdown by maturity date of investments, receivables and liabilities

as of March 31, 2004 and June 30, 2003

 

Schedule I

 

    31.03.04

  30.06.03

   

Investments

(8)


 

Accounts
receivable,
net

(1)


 

Other
receivables
and
prepaid
expenses,
net

(3)


 

Trade
accounts
payable

(6)


 

Customer
advances

(5)


 

Short-term
and long-
term debt

(2)


 

Related
parties

(7)


 

Other

liabilities

(4)


  Investments

  Accounts
receivable,
net


  Other
receivables
and
prepaid
expenses,
net


  Trade
accounts
payable


  Customer
advances


  Short-term
and long-
term debt


  Related
parties


 

Other

liabilities

(4)


No fixed term

  —     —     1,197,134   —     —     —     296,015   —     —     —     1,660,463   —     —     —     1,013,504   —  
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Past due

  —     244,102   —     4,108,436   —     —     —     —     —     290,165   —     3,291,640   —     —     —     —  
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

To mature

                                                               

In three months

  1,416   6,245,470   2,790,200   4,171,785   2,565,561   3,461,514   3,414,980   3,261,103   1,961,435   6,007,727   15,563,358   2,940,662   2,208,092   6,263,930   8,818,213   4,016,926

Between 4 and 6 months

  —     1,818,424   1,893,393   342,823   2,522,107   2,716,884   28   121,049   —     2,021,068   225,369   271,277   1,974,305   1,500,952   —     4,899,875

Between 7 and 9 months

  —     556,739   13,053,286   548,630   2,522,107   5,471,323   5,979,015   4,972,678   —     39,023   703,564   325,438   1,877,725   5,089,617   —     719,948

Between 10 and 12 months

  —     343,315   675,867   265,351   2,569,909   9,610,550   —     53,054   —     108,392   60,219   974,656   1,922,226   —     —     435,479
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Between 1 and 2 years

  —     322,532   21,921,424   916,935   6,678,276   49,500,098   —     1,131,093   —     107,452   8,368,787   897,699   4,902,735   58,498,619   —     212,231

Between 2 and 3 years

  —     258,866   4,008,644   916,935   4,141,744   140,317,846   —     1,437,381   —     126,575   90,598   897,699   3,211,853   —     —     212,231

Between 3 and 4 years

  —     162,123   12,724,817   916,936   2,313,767   —     —     3,573,181   —     135,637   23,277   897,699   2,239,160   139,561,845   —     212,231

In greater than 4 years

  —     260,118   23,228   212,354   10,604,722   —     —     118,059   —     789,186   19,041,264   916,532   12,048,014   —     —     277,231
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total to mature

  1,416   9,967,587   57,090,859   8,291,749   33,918,193   211,078,215   9,394,023   14,667,598   1,961,435   9,335,060   44,076,436   8,121,662   30,384,110   210,914,963   8,818,213   10,986,152
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total with fixed term

  1,416   10,211,689   57,090,859   12,400,185   33,918,193   211,078,215   9,394,023   14,667,598   1,961,435   9,625,225   44,076,436   11,413,302   30,384,110   210,914,963   8,818,213   10,986,152
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total

  1,416   10,211,689   58,287,993   12,400,185   33,918,193   211,078,215   9,690,038   14,667,598   1,961,435   9,625,225   45,736,899   11,413,302   30,384,110   210,914,963   9,831,717   10,986,152
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

(1) Does not accrue interest, except for Ps. 1,199,011 that accrue interest at a variable market rate.

 

(2) Accrue interest at a fixed and variable market rate.

 

(3) Includes Ps. 10,840,414 that accrue interest at a fixed rate.

 

(4) Represents salaries and social security payable, taxes payable and other liabilities.

 

(5) Includes Ps. 7,797,176 that accrue interest at a variable market rate.

 

(6) Includes Ps. 3,934,215 that accrue interest at a variable market rate.

 

(7) Does not accrue interest, except for Ps. 11,214,024 that accrue interest at a fixed rate.

 

(8) Accrue interest at a fixed rate.

 

65


ALTO PALERMO S.A. (APSA)

 

1. Brief comments on the Company’s activities during the period, including references to significant events after the end of the period.

 

Buenos Aires, May 11, 2004 – Alto Palermo S.A. (APSA) (BASE: APSA, Nasdaq: APSA), alternatively the “Company”, one of the leading companies in the real estate market, mainly engaged in the possession, development, management and acquisition of Shopping Centers in Argentina, announces the results for the third quarter of its Fiscal Year 2004, ended on March 31, 2004.

 

When appropriate and solely for the convenience of the reader we have translated Peso amounts into U.S. dollars at the applicable exchange rate quoted by Banco de la Nación Argentina as of March 31, 2004 and 2003, which were Ps. 2.86 and Ps. 2.98 per US$ 1.0 respectively. 1

 

Net Income for the nine-month period ended March 31, 2004 was Ps. 4.8 million (US$ 1.7 million), compared to the Ps. 74.7 million (US$ 25.1 million) profit for the same period of the previous year. The results for the previous year had been positively affected by the Ps. 114.0 million (US$ 38.3 million) income from Financial Results and repurchase of Company’s bonds. The improvement in net income for this year has been noteworthy, taking into account that for the first six months net income had been Ps. 0.1 million (US$ 0.04 million).

 

Total revenues as of March 31, 2004 were Ps. 103.4 million (US$ 36.2 million), 22.7% higher than in the same period of the previous year. This increase was mainly attributable to the increase in the basic rent charged to our tenants, to the increase in occupancy rates and to higher revenues of the percentage rent charged on our tenants’ sales. In addition, the goodwill charge payable for the renewal or execution of new lease agreements increased by 34.6%.

 

Gross Profit for the period achieved a significant increase of 48.7%, from Ps. 35.4 million (US$ 11.9 million) in the first nine months of fiscal year 2003 to Ps. 52.6 million (US$ 18.4 million) during the same period of fiscal year 2004. 76% of the Company’s costs are depreciation of fixed assets and amortization of intangible assets, which have remained virtually stable during the present year. On the other hand, the excellent recovery in our revenues from leases and services and the increase in the invoicing of Tarshop S.A. led to an important increase in our total revenues. Thus Gross profit managed to record this significant increase.

 

Consolidated Operating Result for the period reported a profit of Ps. 32.5 million (US$ 11.4 million), Ps. 22.6 million higher than the same period of last year. Additionally, this was the result of a steep drop in bad debt charges.

 

EBITDA 2 (earnings before interest, taxes, depreciation and amortization) for the nine-month period totaled Ps. 77.5 million (US$ 27.1 million), reflecting a notable increase of 38.2% compared to EBITDA for the same period of the previous year as a result of the above circumstances.

 


1 We make no representation that the Argentine Peso amounts actually represent, could have been or could be converted into US Dollars at the rates indicated, at any particular rate or at all.

 

2 EBITDA represents net income plus accrued interest, income tax, depreciation and amortization charges and all items not implying movements of funds, and any extraordinary or non-recurrent loss or income.

 


ALTO PALERMO S.A. (APSA)

 

Comment on operations for the quarter

 

During the first quarter of 2004, President Kirchner consolidated his first year in office thanks to good economic performance and high popularity levels. Although an energy crisis is foreseeable in the short term, the international context continues to have a positive effect on Argentina. The strong growth in US and worldwide economy, interest rates at historical lows and the excellent price of commodities have led to a 9.5% inter-annual growth in GDP during the first quarter of 2004, completing eight quarters of economic recovery.

 

The notable improvement of activity led to a simultaneous rise in labor and social indicators: formal employment increased in the first two-month period of the year at an annual rate of 6.4%, while the poverty rate fell by 6% in the second half of 2003. Real salaries rose by 4.3% during that period, fostered by low inflation levels and exchange rate stability. Retail inflation recorded in April (+0.9%), however, was a warning signal which, if perdurable, could affect the current price stability.

 

The decision not to default on the payment of debt owed to multilateral credit agencies and the excellent fiscal results reflected in a significant primary surplus during the first quarter (4.1% of the GDP, exceeding four-fold the target agreed with the IMF) continue to contribute to a more foreseeable economic policy. This improvement in the overall context, fostered by great liquidity in the financial system, were the first signs of recovery in short-term credit. There was a significant increase in consumer loans during the first quarter of 2004, after a sharp drop throughout 2003.

 

LOGO

 

Source: Banco Central de la República Argentina (Central Bank of the Argentine Republic)

 


ALTO PALERMO S.A. (APSA)

 

The underlying political, macroeconomic and social policy in Argentina is reflected in the high level of trust in the government and consumer confidence. In the latter case, confidence levels reached record percentages, exceeding by 83% those recorded at crisis peaks.

 

LOGO

 

Source: Business School at Torcuato Di Tella University

 

Thus, the improved Argentine environment, the recovery of consumer loans and high consumer confidence levels continue to strengthen private sector consumption. Private analysts foresee an 8.1% increase in this variable in 2004.

 

LOGO

 

Source: INDEC. Estimations: Estudio Broda & Asoc.

 


ALTO PALERMO S.A. (APSA)

 

One of the drivers of consumption in the private sector was the strong increase in shopping center sales. The performance of our shopping centers was even better than the rest of the retail market, with sales of Ps. 820.4 million (US$ 286.8 million) for the nine-month period ended March 31, 2004. These sales were 32% higher in nominal terms than those for the same period of the previous year, and 27% higher in real terms1. Sales for the January-04/March-04 quarter were higher than those recorded in the same quarter of the last five years, in both nominal and real terms.

 

LOGO

 

The current bonanza in the retail sector allows us to enter into new lease agreements under better conditions, increasing the goodwill charge (also known as “key money”) required for the renewal or execution of new agreements at our shopping centers.

 

On the other hand, the business success of our tenants continues to increase demand for space at our shopping centers. In this way, we have increased occupancy to 98.6%, hitting historical highs. The evolution of this variable not only shows an improvement in our business, but also the excellent quality of our shopping centers portfolio, as competitors’ indicators are below ours.

 


3 Deflated by the Consumer Price Index prepared by the National Institute of Statistics and Census (“INDEC”).

 


ALTO PALERMO S.A. (APSA)

 

LOGO

 

Percentage rent (% on our tenants’ sales) increased by 35.5% in the first nine months of the current fiscal year. We are thus able to accompany the bonanza in the sector, as percentage rent has a positive effect on our pesified rental prices in addition to the adjustment by the Coeficiente de Estabilización de Referencia (CER).

 

The improved economic and financial conditions led to a reduction in the allowance for bad debts, from a loss of Ps. 5.8 million (US$ 1.9 million) in the nine-month period ended in March 2003 to Ps. 0.0 million (US$ 0.0 million) during the same period of the current fiscal year. Moreover, in the nine-month period ended in March 2004 we have recovered Ps. 0.7 million (US$ 0.2 million) of allowance for bad debts of previous quarters.

 

Furthermore, Operating Cash Flow reached a monthly average of Ps. 5.1 million (US$ 1.8 million). This high level was partly achieved due to excellent delinquent loan collection management, resulting in Company’s revenue exceeding billing.

 

Related Companies

 

Tarjeta Shopping

 

Tarshop S.A. is a credit card company in which the Company holds an 80% interest.

 

In the nine-month period ended on March 31, 2004, our credit card business unit recorded net income of Ps. 2.5 million (US$ 0.9 million), in significant contrast to the loss of Ps. 4.4 million (US$ 1.5 million) for the same period of the previous year. Our credit card subsidiary obtained a Ps. 29.2 million (US$ 10.2 million) operating gain, 81% higher than last year.

 

This result was achieved after the reconversion of the business. Customer consumption increased 79% during the nine-month period, compared to the same period of the previous year, reaching Ps. 152.7 million (US$ 53.4 million). This increase is equivalent to a 73% increase in real terms. The recovery of Tarjeta Shopping as a financial purchase instrument is reflected in the fact that the increase in sales through this means of payment far exceeds the increase in shopping center sales.

 


ALTO PALERMO S.A. (APSA)

 

In the area of collections, short-term delinquency at March 31, 2004 was even lower than that recorded before the economic crisis. Three-month payment arrears, which exceeded 11% in 2002, decreased to 2.4% by the end of the quarter. The improvement in credit quality led to a sharp decrease in bad debts, which fell in this business unit from Ps. 7.1 million (US$ 2.5 million) in the first nine months of fiscal 2003 to Ps. 0.1 million (US$ 0.03 million) in the same period ended on March 31, 2004.

 

LOGO

 

At March 31, 2004 the number of card holders and the loan portfolio, including securitized coupons, totaled 175,970 holders and Ps. 72.7 million (US$ 25.4 million), respectively. The credit card activation rate was 56%.

 

LOGO

 

Note: Includes securitized credits

 


ALTO PALERMO S.A. (APSA)

 

Other Relevant Events

 

Debt reduction due to conversion of Convertible Notes

 

During the third quarter of fiscal 2004 holders of Convertible Notes exercised their conversion rights for a total amount of 261,446 units of face value US$ 1.00 each, with cumulative conversion of Notes amounting to US$ 774,106 in the first nine months of the fiscal year, giving rise to a reduction in our debt by that amount.

 

The following graphics show past, actual and potential situation in the future of the Convertible Notes issued on July 19, 2002, under Argentine Law, at an interest rate of 10% (paid semiannually), due to July 19, 2005, which are convertible at a price of US$ 0.324 per share of face value Ps. 1.00 (3.0864 shares of face value Ps. 1.00 per Note).

 

LOGO   LOGO

 

LOGO

 

(1) In the case that the Nominal Exchange Rate falls under AR$ 3.086 per US$ 1.00, then the Conversion Price is 1 divided the Banco de la Nación Argentina selling exchange rate of US$ 1.00, consequently changing the Conversion Ratio.

 

(2) “Assuming Conversion (Fully Diluted)” refers to the hypothetical situation where all the Convertible Notes are converted into common shares of the Company.

 


ALTO PALERMO S.A. (APSA)

 

Alto Rosario Project

 

Towards the end of 2003, works in Alto Rosario Shopping –the eighth Shopping Center managed by the Company that will be located in the city of Rosario- were begun. In early 2004, in view of the substantial increase in the demand for stores, we decided to extend this undertaking. Thus, the Shopping Center will cover a gross leasable area of approximately 39,000 Sqm. To date we have leased 80% of our more than 150 leasable units that will be available, while the demand for the remaining areas continues to be considerably active. The Shopping Center is expected to be inaugurated in November 2004, and the opening of the Coto hypermarket has been scheduled for one month later. The extension of the complex is expected to be inaugurated in the first quarter of 2005. Furthermore, Showcase Cinemas (14 state-of-the-art cinemas with 3,400 seats) will be inaugurated in February 2005.

 

Considering the extension of the complex, the undertaking will require capital expenditures on our part of approximately Ps. 60 million (US$ 21.0 million), without including the amount paid for the land. As of March 31, 2004 capital expenditures already invested amounted to Ps. 10.9 million (US$ 3.8 million).

 

This flow of investments in the area is already having a positive economic impact. It is estimated that 4,000 job positions will be generated by this undertaking, and the community is already noticing an urban revaluation of the area. Investments have been made in road works and repair of facades, and the Company has made donations to improve parks near its premises.

 

LOGO   LOGO
Logo of Alto Rosario  

Projection of the Shopping

Center after its opening

 

Appointment of new CFO

 

In April 2004, Gabriel Blasi was appointed Chief Financial Officer (CFO) of the Company. The new executive has wide professional experience in financial areas, having managed financial, retail and agricultural and livestock companies.

 

Improvement in the risk rating of our structured debt

 

In May 2004, Fitch Argentina Calificadora de Riesgo S.A. upgraded our Ps. 85 million Notes from raBBB- to raBBB. The upgrading “is based on the consolidated growth of the Company’s main business indicators, which have already surpassed pre-crisis levels, hitting record levels in occupancy rate (98%) and in the number of visitors to the shopping centers”, as some of the reasons explained by the rating agency in its report.

 


ALTO PALERMO S.A. (APSA)

 

Prospects for the coming quarter

 

Commercial Strategy

 

During the fourth and last quarter of fiscal 2004, we intend to continue to improve our wide range of business offerings in line with the needs of our customers and the latest trends. Thus, the choice for our shopping centers by the public will translate into our tenants’ commercial success, fostering demand for space in our shopping centers. This will enable us to continue to increase revenues.

 

Furthermore, we are confident that Tarjeta Shopping will consolidate its growth through the development of new products and services and the penetration into new markets. Recovery of credit lines by the middle class will also lead to further growth in retail sales.

 

Lastly, we will continue to work hard on the development of the Rosario Project to meet deadlines through to its inauguration. We will also continue to evaluate new investments in the shopping center business and in the development of residential projects.

 


ALTO PALERMO S.A. (APSA)

 

Principal Financial Indicators

For the nine-month periods ended March 31, 2004 and 2003

(In Argentine Pesos)

(Exchange Rates: March 31, 2004: US$ 1.00 = Ps. 2.86 / March 31, 2003: US$ 1.00 = Ps. 2.93)

 

    

March 31, 2004

(Ps.)


  

March 31, 2003

(Ps.)


   

Change

(Ps.)


    Difference
(%)


 

EBITDA (1)

   77,476,401    56,063,604     21,412,797     38.2  

EBITDA per share

   1,06    0,80     0,26     32.5  

EBITDA per share Fully Diluted (2)

   0,36    0,26     0,10     38.5  

EBITDA Shopping Centers

   72,446,988    58,374,730     14,072,258     24.1  

EBITDA Tarshop S.A.

   5,029,413    (2,311,126 )   7,340,539     (317.6 )

Financial Debt (3)

   237,733,477    250,083,213     (12,349,736 )   (4.9 )

Shares Outstanding(face value $1) (4)

   72,756,813    70,141,975     2,614,838     3.7  

Shares Outstanding

Fully Diluted (2) (4)

   213,095,326    219,004,895     (5,909,569 )   (2.7 )

Price per share (face value $1)(4)

   3.28    2.50     0.78     31.2  

Market Capitalization

   238,642,347    175,354,938     63,287,409     36.1  

Market Capitalization

Fully Diluted

   698,952,669    547,512,238     151,440,431     27.7  

Enterprise Value (5)

   421,332,951    403,899,766     17,433,185     4.3  

Enterprise Value Fully Diluted (2)

   741,304,760    627,194,146     114,110,614     18.2  

Financial Debt / Enterprise Value

   0,56    0,62     (0,06 )   (9.7 )

FFO (6)

   48,241,577    114,777,191     (66,535,614 )   (58.0 )

FFO per share

   0.66    1.64     (0.98 )   (59.8 )

Net Income for the Period

   4,784,368    74,699,761     (69,915,393 )   (93.6 )

Net Income for the Period per share (face value $1.00)

   0.0671    1.0666     (0.9995 )   (93.7 )

Net Income for the Period per share Fully Diluted (face v. $1)

   0.0642    0.2911     (0.2269 )   (77.9 )

 

(1) Net income plus accrued interest charges, income tax, depreciation and amortization charges and all items that do not imply movements of funds, and any extraordinary or non-recurring loss or income.

 

(2) “Fully Diluted” refers to the hypothetical situation in which all the holders of Convertible Notes exercise their right to convert those into common shares of the Company at the closing date of the Financial Statements.

 

(3) Financial Debt (net of accrued interests) in historical pesos (includes loans with shareholders (Art. 33 Law 19,550)).

 

(4) Each share of AR$ 1 face value equals ten shares of AR$ 0.1 face value.

 

(5) Outstanding shares at their market value plus Financial Debt minus Cash & Banks and Short Term Investments.

 

(6) Funds from operations calculated as the period’s results before amortization and depreciation, other net income and expenses and results from exposure to inflation.

 


ALTO PALERMO S.A. (APSA)

 

2. Consolidated Shareholders’ equity structure as compared with the same period for the three previous years.

 

    

31.03.2004

Ps.


  

31.03.2003

Ps.


  

31.03.2002

Ps.


  

31.03.2001

Ps.


Current assets

   97,963,817    53,272,337    97,281,705    193,338,341

Non-current assets

   1,014,811,689    1,043,358,309    1,198,351,188    1,218,338,337
    
  
  
  

Total

   1,112,775,506    1,096,630,646    1,295,632,893    1,411,676,678
    
  
  
  

Current liabilities

   111,145,506    66,449,709    216,373,600    208,834,429

Non-current liabilities

   230,275,820    259,218,874    387,712,037    456,268,464
    
  
  
  

Subtotal

   341,421,326    325,668,583    604,085,637    665,102,893
    
  
  
  

Minority interest

   15,045,066    14,697,918    17,266,531    21,325,553

Shareholders’ equity

   756,309,114    756,264,145    674,280,725    725,248,232
    
  
  
  

Total

   1,112,775,506    1,096,630,646    1,295,632,893    1,411,676,678
    
  
  
  

 

3. Consolidated income (loss) structure as compared with the same period for the three previous years.

 

    

31.03.2004

Ps.


   

31.03.2003

Ps.


   

31.03.2002

Ps.


   

31.03.2001

Ps.


 

Operating income

   32,509,463     9,880,872     24,103,162     65,140,329  

Net loss in equity investments

   (1,167,866 )   (3,075,373 )   (3,209,483 )   (2,563,095 )

Amortization of goodwill

   (3,619,983 )   (3,620,293 )   (2,710,653 )   (2,710,653 )

Financial results, net

   (6,815,895 )   101,134,744     (67,702,234 )   (48,460,336 )

Other income (expense), net

   2,140,923     13,037,078     (2,994,835 )   1,937,683  

Income tax

   (17,977,468 )   (44,589,744 )   (1,541,114 )   (4,612,369 )

Minority interest

   (284,806 )   1,932,477     5,093,305     (587,428 )
    

 

 

 

Net income (loss)

   4,784,368     74,699,761     (48,961,852 )   8,144,131  
    

 

 

 

 

4. Statistical data as compared with the same period of the three previous years.

 

Not applicable.

 


ALTO PALERMO S.A. (APSA)

 

5. Key ratios as compared with the same period of the three previous years.

 

    

31.03.2004

Ps.


  

31.03.2003

Ps.


  

31.03.2002

Ps.


   

31.03.2001

Ps.


Liquidity

                    

Current assets

   97,963,817    53,272,337    97,281,705     193,338,341
    
  
  

 

Current liabilities

   111,145,506    66,449,709    216,373,600     208,834,429

Ratio

   0.88    0.80    0.45     0.93

Indebtedness

                    

Total liabilities

   341,421,326    325,668,583    604,085,637     665,102,893
    
  
  

 

Shareholders’ equity

   756,309,114    756,264,145    674,280,725     725,248,232

Ratio

   0.45    0.43    0.90     0.92

Solvency

                    

Shareholders’ equity

   756,309,114    756,264,145    674,280,725     725,248,232
    
  
  

 

Total liabilities

   341,421,326    325,668,583    604,085,637     665,102,893

Ratio

   2.22    2.32    1.12     1.09

Freezen capital

                    

Non current assets

   1,014,811,689    1,043,358,309    1,198,351,188     1,218,338,337
    
  
  

 

Total assets

   1,112,775,506    1,096,630,646    1,295,632,893     1,411,676,678

Ratio

   0.91    0.95    0.92     0.86

Rentabilitie

                    

Net income (loss) of the period

   4,784,368    74,699,761    (48,961,852 )   8,144,131
    
  
  

 

Average shareholders’ equity

   755,387,827    681,490,072    723,233,627     717,095,228

Ratio

   0.006    0.110    (0.068 )   0.011

 

6. Brief comment on the future perspectives for the ensuing quarter.

 

See item 1.

 


ALTO PALERMO S.A. (APSA)

 

Information required by Section 68 of the

Buenos Aires Stock Exchange Regulations

Balance Sheet as of March 31, 2004

 

1. Specific and significant legal systems that imply contingent lapsing or rebirth of benefits envisaged by such provisions.

 

None.

 

2. Significant changes in the Company’s activities and other similar circumstances that occurred during the periods included in the financial statements, which affect their comparison with financial statements filed in previous years, or that could affect those to be filed in future financial years.

 

None.

 

3. Classification of receivables and liabilities.

 

  a) Past due receivables:

 

    

31.03.04

Ps.


  

31.12.03

Ps.


  

30.09.03

Ps.


  

30.06.03

Ps.


  

Total

Ps.


Accounts receivable, net

   244,102    —      —      —      244,102
    
  
  
  
  

 

  b) Past due payable:

 

    

31.03.04

Ps.


  

31.12.03

Ps.


  

30.09.03

Ps.


  

30.06.03

Ps.


  

Total

Ps.


Trade accounts payable

   1,653,570    191,524    —      2,263,342    4,108,436
    
  
  
  
  

 

  c) Receivables and liabilities with no fixed term:

 

    

31.03.04

Ps.


Other receivables and prepaid expenses

   1,197,134

Related parties

   296,015

 


ALTO PALERMO S.A. (APSA)

 

3. (Continued)

 

  d) Current receivables to mature:

 

    

30.06.04

Ps.


  

30.09.04

Ps.


  

31.12.04

Ps.


  

31.03.05

Ps.


  

Total

Ps.


Accounts receivable, net

   6,245,470    1,818,424    556,739    343,315    8,963,948

Other

   2,790,200    1,893,393    13,053,286    675,867    18,412,746
    
  
  
  
  

 

  e) Non-current receivables to mature:

 

    

31.03.05

Ps.


  

31.03.06

Ps.


  

31.03.07

Ps.


  

31.03.08

Ps.


  

Total

Ps.


Accounts receivable, net

   322,532    258,866    162,123    260,118    1,003,639

Other

   21,921,424    4,008,644    12,724,817    23,228    38,678,113
    
  
  
  
  

 

  f) Current liabilities to mature:

 

    

30.06.04

Ps.


  

30.09.04

Ps.


  

31.12.04

Ps.


  

31.03.05

Ps.


  

Total

Ps.


Trade accounts payable

   4,171,785    342,823    548,630    265,351    5,328,589

Customer advances

   2,565,561    2,522,107    2,522,107    2,569,909    10,179,684

Short-term debt

   3,461,514    2,716,884    5,471,323    9,610,550    21,260,271

Related parties

   3,414,980    28    5,979,015    —      9,394,023

Salaries and social security payable

   1,026,881    —      773,363    —      1,800,244

Taxes payable

   1,517,634    —      3,270,693    —      4,788,327

Other liabilities

   716,588    121,049    928,622    53,054    1,819,313
    
  
  
  
  

 

  g) Non-current liabilities to mature:

 

    

31.03.05

Ps.


  

31.03.06

Ps.


  

31.03.07

Ps.


  

31.03.08

Ps.


  

Total

Ps.


Trade accounts payable

   916,935    916,935    916,936    212,354    2,963,160

Customer advances

   6,678,276    4,141,744    2,313,767    10,604,722    23,738,509

Long-term debt

   49,500,098    140,317,846    —      —      189,817,944

Taxes payable

   918,862    1,225,150    3,360,950    —      5,504,962

Other liabilities

   212,231    212,231    212,231    118,059    754,752
    
  
  
  
  

 


ALTO PALERMO S.A. (APSA)

 

4. Classification of receivables and liabilities.

 

  a) Accounts receivable, net:

 

     Ps.

Current

    

Local currency

   (1) 9,208,050

Non-current

    

Local currency

   (1) 1,003,639

 

(1) Does not accrue interest, except for Ps. 1,199,011 that accrue interest at a variable market rate.

 

  b) Other receivables and prepaid expenses:

 

Current

    

Local currency

   (1) 19,250,795

Foreign currency

   (2) 359,085

Non-current

    

Local currency

   (1) 19,888,236

Foreign currency

   (2) 18,789,877

 

(1) Does not accrue interest, except for Ps. 10,840,414 that accrue interest at a fixed rate.

 

(2) Includes receivable and liabilities in foreign currency originated by the interest rate swap agreement. See Note 3.c. (ii).

 

  c) Trade accounts payable:

 

Current

    

Local currency

   (1) 8,465,970

Foreign currency

   (2) 971,055

Non-current

    

Foreign currency

   (2) 2,963,160

 

(1) Does not accrue interest.

 

(2) Accrue interest at a variable market rate.

 


ALTO PALERMO S.A. (APSA)

 

4. (Continued)

 

  d) Customer advances:

 

     Ps.

Current

    

Local currency

   (1) 10,179,684

Non-current

    

Local currency

   (1) 23,738,509

 

(1) Does not accrue interest, except for Ps. 7,797,176 that accrue interest at a variable market rate.

 

  e) Short-term and long-term debt:

 

Short-term debt

    

Local currency

   (1) 18,367,589

Foreign currency

   (1) 2,892,682

Long-term debt

    

Local currency

   (1) 49,479,431

Foreign currency

   (1) 140,338,513

 

(1) Accrue interest at a fixed and variable market rate.

 

  f) Salaries and social security payable:

 

Current

    

Local currency

   (1) 1,800,244

 

(1) Does not accrue interest.

 

  g) Taxes payable:

 

Current

    

Local currency

   (1) 4,788,327

Non Current

    

Local currency

   (1) 5,504,962

 

(1) Does not accrue interest.

 


ALTO PALERMO S.A. (APSA)

 

4. (Continued)

 

  h) Related parties:

 

     Ps.

Current

    

Local currency

   (1) 9,690,038

 

(1) Does not accrue interest, except Ps. 11,214,024 that accrue interest at a fixed rate.

 

  i) Other liabilities:

 

Current

    

Local currency

   (1) 1,819,313

Non-current

    

Local currency

   (1) 754,752

 

(1) Does not accrue interest.

 

5. Related parties.

 

See Notes 5 and Schedule C of unaudited financial statements.

 

6. Loans to directors.

 

None.

 

7. Physical inventories of stock.

 

See Note 2.7. of unaudited financial statements.

 

8. Current values.

 

See Notes 2.7. and 2.8. of unaudited financial statements.

 

9. Appraisal revaluation of assets.

 

See Note 2.8. of unaudited financial statements.

 


ALTO PALERMO S.A. (APSA)

 

10. Obsolete unused fixed assets.

 

None.

 

11. Equity interests in other companies in excess of that permited by Section 31 of Law No, 19.550.

 

Not applicable.

 

12. Recovery values.

 

Inventories and fixed assets, taken as a whole, do not exceed their estimated realizable value or their economic useful value.

 

13. Insured assets.

 

Insured assets


  

Insured
amounts

Ps.


  

Accounting
values

Ps.


  

Risk covered


Abasto Shopping and premises

   180,205,054    205,196,101   

Fire and civil responsibility.

Full risk.

Alto Palermo Shopping

   118,462,878    233,712,224   

Fire and civil responsibility.

Full risk.

Paseo Alcorta Shopping

   86,402,474    69,907,545   

Fire and civil responsibility.

Full risk.

Alto Avellaneda Shopping

   99,607,512    99,314,508   

Fire and civil responsibility.

Full risk.

Patio Bullrich Shopping

   63,053,757    122,686,575   

Fire and civil responsibility.

Full risk.

Edificio Alto Noa

Contents

   41,469,150    22,808,431   

Fire and civil responsibility.

Full risk.

Edificio Buenos Aires Design

Contents

   48,376,419    23,996,815   

Fire and civil responsibility.

Full risk.

 

In our opinion, the above-described policies adequately cover current risks.

 

14. Allowances and provisions that, taken individually or as a whole, exceed 2% of the shareholders´ equity.

 

See Schedule E.

 

15. Contingent situations at the date of the financial statements with probabilities of occurring that are not remote and whose effects on the equity of the Company have not been given accounting recognition.

 

Not applicable.

 

16. Status of the proceedings leading to the capitalization of irrevocable contributions towards future subscriptions.

 

Not applicable.

 


ALTO PALERMO S.A. (APSA)

 

17. Unpaid accumulated dividends on preferred shares.

 

Not applicable.

 

18. Restrictions on distribution of profits.

 

Not applicable.

 

Autonomous City of Buenos Aires, May 11, 2004.

 

 

Alejandro G. Elsztain

Executive vicepresident

and acting president

 


LOGO

 

Free translation from the original prepared in Spanish for publication in Argentina

 

Report of Independent Auditors

 

To the Shareholders, President and Board of Directors of

Alto Palermo S.A. (APSA)

 

1. We have reviewed the balance sheet of Alto Palermo S.A. (APSA) at March 31, 2004 and the related statements of income, of changes in shareholders’ equity and of cash flows for the nine-month periods ended March 31, 2004 and 2003 and the complementary notes 1 to 13 and schedules A to I. Furthermore, we have reviewed the consolidated financial statements of Alto Palermo S.A. (APSA), which are presented as complementary information. These financial statements are the responsibility of the Company’s management.

 

2. We conducted our review in accordance with standards established by Technical Resolution No. 7 of the Argentine Federation of Professional Councils of Economic Sciences for limited reviews of financial statements. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

3. Based on our work and our examinations of the financial statements of this Company and the consolidated financial statements for the years ended June 30, 2003 and 2002, on which we issued our unqualified report on September 8, 2003, we report that:

 

  a) The financial statements of Alto Palermo S.A. (APSA) at March 31, 2004 and 2003 and its consolidated financial statements at those dates, set out in point 1, prepared in accordance with accounting standards prevailing in the Autonomous City of Buenos Aires include all significant facts and circumstances of which we are aware, and we have no observations to make on them.

 

  b) The comparative information included in the basic and consolidated balance sheets and the supplementary notes and schedules to the attached financial statements arise from Company financial statements at June 30, 2003.

 

Price Waterhouse & Co.

Av. A. Moreau de Justo 270, Piso 2º

C1107AAF Ciudad de Buenos Aires - Argentina

Tel. (54-11) 4319-4600

Fax: (54-11) 4315-6448 / 9

www.pwcglobal.com

 

Abelovich, Polano & Asociados

25 de Mayo 596 – 8º Piso

(1002) Buenos Aires – Argentina

Tel./Fax 4312-8525 – E-mail: dabelovich@estabe.com.ar

 


LOGO

 

Report of Independent Auditors (Continued)

 

4. In accordance with current regulations we report that:

 

  a) the financial statements of Alto Palermo S.A. (APSA) and its consolidated financial statements have been transcribed to the “Inventory and Balance Sheet Book” and comply with the Corporations Law and pertinent resolutions of the National Securities Commission;

 

  b) the financial statements of Alto Palermo S.A. (APSA) arise from official accounting records carried in all formal respects in accordance with legal requirements that maintain the security and integrity conditions based on which they were authorized by the National Securities Commission;

 

  c) we have read the business highlights 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 observations to make;

 

  d) at March 31, 2004, the debt accrued in favor of the Integrated Pension and Survivors’ Benefit System according to the accounting records amounted to Ps. 278,329 none of which was claimable at that date.

 

Autonomous City of Buenos Aires, May 11, 2004

 

PRICE WATERHOUSE & Co.

 

                                                 (Partner)

Carlos Martín Barbafina

Public Accountant (U.C.A.)

C.P.C.E.C.A.B.A. Tº 175 Fº 65

Professional Registration of the Firm

C.P.C.E.C.A.B.A. Tº 1 Fº 1

 

ABELOVICH, POLANO & ASOCIADOS

 

                                                 (Partner)

José Daniel Abelovich

Public Accountant (U.B.A.)

C.P.C.E.C.A.B.A. Tº 102 Fº 191

Professional Registration of the Firm

C.P.C.E.C.A.B.A. Tº 1 Fº 240

 

Price Waterhouse & Co.

Av. A. Moreau de Justo 270, Piso 2º

C1107AAF Ciudad de Buenos Aires - Argentina

Tel. (54-11) 4319-4600

Fax: (54-11) 4315-6448 / 9

www.pwcglobal.com

 

Abelovich, Polano & Asociados

25 de Mayo 596 – 8º Piso

(1002) Buenos Aires – Argentina

Tel./Fax 4312-8525 – E-mail: dabelovich@estabe.com.ar

 


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.

 

ALTO PALERMO S.A. (APSA)

By:  

/S/ Saúl Zang

   
   

Name: Saúl Zang

Title: Director

 

Dated: May 18, 2004