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Mirgor Interim / Quarterly Report 2006
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Download source fileTRANSLATION INTO ENGLISH – ORIGINALLY ISSUED IN SPANISH
SOCIEDAD ANONIMA, COMERCIAL, INDUSTRIAL, FINANCIERA, INMOBILIARIA Y AGROPECUARIA
EINSTEIN 1111 ‑ RIO GRANDE
TIERRA DEL FUEGO
FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD BEGINNING
JANUARY 1, 2006, AND ENDED MARCH 31, 2006,
PRESENTED JOINTLY WITH THE LIMITED REVIEW REPORT
TRANSLATION INTO ENGLISH – ORIGINALLY ISSUED IN SPANISH
BOARD OF DIRECTORS
MIRGOR S.A.C.I.F.I.A.
CHAIRMAN
Roberto G. Vazquez (*)
VICE-CHAIRMAN
José Fara (*)
DIRECTORS
Nicolás Martín Caputo
José Luis Caputo
Alejandro Carrera (*)
ALTERNATE DIRECTORS
Jorge Antonio Caputo
Diego García Villanueva
Mauricio Blacher
Eduardo Garcia Terán
Martín Basaldúa
STATUTORY AUDIT COMMITTEE
Statutory Auditors
Aldo Carugati
Karén Grigorian
Enrique Crespi
Alternate statutory auditors
Pablo Moreno
Gabriel Casella
Benjamín Harriague
(*) Audit Committee members.
(Translation of the report originally issued in Spanish, except for the omission of certain disclosures related to
formal legal requirements for reporting in Argentina)
LIMITED REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS
To the directors of
MIRGOR S.A.C.I.F.I.A.
-
We have performed a limited review of the balance sheet of MIRGOR SACIFIA as of March 31, 2006, and the related statements of income, changes in shareholders’ equity, and cash flows for the three-month period then ended. We also performed a limited review of the accompanying consolidated balance sheet of MIRGOR S.A.C.I.F.I.A. and its subsidiary as of March 31, 2006, and the related consolidated statements of income and cash flows for the three-month period then ended, which are disclosed as supplementary information. Such financial statements are the responsibility of the Company’s Management.
-
Our review was performed in accordance with FACPCE (Argentine Federation of Professional Councils in Economic Sciences) Technical Resolution No. 7 applicable to the limited review of interim financial statements. Under such standards, a limited review consists primarily in applying analytical procedures to the accounting information and making inquiries of the persons in charge of accounting and financial matters. A limited review is substantially less in scope than an audit of financial statements, the objective of which is to express an opinion on the financial statements taken as a whole. Therefore, we do not express such an opinion.
-
As of March 31, 2006, the Company and its subsidiary booked noncurrent minimum presumed income tax and value-added tax credits amounting to ARS 5,998,669, the recoverability of which depends on the companies’ possibility of generating enough taxable income to absorb them. As of the date of issuance of this report, it is not possible to estimate the recoverable amount of such credits.
-
Based on our review, we have not become aware of any significant change that should be made to the financial statements mentioned in paragraph 1 for them to be presented in conformity with professional accounting standards effective in the City of Buenos Aires, Argentina, and the applicable provisions of Argentine Business Associations Law and CNV (Argentine securities commission) regulations. This representation should be read considering the uncertainties described above in paragraph (3), the resolution of which may not be determined as of the date of this report.
-
Regarding the balance sheet of MIRGOR S.A.C.I.F.I.A. and of MIRGOR S.A.C.I.F.I.A. and its subsidiary as of December 31, 2005, and the statements of income, changes in shareholders’ equity, and cash flows of MIRGOR S.A.C.I.F.I.A. and MIRGOR S.A.C.I.F.I.A. and its subsidiary for the three-month period ended March 31, 2005, presented for comparative purposes, we report that:
-
On March 10, 2006, we issued an auditors' report on the financial statements of MIRGOR S.A.C.I.FI.A. and MIRGOR S.A.C.I.FI.A. and its subsidiary as of December 31, 2005, which included a qualification for unresolved uncertainty regarding the recoverability of certain tax assets, which amounted to ARS 5,745,585.
-
On May 11, 2005, we issued a limited review report on the financial statements of MIRGOR S.A.C.I.F.I.A. and of MIRGOR S.A.C.I.F.I.A. and its subsidiary for the three-month period ended March 31, 2005, which included a qualification for unresolved uncertainty regarding the recoverability of certain tax credits and receivables from the Argentine government amounting to ARS 5,439,852.
-
In compliance with current regulations, we further report that:
-
The financial statements mentioned in paragraph (1) have been transcribed into the Inventory and Financial Statements book.
- The financial statements of MIRGOR S.A.C.I.F.I.A. result from books kept, in all formal respects, pursuant to current regulations, except as mentioned in note 9 to the accompanying financial statements.
- The information included in points 2, 3 and 5 of the “Summary of events for the three-month period ended March 31, 2006", filed by the Company to meet CNV and BCBA regulations, results from the accompanying financial statements as of March 31, 2006, and as of March 31, 2005, 2004, 2003 and 2002, (the latter of which after being restated in constant pesos through February 28, 2003, as detailed in note 1(a) to the stand-alone financial statements attached hereto), not included in the document attached hereto, on which we have issued our limited review reports dated May 11, 2005, May 11, 2004, May 19, 2003, and May 22, 2002, respectively, to which we refer and are to be read jointly with this report. In addition, Company Management did not amend the information for the periods ended March 31, 2002, to introduce the changes to the measurement methods established by the accounting standards effective as from January 1, 2003.
- As of March 31, 2006, liabilities accrued in employer and employee contributions to the Integrated Pension Fund System as shown by the Company’s accounting books amounted to ARS 173,955, none of which was due and payable as of that date.
Buenos Aires,
May 11, 2006
| PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L. C.P.C.E.C.A.B.A. Vol. I Fo. 13 |
| Karen Grigorian (Partner) Certified Public Accountant (UBA) CPCECABA Vol. 175 Fo. 031 |
TRANSLATION INTO ENGLISH – ORIGINALLY ISSUED IN SPANISH
REGISTERED OFFICE: Einstein 1111 – Río Grande – Tierra del Fuego, Argentina.
Main business: Manufacture of air conditioning equipment for vehicles.
Date of registration with the Public Registry of Commerce:
- Of the articles of incorporation: June 1, 1971.
- Of the last amendment to by-laws: August 12, 2004.
Expiration date of the articles of incorporation: May 31, 2070.
FISCAL YEAR No. 36 BEGINNING JANUARY 1, 2006
SUMMARY OF EVENTS (*)
For the period ended March 31, 2006
(Figures stated in Argentine pesos - Note 1.b)
- BRIEF COMMENT ON THE COMPANY'S ACTIVITIES FOR THE PERIOD
A major aspect in Argentine reality is the ongoing growth of its economy at very interesting rates. This situation is clearly distinguished from the news related to other areas of Argentine life, as the case of relations with the rest of the world and, particularly, Uruguay owing to the dispute over paper mills.
As to the Company’s activities, changes in the economy allow maintaining a significant growth pace supported by several issues.
Firstly, trust in consumers is high and this leads to car and residential air conditioning equipment sales to remain at sound levels.
In addition, the Company launched air conditioning systems for new car models such Peugeot 307 and Volkswagen Suran. These models’ distinctive characteristic as compared to other products sold by Mirgor is that these cars will be mostly exported. This datum is not a minor one since it is anticipated by some that growth pace will slow down and they are even trying to predict when the new cyclical crisis will occur in the Argentine economy.
In the light of this scene of a more important share of exports in the sales mix of auto customers, there are doubts as to the future changes in price indices. In the particular case of this industry there are still pending salary agreements with the main trade unions involved in the Company’s activity, SMATA and UOM.
The agreements reached by the former with auto-makers will be the benchmark for the negotiations to be carried out between auto-part makers and the related trade unions. Subsequently, an issue to be decided it what portion of these rises may be transferred to the price of parts.
Auto industry production increased about 23.8% during the first quarter and, according to auto-makers, production will maintain the good pace for the rest of the year. The most significant variation occurred due to sales to the local market, which caused the share in imported cars to be reduced domestic sales.
Mirgor sales in units increased by 36.0% as a result of a larger market share obtained by the Company.
The sales of air filtering systems for cars with air conditioning increased by 49.1% during Q1 2006, showing a growth in the share within the Company’s total sales mix. This trend has been strengthening each quarter having reached the current share of 78%.
Instrument panels fell by 7.3%. This fall is related to the new vehicle manufactured by Volkswagen and the need to produce a stock of cars to be provided to car dealers.
The most important issue of growth for the quarter lies in residential air conditioning equipment, which totaled 16,731 units during the period. This represents a 495% increase on sales for the same period the prior year and they explain the strong growth of the Company’s total sales.
- CONSOLIDATED BALANCE SHEET STRUCTURE
| 03/31/2006 | 03/31/2005 | 03/31/2004 | 03/31/2003 | 03/31/2002 | |||||
| Current assets | 154,029,930 | 88,637,108 | 69,542,984 | 64,443,113 | 89,294,740 | ||||
| Noncurrent assets | 25,400,097 | 25,663,150 | 32,084,992 | 37,501,188 | 42,709,339 | ||||
| Total assets | 179,430,027 | 114,300,258 | 101,627,976 | 101,944,301 | 132,004,079 | ||||
| Current liabilities | 90,101,654 | 47,188,002 | 38,950,678 | 31,856,899 | 75,820,464 | ||||
| Noncurrent liabilities | 769,137 | 3,705,127 | 6,921,002 | 13,091,835 | - | ||||
| Total liabilities | 90,870,791 | 50,893,129 | 45,871,680 | 44,948,734 | 75,820,464 | ||||
| Minority interest | 7,689 | 5,492 | 4,316 | 3,789 | 4,474 | ||||
| Shareholders’ equity | 88,551,547 | 63,401,637 | 55,751,980 | 56,991,778 | 56,179,141 | ||||
| Total liabilities and shareholders’ equity | 179,430,027 | 114,300,258 | 101,627,976 | 101,944,301 | 132,004,079 |
- CONSOLIDATED STATEMENT-OF-INCOME STRUCTURE
| 03/31/2006 | 03/31/2005 | 03/31/2004 | 03/31/2003 | 03/31/2002 | |||||
| Operating loss from recurring operations | 5,247,898 | 3,895,796 | 1,333,738 | (453,103) | (397,172) | ||||
| Financial income (expense) | 987,185 | (3,054,086) | (679,802) | 182,667 | 1,988,155 | ||||
| Other (expenses) / revenues | 14,068 | 85,970 | (34,916) | (985,552) | (111,152) | ||||
| Income tax | (109,295) | (216,385) | (257,623) | (49,983) | - | ||||
| Income (loss) on | |||||||||
| minority interest | (373) | (296) | (198) | (259) | (368) | ||||
| Net income (loss) | 6,139,483 | 710,999 | 361,199 | (1,306,230) | 1,479,463 |
- STATISTICAL DATA (1)
| Number of units | 03/31/2006 | 03/31/2005 | 03/31/2004 | 03/31/2003 | 03/31/2002 | ||||||||||||||
| Quarter | Accum. | Quarter | Accum. | Quarter | Accum. | Quarter | Accum. | Quarter | Accum. | ||||||||||
| Production (2) | 87,045 | 87,045 | 35,812 | 35,812 | 48,844 | 48,844 | 37,810 | 37,810 | 23,367 | 23,367 | |||||||||
| Sales (3) | 66,450 | 66,450 | 46,470 | 46,470 | 42,811 | 42,811 | 38,270 | 38,270 | 8,400 | 8,400 | |||||||||
| * Local | 56,240 | 56,240 | 33,414 | 33,414 | 25,893 | 25,893 | 14,064 | 14,064 | 8,400 | 8,400 | |||||||||
| Equipment with air conditioning | 27,150 | 27,150 | 18,198 | 18,198 | 15,506 | 15,506 | 5,578 | 5,578 | 4,495 | 4,495 | |||||||||
| Equipment without air conditioning | 7,817 | 7,817 | 7,503 | 7,503 | 6,199 | 6,199 | 4,979 | 4,979 | 2,075 | 2,075 | |||||||||
| Dashboards | 4,542 | 4,542 | 4,899 | 4,899 | 4,188 | 4,188 | 3,507 | 3,507 | 1,830 | 1,830 | |||||||||
| Residential air conditioning | 16,731 | 16,731 | 2,814 | 2,814 | - | - | - | - | - | - | |||||||||
| * Exports | 10,210 | 10,210 | 13,056 | 13,056 | 16,918 | 16,918 | 24,206 | 24,206 | - | - |
- As from fiscal 2004, the units sold by Interclima S.A. are disclosed as statistical information.
- Including the one related to Interclima S.A.
- The units sold among companies are not included.
- RATIOS
| 03/31/2006 | 03/31/2005 | 03/31/2004 | 03/31/2003 | 03/31/2002 | |||||
| Liquidity | 1.71 | 1.88 | 1.79 | 2.02 | 1.18 | ||||
| Solvency | 0.97 | 1.25 | 1.22 | 1.27 | 0.74 | ||||
| Fixed asset-to-equity capital ratio | 0.14 | 0.22 | 0.32 | 0.37 | 0.32 |
- LISTED PRICE (values per ARS 1 nominal value)
| JAN 05 | JAN 06 | FEB 05 | FEB 06 | MAR 05 | MAR 06 | |||||
| 26.3 | 40.2 | 28.2 | 48.9 | 28.0 | 53.0 |
- PROSPECTS
At the beginning of this new fiscal year, there was also an increase in production volumes due to the incorporation of new products to our work lines and the increase of existing ones; to such end, the Company is also getting ready with a new structure.
The construction of the new storehouses in our industrial plant will extend product manufacturing and storing capacity, allowing the Company to move more comfortably and grow more.
Buenos Aires, May 11, 2006
Roberto G. Vazquez
Chairman
(*) Information not covered by the limited review report, except for 2, 3 and 5.
FINANCIAL STATEMENTS RELATED TO FISCAL YEAR No. 36 FOR THE THREE-MONTH PERIOD BEGINNING JANUARY 1 AND ENDED MARCH 31, 2006, PRESENTED COMPARATIVELY WITH THE PRIOR FISCAL YEAR AND WITH THE SAME PERIOD OF THE PRIOR YEAR
REGISTERED OFFICE: Einstein 1111 – Río Grande – Tierra del Fuego.
Main business: Manufacture of air conditioning equipment for vehicles.
Date of registration with the Public Registry of Commerce:
- Of the articles of incorporation: June 1, 1971.
- Of the first amendment to by-laws: July 1, 1994.
- Of the last amendment to by-laws: August 12, 2004.
Registration number with the IGJ (regulatory agency of business associations): 40.071
Expiration date of articles of incorporation: May 31, 2070.
Parent company: See note 6 to the stand-alone financial statements.
Capital structure: See note 3 to the stand-alone financial statements.
The Company is not enrolled in the Statutory Optional System for the Mandatory Acquisition of Public Offerings.
| ARGENTINE PESOS | |
| 20,000,000 shares of common stock, face value ARS 0.10 each Subscribed, paid-in, issued and registered with the Public Registry of Commerce. | 2,000,000 |
Supplementary information
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2006
PRESENTED COMPARATIVELY WITH THE PRIOR FISCAL YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 12/31/2005 | ||
| ASSETS | |||
| CURRENT ASSETS | |||
| Cash - Note 2 | 12,906,861 | 19,024,378 | |
| Trade receivables - Note 2 | 51,802,164 | 78,911,844 | |
| Tax credits - Note 2 | 2,315,399 | 2,736,541 | |
| Other receivables - Note 2 | 375,772 | 309,326 | |
| Inventories - Note 2 | 86,629,734 | 61,997,660 | |
| TOTAL CURRENT ASSETS | 154,029,930 | 162,979,749 | |
| NONCURRENT ASSETS | |||
| Tax credits - Note 2 | 6,498,840 | 6,298,910 | |
| Other receivables - Note 2 | 461,027 | 460,037 | |
| Intangible assets - Note 1(f)b | 155,164 | 195,345 | |
| Property & equipment - Note 1(f)a | 18,285,066 | 17,908,861 | |
| TOTAL NONCURRENT ASSETS | 25,400,097 | 24,863,153 | |
| TOTAL ASSETS | 179,430,027 | 187,842,902 |
Note 1 through 4 to the consolidated financial statements, exhibit H and notes 1 through 12 to the stand-alone financial statements of MIRGOR S.A.C.I.F.I.A. are an integral part of these consolidated financial statements and should be read jointly therewith.
Supplementary information
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2006
PRESENTED COMPARATIVELY WITH THE PRIOR FISCAL YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 12/31/2005 | ||
| LIABILITIES | |||
| CURRENT LIABILITIES | |||
| Trade payables - Note 2 | 73,835,294 | 82,364,442 | |
| Salaries, payroll taxes and taxes payable - Note 2 | 7,831,358 | 7,947,172 | |
| Customer prepayments - Note 2 | 1,989 | 8,697,347 | |
| Loans - Note 2 | 7,793,091 | 2,422,084 | |
| Other liabilities | 639,922 | 891,678 | |
| TOTAL CURRENT LIABILITIES | 90,101,654 | 102,322,723 | |
| NONCURRENT LIABILITIES | |||
| Loans - Note 2 | - | 3,100,800 | |
| Tax payables – Note 2 | 769,137 | - | |
| TOTAL NONCURRENT LIABILITIES | 769,137 | 3,100,800 | |
| TOTAL LIABILITIES | 90,870,791 | 105,423,523 | |
| MINORITY INTEREST IN SUBSIDIARIES | 7,689 | 7,315 | |
| SHAREHOLDERS’ EQUITY | 88,551,547 | 82,412,064 | |
| TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY | 179,430,027 | 187,842,902 |
Note 1 through 4 to the consolidated financial statements, exhibit H and notes 1 through 12 to the stand-alone financial statements of MIRGOR S.A.C.I.F.I.A. are an integral part of these consolidated financial statements and should be read jointly therewith.
Supplementary information
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 2006, PRESENTED COMPARATIVELY WITH THE SAME PERIOD THE PRIOR YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 03/31/2005 | ||
| Net sales (including VAT benefits amounting to 12,165,232 and 6,866,655, respectively) | 79,119,408 | 47,816,497 | |
| Cost of goods sold | (65,986,493) | (40,695,996) | |
| GROSS REVENUES | 13,132,915 | 7,120,501 | |
| Administrative expenses - Exhibit H | (4,057,601) | (2,200,265) | |
| Selling expenses - Exhibit H | (3,827,416) | (1,024,440) | |
| Financial income (expense) and holding gains (losses) from assets: | |||
| Interest | 346,610 | (67,959) | |
| Foreign exchange difference | 98,555 | (188,640) | |
| Holding gains (losses) - Inventories | 914,235 | (1,270,371) | |
| Allowance for doubtful accounts | - | (621,133) | |
| Allowance for impairment in value of property and equipment | - | 70,423 | |
| Allowance for impairment in value of tax credits | 841,010 | (198,646) | |
| Allowance for obsolescence and impairment in value of inventories | (61,736) | (656,455) | |
| (Loss) from bondholdings | - | (67,435) | |
| Financial income (expense) and holding gains (losses) from liabilities: | |||
| Interest | (937,723) | (427,283) | |
| Foreign exchange difference | (213,766) | 373,413 | |
| Other income, net | 14,068 | 85,970 | |
| INCOME BEFORE INCOME TAX | 6,249,151 | 927,680 | |
| Income tax | (109,295) | (216,385) | |
| INCOME AFTER INCOME TAX | 6,139,856 | 711,295 | |
| Minority interest in subsidiaries | (373) | (296) | |
| NET INCOME FOR THE PERIOD | 6,139,483 | 710,999 |
Note 1 through 4 to the consolidated financial statements, exhibit H and notes 1 through 12 to the stand-alone financial statements of MIRGOR S.A.C.I.F.I.A. are an integral part of these consolidated financial statements and should be read jointly therewith.
Supplementary information
CONSOLIDATED STATEMENT OF CASH FLOWS (1) FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 2006, PRESENTED COMPARATIVELY WITH THE SAME PERIOD THE PRIOR YEAR
(Figures stated in Argentine pesos – Note 1.b)
| 03/31/2006 | 03/31/2005 | ||
| CHANGES IN CASH | |||
| Cash at beginning of year | 19,024,378 | 17,673,528 | |
| Cash at end of period | 12,906,861 | 13,123,549 | |
| (Decrease) in cash, net | (6,117,517) | (4,549,979) | |
| CAUSES OF CHANGES IN CASH | |||
| OPERATING ACTIVITIES | |||
| Net income for the period | 6,139,483 | 710,999 | |
| Interest and foreign exchange difference accrued | 325,755 | 137,393 | |
| Income tax | 109,295 | 216,385 | |
| Adjustments to reach net cash flows (used in) provided by operating activities | |||
| P&E depreciation and intangible assets amortization | 706,168 | 1,112,416 | |
| Income from the sale of P&E | (29,424) | - | |
| Minority interest | 373 | 296 | |
| Increase in the allowance for inventories obsolescence and impairment of value | 61,736 | 656,455 | |
| Increase in the allowance for trade receivables | - | 621,133 | |
| (Decrease) in the allowance for P&E impairment in value | - | (70,423) | |
| (Decrease) increase in the allowance for impairment in value of tax credits | (841,010) | 198,646 | |
| (Decrease) in the allowance for warranties and increasing costs | - | (290,821) | |
| Changes in operating assets and liabilities | |||
| Decrease in trade receivables | 27,109,680 | 9,230,179 | |
| (Increase) in inventories | (24,693,810) | (4,314,339) | |
| (Decrease) in trade payables | (8,529,148) | (3,207,274) | |
| Increase (Decrease) in salaries, payroll, taxes and taxes payable (net of tax credits) | 1,436,250 | (400,092) | |
| (Decrease) in customer prepayments | (8,695,358) | (1,448,917) | |
| (Decrease) Increase in other receivables and payables | (319,192) | 192,852 | |
| Interest paid | (257,547) | (411,542) | |
| NET CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES | (7,476,749) | 2,933,346 |
(1) Cash comprises cash on hand and cash in banks.
Notes 1 through 4 to the consolidated financial statements, exhibit H and notes 1 through 12 to the stand-alone financial statements of MIRGOR S.A.C.I.F.I.A. are an integral part of and should be read together with these statements.
Supplementary information
CONSOLIDATED STATEMENT OF CASH FLOWS (1) FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 2006, PRESENTED COMPARATIVELY WITH THE SAME PERIOD THE PRIOR YEAR
(Figures stated in Argentine pesos – Note 1.b)
| 03/31/2006 | 03/31/2005 | ||
| INVESTMENT ACTIVITIES | |||
| Property & equipment additions | (1,042,192) | (304,496) | |
| Property & equipment sales | 29,424 | - | |
| NET CASH FLOW (USED IN) INVESTMENT ACTIVITIES | (1,012,768) | (304,496) | |
| FINANCING ACTIVITIES | |||
| Loan repayment | (3,628,000) | (7,178,829) | |
| Inflows from new debts | 6,000,000 | - | |
| NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES | 2,372,000 | (7,178,829) | |
| (DECREASE) IN CASH, NET | (6,117,517) | (4,549,979) |
(1) Cash comprises cash on hand and cash in banks.
Notes 1 through 4 to the consolidated financial statements, exhibit H and notes 1 through 12 to the stand-alone financial statements of MIRGOR S.A.C.I.F.I.A. are an integral part of and should be read together with these statements.
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
- Accounting standards applied to financial statements preparation and presentation:
As established by CNV (Argentine Securities Commission) Resolution No. 368, the consolidated financial statements are required to be presented before the stand-alone financial statements. This regulation only implies a change in the location of consolidated information, and it does not modify the fact that stand-alone financial statements constitute the main information and consolidated financial statements are supplementary, as set forth by Argentine Business Associations Law and current professional accounting standards. Therefore, and for the correct interpretation thereof, these consolidated financial statements should be read together with the stand-alone financial statements.
- Restatement into constant pesos
Professional accounting standards establish that the financial statements should be stated in constant pesos. In a monetary stability context, the face and constant value of Argentine pesos is the same, but, in an inflationary or deflationary context, the financial statements should be stated in pesos reflecting the purchasing power as of their closing date by recognizing the changes in the domestic WPI published by the INDEC (Argentine Institute of Statistics and Censuses), in accordance with the restatement method set by FACPCE (Argentine Federation of Professional Council in Economic Sciences) Technical Resolution No. 6.
The Company’s financial statements recognize the changes in the purchasing power of the peso through February 28, 2003, in accordance with Presidential Decree No. 664/2003 and CNV General Resolution No. 441. Under professional accounting standards the restatement method established in Technical Resolution No. 6 should have been discontinued only as from October 1, 2003. The effects of failing to recognize variations in the currency purchasing power until such date were immaterial with respect to the accompanying financial statements.
- Valuation and disclosure method summary:
The valuation and disclosure methods used in the consolidated financial statements are similar to those disclosed in note 1 to the stand-alone financial statements, except for the valuation of interests in subsidiaries, which in the current consolidated statements have been incorporated line by line following the method of FACPCE Technical Resolution No. 21, with the applicable deletions.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- Consolidation bases:
Following the procedure established in FACPCE Technical Resolution No. 21, MIRGOR S.A.C.I.F.I.A. has consolidated its financial statements as of March 31, 2006, and December 31, 2005, as the case may be, line by line with those of its subsidiary, Interclima Sociedad Anónima, in which it holds majority voting rights.
The following information reflects the parent-subsidiary relationship:
| Equity interest | ||||
| Subsidiary | Common and in possible votes as of 3/31/2006, 12/31/2005 and 3/31/2005 | Last financial statements issued | ||
| Interclima Sociedad Anónima | 99,9667 | 03/31/2006 |
In the consolidation, the amounts invested in the subsidiary and the share in income (loss) and cash flows are replaced by all the subsidiary’s assets, liabilities, income (loss) and cash flows, separately disclosing third-party minority interest. Receivables and payables, and transactions performed among members of the consolidated group were eliminated from the consolidation. Gain (loss) deriving from transactions between members of the consolidated group from intercompany gains (losses) and contained in final assets and liabilities are fully eliminated.
- Financial statements used in the consolidation:
The financial statements of Interclima Sociedad Anónima as of March 31, 2006, and 2005, were used to prepare the consolidated financial statements as of such dates. The limited review report on these financial statements dated May 11, 2006, and May 11, 2005, respectively, included an “except for” qualification related to the income tax payable quantification (such adjustment was considered to value the investment and, consequently, in these consolidated financial statements), and with a qualification for unresolved uncertainty related to the recoverability of certain tax credits.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- Changes in Property & equipment and intangible assets:
| 03/31/2006 | 12/31/2005 | ||
| 1. Property & equipment: | |||
| Balance at beginning | 17,908,861 | 19,463,592 | |
| Additions | 1,042,192 | 2,291,401 | |
| Retirements (net of accumulated depreciation) | - | (40,676) | |
| Decrease in the allowance for impairment in value | - | 281,691 | |
| Depreciation | (665,987) | (4,087,147) | |
| Balance at end | 18,285,066 | 17,908,861 | |
| 1. Intangible assets: | |||
| Balance at beginning | 195,345 | 356,069 | |
| Additions | - | - | |
| Amortization | (40,181) | (160,724) | |
| Balance at end | 155,164 | 195,345 |
NOTE 2 – BREAKDOWN OF MAIN ACCOUNTS
| 03/31/2006 | 12/31/2005 | ||
| CURRENT ASSETS | |||
| Cash | |||
| On hand in Argentine pesos | 26,715 | 26,106 | |
| On hand in foreign currency | 79,984 | 21,208 | |
| In banks in Argentine pesos | 5,078,912 | 10,601,796 | |
| In banks in foreign currency | 7,721,250 | 8,375,268 | |
| 12,906,861 | 19,024,378 |
NOTE 2 – BREAKDOWN OF MAIN ACCOUNTS - Continued
| 03/31/2006 | 12/31/2005 | ||
| Trade receivables | |||
| Trade receivables | 51,651,087 | 79,398,361 | |
| Trade receivables in foreign currency | 1,208,932 | 571,338 | |
| Allowance for doubtful accounts | (1,057,855) | (1,057,855) | |
| 51,802,164 | 78,911,844 | ||
| Tax credits | |||
| VAT credit | 1,097,073 | 1,203,895 | |
| Withholdings and additional withholdings | 752,593 | 659,077 | |
| Other | 465,733 | 873,569 | |
| 2,315,399 | 2,736,541 | ||
| Other receivables | |||
| Insurance to be accrued | 29,601 | 138,036 | |
| Loans to the personnel | 112,433 | 57,622 | |
| Other | 233,738 | 113,668 | |
| 375,772 | 309,326 |
| Inventories | |||
| Manufactured products | 18,959,188 | 15,885,451 | |
| Raw material | 57,537,276 | 39,527,943 | |
| Raw material in transit | 17,331,188 | 13,223,760 | |
| Stock at end of year | 93,827,652 | 68,637,154 | |
| Prepayments to vendors in Argentine pesos | 2,077,373 | 3,702,391 | |
| Prepayments to vendors in foreign currency | 3,448,775 | 2,320,445 | |
| Allowance for impairment in value | (12,724,066) | (12,662,330) | |
| 86,629,734 | 61,997,660 | ||
| NONCURRENT ASSETS | |||
| Other receivables | |||
| Companies under section 33, Law No. 19,550 (subsidiaries and affiliates) and other related companies - Note 3 | 461,027 | 460,037 | |
| 461,027 | 460,037 |
NOTE 2 – BREAKDOWN OF MAIN ACCOUNTS - Continued
| 03/31/2006 | 12/31/2005 | ||
| Tax credits | |||
| VAT credit | 3,988,185 | 3,886,201 | |
| Minimum presumed income tax | 2,010,484 | 1,808,441 | |
| Reimbursements receivable in Argentine pesos | 1,877,032 | 2,718,042 | |
| Promotional benefits receivable | 885,447 | 885,447 | |
| Deferred tax credit | 3,434,463 | 3,700,344 | |
| Allowance for impairment in value of deferred income tax credit | (2,934,313) | (3,194,594) | |
| Other | 30,407 | 128,904 | |
| Allowance for impairment in value of tax credits | (2,792,865) | (3,633,875) | |
| 6,498,840 | 6,298,910 | ||
| CURRENT LIABILITIES | |||
| Trade payables | |||
| Vendors | 44,090,738 | 61,106,400 | |
| Vendors in foreign currency | 29,744,556 | 21,214,005 | |
| Payables in foreign currency - Companies under section 33, Law No. 19,550 (subsidiaries and affiliates) and other related companies - Note 3 | - | 44,037 | |
| 73,835,294 | 82,364,442 | ||
| Salaries, payroll taxes and taxes payable | |||
| Salaries & wages and payroll taxes | 422,259 | 1,979,167 | |
| Vacation and annual statutory bonus accrual | 1,895,117 | 1,050,817 | |
| Income tax accrual | 644,288 | 547,954 | |
| Health and safety assessment | 312,218 | 300,774 | |
| Turnover tax payable | 530,023 | 55,009 | |
| Withholdings and additional withholdings | 194,231 | 245,907 | |
| Other taxes payable | 3,833,222 | 3,767,544 | |
| 7,831,358 | 7,947,172 |
NOTE 2 – BREAKDOWN OF MAIN ACCOUNTS – Continued
| 03/31/2006 | 12/31/2005 | ||
| Customer prepayments | |||
| In foreign currency | 1,989 | 8,697,347 | |
| 1,989 | 8,697,347 | ||
| Loans | |||
| Financial loans in Argentine pesos | 4,529,620 | - | |
| Financial loans in foreign currency | 3,263,471 | 2,422,084 | |
| 7,793,091 | 2,422,084 | ||
| NONCURRENT LIABILITIES | |||
| Loans | |||
| Financial loans in foreign currency | - | 3,100,800 | |
| - | 3,100,800 | ||
| Tax payables | |||
| Turnover tax payable | 769,137 | - | |
| 769,137 | - |
NOTE 3 – INFORMATION ON RELATED PARTIES
The receivables from / payables to affiliates and the parent company related to the transactions performed during the three-month period ended March 31, 2006, and for the year ended December 31, 2005, are:
| 03/31/2006 | 12/31/2005 | ||
| Other receivables (noncurrent) | |||
| IL TEVERE S.A. (2) | 461,027 | 460,037 | |
| Total | 461,027 | 460,037 | |
| Trade payables | |||
| VALEO SECURITE HABITABLE (1) | - | 44,037 | |
| Total | - | 44,037 |
NOTE 3 – INFORMATION ON RELATED PARTIES – Continued
The transactions with the parent and other related companies during the three-month periods ended March 31, 2006, and 2005, are:
| 03/31/2005 | |||||||
| Purchase of goods | Sale of goods | Service received | Royalties | ||||
| VALEO SISTEMAS AUTOMOTIVOS LTD (1) | 956,374 | 927,062 | - | - | |||
| VALEO CHINA (1) | 67,980 | - | - | - | |||
| VALEO AUTOKLIMATIZACE S.R.O (1) | 306,250 | - | - | - | |||
| VALEO CLIMATIZACION S.A.(EURO) (1) | 76,232 | - | - | - | |||
| VALEO KLIMASYSTEME GMBH (1) | 28,922 | - | - | - | |||
| VALEO COMPONENTES AUTOMOVILES (1) | 18,991 | - | - | - | |||
| VALEO SISTEMAS AUTOMOTIVOS (1) | 475,202 | - | - | - | |||
| VALEO AUTOSYSTEMIY SP. Z.O.O. (1) | 28,117 | - | - | - | |||
| VALEO VYMENIKY TEPLA s.r.o. (1) | 1,214,940 | - | - | - | |||
| VALEO SECURITE HABITACLE (1) | 277,314 | - | - | - | |||
| VALEO THERMIQUE FRANCIA (1) | 157,576 | - | 36,756 | - | |||
| VALEO THERMIQUE MOTEUR (1) | 1,011,626 | - | - | - | |||
| VALEO ZARAGOZA (1) | 1,804,297 | - | - | - | |||
| VCC UP ECHANGEURS (1) | 869,615 | - | - | 217,523 | |||
| 7,293,436 | 927,062 | 36,756 | 217,523 |
(1) Related company until September 27, 2005 (See 2).
(2) Parent company. On September 27, 2005, the local shareholders of Il Tevere S.A., owner of 52% of Mirgor S.A.C.I.F.I.A., acquired from Valeo System Thermique France its interest in such company; consequently, as from such date, Valeo and the companies from such group are no longer a part of the group of companies of Mirgor S.A.C.I.F.I.A.
NOTE 4 - INFORMATION BY SEGMENT
The Company and the subsidiary operate in the automotive and residential air filtering services segments. The applicable valuation standards to prepare the information by business segment are described in note 1 to these financial statements.
| AIR CONDITIONING | |||||
| REVENUES | AUTOMOTIVE | RESIDENTIAL | TOTAL | ||
| Sales (net of imputed interest) | 51,349,379 | 15,604,797 | 66,954,176 | ||
| Tax benefit | 8,867,442 | 3,297,790 | 12,165,232 | ||
| Total | 60,216,821 | 18,902,587 | 79,119,408 | ||
| EQUITY | |||||
| Allocated assets | 151,686,210 | 27,743,817 | 179,430,027 | ||
| Addition of P&E | 978,036 | 64,156 | 1,042,192 |
EXHIBIT H
INFORMATION REQUIRED BY LAW No. 19,550, SECTION 64 B(I) FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 2006, PRESENTED COMPARATIVELY WITH THE SAME PERIOD OF THE PRIOR YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 03/31/2005 | |||||||||
| Accounts | Operating costs | Administrative expenses | Selling expenses | Total | Total | |||||
| Salaries & wages | 3,737,697 | 1,094,524 | 179,710 | 5,011,931 | 2,463,095 | |||||
| Contributions and employee benefits | 1,170,075 | 519,182 | 67,265 | 1,756,522 | 623,204 | |||||
| Insurance | 290,020 | 26,639 | 2,507 | 319,166 | 231,105 | |||||
| Training fees and expenses | 186,065 | 526,182 | 2,063 | 714,310 | 335,202 | |||||
| Taxes, rates and assessments | 647,333 | 171,199 | 1,674,027 | 2,492,559 | 784,260 | |||||
| Maintenance | 145,605 | 86,160 | - | 231,765 | 170,149 | |||||
| Property & equipment depreciation | 354,767 | 303,346 | 7,874 | 665,987 | 1,072,235 | |||||
| Intangible assets amortization | 3,916 | 36,265 | - | 40,181 | 40,181 | |||||
| Leases and rentals | 257,029 | - | - | 257,029 | 138,324 | |||||
| Clearing and dispatch expenses | 1,561,444 | - | - | 1,561,444 | 1,295,204 | |||||
| Royalties | - | - | 500,843 | 500,843 | 328,541 | |||||
| Transportation, shipping and handling | 5,985,133 | - | 1,069,358 | 7,054,491 | 2,919,056 | |||||
| Bank expenses | - | 816,481 | - | 816,481 | 428,236 | |||||
| Electric Power | 87,346 | - | - | 87,346 | 78,416 | |||||
| Traveling expenses | - | 77,975 | - | 77,975 | 47,643 | |||||
| Other | 438,153 | 399,648 | 323,769 | 1,161,570 | 432,995 | |||||
| Total as of 03/31/06 | 14,864,583 | 4,057,601 | 3,827,416 | 22,749,600 | ||||||
| Total as of 03/31/05 | 8,163,141 | 2,200,265 | 1,024,440 | 11,387,846 |
BALANCE SHEET AS OF MARCH 31, 2006,
PRESENTED COMPARATIVELY WITH THE PRIOR FISCAL YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 12/31/2005 | ||
| ASSETS | |||
| CURRENT ASSETS | |||
| Cash - Note 2 | 11,353,190 | 17,137,992 | |
| Trade receivables - Note 2 | 26,649,025 | 17,421,944 | |
| Tax credits - Note 2 | 1,153,578 | 1,510,281 | |
| Other receivables - Note 2 | 354,550 | 294,859 | |
| Inventories - Note 2 | 76,420,459 | 54,133,149 | |
| TOTAL CURRENT ASSETS | 115,930,802 | 90,498,225 | |
| NONCURRENT ASSETS | |||
| Long-term investments - Exhibit C | 19,274,092 | 18,293,834 | |
| Tax credits - Note 2 | 2,103,965 | 1,952,865 | |
| Other receivables - Note 2 | 461,027 | 460,037 | |
| Property & equipment | 14,972,895 | 15,087,079 | |
| Intangible assets | 132,971 | 169,236 | |
| TOTAL NONCURRENT ASSETS | 36,944,950 | 35,963,051 | |
| TOTAL ASSETS | 152,875,752 | 126,461,276 | |
| LIABILITIES | |||
| CURRENT LIABILITIES | |||
| Trade payables - Note 2 | 46,001,388 | 30,855,735 | |
| Salaries, payroll taxes and taxes payable - Note 2 | 2,849,360 | 2,981,397 | |
| Loans - Note 2 | 7,793,091 | 2,422,084 | |
| Other liabilities - Note 2 | 7,267,029 | 4,689,196 | |
| TOTAL CURRENT LIABILITIES | 63,910,868 | 40,948,412 | |
| NONCURRENT LIABILITIES | |||
| Loans - Note 2 | - | 3,100,800 | |
| Tax payables - Note 2 | 413,337 | - | |
| TOTAL NONCURRENT LIABILITIES | 413,337 | 3,100,800 | |
| TOTAL LIABILITIES | 64,324,205 | 44,049,212 | |
| SHAREHOLDERS' EQUITY (As per related statement) | 88,551,547 | 82,412,064 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 152,875,752 | 126,461,276 |
Notes 1 through 12 and exhibit C are an integral part of these financial statements.
STATEMENT OF INCOME FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2006,
PRESENTED COMPARATIVELY WITH THE SAME PERIOD THE PRIOR YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 03/31/2005 | ||
| Net sales (including VAT benefits amounting to 8,867,442 and 6,344,680, respectively) - Note 4(e) | 58,085,503 | 43,458,447 | |
| Cost of goods sold | (47,692,996) | (38,114,787) | |
| GROSS REVENUES | 10,392,507 | 5,343,660 | |
| Administrative expenses | (3,362,009) | (1,978,487) | |
| Selling expenses | (2,593,297) | (882,641) | |
| Ordinary income from long-term investments - Note 1 | 980,258 | 498,564 | |
| Financial income (expense) and holding gains (losses) from assets: | |||
| Interest | 114,272 | (60,576) | |
| Foreign exchange difference | 115,069 | (113,025) | |
| Holding gains (losses) - Inventories | 772,310 | (1,102,991) | |
| Allowance for doubtful accounts | - | (621,133) | |
| Allowance for impairment in value and obsolescence of inventories | 142,098 | (592,183) | |
| (Loss) from bond holdings | - | (67,435) | |
| Financial income (expense) and holding gains (losses) from liabilities: | |||
| Interest | (327,316) | (438,888) | |
| Foreign exchange difference | (428,441) | 340,163 | |
| Other income and expenses, net - Note 2 | 334,032 | 385,971 | |
| NET INCOME FOR THE PERIOD | 6,139,483 | 710,999 | |
| EARNINGS PER SHARE - NOTE 11 | |||
| BASIC ORDINARY | 0.3070 | 0.0355 | |
| DILUTED - ORDINARY | 0.3070 | 0.0355 |
Notes 1 through 12 and exhibit C are an integral part of these financial statements.
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2006,
PRESENTED COMPARATIVELY WITH THE SAME PERIOD OF THE PRIOR YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | ||||||||||||
| Owner’s contributions | ||||||||||||
| Detail | Capital stock | Capital stock adjustments | Noncapitalized adjustments | Noncapitalized contribution adjustments | Issuance premiums | Subtotal | ||||||
| Balances at beginning of period | 2,000,000 | 4,155,936 | - | - | 5,243,562 | 11,399,498 | ||||||
| Net income for the period | - | - | - | - | - | - | ||||||
| Balances as of March 31, 2006 | 2,000,000 | 4,155,936 | - | - | 5,243,562 | 11,399,498 | ||||||
| Balances as of March 31, 2005 | 2,000,000 | 4,155,936 | 497 | 717 | 5,243,562 | 11,400,712 |
| 03/31/2006 | 03/31/2005 | |||||||||||
| Retained earnings | ||||||||||||
| Appropriated retained earnings | ||||||||||||
| Detail | Legal reserve | Other reserves (*) | Total | Unappropriated retained earnings | Total | Total | ||||||
| Balances at beginning of period | 2,280,143 | 73,708 | 2,353,851 | 68,658,715 | 82,412,064 | 62,690,638 | ||||||
| Net income for the period | - | - | - | 6,139,483 | 6,139,483 | 710,999 | ||||||
| Balances as of March 31, 2006 | 2,280,143 | 73,708 | 2,353,851 | 74,798,198 | 88,551,547 | |||||||
| Balances as of March 31, 2005 | 2,280,143 | 73,708 | 2,353,851 | 49,647,074 | 63,401,637 |
(*) See Note 3.b).
Notes 1 through 12 and exhibit C are an integral part of these financial statements.
STATEMENT OF CASH FLOWS (1) FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2006,
PRESENTED COMPARATIVELY WITH THE SAME PERIOD OF THE PRIOR YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 03/31/2006 | 03/31/2005 | ||
| CHANGES IN CASH | |||
| Cash at beginning of year | 17,137,992 | 17,561,127 | |
| Cash at end of period | 11,353,190 | 12,119,572 | |
| (Decrease) in cash, net | (5,784,802) | (5,441,555) | |
| CAUSES OF CHANGES IN CASH | |||
| OPERATING ACTIVITIES | |||
| Net income for the period | 6,139,483 | 710,999 | |
| Interest and foreign exchange difference accrued | 155,755 | 137,393 | |
| Adjustments to reach net cash flows (used in) provided by operating activities | |||
| P&E depreciation and intangible assets amortization | 572,253 | 948,033 | |
| Income from the sale of P&E | (29,424) | - | |
| Increase in the allowance for trade receivables, net | - | 621,133 | |
| (Decrease) increase in allowance for impairment in value and obsolescence of inventories | (142,098) | 592,183 | |
| Income (loss) from long-term investments | (980,258) | (498,564) | |
| Changes in operating assets and liabilities | |||
| (Increase) in trade receivables | (9,227,081) | (4,684,794) | |
| (Increase) in inventories | (22,145,212) | (5,752,342) | |
| Increase in trade payables | 15,145,653 | 8,737,583 | |
| Increase in salaries, payroll taxes and other taxes payable (net of tax credits) | 486,903 | 68,029 | |
| (Decrease) in customer prepayments | 0 | (1,448,917) | |
| Increase in other receivables and payables | 2,517,151 | 2,890,247 | |
| Interest paid | (257,547) | (411,542) | |
| NET CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES | (7,764,422) | 1,909,441 | |
| INVESTMENT ACTIVITIES | |||
| Net P&E acquisitions | (421,804) | (172,167) | |
| P&E sale | 29,424 | - | |
| NET CASH FLOWS (USED IN) INVESTMENT ACTIVITIES | (392,380) | (172,167) | |
| FINANCING ACTIVITIES | |||
| Loan repayment | (3,628,000) | (7,178,829) | |
| Inflows from new debts | 6,000,000 | - | |
| NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES | 2,372,000 | (7,178,829) | |
| (DECREASE) IN CASH, NET | (5,784,802) | (5,441,555) |
(1) Cash comprises cash on hand and cash in banks.
The accompanying notes 1 through 12 and exhibit C are an integral part of these financial statements.
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
- Accounting standards applied to financial statements preparation and presentation
The financial statements of the Company have been prepared in accordance with CNV regulations.
Pursuant to the agreement signed in July 2004 between the FACPCE (Argentine Federation of Professional Councils in Economic Sciences) and the CPCECABA (Buenos Aires City Professional Council in Economic Sciences) with the purpose of unifying professional accounting standards, the FACPCE issued Resolution No. 312/05 dated April 1, 2005 approving a series of changes to its Technical Resolutions (“TRs”) and Interpretations. Subsequently, in August 2005, the CPCECABA issued Resolution CD No. 93/2005, whereby it approved the FACPCE's TRs (with the amendments dated April 1, 2005) and established that such accounting standards shall become generally effective and mandatory for the full years or interim periods belonging to the fiscal years beginning January 1, 2006, or thereafter, although earlier application is allowed. CPCECABA Resolution CD No. 93/2005 also provided a transition period for certain changes related to the comparison with recoverable values and the disclosure of certain supplementary information regarding income tax booking, which will become mandatory for the fiscal years beginning January 1, 2008, or thereafter.
On December 29, 2005, and January 26, 2006, the CNV (Argentine Securities Commission) issued General Resolutions No. 485 and 487, respectively, which adopted (with certain amendments) and applied, for full fiscal years or interim periods related to the fiscal years beginning as from January 1, 2006, Technical Resolutions Nos. 6, 8, 9, 11, 14, 16, 17, 18, 21 and 22 and Interpretations Nos. 1, 2, 3 and 4 issued by the FACPCE (Argentine Federation of Professional Councils in Economic Sciences) and adopted by the CPCECABA (Professional Council in Economic Sciences of the City of Buenos Aires) through Resolution C.D. No. 93/2005, as mentioned in the previous paragraph. The most significant changes for the Company as a result of CNV General Resolutions Nos. 485 and 487, are as follows:
- Comparison with recoverable value, for property & equipment and intangible assets. Such comparison is required to be made in a single step and an impairment in value shall be recorded whenever the expected presented value of the cash flows (and the net realizable value) are lower than the book value. In addition, the comparison is to be made asset by asset or, if there are objective reasons that make this impossible, at the level of each cash-generating activity. If information is presented by business segment, the same grouping method should be used.
- It is established that the difference between the P&E book value adjusted for inflation (and other nonmonetary assets) and their tax base is a temporary difference that results in the recognition of a deferred liability, but it is acceptable to continue to consider it as a permanent difference. In this case, the filing of certain information is required.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- For matters not contemplated in general or specific accounting standards and that cannot be resolved by using the general framework of accounting standards, effective International Financial Reporting Standards and interpretations approved by the International Accounting Standards Board shall be also applied in the year when such supplementary standards are applicable.
Regarding the changes mentioned in points (a) and (c) above, the Company's Management has analyzed their effects as of the date of these financial statements and has concluded that they do not result in significant changes with respect to the valuation and disclosure methods and criteria applied by the Company until December 31, 2005.
Regarding the change mentioned in point (b) above, the effects of calculating the deferred income tax considering the difference between the inflation-adjusted book value of Property & Equipment Items (and other non-monetary assets) and their tax base would result in a decrease in shareholders’ equity and an increase in the income-tax deferred liability (noncurrent) of about 387,065 as of March 31, 2006, and 401,934 as of December 31, 2005, and of 505,546 as of March 31, 2005, while the effect on income(loss) for this quarter would not have been significant.
Preparing the financial statements in accordance with current professional accounting standards requires Company Management to consider the estimates and assumptions impacting on the assets and liabilities amounts reported, the disclosure of contingent liabilities and assets as of the date of such financial statements, as well as the revenues and expenses for each period. The final results may differ from such estimates.
- Restatement into constant pesos
Professional accounting standards establish that the financial statements should be stated in constant pesos. Within a monetary stability context, the nominal currency is used as constant currency and, within an inflationary or deflationary context, the financial statements should be stated in the currency of the purchasing power as of the date to which they related, thus recognizing for accounting purposes the changes in the domestic WPI published by the INDEC in conformity with the restatement method established by FACPCE Technical Resolution No. 6.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
The Company’s financial statements recognize the changes in the purchasing power of the peso through February 28, 2003, in accordance with Presidential Decree No. 664/2003 and CNV General Resolution No. 441. Under professional accounting standards the restatement method established in Technical Resolution No. 6 should have been discontinued only as from October 1, 2003. The effects of failing to recognize variations in the currency purchasing power until such date were immaterial with respect to the accompanying financial statements.
- Valuation methods
The main valuation methods used to prepare the financial statements were:
- Cash:
- In Argentine pesos: at nominal value.
- In foreign currency: converted at the exchange rate effective as of each period-end or year-end for the settlement of these transactions. Foreign exchange differences were charged to income for each period.
- Receivables and payables:
- In Argentine pesos: at the present value of the cash flows from which they will be generated discounted, as long as they have material effects, using imputed, explicit or market rates, as the case may be, effective at the time of each transaction.
- In foreign currency: at the present value of the cash flows from which they will be generated discounted, as long as they have material effects, using imputed, explicit or market rates, as the case may be, effective at the time of each transaction. These amounts were converted into Argentine pesos at the exchange rate effective as of each period-end or year-end for the settlement of the related transactions. Foreign exchange differences were charged to income for each period.
- Credit risk: In its usual course of business the Company grants credit to customers, including car plants, that represent about 99% of total service charge income. The Company continuously performs credit assessments of its customers’ financial capacity in order to reduce the potential risk of significant credit losses.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- Financial instruments: The Company has not used derivative financial instruments during the period ended March 31, 2006, or for the fiscal year ended December 31, 2005, through the date of issuance of these financial statements. Receivables and payables related to usual business and financial transactions are valued as stated in the previous paragraphs and, in the opinion of Company Management, such valuation does not differ from their current value.
- Inventories:
- Raw materials (including those in transit) were valued at replacement cost at end of each period or year, considering the cash prices for usual purchase amounts. In addition, imported goods are valued at replacement cost at the foreign exchange rate effective at the end of the period or year.
- The products manufactured were valued at cash reproduction cost at the end of each period or year limited by the net realization value thereof.
- Prepayments to vendors are stated at nominal value, and those related to amounts in foreign currency were converted at the foreign exchange rate effective at the end of each period or fiscal year.
The value of inventories taken as a whole does not exceed the recoverable value thereof.
- Long-term investments in subsidiaries:
Companies under section 33 - Law No. 19,550 (subsidiaries and affiliates): at equity value as established by FACPCE Technical Resolution No. 21, which was calculated based on Interclima S.A.’s financial statements as of March 31, 2006, December 31, 2005, and March 31, 2005, which include a limited review report dated May 11, 2006, and 2005, and an auditor’s report dated March 10, 2006, containing except-for qualifications related to the inconsistency in valuing income tax payables and a qualification for unresolved uncertainties about the recoverability of tax credits.
In addition, upon determining the value by the equity method, an adjustment to the subsidiary’s book value was taken into account to disclose the effects of failing to book income tax payables (see “Income tax – Situation in Interclima S.A.”)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
Gain (loss) from the interest in the subsidiary is disclosed in the statement of income under "Gain (loss) from long-term investments".
- Property & equipment
- P&E has been valued at original cost restated as mentioned in note 1(b), net of accumulated depreciation until the end of each period or year.
- P&E depreciation is calculated by the straight-line method, applying annual rates sufficient to extinguish P&E by the end of their estimated useful lives.
- P&E valuation is checked to verify whether their value was impaired when there is any indication that their book value could exceed their recoverable value. The losses and reversals from impairment in value are recognized in financial income (expense) and holding gains (losses) in the statement of income.
- The value of P&E, at a cash generating unit level, does not exceed the recoverable value thereof.
- Intangible assets
- Intangible assets have been valued at original cost restated as mentioned in Note 1, net of accumulated depreciation until the end of each period or year.
- Amortization is calculated following the straight-line method.
- The valuation of intangible assets is checked to verify whether their value was impaired when there is any indication that their book value could exceed their recoverable value. The losses and reversals from impairment in value are recognized in financial income (expense) and holding gains (losses) in the statement of income.
- The book value of intangible assets, considered as a whole, does not exceed the recoverable value thereof.
- The licenses to sell products acquired by the Company have been amortized by the straight-line method over three years counted as from their initial economic use, taking into account their capacity to generate earnings in the future.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- Allowances and provisions:
Allowances:
a) For doubtful accounts: set to correct and make adequate the valuation of trade receivables at the estimated recoverable value; it was set on the basis of an individual analysis thereof.
b) For impairment in value and obsolescence of inventories: it was booked to adjust the value of certain finished products and other obsolete or slow-moving inventories to their estimated recoverable value.
c) For impairment in value of deferred income tax assets: it was booked to reduce the value of such assets at their probable recoverable value. For that purpose, the Company’s tax situation and estimates were considered.
d) For impairment in value of tax credits: it was set to reduce the book value of such credits at the estimated recoverable value thereof; the estimates made by Company Management and the opinion of its legal counsel were considered in the assessment thereof.
- Shareholders’ equity accounts:
They were restated as mentioned in note 1(b), except for the “Capital stock” account, which remained at original value. The adjustment deriving from the restatement thereof is disclosed under the “Adjustment to capital stock” account.
- Statement-of-income accounts:
- At nominal value, except for the following cases:
a) Gain (loss) from long-term investments was calculated by the equity method using the Company’s interest percentage on the subsidiary’s income (loss) for the same period deducting intercompany gains (losses). In addition, this account includes the adjustments necessary to make the valuation methods of the abovementioned company consistent with those of the subsidiary and the income tax adjustment (see “Income tax – Situation in Interclima S.A.”).
b) The depreciation of P&E and the amortization of intangible assets were calculated based on the value of the respective assets, after being restated as described in note 1(b).
c) The cost of goods sold was determined based on monthly replacement costs. Holding gains(losses) are disclosed in the account “Financial income(expense) and holding gains(losses)”.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
d) The account “Financial income (expense) and holding gains (losses)” includes: (a) income and financial costs, (b) inventories holding gains (losses), (c) foreign exchange differences and (d) charges and reversals related to doubtful accounts, impairments in value and obsolescence of inventories, impairments in the value of P&E and other assets in general.
e) The Company has segregated the imputed financial components accrued during each period provided that they were significant.
- Income tax and deferred tax
- Status of Mirgor S.A.C.I.F.I.A.
The Company assesses the income tax charge by the deferred income tax method, which consists in recognizing (as asset or liability) the tax effect of temporary differences between the book and tax valuation of assets and liabilities, and the subsequent charge to income for the periods in which such assets or liabilities are reversed, and considering the possibility of using net operating losses in the future. Temporary differences determine tax asset or liability balances when their future reversal decreases or increases the tax assessed, respectively.
Minimum presumed income tax is supplementary to income tax: while the latter is levied on taxable income for the year, minimum presumed income tax is a minimum levy determined by applying the current 1% rate on the potential income of certain assets. Therefore, the Company’s tax obligations shall be the higher of these two taxes. However, should minimum presumed income tax exceed income tax in any given fiscal year, such excess may be computed as payment on account of any excess of income tax over minimum presumed income tax occurring in any of the ten subsequent fiscal years.
The Company carries net operating losses amounting to 6,132,976 (out of which 5,904,410 may be used until December 31, 2007, and the remainder, until December 31, 2009). As of March 31, 2006, there were deferred income tax assets amounting to 2,934,313, the value of which was fully impaired based on current expectations about the possibility of using them against taxable income and the Company’s tax situation described in note 4.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
The changes in deferred income tax credit and the charge to income for the three-month period ended March 31, 2006, and December 31, 2005, were as follows:
| 03/31/2006 | 12/31/2005 | |||||||
| Deferred tax credit | Income tax -Income / (Loss) | Deferred tax credit | Income tax -Income / (Loss) | |||||
| Balance at beginning of year, less provision | - | - | - | - | ||||
| Consumption of NOLs | (239,125) | (239,125) | (1,014,318) | (1,014,318) | ||||
| (Decrease) Increase in temporary asset differences | (21,156) | (21,156) | 8,037 | 8,037 | ||||
| Decrease in temporary liability differences | - | - | 599,849 | 599,849 | ||||
| Change in the allowance for impairment in value of deferred assets | 260,281 | 260,281 | 406,432 | 406,432 | ||||
| Balance as of year-end, less provision | - | - | - | - |
The reconciliation between the charge to income booked in connection with income tax and the one resulting from applying the 35% rate established by current tax regulations on book income for the period is as follows:
| 03/31/2006 | 03/31/2005 | ||
| Net income for the period before income tax | 6,139,483 | 710,999 | |
| Permanent differences (*) | (5,395,823) | (634,654) | |
| Period earnings less permanent differences | 743,660 | 76,345 | |
| Tax rate | 35% | 35% | |
| Tax assessed | (260,281) | (26,721) | |
| Consumption of NOLs | 260,281 | 26,721 | |
| Income-tax book charge | - | - |
(*) It includes the exempt income (loss) under industrial promotion system effective in the Province of Tierra del Fuego.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
The detail of the accounts included in the deferred tax credit as of March 31, 2006, and December 31, 2005, is:
| Asset temporary differences | 03/31/2006 | 12/31/2005 | |
| Non-deductible allowances | 750,735 | 759,546 | |
| 2002 foreign exchange difference | 37,036 | 49,381 | |
| NOLs | 2,146,542 | 2,385,667 | |
| Liability temporary differences | |||
| Deferred tax credit as of year-end before provisions | 2,934,313 | 3,194,594 | |
| Allowance for impairment in value | (2,934,313) | (3,194,594) | |
| Deferred tax credit as of year-end before provisions | - | - |
The minimum presumed income tax amount for the three-month period ended March 31, 2006, exceeded income tax and amounted to 202,043. Such amount was booked under noncurrent tax credits, the amount of which accumulated to date totals 2,010,484. The Company’s Management understands that on the basis of the future business plan such amounts will be recoverable.
- Situation in the subsidiary Interclima S.A.
In view of the economic crisis resulting from abandoning the currency board, the Management of the subsidiary considered that the conditions required to apply the tax adjustment for inflation were present. Consequently, it prepared and filed the income tax return for the year ended December 31, 2002, based on adjusted amounts, using the coefficients determined according to domestic WPI variations, which led to the assessment of NOLs amounting to about 5,200,000.
Interclima S.A. Management filed an injunction with justice to seek the related jurisdictional protection because it understood that, due to the high inflation that affected tax year 2002, section 39, Law No. 24,073 dated 1992, should be abrogated, as it established at one the index applicable to the tax adjustment for inflation, which had been introduced to legislation in an economic context differing completely from year 2002.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - Continued
On July 17, 2003, the judge hearing on the case granted the injunction requested by the subsidiary and instructed the Argentine Government to refrain from filing any administrative or judicial proceeding, making any claim, demand or accusation and imposing penalties based on the alleged prohibition to apply the adjustment for inflation.
On October 15, 2004, the trial court judge hearing on the constitutional protection action filed by the subsidiary decided that the AFIP accept the legitimacy of the adjustment for inflation provided for in Income Tax Law No. 20,628 Title VI and resolved to declare the unconstitutionality of section 4, Law No. 25,561, amending sections 7 and 10, Law No. 23,928, and section 5 of Presidential Decree 214/02, and section 39, Law No. 24,073, since they disregard sections 14 and 17 of the Argentine Constitution, and it has ordered the AFIP to compute the adjustment for inflation in the fiscal year ended December 31, 2002, and filed on May 8, 2003.
Had the tax adjustment for inflation not been made, Interclima S.A. would have determined income tax amounting to about 384,342 for 2002, (after computing prior-period NOLs), 854,892 for the fiscal year ended December 31, 2003, 1,279,585 for the fiscal year ended December 31, 2004, and 39,793 for fiscal year ended December 31, 2005, plus the related interest amounting to 1,129,099 calculated as of March 31, 2006.
NOTE 2 – BREAKDOWN OF MAIN ACCOUNTS
| 03/31/2006 | 12/31/2005 | ||
| CURRENT ASSETS | |||
| Cash | |||
| Cash on hand in Argentine pesos | 16,550 | 22,731 | |
| Cash on hand in foreign currency | 79,984 | 21,208 | |
| In banks in Argentine pesos | 3,535,406 | 8,718,785 | |
| In banks in foreign currency | 7,721,250 | 8,375,268 | |
| 11,353,190 | 17,137,992 |
NOTE 2 - BREAKDOWN OF MAIN ACCOUNTS – Continued
| 03/31/2006 | 12/31/2005 | ||
| Trade receivables | |||
| Trade receivables in Argentine pesos | 27,320,348 | 18,083,720 | |
| Trade receivables in foreign currency | 386,532 | 396,079 | |
| Allowance for doubtful accounts | (1,057,855) | (1,057,855) | |
| 26,649,025 | 17,421,944 | ||
| Tax credits | |||
| VAT credit | 928,376 | 1,083,525 | |
| Withholdings and additional withholdings | 225,202 | 426,756 | |
| 1,153,578 | 1,510,281 | ||
| Other receivables | |||
| Insurance to be accrued | 29,601 | 138,036 | |
| Loans to the personnel | 112,433 | 57,622 | |
| Other | 212,516 | 99,201 | |
| 354,550 | 294,859 | ||
| Inventories | |||
| Manufactured products | 18,355,515 | 14,027,738 | |
| Raw material | 51,932,460 | 35,165,651 | |
| Raw material in transit | 12,375,981 | 12,817,765 | |
| Stock at end of year | 82,663,956 | 62,011,154 | |
| Prepayments to vendors in Argentine pesos | 1,579,768 | 1,123,766 | |
| Prepayments to vendors in foreign currency | 3,261,079 | 2,224,671 | |
| Allowance for impairment in value | (11,084,344) | (11,226,442) | |
| 76,420,459 | 54,133,149 |
NOTE 2 - BREAKDOWN OF MAIN ACCOUNTS – Continued
| 03/31/2006 | 12/31/2005 | ||
| NONCURRENT ASSETS | |||
| Tax credits | |||
| VAT credit - Note 4 | 93,481 | 93,481 | |
| Minimum presumed income tax - Note 4 | 2,010,484 | 1,808,441 | |
| Promotional benefits receivable - Note 4 | 885,447 | 885,447 | |
| Reimbursements receivable in Argentine pesos - Note 4 | 1,016,393 | 1,016,393 | |
| Deferred tax credit | 2,934,313 | 3,194,594 | |
| Allowance for impairment in value of deferred income tax credit | (2,934,313) | (3,194,594) | |
| Other | 30,386 | 81,329 | |
| Allowance for impairment in value | (1,932,226) | (1,932,226) | |
| 2,103,965 | 1,952,865 | ||
| Other receivables | |||
| Companies under section 33, Law No. 19,550 (subsidiaries and affiliates) and other related companies – Note 7 | 461,027 | 460,037 | |
| 461,027 | 460,037 | ||
| CURRENT LIABILITIES | |||
| Trade payables | |||
| Vendors | 17,533,805 | 10,443,886 | |
| Payables to companies under section 33, Law No. 19,550 (subsidiaries and affiliates) and other related companies – Note 7 | - | 44,037 | |
| Financial payables in foreign currency | 28,467,583 | 20,367,812 | |
| 46,001,388 | 30,855,735 | ||
| Salaries, payroll taxes and taxes payable | |||
| Salaries & wages and payroll taxes | 345,799 | 1,638,250 | |
| Vacation and annual statutory bonus accrual | 1,650,046 | 780,236 | |
| Health and safety assessment | 245,835 | 208,782 | |
| Turnover tax payable | 292,823 | 55,009 | |
| Withholdings and additional withholdings | 194,231 | 245,907 | |
| Other taxes payable | 120,626 | 53,213 | |
| 2,849,360 | 2,981,397 | ||
| Loans | |||
| Financial loans in Argentine pesos | 4,529,620 | - | |
| Financial loans in foreign currency | 3,263,471 | 2,422,084 | |
| 7,793,091 | 2,422,084 |
NOTE 2 – BREAKDOWN OF MAIN ACCOUNTS – Continued
| 03/31/2006 | 12/31/2005 | ||
| Other liabilities | |||
| Companies under section 33, Law No. 19,550 (subsidiaries and affiliates) and other related companies – Note 7 | 6,682,380 | 4,053,228 | |
| Royalties payable | 283,433 | 295,479 | |
| Other | 301,216 | 340,489 | |
| 7,267,029 | 4,689,196 | ||
| NONCURRENT LIABILITIES | |||
| Loans | |||
| Financial loans in foreign currency | - | 3,100,800 | |
| - | 3,100,800 | ||
| Tax payables | |||
| Turnover tax payable | 413,337 | - | |
| 413,337 | - |
| 03/31/2006 | 12/31/2005 | ||
| Other income and expenses, net | |||
| Leases | 300,000 | 300,000 | |
| Other | 34,032 | 85,971 | |
| 334,032 | 385,971 |
NOTE 3 – CAPITAL STRUCTURE – SHAREHOLDERS’ EQUITY
- Capital stock status
The Company’s capital stock consists of 20,000,000 book-entry shares of common stock, 0.10 face value each and it is fully registered, subscribed and paid-in, according to the following breakdown:
NOTE 3 – CAPITAL STRUCTURE – SHAREHOLDERS’ EQUITY - Continued
| Class | Votes | Number | ||
| “A” | Entitled to three (3) votes each | 5,200,000 | ||
| “B” | Entitled to three (3) votes each | 5,200,000 | ||
| “C” | Entitled to one (1) votes each | 9,600,000 | ||
| Total | 20,000,000 |
Each Class “A”, Class “B” or Class “C” shares have the same rights to collect dividends.
- Other reserves - For future dividends
This account includes the decisions made by the Shareholders’ Meetings held May 24, 1995, May 22, 1998, and April 29, 1999, approving the setting of reserves for future dividends in the amounts of 18,784,406, 7,693,924, and 8,353,403, respectively. T he Board of Directors would thus be free to allocate such amounts to cash dividend payments, as deemed appropriate. On July 14, 1995, May 12, 1998, December 13, 1999, July 18, 2000, and December 15, 2002, the Board of Directors approved the payment of 9,368,077; 9,342,622; 3,846,962; 3,846,962; 4,176,701; and 4,176,701, respectively.
NOTE 4 – TAX SITUATION OF THE COMPANY: TAX SYSTEM – TAX CREDITS
The Company is subject to the industrial promotion system under Law No. 19,640 in connection with the assets and for the activities performed in the Province of Tierra del Fuego. In that sense, the Company is entitled to certain tax and customs benefits through 2013, including:
- Income tax: Presidential Decree No. 1,395/94 established, as from September 1, 1994, that 85% of the price paid by customers out of the earnings related to the Province of Tierra del Fuego would be income-tax exempt (whose rate is 35%). After the application of Presidential Decree 615/97, Argentine Government reinstated certain tax benefits granted by Industrial Promotion Law introducing as from August 1, 1997, amendments that provided that the exemption granted to such activities would amount to 100% as established by Law No. 19,640, section 4(a).
- Value-added tax: The Company’s sales are subject to VAT at the 21% rate; such tax is collected from customers. Presidential Decree No. 1,395/94 provided that presumed VAT credits computable as from September 1, 1994, would be equivalent to the amount resulting from applying the VAT rate on 61.11% of the net sales price to customers; therefore, the tax obligation was reduced to 8% thereof as from April 1995.
NOTE 4 – TAX SITUATION OF THE COMPANY: TAX SYSTEM – TAX CREDITS - Continued
Through Presidential Decree No. 615/97 it was provided that presumed VAT credits computable as from August 1, 1997, are equivalent to the amount resulting from applying the VAT rate on 100% of the net sales price to customers.
- Tax credit certificates: Under Law No. 23,697, the Federal Government suspended the tax benefits during 1989 and 1990. Thus, the Company made payments on account of capital tax and VAT which, under such law, would be reimbursed to the Company through Debt Consolidation Bonds.
DGI (Argentine tax bureau) General Resolution No. 3838/94 regulated the way in which the abovementioned bonds would be obtained; based on that, the Company booked credits in the amount of 1,511,788 (historical value).
On September 17, 1996, the DGI advised the Company of the recognition of a larger amount in favor of the Company (2,194,142) (un-restated historical value) as a result of the application of the adjustment rate for the prior month used by the Company in the original filing. In addition, the Company booked a 148,853 (un-restated historical value) credit related to the reimbursement of VAT to be requested by other procedures.
The Ministry of Economy and Public Services and Works established through Resolution No. 580/96 that the credits against the Federal Government emerging from the suspension of the industrial promotion established in Law No. 23,697 and prior to April 1, 1991, will be settled through the delivery of Debt Consolidation Bonds.
On May 19, 1997, the Company was advised that the DGI provisionally recognized the amount indicated above.
As a result thereof, the Company booked the credit recognized at the listed price effective as of each fiscal period- or year-end which, as of March 31, 2006, and December 31, 2005, amounted to 885,447.
- Customs duties and statistical rate: Not paid by the Company for all the inputs imported and used in its operations in Tierra del Fuego under Law No. 19,640.
NOTE 4 – TAX SITUATION OF THE COMPANY: TAX SYSTEM – TAX CREDITS – Continued
- Reimbursements in Argentine pesos: As provided for in Law No. 19,640, exports from the continent to Tierra del Fuego profit from these reimbursements.
Owing to the delay in payment by the Federal Government, the Company filed collection requests before Customs Authorities although such requests had unfavorable resolutions at administrative stages, the Company’s legal counsel and Management understand that the transactions carried out within the regulatory framework of Law No. 19,640 and, consequently, it would be entitled to collect the rebates that the regulation then effective barred.
The unfavorable resolutions mentioned above were challenged; thus, the proceedings are in the Customs Legal and Technical Department awaiting the issuance of the respective formal opinions.
- Following with the comments included in the previous points, the benefits accrued during the nine-month period ended March 31, 2006, and 2005, amounted to:
| Periods ended March 31, | ||
| 2006 | 2005 | |
| Value-added tax | 8,867,442 | 6,344,680 |
| Customs duties and statistical rate (estimated) | 7,476,126 | 4,231,455 |
In addition and considering the tax system to which the Company is subject, as indicated above, as of March 31, 2006, the Company carried minimum presumed income tax credits in the amount of 2.0 million and the Company and its subsidiary carried VAT credits in the amount of 4.0 million disclosed in noncurrent assets. The recoverability of such credits totaling 6.0 million in the consolidated financial statements and 2.0 million in the stand-alone financial statement depends, among other issues on whether the Companies are able to generate income subject to tax during the coming years. In this respect, the Company’s Management understands that based on its future business plan, such credits will be recoverable.
NOTE 5 – MAJOR CUSTOMERS
Sales with major customers as of the three-month periods ended March 31, 2006, and 2005, are:
| 03/31/2006 | 03/31/2005 | ||
| Volkswagen Argentina S.A. | 34% | 43% | |
| Renault Argentina S.A. | 23% | 18% | |
| General Motors Argentina | 19% | 25% | |
| Peugeot Citroen Argentina S.A | 14% | 6% | |
| Mercedes Benz | 8% | 7% | |
| Other | 2% | 1% |
NOTE 6 – PARENT COMPANY
Parent company: Il Tevere S.A.
Registered office: Paseo Colón 221, Piso 4° - Buenos Aires, Argentina
Main business: holding company.
Voting rights: 76,47%
Shareholdings: 52%
On July 15, 1996, the transfer of 40% of Il Tevere S.A.’s shares in favor of Valeo Climatisation (afterwards, Valeo Systemes Thermique), indirect shareholders of 20.8% of the capital stock and 30.59% of the voting rights of MIRGOR S.A.C.I.F.I.A., became effective. On March 6, 1998, 10% of the shares of Il Tevere S.A. was transferred; thus the interest in MIRGOR S.A.C.I.F.I.A. was increased to 26%. On September 27, 2005, the Parent’s local shareholders, Il Tevere S.A., owner of 52% of Mirgor S.A.C.I.F.I.A., acquired from Valeo Systems Thermique France its interest in the Company.
As part of the transaction, Mirgor and Valeo reached a business and technological long-term cooperation agreement in order to ensure the continuity in the future provision of products.
NOTE 7 – INFORMATION ON RELATED PARTIES
For the three-month period ended March 31, 2006, and 2005, and for the fiscal year ended December 31, 2005, the Company was engaged in transactions with its subsidiary, parent, and other related companies, being the receivable and payable amounts as follows:
| 03/31/2006 | 12/31/2005 | ||
| Other receivables | |||
| IL TEVERE S.A. (3) | 461,027 | 460,037 | |
| Total | 461,027 | 460,037 | |
| Trade payables | |||
| VALEO SECURITE HABITACLE (2) | - | 44,037 | |
| Total | - | 44,037 | |
| Other payables | |||
| INTERCLIMA S.A. (1) | 6,682,380 | 4,053,228 | |
| Total | 6,682,380 | 4,053,228 |
The transactions carried out with the subsidiary, parent, and other related companies are:
| 03/31/2006 (See (3)) | |||||||||
| Purchase of goods | Services received | Royalties | Loans | Other services | |||||
| INTERCLIMA S.A. (1) | 934,738 | - | - | 2,629,152 | 300,000 | ||||
| IL TEVERE (3) | - | - | - | 990 | - | ||||
| 934,738 | - | - | 2,630,142 | 300,000 |
NOTE 7 – INFORMATION ON RELATED PARTIES - Continued
| 03/31/2005 | |||||||||
| Purchase of goods | Services received | Royalties | Loans | Other services | |||||
| VALEO SISTEMAS AUTOMOTIVOS LTD (2) | 557,348 | - | - | - | - | ||||
| VALEO CHINA (2) | 67,980 | - | - | - | - | ||||
| VALEO AUTOKLIMATIZACE S.R.O (2) | 306,250 | - | - | - | - | ||||
| VALEO CLIMATIZACION S.A.(EURO) (2) | 76,232 | - | - | - | - | ||||
| VALEO KLIMASYSTEME GMBH (2) | 28,922 | - | - | - | - | ||||
| VALEO COMPONENTES AUTOMOVILES (2) | 18,991 | - | - | - | - | ||||
| VALEO SISTEMAS AUTOMOTIVOS (2) | 475,202 | - | - | - | |||||
| VALEO AUTOSYSTEMIY SP. Z.O.O. (2) | 28,117 | - | - | - | - | ||||
| VALEO VYMENIKY TEPLA s.r.o. (2) | 447,456 | - | - | - | - | ||||
| VALEO SECURITE HABITACLE (2) | 277,314 | - | - | - | - | ||||
| VALEO THERMIQUE FRANCIA (2) | 157,576 | 36,756 | - | - | - | ||||
| VALEO THERMIQUE MOTEUR (2) | 1,011,626 | - | - | - | - | ||||
| VALEO ZARAGOZA (2) | 1,804,297 | - | - | - | - | ||||
| VCC UP ECHANGEURS (2) | 869,615 | - | 217,523 | - | - | ||||
| INTERCLIMA S.A. (1) | 2,700,867 | - | - | 2,700,867 | 300,000 | ||||
| IL TEVERE S.A. (3) | - | - | - | 296,222 | - | ||||
| 8,827,793 | 36,756 | 217,523 | 2,997,089 | 300,000 |
(1) Subsidiary.
(1) Related company until September 27, 2005 (See 3).
(3) Parent company. On September 27, 2005, the shareholders of Il Tevere S.A., owner of 52% of Mirgor S.A.C.I.F.I.A., acquired from Valeo System Thermique France its interest in the Company. Consequently, after such date, Valeo and the related group companies were no longer part of Mirgor .S.A.C.I.F.I.A.’s group of companies.
NOTE 8 – INCOME TAX WITHHOLDING ON DIVIDENDS
When dividends are paid in excess of taxable income as provided for in Income Tax Law, a single and definitive 35% amount shall be withheld on such excess. Based on the unnumbered section subsequent to Section 69 of Income Tax Law, the Company need not withhold any amount on such account.
NOTE 9 – OFFICIALLY STAMPED BOOKS
The books which were stamped and sealed after the related transactions are:
| Journal No. | Officially stamped on | Transactions for the period |
| 57 | February 1, 2005 | 12/15/04 through 02/02/05 |
| 58 | February 1, 2005 | 02/02/05 through 03/17/05 |
| 59 | May 4, 2005 | 03/17/05 through 05/01/05 |
| 60 | May 4, 2005 | 05/01//05 through 06/07/05 |
| 61 | July 8, 2005 | 06/07//05 through 07/19/05 |
| 62 | July 8, 2005 | 07/19/05 through 08/30/05 |
| 63 | September 28, 2005 | 08/30/05 through 08/31/05 |
| 64 | October 31, 2005 | 10/04/05 through 10/31/05 |
| 65 | December 02, 2005 | 11/14/05 through 12/02/05 |
NOTE 10 – BANK LOANS – RESTRICTION ON EARNINGS ALLOCATION
The borrowing and renegotiation of these loans entails the Company's compliance with certain conditions and requirements, which it has fulfilled to date, especially those related to meeting certain ratios in its quarterly financial statements, especially those aimed at measuring the liabilities-to-interest-paid ratio, as well as those related to keeping limits on the Company’s indebtedness and the limitation to distribute dividends during the effectiveness of the loans.
NOTE 11 – EARNINGS PER SHARE
Net income per share (basic and diluted) is calculated by dividing net income for each period allocable to common shares by the weighted average of outstanding common shares during the same periods. No transactions involving shares of common stock or possible shares of common stock have been performed as from the end of the related year until the issuance of these financial statements.
NOTE 12 – EXPLANATION ADDED FOR TRANSLATION INTO ENGLISH
These financial statements are the English translation of those originally issued in Spanish. They have also been reformatted in a manner different from that presented in Spanish, but in all other respects follows accounting principles that conform with the CNV regulations.
EXHIBIT C
SHARES, DEBENTURES, OTHER SECURITIES ISSUED IN SERIES AND INTEREST IN ANOTHER COMPANY FOR THE THREE-MONTH PERIOD ENDED March 31, 2006, PRESENTED COMPARATIVELY WITH THE PRIOR FISCAL YEAR
(Figures stated in Argentine pesos - Note 1.b)
| 2006 | 2005 | |||||||||||||||||||||||||
| Information on the issuer | ||||||||||||||||||||||||||
| Latest financial statements issued | ||||||||||||||||||||||||||
| Securities name and characteristics | Face values | Amounts | Cost values | Value obtained by the equity method | Book values | Main business activity | Date | Capital | Income (loss) for the year | Shareholders' equity | Equity interest % | Book value | ||||||||||||||
| Noncurrent investments: | ||||||||||||||||||||||||||
| Companies under section 33, Law No. 19,550 - Subsidiaries and affiliates | ||||||||||||||||||||||||||
| INTERCLIMA S.A. | 1 | 11,996 | 8,815,917 | 19,274,092 | 19,274,092 | Manufacturing of autoparts and interchanges for air conditioning and heating systems | 03/31/06 | 12,000 | 1,121,468 | 23,089,765 | 99,97% | 18,293,834 | ||||||||||||||
| Total noncurrent investments | 19,274,092 | 18,293,834 |