FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

For the month of August, 2004

 

Commission File Number: 001-12102

 

YPF Sociedad Anónima

(Exact name of registrant as specified in its charter)

 

Av. Pte. R.S. Peña 777 – 8th Floor
1354 Buenos Aires, Argentina

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F:

 

 

Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1):

 

 

Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7):

 

 

Indicate by check mark whether by furnishing the information
contained in this Form, the Registrant is also thereby furnishing the information to the Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

 

 

If “Yes” is marked, indicate below the file number assigned to the registrant

in connection with Rule 12g3-2(b):  N/A

 

 

YPF Sociedad Anónima

 

TABLE OF CONTENTS

 

 

Item
1.		Financial Statements as of June 30, 2004 and Comparative Information
2.		Limited Review Report on Interim Period Financial Statements
3.		Statutory Audit Committee’s Report

 

 

SOCIEDAD ANONIMA

 

Financial Statements as of June 30, 2004, and Comparative Information

 

Limited Review Report on Interim Period Financial Statements

 

Statutory Audit Committee’s Report

 

 

English translation of the report originally issued in Spanish, except for the omission of certain disclosures related to formal legal requirements for reporting in Argentina and the addition of the last paragraph - See Note 11 to the primary financial statements

 

Limited Review Report on Interim Period Financial Statements

 

To the Board of Directors of YPF SOCIEDAD ANONIMA:

 

1.               We have reviewed the balance sheet of YPF SOCIEDAD ANONIMA (an Argentine Corporation) as of June 30, 2004, and the related statements of income, changes in shareholders’ equity and cash flows for the six-month period then ended. We have also reviewed the consolidated balance sheet of YPF SOCIEDAD ANONIMA and its controlled and jointly controlled companies as of June 30, 2004, and the related consolidated statements of income and cash flows for the six-month period then ended, which are presented as supplemental information in Schedule I. These financial statements are the responsibility of the Company’s Management.

 

2.               We conducted our review in accordance with generally accepted auditing standards in Argentina for a review of interim period financial statements. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for accounting and financial matters. A review is substantially less in scope than an audit of financial statements, 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 review, we are not aware of any material modification that should be made to the financial statements referred to in the first paragraph for them to be in conformity with generally accepted accounting principles in Buenos Aires City, Argentina.

 

 

4.               As described in Note 9 to the accompanying primary financial statements, during year 2002, a deep change was implemented in the economic model of the country to overcome the economic crisis in the medium-term. Therefore, the Argentine Federal Government abandoned the parity between the Argentine peso and the US dollar in place since March 1991 and adopted a set of economic, monetary, financial, fiscal and exchange measures. The accompanying financial statements should be read taking into account these issues. The future development of the economic crisis may require further measures from the Argentine Federal Government.

 

5.               In relation to the financial statements as of December 31, 2003 and June 30, 2003, which are presented for comparative purposes, we issued our unqualified auditors’ report dated March 4, 2004, and our unqualified limited review report on interim period financial statements dated August 7, 2003, respectively. These financial statements, presented for comparative purposes, include the restatement related to the presentation of discontinued operations mentioned in Note 1.c. to the accompanying consolidated financial statements.

 

6.               Certain accounting practices of YPF SOCIEDAD ANONIMA used in preparing the accompanying financial statements conform with generally accepted accounting principles in Buenos Aires City, Argentina, but do not conform with generally accepted accounting principles in the United States of America (see Note 11 to the accompanying financial statements).

 

Buenos Aires, Argentina

July 29, 2004

 

DELOITTE & Co. S.R.L.

 

 

RICARDO C. RUIZ

Partner

 

2

 

YPF SOCIEDAD ANONIMA

 

FINANCIAL STATEMENTS AS OF JUNE 30, 2004 AND COMPARATIVE INFORMATION

 

INDEX

 

•                  Cover	1
•                  Consolidated balance sheets	2
•                  Consolidated statements of income	3
•                  Consolidated statements of cash flows	4
•                  Notes to consolidated financial statements	5
•                  Exhibits to consolidated financial statements	17
•                  Balance sheets	19
•                  Statements of income	20
•                  Statements of changes in shareholders’ equity	21
•                  Statements of cash flows	22
•                  Notes to financial statements	23
•                  Exhibits to financial statements	46

 

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA

Avenida Presidente Roque Sáenz Peña 777 – Buenos Aires

 

FISCAL YEARS NUMBER 28 AND 27

BEGINNING ON JANUARY 1, 2004 AND 2003

FINANCIAL STATEMENTS AS OF JUNE 30, 2004 AND COMPARATIVE INFORMATION

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

Principal business of the Company: exploration, development and production of oil and natural gas and other minerals and refining, marketing, transportation and distribution of oil and petroleum products and petroleum derivatives, including petrochemicals and chemicals, generation of electric power from hydrocarbons, as well as rendering telecommunications services.

 

Date of registration with the Public Commerce Register: June 2, 1977.

 

Duration of the Company: through June 15, 2093.

 

Last amendment to the bylaws: April 9, 2003.

 

Optional Statutory Regime related to Compulsory Tender Offer provided by Decree No. 677/2001: not incorporated.

 

Capital structure as of June 30, 2004

(expressed in Argentine pesos)

 

		Subscribed, paid-in and authorized for stock exchange listing
		(Note 4 to primary financial statements)
•       Shares of Common Stock, Argentine pesos 10 par value, 1 vote per share		3,933,127,930

 

	JOSE MARIA RANERO DIAZ
	Director

 

1

 

Schedule I

1 of 3

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA AND CONTROLLED AND JOINTLY CONTROLLED COMPANIES

 

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND DECEMBER 31, 2003

(amounts expressed in millions of Argentine pesos - Note 1 to the primary financial statements)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004		2003
Current Assets
Cash		225		357
Investments (Note 2.a)		312		952
Trade receivables (Note 2.b)		1,836		1,823
Other receivables (Note 2.c)		3,370		6,415
Inventories (Note 2.d)		1,061		806
Other assets (Note 1.c)		78		84
Total current assets		6,882		10,437
Noncurrent Assets
Trade receivables (Note 2.b)		78		84
Other receivables (Note 2.c)		1,380		1,435
Investments (Note 2.a)		648		573
Fixed assets (Note 2.e)		20,214		20,423
Intangible assets		26		32
Total noncurrent assets		22,346		22,547
Total assets		29,228		32,984
Current Liabilities
Accounts payable (Note 2.f)		1,636		1,712
Loans (Note 2.g)		475		915
Salaries and social security		110		102
Taxes payable		1,493		3,396
Net advances from crude oil purchasers		262		260
Reserves		83		98
Total current liabilities		4,059		6,483
Noncurrent Liabilities
Accounts payable (Note 2.f)		489		454
Loans (Note 2.g)		1,939		2,085
Salaries and social security		113		114
Taxes payable		25		21
Net advances from crude oil purchasers		760		881
Reserves		568		537
Total noncurrent liabilities		3,894		4,092
Total liabilities		7,953		10,575
Temporary differences
Foreign companies’ translation		(109	)	(115	)
Valuation of derivative instruments		(9	)	(10	)
Shareholders’ Equity		21,393		22,534
Total liabilities, temporary differences and shareholders’ equity		29,228		32,984

 

Notes 1 to 4, the accompanying exhibits A and H to Schedule I and the primary financial statements of YPF,
are an integral part of and should be read in conjunction with these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

2

 

Schedule I

2 of 3

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA AND CONTROLLED AND JOINTLY CONTROLLED COMPANIES

 

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

(amounts expressed in millions of Argentine pesos, except for per share amounts in Argentine pesos - Note 1 to the primary financial statements)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004		2003
Net sales (Note 4)		9,156		8,520
Cost of sales		(4,228	)	(3,746	)
Gross profit		4,928		4,774
Administrative expenses (Exhibit H)		(202	)	(167	)
Selling expenses (Exhibit H)		(627	)	(538	)
Exploration expenses (Exhibit H)		(189	)	(124	)
Operating income		3,910		3,945
Income on long-term investments (Note 4)		83		137
Other expenses, net (Note 2.h)		(107	)	(82	)
Financial income (expense), net and holding gains:
Gains (Losses) on assets
Interests		82		136
Exchange differences		(22	)	(1,126	)
Holding gains on inventories		120		42
Losses on exposure to inflation		—		(8	)
(Losses) Gains on liabilities
Interests		(106	)	(134	)
Exchange differences		(33	)	980
Gains on exposure to inflation		—		14
Net income before income tax		3,927		3,904
Income tax		(1,544	)	(1,724	)
Net income from continuing operations		2,383		2,180
Income on discontinued operations (Note 1.c)		16		9
Net income		2,399		2,189
Earnings per share		6.10		5.57

 

Notes 1 to 4, the accompanying exhibits A and H to Schedule I and the primary financial statements of YPF,
are an integral part of and should be read in conjunction with these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

3

 

Schedule I

3 of 3

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA AND CONTROLLED AND JOINTLY CONTROLLED COMPANIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

(amounts expressed in millions of Argentine pesos - Note 1 to the primary financial statements)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004		2003
Cash Flows from Operating Activities
Net income		2,399		2,189
Adjustments to reconcile net income to net cash provided by operating activities:
Income on long-term investments and discontinued operations		(99	)	(146	)
Dividends from long-term investments		38		23
Depreciation of fixed assets		1,198		1,125
Consumption of materials and fixed assets retired, net of allowances		166		367
Increase in allowances for fixed assets		59		24
Net increase in reserves		16		29
Changes in assets and liabilities:
Trade receivables		(7	)	297
Other receivables		3,133		497
Inventories		(255	)	(139	)
Accounts payable		(97	)	(182	)
Salaries and social security		2		(54	)
Taxes payable		(1,899	)	1,568
Net advances from crude oil purchasers		(127	)	(508	)
Exchange differences, interests and others		(85	)	(1,031	)
Net cash flows provided by operating activities		4,442	(1)	4,059	(1)
Cash Flows from Investing Activities
Acquisitions of fixed assets		(1,197	)	(1,048	)
Capital distributions from long-term investments		4		—
Capital contributions in long-term investments		—		(3	)
Investments (non cash and equivalents)		8		(31	)
Net cash flows used in investing activities		(1,185	)	(1,082	)
Cash Flows from Financing Activities
Payment of loans		(725	)	(1,013	)
Proceeds from loans		273		37
Dividends paid		(3,540	)	(1,967	)
Net cash flows used in financing activities		(3,992	)	(2,943	)
(Decrease) increase in Cash and Equivalents		(735	)	34
Cash and equivalents at the beginning of years		1,248		810
Effect of changes in the purchasing power of Argentine pesos on cash and equivalents		—		(5	)
Cash and equivalents at the end of periods		513		839

 

For supplemental information on cash and equivalents, see Note 2.a.

 

(1)               Includes (3,539) and (125) corresponding to income tax and minimum presumed income tax payments and (107) and (160) corresponding to interest payments for the six-month periods ended June 30, 2004 and 2003, respectively.

 

Notes 1 to 4, the accompanying exhibits A and H to Schedule I and the primary financial statements of YPF,
are an integral part of and should be read in conjunction with these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

4

 

Schedule I

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA AND CONTROLLED AND JOINTLY CONTROLLED COMPANIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2004 AND COMPARATIVE INFORMATION

(amounts expressed in millions of Argentine pesos - Note 1 to the primary financial statements,
except where otherwise indicated)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

1.                   CONSOLIDATED FINANCIAL STATEMENTS

 

a)                   Consolidation policies:

 

Following the methodology established by Technical Resolution No. 21 of the Argentine Federation of Professional Councils in Economic Sciences (“F.A.C.P.C.E.”), YPF Sociedad Anónima (the “Company” or “YPF”) has consolidated its balance sheets as of June 30, 2004 and as of December 31, 2003 and the related statements of income and cash flows for the six-month periods ended June 30, 2004 and 2003, as follows:

 

•                       Investments and income (loss) related to controlled companies in which YPF has the number of votes necessary to control corporate decisions are substituted for such companies’ assets, liabilities, net revenues, cost, expenses and, if applicable, temporary differences, which are aggregated to the Company’s balances after the elimination of intercompany profits, transactions, balances and other consolidation adjustments. If applicable, minority shareholders’ interest on equity and net income is disclosed separately in the balance sheets and income statements, respectively.

 

•                       Investments and income (loss) related to companies in which YPF holds joint control are consolidated line by line on the basis of the Company’s proportionate share in their assets, liabilities, net revenues, cost, expenses and, if applicable, temporary differences, considering intercompany profits, transactions, balances and other consolidation adjustments.

 

Under General Resolution No. 368 from the Argentine Securities Commission (“CNV”), the Company discloses its consolidated financial statements, included in Schedule I, preceding its primary financial statements.

 

b)                   Financial statements used for consolidation:

 

The consolidated financial statements are based upon the last available financial statements of those companies in which YPF holds control or joint control, taking into consideration, if applicable, significant subsequent events and transactions, available management information and transactions between YPF and the related company, which have produced changes on the latter shareholders’ equity.

 

5

 

c)                   Valuation criteria:

 

In addition to the valuation criteria disclosed in the notes to YPF primary financial statements, the following additional valuation criteria have been applied in the preparation of the consolidated financial statements:

 

Other assets and income on discontinued operations

 

As of June 30, 2004, YPF through YPF Holdings Inc., has agreed the sale at fair market value of its interest in Global Companies LLC and affiliates (“Global”), a jointly controlled company with operations in the Refining and Marketing segment in the United States of America. The mentioned transaction was consummated in July 2004 for an amount of US$ 43 millions.

 

Prior to June 30, 2004, YPF has proportionally consolidated its balance sheet and statements of income and cash flows with Global’s respective financial statements. Due to the mentioned sale agreement, the Company’s equity interest and equity income in Global are disclosed in “Other assets” and “Income on discontinued operations” accounts of the consolidated balance sheet and statement of income, respectively, together with the goodwill originated in the puchase of such company and its corresponding amortization. The financial statements presented for comparative purposes were restated to give retroactive effect to the presentation of this discontinued operation. As a consequence, net sales and operating income for the six-month period ended June 30, 2003 decreased in 2,004 and 17, respectively.

 

Fixed assets

 

Mineral property on foreign unproved properties has been valued at cost translated as detailed in Note 2.d to the primary financial statements. Capitalized costs related to unproved reserves properties are reviewed periodically by Management to ensure the carrying value is recoverable.

 

Intangible assets

 

Correspond to start up and organization costs, valued at acquisition cost restated as detailed in Note 1 to the primary financial statements, less corresponding accumulated amortization, which is calculated using the straight-line method over its estimated useful life of five years.

 

In the opinion of Company’s Management, future activities will generate enough economic benefits to recover incurred costs.

 

6

 

Salaries and Social Security – Pensions and other Postretirement and Postemployment Benefits

 

YPF Holdings Inc., a YPF’ subsidiary with operations in United States of America, has a number of trustee noncontributory pension plans and postretirement benefits.

 

The funding policy related to trustee noncontributory pension plans is to contribute amounts to the plans sufficient to meet the minimum funding requirements under governmental regulations, plus such additional amounts as Management may determine to be appropriate. The benefits related to the plans are accrued based on years of service and compensation earned during years of employment. YPF Holdings Inc. also has a noncontributory supplemental retirement plan for executive officers and other selected key employees.

 

YPF Holding Inc. provides certain health care and life insurance benefits for eligible retired employees, and also certain insurance, and other postemployment benefits for eligible individuals in the case employment is terminated by YPF Holdings Inc. before their normal retirement. YPF Holdings Inc. accrues the estimated cost of retiree benefit payments, other than pensions, during employees’ active service periods. Employees become eligible for these benefits if they meet minimum age and years of service requirements. YPF Holdings Inc. accounts for benefits provided when the minimum service period is met, payment of the benefit is probable and the amount of the benefit can be reasonably estimated. Other postretirement and postemployment benefits are funded as claims are incurred.

 

Recognition of revenues and construction costs

 

Revenues and costs related to construction activities are accounted by the percentage of completion method. When adjustments in contract values or estimated costs are determined, any change from prior estimates is reflected in earnings in the current period. Anticipated losses on contracts in progress are expensed when identified.

 

Derivative instruments

 

Compañía Mega S.A. (“Mega”) and Profertil S.A. have entered into cash flow hedges, for which the objective is to provide protection against variability in cash flows due to changes in interest rates established in financial obligation contracts. Changes in the fair value of cash flow hedges are initially deferred in the account “Temporary differences - Valuation of derivative instruments” in the balance sheet and charged to financial expenses of the statement of income as the related transactions are recognized. Fair value of these derivative instruments generated an increase in liabilities of 9 and 10 as of June 30, 2004 and December 31, 2003, respectively, and were included in the “Loans” account of the balance sheet.

 

7

 

2.                   ANALYSIS OF THE MAIN ACCOUNTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

 

Details regarding the significant accounts included in the accompanying consolidated financial statements are as follows:

 

Consolidated Balance Sheet Accounts as of June 30, 2004 and December 31, 2003

 

Assets

 

a)                   Investments:

 

		2004				2003
		Current		Noncurrent		Current		Noncurrent
Short-term investments and government securities		312	(1)	9		952	(1)	9
Long-term investments		—		991		—		857
Allowance for reduction in value of holdings in long-term investments		—		(352	)	—		(293	)
		312		648		952		573

 

(1)               Includes 288 and 891 as of June 30, 2004 and December 31, 2003, respectively, with an original maturity of less than three months.

 

b)                   Trade receivables:

 

		2004				2003
		Current		Noncurrent		Current		Noncurrent
Accounts receivable		1,782		78		1,770		84
Related parties		386		—		428		—
		2,168		78		2,198		84
Allowance for doubtful trade receivables		(332	)	—		(375	)	—
		1,836		78		1,823		84

 

c)                   Other receivables:

 

		2004				2003
		Current		Noncurrent		Current		Noncurrent
Deferred income tax		—		188		—		203
Tax credits and export rebates		300		84		285		106
Trade		30		—		40		—
Prepaid expenses		43		227		46		251
Concessions charges		18		115		18		125
Related parties		2,680	(1)	632		5,906	(1)	615
Loans to clients		9		87		9		87
From the renegotiation of long-term contracts		—		21		—		25
From joint ventures and other agreements		17		—		29		—
Miscellaneous		401		103		204		103
		3,498		1,457		6,537		1,515
Allowance for other doubtful accounts		(128	)	—		(122	)	—
Allowance for valuation of other receivables to their estimated realizable value		—		(77	)	—		(80	)
		3,370		1,380		6,415		1,435

 

(1)               Includes 1,363, which accrues an annual interest rate from 0.99% to 2.40% as of June 30, 2004, and 4,393 as of December 31, 2003 with Repsol International Finance B.V. (Other related party under common control).

 

8

 

d)              Inventories:

 

		2004		2003
Refined products and other manufactured for sale		557		413
Crude oil		342		268
Products in process of refining and separation		12		16
Raw materials, packaging materials and others		150		109
		1,061		806

 

e)              Fixed assets:

 

		2004		2003
Net book value of fixed assets (Exhibit A)		20,346		20,509
Allowance for unproductive exploratory drilling		(85	)	(39	)
Allowance for obsolescence of materials		(26	)	(26	)
Allowance for fixed assets to be disposed of		(21	)	(21	)
		20,214		20,423

 

Liabilities

 

f)                Accounts payable:

 

		2004				2003
		Current		Noncurrent		Current		Noncurrent
Trade		1,288		37		1,367		37
Hydrocarbon wells abandonment obligations		—		359		—		347
Related parties		106		—		144		—
From joint ventures and other agreements		104		—		104		—
Miscellaneous		138		93		97		70
		1,636		489		1,712		454

 

g)             Loans:

 

		Interest		Principal		2004				2003
		rates(1)		maturity		Current		Noncurrent		Current		Noncurrent
YPF Negotiable Obligations		7.75-10.00	%	2007-2028		30		1,071		574		1,075
Related parties(2)		1.94-10.77	%	2004-2014		107		257		50		—
Maxus Notes		10.38-10.83	%	2004		5		—		6		—
Mega Negotiable Obligations		5.15-10.77	%	2004-2014		16		114		29		409
Profertil syndicated loan		3.73-7.22	%	2004-2010		48		296		41		366
Interest rate swaps		—		—		1		8		1		9
Other bank loans and other creditors		1.25-7.65	%	2004-2007		268		193		214		226
						475		1,939		915		2,085

 

(1)               Annual interest rates as of June 30, 2004.

(2)               Includes 272 and 92 granted by Repsol Netherlands Finance B.V. and Mega, respectively, as of June 30, 2004, and 44 granted by Repsol Netherlands Finance B.V. as of December 31, 2003.

 

9

 

Consolidated Statements of Income Accounts as of June 30, 2004 and 2003

 

h)             Other expenses, net:

 

		Income (Expense)
		2004		2003
Reserve for pending lawsuits		(48	)	(140	)
Miscellaneous		(59	)	58
		(107	)	(82	)

 

3.                   COMMITMENTS AND CONTINGENCIES IN CONTROLLED COMPANIES

 

Laws and regulations related to health and environmental quality in the United States affect nearly all of the operations of YPF Holdings Inc. These laws and regulations set various standards regulating certain aspects of health and environmental quality, provide for penalties and other liabilities for the violation of such standards and establish in certain circumstances remedial obligations.

 

YPF Holdings Inc. believes that its policies and procedures in the area of pollution control, product safety and occupational health are adequate to prevent unreasonable risk of environmental and other damage, and of resulting financial liability, in connection with its business. Some risk of environmental and other damage is, however, inherent in particular operations of YPF Holdings Inc. and, as discussed below, Maxus Energy Corporation (“Maxus”) and Tierra Solutions, Inc. (“TS”) have certain potential liabilities associated with operations of Maxus’ former chemical subsidiary. YPF Holdings Inc. cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or enforced. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could in the future require material expenditures by YPF Holdings Inc. for the installation and operation of systems and equipment for remedial tasks and in certain other respects. Also, certain laws allow for recovery of natural resource damages from responsible parties and ordering the implementation of interim remedies to abate an imminent and substantial endangerment to the environment. Potential expenditures for any such actions cannot be reasonably estimated.

 

As of June 30, 2004, reserves for the environmental contingencies totaled approximately 178. Management believes it has adequately reserved for all environmental contingencies, which are probable and can be reasonably estimated, however, changes in circumstances could result in changes, including additions, to such reserves in the future.

 

10

 

In connection with the sale of Maxus’ former chemical subsidiary, Diamond Shamrock Chemicals Company (“Chemicals”), to Occidental Petroleum Corporation (“Occidental”) in 1986, Maxus agreed to indemnify Chemicals and Occidental from and against certain liabilities relating to the business or activities of Chemicals prior to the September 4, 1986 closing date (the “Closing Date”), including certain environmental liabilities relating to certain chemical plants and waste disposal sites used by Chemicals prior to the Closing Date.

 

In addition, under the agreement pursuant to which Maxus sold Chemicals to Occidental, Maxus is obligated to indemnify Chemicals and Occidental for 50% of certain environmental costs incurred on projects involving remedial activities relating to chemical plant sites or other property used in the conduct of the business of Chemicals as of the Closing Date and for any period of time following the Closing Date which relate to, result from or arise out of conditions, events or circumstances discovered by Chemicals and as to which Chemicals provided written notice prior to September 4, 1996, irrespective of when Chemicals incurs and gives notice of such costs, with Maxus’ aggregate exposure for this cost sharing being limited to US$ 75 million. The total expended by YPF Holdings Inc. under this cost sharing arrangement was approximately US$ 67 million as of June 30, 2004. The remaining portion of this cost sharing arrangement (US$ 8 as of June 30, 2004) has been reserved. TS has agreed to assume essentially all of Maxus’ aforesaid indemnity obligations to Occidental in respect of Chemicals.

 

In the following discussions concerning plant sites and third party sites, references to YPF Holdings Inc. include, as appropriate and solely for ease of reference, references to Maxus and TS. As indicated above, TS is also a subsidiary of YPF Holdings Inc. and has assumed certain of Maxus’ obligations.

 

Newark, New Jersey. A consent decree, previously agreed upon by the U.S. Environmental Protection Agency (the “EPA”), the New Jersey Department of Environmental Protection and Energy (the “DEP”) and Occidental, as successor to Chemicals, was entered in 1990 by the United States District Court of New Jersey and requires implementation of a remedial action plan at Chemicals’ former Newark, New Jersey, agricultural chemicals plant. In 1998, the EPA approved the remedial design. The construction of the approved remedy was substantially completed in early 2002. The facility is in an optimization phase, which includes testing and related operations and is expected to continue through 2004. This work is being supervised and paid for by TS pursuant to the above described indemnification obligation to Occidental. YPF Holdings Inc. has fully reserved the estimated costs required to complete the optimization phase and thereafter to conduct ongoing operation and maintenance of such remedy (at an average cost of approximately US$ 1 million annually) for 9 years from and after January 1, 2004.

 

11

 

Passaic River, New Jersey. Studies have indicated that sediments of the Newark Bay watershed, including the Passaic River adjacent to the former Newark plant, are contaminated with hazardous chemicals from many sources. These studies suggest that the older and more contaminated sediments located adjacent to the former Newark plant generally are buried under more recent sediment deposits. Maxus, on behalf of Occidental, negotiated an agreement with the EPA under which TS is conducting further testing and studies to characterize contaminated sediment and biota in a six-mile portion of the Passaic River near the plant site. The stability of the sediments in the entire six-mile portion of the Passaic River study area is also being examined as a part of TS’s studies. YPF Holdings Inc. currently expects the testing and studies to be completed in 2005 and the cost to be incurred are approximately 21 after June 30, 2004, which amount has been fully reserved. Maxus and TS have been conducting similar studies under their own auspices for several years. In addition, the EPA and other agencies are addressing for the lower Passaic River in a cooperative effort designated as the Lower Passaic River Restoration Initiative (the “PRRI”). TS has agreed, along with approximately thirty other entities, to participate in a remedial investigation and feasibility study proposed in connection with the PRRI. TS’s estimated share of the cost of this remedial investigation and feasibility study is 1 over the next three years, which amount has been fully reserved. As of June 30, 2004, there is an additional 6 reserved in connection with continuing such other studies and related matters related to the Passaic River; however, given the DEP’s Directive No. 1 and a Notice of Intent to sue (both discussed below), this reserve amount is currently being reassessed. Until these studies are completed and evaluated, YPF Holdings Inc. cannot reasonably forecast what remedial program, if any, will be proposed for the Passaic River or the Newark Bay watershed and, therefore, cannot estimate what additional costs, if any, will be required to be incurred. However, it is possible that additional work, including interim remedial measures, may be ordered with respect to the Passaic River.

 

On September 19, 2003, the DEP issued its Directive No. 1 for Natural Resource Injury Assessment and Interim Compensatory Restoration of Natural Resources for the Lower Passaic River (“Directive No. 1”). Directive No. 1 was served on approximately sixty six entities, including Occidental and Maxus and certain of their respective related entities, and seeks to address natural resource damages allegedly resulting from almost 200 years of historic industrial and commercial development of the lower 17 miles of the Passaic River and a part of its watershed. Directive No. 1 asserts that the named entities are jointly and severally liable for the alleged natural resource damages without regard to fault. The DEP has asserted jurisdiction in this matter even though all or part of the lower Passaic River has been designated as a Superfund site and is a subject of the PRRI, a Congressional urban rivers restoration initiative designed to address urban rivers such as the Passaic through a joint federal, state, local and private sector cooperative effort. The Directive No. 1 calls for the following actions: interim compensatory restoration, injury identification, injury quantification and value determination. Maxus and TS have filed a response to Directive No. 1 on behalf of themselves and Occidental, as successor to Chemicals, which sets forth both how these parties are complying with Directive No. 1 and certain defenses thereto. Settlement discussions between the DEP and the named entities have been held, however, no agreement has been reached or is assured.

 

On February 13, 2004, the EPA and Occidental entered into an administrative order on consent (the “AOC”) pursuant to which TS (on behalf of Occidental) has agreed to conduct testing and studies to characterize contaminated sediment and biota in the Newark Bay. The scope of the work plan is expected to be agreed upon during the third quarter of 2004. Once the work plan for and estimated cost of these studies have been determined, an appropriate reserve will be established.

 

12

 

Hudson County, New Jersey. Until 1972, Chemicals operated a chromite ore processing plant at Kearny, New Jersey (the “Kearny’s Plant”). According to the DEP, wastes from these ore processing operations were used as fill material at a number of sites in and near Hudson County. The DEP and Occidental, as successor to Chemicals, signed an administrative consent order with the DEP in 1990 for investigation and remediation work at certain chromite ore residue sites in Kearny and Secaucus, New Jersey. TS, on behalf of Occidental, is presently performing the work, and TS is funding Occidental’s share of the cost of investigation and remediation of these sites. TS, on behalf of Occidental, is required to provide financial assurance for performance of the work. Currently, the required financial assurance is provided through a letter of credit. This financial assurance may be reduced with the approval of the DEP following any annual cost review. While TS has participated in the cost of studies and is implementing interim remedial actions and conducting remedial investigations, the ultimate cost of remediation is uncertain. TS submitted its remedial investigation reports to the DEP in late 2001, and the DEP continues to review these reports. The results of the DEP’s review of these reports could increase the cost of any further remediation that may be required. YPF Holdings Inc. has reserved its best estimate of the remaining cost to perform the investigations and remedial work as being approximately 79 as of June 30, 2004. In addition, the DEP has indicated that it expects Occidental and Maxus to participate with the other chromium manufacturers in the funding of certain remedial activities with respect to a number of so-called “orphan” chrome sites located in Hudson County, New Jersey. Occidental and Maxus have declined participation as to those sites for which there is no evidence of the presence of residue generated by Chemicals. The State of New Jersey has expressed an increased interest in possibly instituting legal action seeking recovery of its expenditures in connection with these sites. The parties have settled the DEP’s claims of natural resource damages related to chromite ore residue both at said orphan sites and other known and unknown sites in Hudson and Essex Counties, New Jersey. While Maxus and TS expect settlement discussions to continue on the other aspects of the DEP’s claims, there can be no assurance of a negotiated resolution to these claims. In addition, in June 2004, the DEP expressed a desire that a sediments testing program be conducted on a portion of the Hackensack River, near the former Kerny Plant. TS, on behalf of Occidental, and other parties are engaged in discussions with the DEP regarding this issue. The Governor of New Jersey issued an Executive Order requiring state agencies to provide specific justification for any state requirements more stringent than federal requirements. In 1998, the DEP proposed new soil action levels for chromium. While the proposal remains incomplete in certain regards, the DEP is currently reviewing the proposed action levels.

 

Painesville, Ohio. From about 1912 through 1976, Chemicals operated manufacturing facilities in Painesville, Ohio (the “Painesville Works”). The operations over the years involved several discrete but contiguous plant sites over an area of about 1,300 acres. The primary area of concern historically has been Chemicals’ former chromite ore processing plant (the “Chrome Plant”). For many years, the site of the Chrome Plant has been under the administrative control of the EPA pursuant to an administrative consent order under which Chemicals is required to maintain a clay cap over the Chrome Plant site and to conduct certain ground water and surface water monitoring. Certain other areas have previously been clay-capped, and one specific site, which was a waste disposal site from the mid-1960s until the 1970s, has been encapsulated and is being controlled and monitored. In 1995, the Ohio Environmental Protection Agency (the “OEPA”) issued its Director’s Final Findings and Order (the “Director’s Order”) by consent ordering that a remedial investigation and feasibility study (the “RIFS”) be conducted at the former Painesville Works area. TS has agreed to participate in the RIFS as required by the Director’s Order. TS submitted the remedial investigation report to the OEPA, which was finalized in 2003. TS will submit required feasibility reports separately. As of June 30, 2004, it is estimated that the remaining cost of performing the RIFS will be approximately 1. In spite of the many remedial, maintenance and monitoring activities performed, the former Painesville Works site has been proposed for listing on the National Priority List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”); however, the EPA has stated that the site will not be listed so long as it is satisfactorily addressed pursuant to the Director’s Order and OEPA’s

 

13

 

programs. YPF Holdings Inc. has reserved its estimated share of the cost to perform the RIFS and an additional 2, as of June 30, 2004, for operation and maintenance activities at this site. The scope and nature of any further investigation or remediation that may be required cannot be determined at this time; however, as the RIFS progresses, YPF Holdings Inc. will continuously assess the condition of the Painesville Works site and make any changes, including additions, to its reserve as may be required. TS has entered into an agreement with a developer for the possible development and use of all or portions of this site. While the developer is proceeding with its development plans, there can be no assurance that this site will be successfully developed or that any productive use can be made of all or a portion of this site.

 

Third Party Sites. Chemicals has also been designated as a potentially responsible party (“PRP”) by the EPA under CERCLA with respect to a number of third party sites where hazardous substances from Chemicals’ plant operations allegedly were disposed or have come to be located. Numerous PRPs have been named at substantially all of these sites. At several of these, Chemicals has no known exposure. Although PRPs are typically jointly and severally liable for the cost of investigations, cleanups and other response costs, each has the right of contribution from other PRPs and, as a practical matter, cost sharing by PRPs is usually effected by agreement among them. At a number of these sites, the ultimate response cost and Chemicals’ share of such costs cannot be estimated at this time. At June 30, 2004, YPF Holdings Inc. has reserved approximately 13 in connection with its estimated share of costs related to these sites.

 

The Port of Houston Authority (the “Port”) sued a number of parties, including Occidental (as successor to Chemicals) and Maxus, alleging in excess of US$ 25 million in damages to its property, plus the need for remediation at certain of its property, as a result of contamination allegedly emanating from a facility adjoining Greens Bayou formerly owned by Chemicals and at which DDT and certain other chemicals were manufactured. Chemicals conveyed the Greens Bayou facility to a company in which it owned a 50% interest in 1983 and later conveyed its interest in that company to Maxus. Subsequently in 1985, Maxus acquired a full ownership interest in the company and then conveyed all of its interest in such company to a third party. TS is handling this matter on behalf of Occidental. While some of the substances of concern may have been manufactured at the Greens Bayou facility prior to these conveyances, TS and Maxus believe that any contamination of the Port’s property that may have emanated from the Greens Bayou facility occurred after the conveyance of the company in 1985 or has been remediated. The Port’s claims have been settled for an initial payment of US$ 30 million and certain other undertakings, including an agreement to remediate various properties in the vicinity of the Greens Bayou facility. The estimated cost of such remediation is not expected to exceed a total of US$ 80 million. Pursuant to a cost sharing agreement among the defendants, TS (on behalf of Occidental) contributed US$ 6.3 million toward the settlement, subject to the defendants’ agreement to arbitrate their respective obligations in connection with the settlement. The arbitration is expected to begin in the second half of 2004.

 

Legal Proceedings. In 1998, a subsidiary of Occidental filed a lawsuit in state court in Ohio seeking a declaration of the parties’ rights with respect to obligations for certain costs allegedly related to Chemicals’ Ashtabula, Ohio facility, as well as certain other costs. Both Maxus and Occidental filed motions for partial summary judgment. In 2002, the court granted Occidental’s and denied Maxus’ respective motions for partial summary judgment. Maxus believes the court erred and has appealed.

 

14

 

In 2001, the Texas State Comptroller assessed Midgard Energy Company, a subsidiary of YPF Holdings Inc., approximately 76 in Texas state franchise taxes, plus penalty and interest (currently estimated to be in excess of 146), for periods from 1997 back to 1984. The basis for the assessments essentially is the Comptroller’s attempt to characterize certain debt as capital contributions. YPF Holdings Inc. believes the assessment is without substantial merit and has challenged the assessment through administrative appeals procedures.

 

In 2001, the Texas State Comptroller also assessed Maxus Corporate Company, a former subsidiary of YPF Holdings Inc. that was merged into Maxus in December 1998, approximately 4 in Texas state sales taxes for the period of September 1, 1995 through December 31, 1998, plus penalty and interest (currently estimated in 3). On March 31, 2004, the administrative law judge issued a proposed decision that would affirm approximately 3 of such assessment, plus penalty and interest. YPF Holdings Inc. believes the proposed decision is erroneous and, when the decision is issued in final form, intends to challenge it in a court action, where there would be a new trial.

 

In 2002, Occidental sued Maxus and TS in state court in Dallas, Texas seeking a declaration that Maxus and TS have the obligation under the agreement pursuant to which Maxus sold Chemicals to Occidental to defend and indemnify Occidental from and against certain historical obligations of Chemicals, including claims related to “Agent Orange” and vinyl chloride monomer (VCM), notwithstanding the fact that (a) said agreement contains a 12-year cut-off for defense and indemnity obligations with respect to most litigation, and (b) TS is not a party to said agreement. Both Maxus and TS, on the one hand, and Occidental, on the other, filed motions for summary judgment in this action. The court granted Maxus and TS motion, and overruled Occidental’s motion, on July 19, 2004. Once a final judgment has been entered, Occidental will have the right to appeal this decision. In a related development, in June 2003, the U.S. Supreme Court affirmed, by a four to four vote, a decision of the Second Circuit Court of Appeals, which held that the 1984 settlement of the claims of Vietnam veterans does not preclude certain Vietnam veterans from asserting claims alleging injury due to Agent Orange exposure. While Maxus believes there are a number of valid defenses to any claims that may be asserted by Vietnam veterans who are not bound by the terms of the 1984 settlement, it also believes that Occidental is responsible for any Agent Orange lawsuits filed after the September 4, 1986 cut-off date.

 

In May 2003, the U.S. Internal Revenue Service (“IRS”) assessed Maxus (for 1994, 1995 and 1996) and YPF Holdings Inc. (for 1997) an aggregate of approximately 70 in additional income taxes. Maxus and YPF Holdings Inc. believe that most of these assessments are without substantial merit, and they have protested this assessment. On January 30, 2004, the IRS assessed YPF Holdings Inc. an additional 22 in withholding taxes, which the IRS contends should have been withheld from an interest payment to YPF International Ltd. in 1997. YPF Holdings Inc. believes this assessment is without substantial merit and has challenged same.

 

YPF Holdings Inc., including its subsidiaries, is a party to various other lawsuits, the outcomes of which are not expected to have a material adverse affect on YPF Holdings Inc.’s financial condition. YPF Holdings Inc. has established reserves for legal contingencies in situations where a loss is probable and can be reasonably estimated.

 

YPF Holdings Inc. has entered into various operating agreements and capital commitments associated with the exploration and development of its oil and gas properties. Such contractual, financial and/or performance commitments are not material.

 

15

 

4.              CONSOLIDATED BUSINESS SEGMENT INFORMATION

 

The Company organizes its business into five segments which comprise: the exploration and production, including contractual purchases of natural gas and crude oil arising from service contracts and concession obligations, as well as natural gas sales (“Exploration and Production”); the refining and marketing of crude oil and petroleum derivatives (“Refining and Marketing”); the petrochemical operations (“Chemical”); the marketing of certain natural gas liquids and electric power generation (“Natural Gas and Electricity”); and other activities, not falling into these categories, are classified under “Corporate and Other” which principally include corporate administration costs and assets, construction activities and environmental remediation activities related to YPF Holdings Inc. preceding operations mentioned in Note 3.

 

Operating income (loss) and assets for each segment have been determined after intersegment adjustments. Sales between business segments are made at internal transfer prices established by YPF, which approximate market prices.

 

		Exploration and Production		Refining and Marketing		Chemical		Natural Gas and Electricity		Corporate and Other		Consolidation Adjustments		Total
Six-month period ended June 30, 2004
Net sales to unrelated parties		820		6,113		794		145		61		—		7,933
Net sales to related parties		230		884		—		109		—		—		1,223
Net intersegment sales		5,222		341		78		—		53		(5,694	)	—
Net sales		6,272		7,338		872		254	(1)	114		(5,694	)	9,156
Operating income (loss)		3,112		675		213		117		(167	)	(40	)	3,910
Income on long-term investments		5		15		46		17		—		—		83
Depreciation and amortization		944		182		42		15		15		—		1,198
Acquisitions of fixed assets		1,068		100		33		1		9		—		1,211
As of June 30, 2004
Assets		15,493		7,731		2,006		1,003		3,639		(644	)	29,228
Six-month period ended June 30, 2003
Net sales to unrelated parties		583		5,791		550		129		59		—		7,112
Net sales to related parties		181		1,157		—		70		—		—		1,408
Net intersegment sales		5,368		332		85		—		71		(5,856	)	—
Net sales		6,132		7,280		635		199	(1)	130		(5,856	)	8,520
Operating income (loss)		3,138		831		161		84		(139	)	(130	)	3,945
Income on long-term investments		16		19		47		55		—		—		137
Depreciation and amortization		879		185		31		15		15		—		1,125
Acquisitions of fixed assets		959		70		15		—		8		(4	)	1,048
As of December 31, 2003
Assets		15,548		7,240		1,985		1,018		7,788		(595	)	32,984

 

(1)               Natural gas sales are recorded in the Exploration and Production segment.

 

Export revenues for the six-month periods ended June 30, 2004 and 2003 were 3,767 and 3,561, respectively. The export sales were mainly to the United States of America, Brazil and Chile.

 

	JOSE MARIA RANERO DIAZ
	Director

 

16

 

Schedule 1

Exhibit A

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA AND CONTROLLED AND JOINTLY CONTROLLED COMPANIES

 

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND COMPARATIVE INFORMATION

FIXED ASSETS EVOLUTION

(amounts expressed in millions of Argentine pesos - Note 1 to the primary financial statements)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004
		Cost
Main Account		Amounts at Beginning of Year		Traslation Net Effect (5)		Increases		Net Decreases and Transfers		Amounts at End of Period
Land and buildings		2,283		—		—		25		2,308
Mineral property, wells and related equipment		39,185		1		2		474		39,662
Refinery equipment and petrochemical plants		8,433		—		3		59		8,495
Transportation equipment		1,758		—		1		17		1,776
Materials and equipment in warehouse		275		—		280		(247	)	308
Drilling and work in progress		1,351		2		923		(518	)	1,758
Furniture, fixtures and installations		453		—		—		18		471
Selling equipment		1,240		—		—		—		1,240
Other property		324		—		2		(9	)	317
Total 2004		55,302		3		1,211	(2)	(181	(1)	56,335
Total 2003		53,463		(18	)	1,048		(569	(1)	53,924

 

		2004
		Depreciation												2003
		Accumulated								Accumulated		Net Book		Net Book		Net Book
		at Beginning		Net Decreases		Depreciation				at End		Value		Value		Value
Main Account		of Year		and Transfers		Rate		Increases		of Period		06-30-04		06-30-03		12-31-03
Land and buildings		921		2		2	%	21		944		1,364		1,369		1,362
Mineral property, wells and related equipment		26,309		—			(4)	937		27,246		12,416	(3)	12,272	(3)	12,876	(3)
Refinery equipment and petrochemical plants		4,966		—		4-10	%	154		5,120		3,375		3,561		3,467
Transportation equipment		1,149		(3	)	4-5	%	24		1,170		606		534		609
Materials and equipment in warehouse		—		—		—		—		—		308		301		275
Drilling and work in progress		—		—		—		—		—		1,758		1,649		1,351
Furniture, fixtures and installations		388		(1	)	10	%	18		405		66		79		65
Selling equipment		810		—		10	%	39		849		391		462		430
Other property		250		—		10	%	5		255		62		83		74
Total 2004		34,793		(2	)(1)			1,198		35,989		20,346
Total 2003		32,627		(138	)(1)			1,125		33,614				20,310		20,509

 

(1)               Includes 13 and 64 of net book value charged to fixed assets allowances for the six-month periods ended June 30, 2004 and 2003, respectively.

(2)               Includes 14 corresponding to the future cost of hydrocarbon wells abandonment obligations for the six-month period ended June 30, 2004.

(3)               Includes 1,445, 1,574 and 1,514 of mineral property as of June 30, 2004 and 2003 and December 31, 2003, respectively, and 135 and 129 related to the future cost of hydrocarbon wells abandonment obligations as of June 30, 2004 and December 31, 2003, respectively.

(4)               Depreciation has been calculated according to the unit of production method.

(5)               Includes the net effect of the exchange differences, originated in the translation of net book values at beginning of year, related to investments in foreign companies.

 

17

 

Schedule 1

Exhibit H

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA AND CONTROLLED AND JOINTLY CONTROLLED COMPANIES

 

CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 EXPENSES INCURRED

(amounts expressed in millions of Argentine pesos - Note 1 to the primary financial statements)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004										2003
		Production		Administrative		Selling		Exploration
		Costs		Expenses		Expenses		Expenses		Total		Total
Salaries and social security taxes		178		40		56		12		286		243
Fees and compensation for services		14		46		9		3		72		63
Other personnel expenses		59		18		12		5		94		81
Taxes, charges and contributions		73		8		94		—		175		149
Royalties and easements		801		—		—		3		804		747
Insurance		34		—		8		—		42		47
Rental of real estate and equipment		96		—		25		1		122		83
Survey expenses		—		—		—		33		33		32
Depreciation of fixed assets		1,125		14		59		—		1,198		1,125
Industrial inputs, consumable materials and supplies		225		6		11		4		246		251
Construction and other service contracts		165		25		18		4		212		199
Preservation, repair and maintenance		332		6		6		4		348		363
Contracts for the exploitation of productive areas		138		—		—		—		138		107
Unproductive exploratory drillings		—		—		—		113		113		50
Transportation, products and charges		203		—		327		—		530		461
(Recovery) allowance for doubtful trade receivables		—		—		(40	)	—		(40	)	4
Publicity and advertising expenses		—		12		23		—		35		24
Fuel, gas, energy and miscellaneous		179		27		19		7		232		221
Total 2004		3,622		202		627		189		4,640
Total 2003		3,421		167		538		124				4,250

 

18

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA

 

BALANCE SHEETS AS OF JUNE 30, 2004 AND DECEMBER 31, 2003

(amounts expressed in millions of Argentine pesos - Note 1)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004		2003
Current Assets
Cash		69		233
Investments (Note 3.a)		66		673
Trade receivables (Note 3.b)		1,731		1,687
Other receivables (Note 3.c)		2,551		5,627
Inventories (Note 3.d)		907		675
Total current assets		5,324		8,895
Noncurrent Assets
Trade receivables (Note 3.b)		77		80
Other receivables (Note 3.c)		1,169		1,184
Investments (Note 3.a)		2,682		2,533
Fixed assets (Note 3.e)		18,525		18,702
Total noncurrent assets		22,453		22,499
Total assets		27,777		31,394
Current Liabilities
Accounts payable (Note 3.f)		1,462		1,618
Loans (Note 3.g)		375		650
Salaries and social security		83		76
Taxes payable		1,419		3,344
Net advances from crude oil purchasers (Note 3.h)		262		260
Reserves (Exhibit E)		21		37
Total current liabilities		3,622		5,985
Noncurrent Liabilities
Accounts payable (Note 3.f)		431		436
Loans (Note 3.g)		1,257		1,295
Taxes payable		17		13
Net advances from crude oil purchasers (Note 3.h)		760		881
Reserves (Exhibit E)		406		365
Total noncurrent liabilities		2,871		2,990
Total liabilities		6,493		8,975
Temporary differences
Foreign companies’ translation (Note 3.i)		(109	)	(115	)
Shareholders’ Equity (per corresponding statements)		21,393		22,534
Total liabilities, temporary differences and shareholders’ equity		27,777		31,394

 

Notes 1 to 11 and the accompanying exhibits A, C, E, F, G and H and Schedule I
are an integral part of these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

19

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 to the primary financial statements in the English translation

 

YPF SOCIEDAD ANONIMA

 

STATEMENTS OF INCOME

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

(amounts expressed in millions of Argentine pesos, except for per share amounts in Argentine pesos - Note 1)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004		2003
Net sales		8,518		8,028
Cost of sales (Exhibit F)		(3,923	)	(3,501	)
Gross profit		4,595		4,527
Administrative expenses (Exhibit H)		(170	)	(143	)
Selling expenses (Exhibit H)		(587	)	(515	)
Exploration expenses (Exhibit H)		(120	)	(68	)
Operating income		3,718		3,801
Income on long-term investments		167		260
Other expenses, net (Note 3.j)		(56	)	(130	)
Financial income (expense), net and holding gains:
Gains (Losses) on assets
Interests		76		125
Exchange differences		(19	)	(1,017	)
Holding gains on inventories		108		48
Losses on exposure to inflation		—		(5	)
(Losses) Gains on liabilities
Interests		(63	)	(94	)
Exchange differences		(45	)	892
Gains on exposure to inflation		—		14
Net income before income tax		3,886		3,894
Income tax (Note 3.k)		(1,487	)	(1,705	)
Net income		2,399		2,189
Earnings per share (Note 1)		6.10		5.57

 

Notes 1 to 11 and the accompanying exhibits A, C, E, F, G and H and Schedule I
are an integral part of these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

20

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 in the English translation

 

YPF SOCIEDAD ANONIMA

 

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

(amounts expressed in millions of Argentine pesos, except per share amounts expressed in pesos - Note 1)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004
		Shareholders’ Contributions
		Subscribed Capital		Adjustment to Contributions		Issuance Premiums		Irrevocable Contributions		Total
Balances at the beginning of year		3,933		7,266		640		28		11,867
As decided by the Ordinary and Extraordinary Shareholders’ meeting of April 9, 2003
• Cash dividends (5 per share)		—		—		—		—		—
As decided by the Ordinary Shareholders’ meeting of April 21, 2004
• Reserve for Future Dividends reversal		—		—		—		—		—
• Cash dividends (9 per share)		—		—		—		—		—
• Appropriation to Legal Reserve		—		—		—		—		—
• Appropriation to Reserve for
Future Dividends		—		—		—		—		—
Net income		—		—		—		—		—
Balances at the end of period		3,933		7,266		640		28		11,867

 

		2004								2003
		Legal Reserve		Reserve for Future Dividends		Unappropriated Retained Earnings		Total Shareholders’ Equity		Total Shareholders’ Equity
Balances at the beginning of year		1,031		133		9,503		22,534		20,896
As decided by the Ordinary and Extraordinary Shareholders’ meeting of April 9, 2003
• Cash dividends (5 per share)		—		—		—		—		(1,967	)
As decided by the Ordinary Shareholders’ meeting of April 21, 2004
• Reserve for Future Dividends reversal		—		(133	)	133		—		—
• Cash dividends (9 per share)		—		—		(3,540	)	(3,540	)	—
• Appropriation to Legal Reserve		255		—		(255	)	—		—
• Appropriation to Reserve for
Future Dividends		—		1,770		(1,770	)	—		—
Net income		—		—		2,399		2,399		2,189
Balances at the end of period		1,286		1,770		6,470		21,393		21,118

 

Notes 1 to 11 and the accompanying exhibits A, C, E, F, G and H and Schedule I
are an integral part of these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

21

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 in the English translation

 

YPF SOCIEDAD ANONIMA

 

STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

(amounts expressed in millions of Argentine pesos - Note 1)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

		2004		2003
Cash Flows from Operating Activities
Net income		2,399		2,189
Adjustments to reconcile net income to net cash provided by operating activities:
Income on long-term investments		(167	)	(260	)
Dividends from long-term investments		29		19
Depreciation of fixed assets		1,147		1,082
Consumption of materials and fixed assets retired, net of allowances		102		216
Increase in allowances for fixed assets		59		24
Net increase in reserves		25		112
Changes in assets and liabilities:
Trade receivables		(41	)	327
Other receivables		3,073		18
Inventories		(232	)	(147	)
Accounts payable		(175	)	(136	)
Salaries and social security		7		(2	)
Taxes payable		(1,921	)	1,626
Net advances from crude oil purchasers		(127	)	(508	)
Exchange differences, interests and others		48		(572	)
Net cash flows provided by operating activities		4,226	(1)	3,988	(1)
Cash Flows from Investing Activities
Acquisitions of fixed assets		(1,117	)	(998	)
Capital distributions from long-term investments		4		—
Capital contribution in long-term investments		—		(3	)
Investments (non cash and equivalents)		—		(31	)
Net cash flows used in investing activities		(1,113	)	(1,032	)
Cash Flows from Financing Activities
Payment of loans		(581	)	(973	)
Proceeds from loans		266		—
Dividends paid		(3,540	)	(1,967	)
Net cash flows used in financing activities		(3,855	)	(2,940	)
(Decrease) Increase in Cash and Equivalents		(742	)	16
Cash and equivalents at the beginning of years		864		574
Effect of changes in the purchasing power of Argentine pesos on cash and equivalents		—		(5	)
Cash and equivalents at the end of periods		122		585

 

For supplemental information on cash and equivalents, see Note 3.a.

 

(1)               Includes (3,522) and (118) corresponding to income tax payments, and (71) and (131) corresponding to interest payments, for the six-month periods ended June 30, 2004 and 2003, respectively.

 

Notes 1 to 11 and the accompanying exhibits A, C, E, F, G and H and Schedule I
are an integral part of these statements.

 

	JOSE MARIA RANERO DIAZ
	Director

 

22

 

English translation of the financial statements originally issued in Spanish,
except for the inclusion of Note 11 in the English translation

 

YPF SOCIEDAD ANONIMA

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2004 AND COMPARATIVE INFORMATION

(amounts expressed in millions of Argentine pesos, except where otherwise indicated - Note 1)

(The financial statements as of June 30, 2004 and June 30, 2003 are unaudited)

 

1.                   SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements of YPF Sociedad Anónima have been prepared in accordance with generally accepted accounting principles in Buenos Aires City, Argentina, considering the regulations of the CNV. They also include certain reclassifications and additional disclosures that allow the financial statements to conform more closely to the form and content required by the Securities and Exchange Commission of the United States of America (“SEC”).

 

The financial statements for the six-month periods ended June 30, 2004 and 2003 are unaudited but reflect all adjustments which, in the opinion of Management, are necessary to present the financial statements for such periods on a consistent basis with the audited annual financial statements.

 

Presentation of financial statements in constant Argentine pesos

 

The financial statements reflect the effect of changes in the purchasing power of money by the application of the method for restatement in constant Argentine pesos set forth in Technical Resolution No. 6 of the F.A.C.P.C.E. and taking into consideration General Resolution No. 441 of the CNV, which established the discontinuation of the restatement of financial statements in constant Argentine pesos as from March 1, 2003.

 

Cash and equivalents

 

In the statements of cash flows, the Company considers cash and all highly liquid investments purchased with an original maturity of less than three months to be cash and equivalents.

 

Derivative instruments

 

Although YPF does not use derivative instruments to hedge the effects of fluctuations in market prices, the Company has entered into certain hedging contracts related to forward crude oil sale agreements, which are described in Note 2.i.

 

Recognition of revenue criteria

 

Revenue is recognized on sales of crude oil, refined products and natural gas, in each case, when title and risks of loss pass to the customer.

 

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Joint ventures and other agreements

 

The Company’s interests in oil and gas related joint ventures and other agreements involved in oil and gas exploration and extraction and electric power generation, have been consolidated line by line on the basis of the Company’s proportional share in their assets, liabilities, revenues, costs and expenses (Note 6).

 

Production concessions and exploration permits

 

According to Argentine Law No. 24,145 issued in November 1992, YPF’s producing fields and undeveloped properties were converted into production concessions and exploration permits under Law No. 17,319. Exploration permits may have a term of up to 17 years and production concessions have a term of 25 years, which may be extended for an additional ten-year term.

 

Fair value of financial instruments and concentration of credit risk

 

The carrying value of cash, current investments and trade receivables approximates its fair value due to the short maturity of these instruments. Furthermore, the fair value of borrowed and granted loans, which has been estimated based on market prices or current interest rates offered to the Company at the end of each year or period, for investments or debt of the same remaining maturity, approximates its carrying value.

 

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, current investments, accounts receivable and other receivables. The Company invests cash excess primarily in high liquid investments in financial institutions both in Argentina and abroad with strong credit rating and providing credit to foreign related parties. In the normal course of business, the Company provides credit based on ongoing credit evaluations to its customers and certain related parties. Additionally, the Company accounts for credit losses based on specific information and historical trends. Credit risk on trade receivables is limited, as a result of the Company’s large customer base.

 

Since counterparties to the Company’s derivative transactions are major financial institutions with strong credit rating, exposure to credit losses in the event of nonperformance by such counterparties is minimal.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect reported assets and liabilities, revenues and expenses and disclosure of contingencies. Future results could differ from the estimations made by the Company’s Management.

 

Earnings per share

 

Earnings per share have been calculated based on the 393,312,793 shares outstanding and the net income for the six-month periods ended as of June 30, 2004 and 2003.

 

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