**SECURITIESAND EXCHANGE COMMISSION**

Washington,D.C.  20549

 

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**Form20-F**

 

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| o      | REGISTRATION STATEMENT  PURSUANT TO SECTION 12(b) OR (g)  OF  THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                            |   |
|   |                                                                                                                                                                                                                                                                                                                                            | OR |
|   |                                                                                                                                                                                                                                                                                                                                            |   |
| ý | ANNUAL REPORT PURSUANT  TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year  ended December 31, 2002                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                            |   |
|   |                                                                                                                                                                                                                                                                                                                                            | OR |
|   |                                                                                                                                                                                                                                                                                                                                            |   |
| o      | TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934for the transition  period from                   to               Commission File Number: 333-07112 |

 

**MulticanalS.A.**

(Exactname of registrant as specified in its charter)

 
| **Multichannel S.A.**                                 |   | **Argentina**                                    |
|-------------------------------------------------------|--------|--------------------------------------------------|
| (Translation  of registrant’s name into English) |   | (Jurisdiction  of incorporation or organization) |
|                                                  |   |                                             |
| **Avalos 2057  (1431) Buenos Aires  Argentina**       |
| (Address  of principal executive offices)             |

 

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**Securities registered or to be registered pursuant to Section12(b) of the Act:**

 

**None**

 

**Securities registered or to be registered pursuant to Section12(g) of the Act:**

 

**None**

 

**Securities for which there is a reporting obligation pursuantto Section 15(d) of the Act:**

 

91⁄4%Notes Due 2002, 101⁄2% Notes Due 2007, Series C 101⁄2% Notes due 2018 and Series E13.125% Notes due 2009 (together, the “Notes”).

 

**Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report: **200,334,477 Class A common shares, par value one peso per share, and166,486,560 Class B common shares, par value one peso per share.

 

**Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.**

 

**Yes  **ý**       No  **o

**Indicate bycheck mark which financial statement item the registrant has elected to follow:**

** **

**Item 17**o**      Item 18  **ý

 

 

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**TABLE OF CONTENTS**

 
|     |   | Forward Looking Statements                                              |
|----------|--------|-------------------------------------------------------------------------|
|     |   |                                                                    |
| Item 1.  |   | Identity of Directors, Senior Management and  Advisors.                 |
|     |   |                                                                    |
| Item 2.  |   | Offer Statistics and Expected Timetable                                 |
|     |   |                                                                    |
| Item 3.  |   | Key Information                                                         |
|     |   |                                                                    |
|     |   | Selected  Financial Data                                                |
|     |   |                                                                    |
|     |   | Exchange Rates                                                          |
|     |   |                                                                    |
|     |   | Risk Factors                                                            |
|     |   |                                                                    |
|     |   | Risks Relating to  Argentina                                            |
|     |   |                                                                    |
|     |   | Risks Relating to  Multicanal                                           |
|     |   |                                                                    |
|     |   | Risks  Relating Specifically to Our Argentine Cable Television Business |
|     |   |                                                                    |
|     |   | Risks  Relating to Our Subsidiaries and Foreign Operations              |
|     |   |                                                                    |
|     |   | Risks  Relating to the Cable Television Industry Generally              |
|     |   |                                                                    |
| Item 4.  |   | Information on the Company                                              |
|     |   |                                                                    |
|     |   | History and  Development of the Company                                 |
|     |   |                                                                    |
|     |   | Business Overview                                                       |
|     |   |                                                                    |
|     |   | Business Strategy                                                       |
|     |   |                                                                    |
|     |   | Cable Networks                                                          |
|     |   |                                                                    |
|     |   | Acquisitions of Cable  Networks                                         |
|     |   |                                                                    |
|     |   | Programming and Other  Services                                         |
|     |   |                                                                    |
|     |   | Marketing and Customer  Service                                         |
|     |   |                                                                    |
|     |   | Competition                                                             |
|     |   |                                                                    |
|     |   | Regulatory  Overview                                                    |
|     |   |                                                                    |
|     |   | Organizational  Structure                                               |
|     |   |                                                                    |
|     |   | Property, Plants, and  Equipment                                        |
|     |   |                                                                    |
|     |   | Capital  Expenditures                                                   |
|     |   |                                                                    |
| Item  5. |   | Operating  and Financial Review and Prospects                           |
|     |   |                                                                    |
|     |   | Overview                                                                |
|     |   |                                                                    |
|     |   | The  Argentine Economy                                                  |
|     |   |                                                                    |
|     |   | Other  Factors Affecting our Results and Financial Condition            |
|     |   |                                                                    |
|     |   | Results  of Operations                                                  |
|     |   |                                                                    |
|     |   | Years Ended  December 31, 2002 and 2001                                 |
|     |   |                                                                    |
|     |   | Years Ended  December 31, 2001 and 2000                                 |

 

i

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|     |   | Income Taxes                                                                  |
|----------|--------|-------------------------------------------------------------------------------|
|     |   |                                                                          |
|     |   | U.S.  GAAP Reconciliation                                                     |
|     |   |                                                                          |
|     |   | Liquidity and Capital  Resources                                              |
|     |   |                                                                          |
| Item  6. |   | Directors,  Senior Management and Employees                                   |
|     |   |                                                                          |
|     |   | Directors and Senior  Management                                              |
|     |   |                                                                          |
|     |   | Biographical  Information                                                     |
|     |   |                                                                          |
|     |   | Compensation                                                                  |
|     |   |                                                                          |
|     |   | Employees                                                                     |
|     |   |                                                                          |
| Item  7. |   | Major  Shareholders and Related Party Transactions                            |
|     |   |                                                                          |
|     |   | Major  Shareholders                                                           |
|     |   |                                                                          |
|     |   | Overview  of Grupo Clarín                                                |
|     |   |                                                                          |
|     |   | Related Party Transactions                                                    |
|     |   |                                                                          |
| Item 8.  |   | Financial Information                                                         |
|     |   |                                                                          |
| Item 9.  |   | The Offer and Listing                                                         |
|     |   |                                                                          |
|     |   | Nature  of Trading Market                                                     |
|     |   |                                                                          |
| Item 10. |   | Additional Information                                                        |
|     |   |                                                                          |
|     |   | Bylaws                                                                        |
|     |   |                                                                          |
|     |   | Enforceability of  Civil Liabilities                                          |
|     |   |                                                                          |
|     |   | Legal Proceedings                                                             |
|     |   |                                                                          |
|     |   | Material  Contracts                                                           |
|     |   |                                                                          |
|     |   | Exchange Controls                                                             |
|     |   |                                                                          |
|     |   | Taxation                                                                      |
|     |   |                                                                          |
|     |   | General                                                                       |
|     |   |                                                                          |
|     |   | Argentine Tax  Considerations                                                 |
|     |   |                                                                          |
|     |   | U.S.  Tax Considerations                                                      |
|     |   |                                                                          |
|     |   | Documents  on Display                                                         |
|     |   |                                                                          |
| Item 11. |   | Quantitative and Qualitative Disclosures About  Market Risk                   |
|     |   |                                                                          |
| Item 12. |   | Description of Securities Other than Equity  Securities                       |
|     |   |                                                                          |
| Item 13. |   | Defaults, Dividend Arrearages and  Delinquencies                              |
|     |   |                                                                          |
| Item 14. |   | Material Modifications to the Rights of  Security Holders and Use of Proceeds |

 

ii

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| Item 15. |   | Controls and Procedures           |
|----------|--------|-----------------------------------|
|     |   |                              |
| Item 17. |   | Financial Statements              |
|     |   |                              |
| Item 18. |   | Financial Statements              |
|     |   |                              |
| Item 19. |   | Financial Statements and Exhibits |

 

iii

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**ForwardLooking Statements**

 

From time to time we makeforward-looking statements in our periodic reports to the Securities andExchange Commission on Forms 20-F and 6-K, in our annual report toshareholders, in offering circulars and prospectuses, in press releases andother written materials, and in oral statements made by our officers, directorsor employees to analysts, institutional investors, representatives of the mediaand others.  This Form 20-F containsforward-looking statements.  Examples ofsuch forward-looking statements include:

 

•                  our expectations for operating revenues, netincome (loss), net income (loss) per share, capital expenditures, dividends,capital structure, the carrying value of certain assets or other financialitems or ratios,

 

•                  statements of our plans, objectives or goals,

 

•                  statements about our future economicperformance or that of Argentina or other countries in which we operate, and

 

•                  statements of assumptions underlying suchstatements.

 

Words such as “believe,”“anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,”“predict,” “forecast,” “guideline,” “should” and similar expressions areintended to identify forward-looking statements but are not the exclusive meansof identifying such statements.

 

Forward-looking statementsinvolve inherent risks and uncertainties. We caution you that a number of important factors could cause actualresults to differ materially from the plans, objectives, expectations,estimates and intentions expressed in such forward-looking statements.  These factors, some of which are discussedunder “Risk Factors” beginning on page 9, include developments in legalproceedings, limitations on our access to sources of financing on competitiveterms, economic and political conditions and governmental policies in Argentinaor elsewhere, changes in capital markets that may affect the ability ofArgentina or Argentine companies to obtain financing, inflation rates, foreignexchange rates volatility, exchange controls, regulatory developments, customerdemand and competition.  We caution youthat the foregoing list of factors is not exclusive and that other risks anduncertainties, which we cannot predict, may cause actual results to differmaterially from those in forward-looking statements.

 

Forward-looking statementsspeak only as of the date they are made, and we do not undertake any obligationto update them in light of new information or future developments.  We encourage readers to consult our periodicfilings on Form 6-K with the United States Securities and Exchange Commission.

 

**Item 1****.    Identity of Directors, Senior Management and Advisors.**

 

Not applicable.

 

**Item 2****.    Offer Statistics and Expected Timetable*.***

 

Not applicable.

 

**Item 3****.    Key Information*.***

 

**SelectedFinancial Data**

 

The following selectedconsolidated financial data has been derived from our consolidated financialstatements as of the dates and for each of the periods indicated below.  This information should be read in

 

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conjunction with and isqualified in its entirety by reference to our consolidated financial statementsand the discussion in “Operating and Financial Review and Prospects” includedelsewhere in this annual report.  The selectedconsolidated financial data as of December 31, 2002 and 2001 and for the yearsended December 31, 2002, 2001 and 2000 derive from our audited financialstatements included elsewhere in this annual report, which have been audited byour independent accountants, Price Waterhouse & Co., a member firm ofPricwaterhouseCoopers.  The selectedconsolidated financial data as of December 31, 2000, 1999 and 1998 and for theyears ended December 31, 1999 and 1998 are derived from our auditedconsolidated financial statements that are not included herein.

 

Our consolidated financialstatements as of and for the year ended December 31, 2002 have been prepared onthe assumption that we will continue as a going concern. Our independentauditors have issued a report stating that we have suffered recurring lossesfrom operations and have a net capital deficiency.  The report also states that we have been negatively impacted bythe Argentine government’s adoption of various economic measures and by thedevaluation of the peso, matters which raise substantial doubt as to ourability to continue as a going concern. Our consolidated financial statements as of and for the year endedDecember 31, 2002 do not include any adjustments that might result from theoutcome of this uncertainty.  See “RiskFactors - Risks Relating to Multicanal.”

 

Our financial statements arepresented in pesos.  We prepare ourfinancial statements in accordance with accounting principles generallyaccepted in Argentina (“Argentine GAAP”) which differ in certain significantrespects from accounting principles generally accepted in the United States(“U.S. GAAP”).  Note 15 to ourconsolidated financial statements provides a description of the principaldifferences between Argentine GAAP and U.S. GAAP affecting our net loss andshareholders’ (deficit) equity and Note 16 provides a reconciliation to U.S.GAAP of net loss and shareholders’ (deficit) equity reported under ArgentineGAAP.

 

The Company’s consolidatedfinancial statements include the effects of inflation through August 31, 1995,utilizing the inflation restatement methodology established in TechnicalResolution N°6 of the FACPCE. Effective September 1, 1995, as required by rulesissued by the CNV, we discontinued the restatement methodology, maintaining theeffects of inflation accounted for in prior periods.  The discontinuance of inflation accounting is in compliance withArgentine GAAP, provided that the annual variation in the general level WPIdoes not exceed 8% per annum.  AuditedConsolidated Financial Statements for the years ended December 31, 2001, 2000and 1999 are presented on a historical basis, except for non-monetary assetsand their related consumption and shareholders’ equity accounts, which havebeen restated through August 31, 1995. The effect of inflation on the financial statements that has beenrestated has not been reversed in the reconciliation to U.S. GAAP.   On August 22, 1995 the Argentine governmentissued Decree No. 316/95 eliminating the requirement that financial informationat any date for any period after August 31, 1995 be restated forinflation.  On July 7, 2002 theArgentine government published Decree No. 269/02, which repealed Decree No.216/95 and reestablished the restatement of financial information to accountfor inflation for periods beginning on or after January 1, 2002.

 

Since the beginning of 2002,Argentina has experienced a high rate of inflation with the WPI increasethrough December 31, 2002 estimated at 118%. As the change in the WPI since January 1, 2002 has exceeded 8%,financial statements prepared in accordance with Argentine GAAP were requiredto be adjusted for inflation since that date. Accordingly, our Audited Consolidated Financial Statements are adjustedfor inflation and restated in constant Argentine pesos as of December 31,2002.  In addition, for comparativepurposes, we have also restated in constant Argentine pesos as of December 31,2002 all other financial statements included elsewhere in this Form 20-F andall other financial data included throughout this Form 20-F.  Such translation should not be construed asa representation that the peso amounts represent, or have been or could beconverted into, U.S. dollars (at that or any other rate).

 

2

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The exchange rate betweenthe dollar and the peso as of December 31, 2001 was U.S.$1.00 = Ps.1.00.  However, as a result of the elimination ofthe fixed exchange rate and the devaluation of the peso, the exchange ratebetween the peso and the dollar initially increased and has subsequentlydecreased substantially.  As of December31, 2002, the exchange rate between the dollar and the peso was U.S.$1.00 =Ps.3.37, and as of June 24, 2003 the exchange rate was U.S.$1.00 =Ps.2.77.  The U.S. dollar conveniencetranslation provided in the tables below is based on the exchange rate betweenthe U.S. dollar and the peso as of December 31, 2002.

 

Acquisitions of cablecompanies during the periods for which the selected data are presented belowaffect the comparability of the data from one period to another, as dodifferences in the classification by acquired companies of revenues andexpenses, although these differences in classification are not material for theaudited financial statements taken as a whole.

 

Unless otherwise specified,references herein to “U.S. dollars”, “dollars”, “US$” or “$” are to UnitedStates dollars and references to “pesos” or “Ps” are to Argentine pesos.

 

3

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|                                                                                                     |   | **At or  for the year ended December 31,** |       |
|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                                                     |   | **2002**                                   |       | **2002** |   | **2001** |   | **2000** |   | **1999** |   | **1998(1)** |   |
|                                                                                                     |   | **(In  thousands of USD (15)**             |       | **(In  thousands of pesos except operating data, margins and ratios)** | ** ** |
|                                                                                                     |   | **US$**                                    |       | **Ps.** |   | **Ps.** |   | **Ps.** |   | **Ps.** |   | **Ps.** | ** ** |
| **Amounts  in accordance with Argentine GAAP Statement of Operations Data:**                             |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Net  revenues(2)                                                                                         |   | 170,543                                    |       | 574,728 |   | 1,015,473 |   | 1,040,170 |   | 1,034,904 |   | 1,115,790 |   |
| Direct  operating expenses                                                                               |   | (92,039                                    | )          | (310,170 | ) | (498,531 | ) | (492,303 | ) | (459,319 | ) | (511,155 | ) |
| Selling,  general, administrative and marketing expenses                                                 |   | (36,389                                    | )          | (122,631 | ) | (194,559 | ) | (221,259 | ) | (229,715 | ) | (252,844 | ) |
| Depreciation  and amortization                                                                           |   | (91,055                                    | )          | (306,855 | ) | (332,188 | ) | (334,944 | ) | (306,125 | ) | (295,041 | ) |
| Operating  (loss) income                                                                                 |   | (48,940                                    | )          | (164,927 | ) | (9,805 | ) | (8,337 | ) | 39,745 |   | 56,751 |   |
| Financial  income (expenses) and holding gains, net(3)                                                   |   | (139,901                                   | )          | (471,466 | ) | (222,452 | ) | (244,305 | ) | (220,250 | ) | (165,273 | ) |
| Other  non-operating income  (expenses), net                                                        |   | (91,840                                    | )          | (309,500 | ) | (356,225 | ) | (34,286 | ) | (95,582 | ) | (49,133 | ) |
| Gain  (loss) on sales of investees                                                                       |   | 8                                          |       | 25 |   | 322,515 |   | — |   | (852 | ) | - |   |
| Loss  before taxes and minority interest and equity in the gains (losses) of  affiliated companies       |   | (280,673                                   | )          | (945,868 | ) | (265,967 | ) | (286,928 | ) | (275,234 | ) | (157,656 | ) |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Income  taxes and/or tax on minimum notional income                                                      |   | (1,463                                     | )          | (4,932 | ) | (11,328 | ) | (21,654 | ) | (38,042 | ) | (23,680 | ) |
| Minority  interest                                                                                       |   | (2,372                                     | )          | (7,992 | ) | (2,979 | ) | (2,478 | ) | (6,623 | ) | (4,522 | ) |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Equity  in the gains (losses) of affiliated companies                                                    |   | 6,033                                      |       | 20,332 |   | (3,770 | ) | (8,417 | ) | (2,415 | ) | (13,121 | ) |
| Net  loss                                                                                                |   | (278,475                                   | )          | (938,461 | ) | (284,044 | ) | (319,477 | ) | (324,018 | ) | (198,979 | ) |
| **Balance  Sheet Data (at year end):**                                                                   |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Current  assets                                                                                          |   | 53,991                                     |       | 181,949 |   | 370,614 |   | 244,393 |   | 331,190 |   | 293,451 |   |
| Property  and equipment, (net)                                                                           |   | 184,007                                    |       | 620,104 |   | 797,751 |   | 949,843 |   | 1,066,288 |   | 1,126,821 |   |
| Goodwill  and intangible assets                                                                          |   | 356,537                                    |       | 1,201,530 |   | 1,621,772 |   | 2,064,143 |   | 2,196,746 |   | 2,336,460 |   |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Other  non-current assets(4)                                                                             |   | 10,795                                     |       | 36,378 |   | 51,065 |   | 51,966 |   | 59,253 |   | 61,248 |   |
| Total  assets                                                                                            |   | 605,330                                    |       | 2,039,962 |   | 2,841,202 |   | 3,310,345 |   | 3,653,477 |   | 3,817,979 |   |
| Short-term  debt(5)                                                                                      |   | 602,280                                    |       | 2,029,684 |   | 1,672,533 |   | 624,387 |   | 574,537 |   | 500,744 |   |
| Long-term  debt(6)                                                                                       |   | 1,057                                      |       | 3,563 |   | 458 |   | 1,261,861 |   | 1,346,338 |   | 1,252,735 |   |
| Total  financial debt                                                                                    |   | 603,337                                    |       | 2,033,247 |   | 1,672,991 |   | 1,886,248 |   | 1,920,875 |   | 1,753,479 |   |
| Other  liabilities                                                                                       |   | 56,077                                     |       | 188,978 |   | 416,027 |   | 391,918 |   | 380,230 |   | 393,066 |   |
| Total  liabilities                                                                                       |   | 659,414                                    |       | 2,222,225 |   | 2,089,018 |   | 2,278,166 |   | 2,301,105 |   | 2,146,545 |   |
| Minority  interest                                                                                       |   | 9,389                                      |       | 31,640 |   | 27,627 |   | 25,964 |   | 26,680 |   | 21,723 |   |
| Shareholders’  (deficit) equity                                                                     |   | (63,473                                    | )          | (213,903 | ) | 724,557 |   | 1,006,216 |   | 1,325,692 |   | 1,649,711 |   |
| **Cash Flow  Data:**                                                                                     |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Cash  provided by (used in) operations                                                                   |   | 55,607                                     |       | 187,394 |   | 43,472 |   | 50,301 |   | 73,950 |   | 134,982 |   |
| Acquisition  of cable systems and subscribers and decrease (increase) in goodwill and  intangible assets |   | (339                                       | )          | (1,142 | ) | 313,214 |   | (7,355 | ) | (13,364 | ) | (36,881 | ) |
| Purchases  of property and equipment net of proceeds from sales                                          |   | (3,338                                     | )          | (11,248 | ) | (46,220 | ) | (85,371 | ) | (151,046 | ) | (209,397 | ) |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Cash  provided by (used in) financing activities                                                         |   | (75,886                                    | )          | (255,735 | ) | (205,362 | ) | (37,821 | ) | 165,729 |   | 113,894 |   |
| **Other  Financial Information**                                                                         |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Weighted  average number of shares (in thousands)                                                        |   | 366,821                                    |       | 366,821 |   | 366,821 |   | 365,953 |   | 365,953 |   | 365,953 |   |
| Net  loss per share                                                                                      |   | (20.76                                     | )          | (2.56 | ) | (0.77 | ) | (0.87 | ) | (0.89 | ) | (.54 | ) |
| Adjusted  EBITDA under Indentures(7)                                                                     |   | 42,115                                     |       | 141,928 |   | 322,382 |   | 326,607 |   | 345,870 |   | 351,792 |   |
| Adjusted  EBITDA under Indentures margin(8)                                                              |   | 24.7                                       | %          | 24.7 | % | 31.7 | % | 31.4 | % | 33.4 | % | 31.5 | % |
| Ratio  of Adjusted EBITDA under Indentures-to-interest expense                                           |   | 0.6                                        | x          | 0.6 | x | 1.6 | x | 1.6 | x | 1.8 | x | 2.2 | x |
| Ratio  of financial debt-to-Adjusted EBITDA under Indentures(9)                                          |   | 14.3                                       | x          | 14.3 | x | 5.2 | x | 5.8 | x | 5.6 | x | 5.0 | x |
| **Amount in  Accordance with U.S. GAAP:**                                                                |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Total Assets                                                                                             |   | 575,129                                    |       | 1,938,183 |   | 1,868,255 |   | 3,258,039 |   | 3,668,863 |   | 3,807,436 |   |
| Net assets(10)                                                                                           |   | (182,397                                   | )          | (614,678 | ) | (553,552 | ) | 974,591 |   | 1,360,134 |   | 1,655,125 |   |
| Revenues                                                                                                 |   | 182,071                                    |       | 613,578 |   | 1,062,784 |   | 1,135,527 |   | 1,144,969 |   | 1,268,415 |   |
| Operating (loss) income                                                                                  |   | (105,886                                   | )          | (356,835 | ) | (301,542 | ) | (12,141 | ) | 30,220 |   | 50,172 |   |
| Financial  income (expenses) and holding gains net (3)                                                   |   | 39,925                                     |       | 104,216 |   | (1,231,716 | ) | (244,834 | ) | (216,909 | ) | (172,290 | ) |
| Net  loss                                                                                                |   | (15,668                                    | )          | (52,801 | ) | (1,544,901 | ) | (385,401 | ) | (296,927 | ) | (211,011 | ) |
| Shareholders’  (deficit) equity                                                                     |   | (188,775                                   | )          | (636,173 | ) | (575,063 | ) | 951,445 |   | 1,336,020 |   | 1,634,120 |   |
| Net  loss per share                                                                                      |   | (0.04                                      | )          | (0.14 | ) | (4.21 | ) | (1.05 | ) | (0.81 | ) | (0.58 | ) |
| Adjusted  EBITDA under Indentures(7)                                                                     |   | 43,590                                     |       | 146,897 |   | 323,310 |   | 327,111 |   | 345,767 |   | 352,693 |   |
| Adjusted  EBITDA under Indentures margin(8)                                                              |   | 25.6                                       | %          | 25.6 | % | 31.8 | % | 31.4 | % | 33.4 | % | 31.6 | % |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Ratio  of Adjusted EBITDA under Indentures-to-interest expense                                           |   | 0.6                                        | x          | 0.6 | x | 1.7 | x | 1.6 | x | 1.8 | x | 2.1 | x |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Ratio  of financial debt-to-Adjusted EBITDA under Indentures(9)                                          |   | 16.0                                       | x          | 16.0 | x | 9.3 | x | 5.8 | x | 5.6 | x | 5.0 | x |
| **Selected  Argentine Operating Data:**                                                                  |   |                                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Total  households(11)                                                                                    |   | 5,092,900                                  |       | 5,092,900 |   | 5,092,900 |   | 5,092,900 |   | 5,092,900 |   | 5,092,900 |   |
| Multicanal  homes passed(12)(13)                                                                         |   | 4,436,200                                  |       | 4,436,200 |   | 4,522,700 |   | 4,364,400 |   | 4,074,900 |   | 3,881,000 |   |
| Multicanal  homes passed/Total households                                                                |   | 87.1                                       | %          | 87.1 | % | 88.8 | % | 85.7 | % | 80 | % | 76.2 | % |
| Total  cable subscribers(11)                                                                             |   | 1,808,600                                  |       | 1,808,600 |   | 2,131,300 |   | 2,202,400 |   | 2,223,500 |   | 2,291,600 |   |
| Multicanal  subscribers(11)                                                                              |   | 826,200                                    |       | 826,200 |   | 1,148,900 |   | 1,220,000 |   | 1,241,100 |   | 1,309,200 |   |
| Multicanal  penetration(13)(14)                                                                          |   | 18.6                                       | %          | 18.6 | % | 25.4 | % | 28.0 | % | 30.5 | % | 33.7 | % |
|                                                                                                     |   |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Multicanal  market share(14)                                                                             |   | 45.7                                       | %          | 45.7 | % | 53.9 | % | 55.4 | % | 55.8 | % | 57.1 | % |

 

4

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(1)                    The results of operations for the year endedDecember 31, 1998 include proportional consolidation of the results of ouroperations in Bahía Blanca Systems and in Santa Fe Systems for the six-monthperiod ended June 30, 1998.  The VCCGroup was proportionally consolidated for the seven-month period from November30, 1997 to June 30, 1998 in the audited financial statements.  As of July 1, 1998, the subscribers, assetsand liabilities of the VCC Group, the Bahía Blanca Systems and the Santa FeSystems were divided between Multicanal and Cablevisión S.A. and we integratedsuch subscribers, assets and liabilities into our operations.  Consequently, consolidation in proportion tothe equity holding in Fintelco S.A. was discontinued and the results ofoperations of Fintelco S.A., which continued operating with its remainingassets and liabilities for the five-month period ended November 30, 1998(related to immaterial operations), have been valued by the equity method ofaccounting. See Item 4.  Acquisitions ofCable Networks.

(2)                    Net revenues represent gross sales net ofcharges for the allowance for doubtful accounts and direct sales taxes.

(3)                    Financial expenses and holding gains, net,comprises financial charges, including interest income, interest expense andcommissions, exchange differences, taxes on interest, taxes on debits andcredits to bank current accounts, and savings generated by open marketrepurchases of the Notes. The audited financial statements until December 31,2001, do not include the effects of price-level restatement after August 31,1995, as inflation accounting was no longer permitted from September 1,1995.  The audited financial statementsas of December 31, 2002 include results on exposure to inflation and exchangerate differences.

(4)                    Includes investments in affiliated companiesand investments carried at cost.

(5)                    Includes (i) bank loans, overdrafts, debtwith related parties and current portion of acquisition related debt, and (ii)the principal amount of all our other financial debt, which following failureto pay on maturity our 91⁄4% Notes due 2002 has been classified in its entiretyas short-term debt, although to date the holders thereof have not, to theCompany’s knowledge, elected to accelerate such debt.  At December 31, 2001, such debt was denominated in U.S. dollars,while at December 31, 2002 a total amount of U.S.$582.7 million was denominatedin U.S. dollars.

(6)                    Includes long-term acquisition relateddebt.  At December 31, 2002, a totalamount of US$1.0 million of our long-term debt was denominated in dollars.

(7)                    Under indentures governing our outstandingU.S. dollar-denominated indebtedness, “EBITDA” is defined as the sum of (i)operating income (loss) and (ii) depreciation and amortization.   For purposes of this Form 20-F, we refer tothis measure of EBITDA as “Adjusted EBITDA under Indentures”. Adjusted EBITDAunder Indentures is presented because it is included as a covenant inindentures governing our outstanding U.S. dollar-denominated obligations.  We believe that Adjusted EBITDA underIndentures, while providing useful information, should not be considered inisolation or as a substitute for net income or loss, as an indicator ofoperating performance or as an alternative to cash flow as a measure ofliquidity. Adjusted EBITDA under Indentures also does not represent fundsavailable for dividends, reinvestment or other discretionary uses. BecauseEBITDA measures are not determined in accordance with U.S. GAAP, othercompanies may compute EBITDA in a different manner. Therefore, EBITDA asreported by other companies may not be comparable to Adjusted EBITDA underIndentures as reported by us.

 

5

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Adjusted EBITDA underIndentures is a “non-GAAP financial measure”, as this term is defined under theSecurities Act of 1933, as amended.  Asa result, we have reconciled Adjusted EBITDA under Indentures to cash flowsfrom operating activities, the Argentine GAAP financial measure which webelieve to be most comparable to Adjusted EBITDA under Indentures:

 
|                                                |   | **For the  year ended December 31,** |   |
|-----------------------------------------------------|--------|--------------------------------------|--------|
|                                                |   | **2002**                             |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
| Adjusted  EBITDA under Indentures                   |   | 141,928                              |   | 322,382 |   | 326,607 |   | 345,870 |   | 351,792 |   |
|                                                |   |                                 |   |   |   |   |   |   |   |   |   |
| Income  taxes and/or tax on minimum notional income |   | (4,932                               | )      | (11,328 | ) | (21,654 | ) | (38,042 | ) | (23,680 | ) |
|                                                |   |                                 |   |   |   |   |   |   |   |   |   |
| Non-operating  (expenses) income moving funds       |   | 12,763                               |   | (21,522 | ) | (19,875 | ) | (23,243 | ) | (45,031 | ) |
|                                                |   |                                 |   |   |   |   |   |   |   |   |   |
| Financial  expenses and holding results using funds |   | 129,011                              |   | (231,270 | ) | (244,305 | ) | (220,250 | ) | (165,273 | ) |
|                                                |   |                                 |   |   |   |   |   |   |   |   |   |
| Changes  in assets and liabilities                  |   | (91,487                              | )      | (14,791 | ) | 9,528 |   | 9,614 |   | 17,175 |   |
|                                                |   |                                 |   |   |   |   |   |   |   |   |   |
| Dividends  received                                 |   | 111                                  |   | — |   | — |   | — |   | — |   |
|                                                |   |                                 |   |   |   |   |   |   |   |   |   |
| Cash  provided by operations                        |   | 187,394                              |   | 43,472 |   | 50,301 |   | 73,950 |   | 134,982 |   |

 

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(8)                    Adjusted EBITDA under Indentures divided bynet revenues.

(9)                    Ratio of financial debt to Adjusted EBITDAunder Indentures is the sum of short-term and long-term bank borrowings andshort-term and long-term acquisition related debt divided by Adjusted EBITDAunder Indentures.

(10)              Net assets represents assets less liabilitiesdetermined in accordance with U.S. GAAP.

(11)              Includes only Argentine regions whereMulticanal offers service.

(12)              Homes passed by Multicanal’s cable networks.

(13)              Includes only Argentine regions whereMulticanal offers service. Multicanal subscribers as a percentage of Multicanalhomes passed.

(14)              Includes only Argentine regions whereMulticanal offers service. Multicanal subscribers as a percentage of totalcable subscribers.

(15)              Argentine peso amounts have been translatedinto U.S. dollars at the rate of Ps.3.37=U.S.$1.00, the exchange rate onDecember 31, 2002.  Such translationshould not be construed as a representation that the peso amounts represent, orhave been or could be converted into, U.S. dollars (at the or any other rate).

 

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**ExchangeRates**

 

From April 1, 1991 until thebeginning of 2002, the Convertibility Law was applicable in Argentina.  The convertibility Law established a fixedexchange rate under which the Central Bank was obliged to sell U.S. dollars ata fixed rate of one peso per U.S. dollar. Under the Convertibility Law, all foreign exchange controls wereeliminated and no restrictions were placed on capital flows.

 

On December 1, 2001, thegovernment placed severe restrictions on the withdrawal of bank deposits andintroduced exchange controls subjecting transfers of foreign currency abroad toCentral Bank approval.  The reintroductionof foreign exchange controls had a significant impact on the foreign exchangemarket, and the peso began to trade at less than parity with the U.S. dollar,despite the fact that the Convertibility Law remained in effect.  Many of these controls were subsequentlylifted.  See “Item 10—ExchangeControls.”

 

On January 6, 2002, Congressenacted the Public Emergency Law putting an end to the regime of theConvertibility Law thus abandoning over ten years of the U.S. dollar-pesoparity and eliminating the requirement that the Central Bank’s reserves in goldand foreign currency be at all times equivalent to not less than 100% of themonetary base.  The Public Emergency Lawgranted the Executive Branch the power to set the exchange rate between thepeso and foreign currencies and to issue regulations related to the foreignexchange market.  On January 6, 2002,the Executive Branch established a temporary dual exchange rate system.  One exchange rate, applicable to exports andessential imports was set at a rate of Ps.1.40 per U.S. dollar.  The other, which was applicable to all othertransactions, was a floating rate to be freely determined by the market.  On February 3, 2002 the Executive Branchrepealed the dual exchange system and since February 11, 2002, there has beenonly one freely floating exchange rate for all transactions.  See “Risk Factors-Risks Related toArgentina—Exchange Rate Risks.”

 

On January 11, 2002, theCentral Bank ended a banking holiday imposed on December 21, 2001.  The exchange rate began to float freely forthe first time in 11 years at Ps.1.40 per U.S. dollar.  The shortage of U.S. dollars and itsheightened demand caused the peso to devalue significantly.  As a result, the Central Bank intervened onseveral occasions by selling U.S. dollars in order to lower the exchangerate.  On February 3, 2002, anotherbanking holiday was imposed and no exchange operations were resumed untilFebruary 11, 2002, following the repeal of the temporary dual exchange systemestablished January 2002.  Heighteneddemand for scarce U.S. dollars, caused by uncertainty and by the lack of anyother investment alternatives within the *corralito*,led the peso to trade well below the Ps.1.40 per U.S. dollar exchange rate usedby the Argentine government in the official market.  During June 2002, the peso lost significant ground, trading aslow as Ps.3.90 per U.S.$1.00.  On June24, 2003, the U.S. dollar-peso exchange rate was approximately Ps.2.77 per U.S.dollar.

 

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The following table setsforth the annual high, low, average and period-end exchange rates for U.S.dollars for the period indicated, expressed in nominal pesos per U.S.dollar.  The Federal Reserve Bank of NewYork does not report a noon buying rate for pesos.

 
|                   |   | **Exchange  Rate of Pesos per U.S.$1.00** |   |
|------------------------|--------|-------------------------------------------|--------|
|                   |   | **Low**                                   |   | **High** |   | **Average(1)** |   | **Period-end** |   |
| Year Ended December 31 |   |                                      |   |   |   |   |   |   |   |
| 1998-2001(2)           |   | 1.00                                      |   | 1.00 |   | 1.00 |   | 1.00 |   |
| 2002(2)                |   | 1.40                                      |   | 3.90 |   | 3.11 |   | 3.37 |   |
|                   |   |                                      |   |   |   |   |   |   |   |
| Month Ended            |   |                                      |   |   |   |   |   |   |   |
| January  31, 2003      |   | 3.10                                      |   | 3.35 |   | 3.26 |   | 3.21 |   |
| February  28, 2003     |   | 3.11                                      |   | 3.21 |   | 3.16 |   | 3.19 |   |
| March  31, 2003        |   | 2.88                                      |   | 3.21 |   | 3.06 |   | 2.98 |   |
| April  30, 2003        |   | 2.82                                      |   | 2.96 |   | 2.89 |   | 2.82 |   |
| May  31, 2003          |   | 2.76                                      |   | 2.94 |   | 2.84 |   | 2.85 |   |
| June  24, 2003(3)      |   | 2.77                                      |   | 2.85 |   | 2.81 |   | 2.77 |   |

 

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Source:  Banco de la Nación Argentina

(1)           Represents the daily average exchange rate during each ofthe relevant periods.

(2)                                  Our assets and liabilities denominated inforeign currency as of December 31, 2002 were valued at the exchange rate ofPs.1.00 to each U.S. dollar, as required by Resolution MD No. 01/02 of the *Consejo Profesional de Ciencias Económicas de laCiudad Autónoma de Buenos Aires* (CPCECABA-Professional Council inEconomic Sciences of Buenos Aires Autonomous City), by BCRA Communication “A”3439 and “A” 3574, by CNV Resolution No. 392 and IGJ Resolution No. 2/02.

(3)                                  Represents the daily average exchange rateduring the period ending June 24, 2003.

 

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**Risk Factors**

 

*You shouldcarefully consider the risks described below, in addition to the otherinformation contained in this Form 20-F. We also may face additional risks and uncertainties that are notpresently known to us, or that we currently deem immaterial, which may impairour business.  In general, you take morerisk when you invest in the securities of issuers in emerging markets such asArgentina than when you invest in the securities of issuers in the UnitedStates and certain other markets.*

 

**Risks Relating to Argentina**

 

*Overview*

 

We are an Argentine *sociedad anónima* (a corporation withlimited liability) and substantially all of our facilities and approximately87% of our subscribers are presently located in Argentina.  Accordingly, our financial condition andresults of operations depend to a significant extent on macroeconomic andpolitical conditions prevailing from time to time in Argentina.

 

Argentine government actionsconcerning the economy, including with respect to inflation, interest rates,price controls, foreign exchange controls and taxes, have had and couldcontinue to have a material adverse effect on private sector entities,including us.  We cannot provide anyassurance that future economic, social and political developments in Argentina,over which we have no control, will not impair our business, financialcondition, or results of operations.

 

*Recenteconomic and political instability has paralyzed commercial and financialactivities*

 

In the fourth quarter of1998, the Argentine economy entered into a recession that caused the grossdomestic product to decrease by 3.4% in 1999. Following his election in October 1999, President Fernando de la Rúa wasconfronted with the challenges of dealing with Argentina’s enduring economicrecession and obtaining political consensus on critical issues related to theeconomy, public sector spending, legal reforms and social programs.  The de la Rúa administration failed toaddress adequately the growing public sector deficit, both at the federal andat the provincial level.  Gross domesticproduct contracted by 0.8% in 2000 and by 4.4% in 2001.  As the recession caused tax revenues todrop, the public sector relied increasingly on financing from local and, to alesser extent, foreign banks, effectively foreclosing private sector companiesfrom bank financing.  As the publicsector’s creditworthiness deteriorated, interest rates reached record highs,bringing the economy to a virtual standstill. The lack of confidence in the country’s economic future and its abilityto sustain the peso’s parity with the U.S. dollar led to massive withdrawals ofdeposits and capital flight.

 

On December 1, 2001, theArgentine government effectively froze bank deposits and introduced exchangecontrols restricting capital outflows. The measures were perceived as further paralyzing the economy for thebenefit of the banking sector and caused a sharp rise in social discontent,ultimately triggering public protests, outbreaks of violence and the looting ofstores throughout Argentina.  OnDecember 20, 2001, after declaring a state of emergency and suspending civilliberties, President Fernando de la Rúa tendered his resignation to Congress,which was accepted in the midst of an escalating political, social and economiccrisis.

 

The absence of aVice-President required that the presidency be assumed temporarily by Mr. RamónPuerta, the president of the Senate and a member of the opposition Peronistparty.  In a joint meeting of the Senateand the Chamber of Deputies on December 22, 2001, Congress called for newpresidential elections on March 3, 2002 and appointed Mr. Adolfo Rodríguez Saá,governor of the province of San Luis and also a member of the oppositionPeronist party, president of Argentina through the elections.  However, on December 30, 2001, withmiddle-class protesters threatening further demonstrations and being unable toretain the support of the Peronist party, President Rodríguez Saá resigned.

 

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On January 1, 2002 at ajoint session of Congress, Eduardo Duhalde, a Peronist senator who had lost thepresidential election to Mr. de la Rúa in 1999, was appointed by Congress tocomplete the remaining term of former President de la Rúa until December 2003.

 

During his term, PresidentDuhalde and his government undertook a number of far-reaching initiativesincluding:

 

•                  ratifying the suspension of payment ofcertain of Argentina’s sovereign debt declared by interim President RodríguezSaá;

 

•                  amending the Convertibility Law, with theresulting devaluation and volatility of the peso;

 

•                  converting certain U.S. dollar-denominateddebts into peso-denominated debts at a one-to-one exchange rate and U.S.dollar-denominated bank deposits into peso-denominated bank deposits at anexchange rate of Ps.1.4 per U.S.$1.00;

 

•                  restructuring bank deposits and maintainingrestrictions on bank withdrawals;

 

•                  enacting an amendment to the Central Bank’scharter to (i) allow it to print currency in excess of the amount of theforeign reserves it holds, (ii) make short-term advances to the federalgovernment and (iii) provide financial assistance to financial institutionswith liquidity constraints or solvency problems;

 

•                  imposing restrictions on transfers of fundsabroad subject to certain exceptions, and payments on financial transactionsapproved by the Argentine Central Bank on a case-by-case basis, many of whichrestrictions have subsequently been lifted; and

 

•                  requiring the deposit into the banking systemof foreign currency earned from exports, subject to certain exceptions.

 

Presidential elections tookplace on April 27, 2003 resulting in a run-off election scheduled for May 18,2003 between candidates Carlos Menem and Néstor Kirchner. On May 14, Mr. Menemannounced his withdrawal from the run-off, leaving Mr. Kirchner as the solecandidate.  Mr. Kirchner took office onMay 25, 2003.  There is uncertainty asto the nature and scope of the measures to be adopted by Mr. Kirchner’sgovernment to address many of the country’s unresolved economic and financialproblems, including the renegotiation of its external debt.

 

The rapid and radical natureof the recent changes in the Argentine social, political, economic and legalenvironment, and the absence of a clear political consensus in favor of thepolicies implemented by the Duhalde administration or any particular set ofeconomic policies, created an atmosphere of great uncertainty and lack ofconfidence of the population in the banking system.  As a result, commercial and financial activities were virtuallyparalyzed during 2002, further aggravating the economic recession whichprecipitated the current crisis. Moreover, due to the depth of the social and political crisis thataffected the country in 2002, Argentina continues to face risks including (i)civil unrest, rioting, looting, nation-wide protests, widespread social unrestand strikes, (ii) expropriation, nationalization and forced renegotiation ormodification of existing contracts, and (iii) changes in taxation policies,including royalty and tax increases and retroactive tax claims.

 

*Exchangerate risks*

 

We realize substantially allof our earnings in Argentina through sales denominated in pesos and most of ourfinancial liabilities, are denominated in U.S. dollars.

 

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On January 6, 2002, Congressenacted Law No. 25,561, *Ley de EmergenciaPública y Reforma del Régimen Cambiario*(the “Public EmergencyLaw”), eliminating the requirement that the U.S. dollar/peso exchange rateremain fixed at 1 to 1.  Since February11, 2002, the peso has floated freely and devalued sharply to Ps.3.90 perU.S.$1 on June 25, 2002.  During thelast quarter of 2002, the peso/U.S. dollar exchange rate remained stable andthe peso strengthened as exporters remitted significant amounts of exportproceeds to the Central Bank in compliance with current regulations.  As of June 24, 2003, the peso/U.S. dollarexchange rate was Ps.2.77 per U.S.$1.00, as quoted by Banco de la NaciónArgentina.  See “Exchange Rates”.

 

The devaluation of the pesohas adversely affected the U.S. dollar value of our earnings and thus impairedour financial condition.  As of December31, 2002, our total consolidated bank and financial debt amounted to U.S.$583.7million (including accrued interest and seller debt) and Ps.66.0 million(including accrued interest).  Anydepreciation of the peso against the U.S. dollar will correspondingly increasethe amount of our debt in pesos, with further adverse effects on our results ofoperation and financial condition. Given the continuing economic crisis in Argentina and the economic andpolitical uncertainties, it is impossible to predict whether, and to whatextent, the value of the peso may further depreciate against the dollar.  Moreover, we cannot predict whether the Argentinegovernment will further modify its monetary policy, and if so, what impactthese changes will have on our financial condition and results of operations.

 

The Argentine government isfacing severe fiscal problems as a result of the devaluation of the peso.  Peso-denominated tax revenues constitute theprimary source of its earnings, but most of its financial liabilities are U.S.dollar-denominated.  Therefore, thegovernment’s ability to honor its foreign debt obligations has been materiallyand adversely affected by the devaluation of the peso.  The adoption of austere fiscal measureswhich would be required to repay the Argentine government’s debt and to balanceits budget after the devaluation will likely lead to further social unrest andpolitical instability.

 

*Thestability of the Argentine financial system is at risk*

 

Although deposits in theArgentine banking system had grown in 1999 and 2000, in 2001, especially in thefourth quarter, a very significant amount of deposits were withdrawn fromfinancial institutions as a result of increasing political instability anduncertainty.  This run on deposits had amaterial adverse effect on the Argentine financial system as a whole.  Since the fourth quarter of 2001, banks havefocused on collection activities to be able to pay their depositors.  The magnitude of deposit withdrawals, thegeneral unavailability of external or local credit, together with therestructuring of the public-sector debt with local holders (a substantialportion of which was placed with banks) created a liquidity crisis whichundermined the ability of Argentine banks to pay their depositors.

 

To prevent a run on the U.S.dollar reserves of local banks, on December 1, 2001, the government ofPresident de la Rúa restricted the amount of money that account holders couldwithdraw from banks and introduced exchange controls restricting capitaloutflows.  Although these restrictionsknown as “*corralito*” are nolonger in place, subsequently, President Duhalde imposed new restrictions knownas “*corralón*” and released aschedule stating how and when deposits would become available.

 

On February 3, 2002, theArgentine government issued Emergency Decree No. 214, which required conversionof all debts to financial institutions into pesos at a rate of Ps.1.00 perU.S.$1.00.  After a six-month graceperiod, debts were adjusted pursuant to an index based on consumer pricevariations in the preceding month.  Thisdecree also provided for: (i) the conversion of all foreign-denominateddeposits into peso-denominated deposits at an exchange rate of Ps.1.40 perU.S.$1.00 and (ii) the issuance by the government of bonds intended tocompensate banks for the losses incurred as a result of the “asymmetric”conversion of loans and deposits into pesos. The different exchange rates applied to the conversion of foreigncurrency denominated deposits and loans had a material and adverse effect onthe financial system.

 

11

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The *corralito* and certain other measures have,to a significant extent, shielded banks from a further massive withdrawal ofdeposits, but they have also led to the paralysis of virtually all commercialand financial activities, diminished spending and greatly increased socialunrest.  As a result, there has beenwidespread public repudiation of, and protests directed against, financialinstitutions, which has had a material adverse effect on the Argentinefinancial system.

 

On June 1, 2002, theArgentine government enacted Decree No. 905/2002, which gave owners ofrescheduled foreign and peso-denominated bank deposits the option, during aperiod of 30 banking business days starting on June 1, 2002, to receive certainbonds issued by the Argentine government in lieu of payment of suchdeposits.  These bonds were applied tothe payment of certain loans under certain conditions.  Deposits not exchanged for bonds wereconsidered securities that, under the conditions established by the CNV, wereapplied to the subscription of notes and to the cancellation of certainloans.  On September 17, 2002, DecreeNo. 1836/02 established another exchange option.  Depositors, however, showed little interest in the first orsecond stages of the voluntary exchange of deposits for bonds. The Argentinegovernment has continued to indicate that it is committed to providingdepositors the option to exchange their money for bonds, rather than forcingthem to do so through an obligatory exchange.

 

In a decision dated March 5,2003, the Supreme Court of Argentina struck down the mandatory conversion ofU.S. dollar deposits held by the Province of San Luis with Banco Naciónpursuant to Emergency Decree No.214/02 on constitutional grounds.  Under Argentine law, the Supreme Courtrulings are limited to the particular facts and defendant in the case; however,lower courts tend to follow the precedents set by the Supreme Court.  There are also numerous other cases in theArgentine judicial system challenging the constitutionality of the pesificationpursuant to the Public Emergency Law. The Supreme Court’s rulings create uncertainty as to the implicationsfor the banking system as a whole, including the need for the Argentinegovernment to provide additional financial assistance to the banks in the forof U.S. dollar-denominated bonds.  This,in turn, could add to the country’s outstanding debt and is viewed with concernby holders of Argentina’s outstanding bonds.

 

Through Decree No. 739/03dated March 28, 2003 the Argentine government made a further attempt toeliminate the *corralón*by givingdepositors the option to be reimbursed pursuant to a schedule for theirdeposits in pesos, at a Ps.1.40 per U.S.$1.00 exchange rate adjusted pursuantto CER, plus accrued interest, and to receive a 10-year U.S. dollar denominatedbond to be issued by the Argentine government to cover the difference betweenthe amount in pesos to be received by the depositors and the fact amount of theoriginal deposit made in U.S. dollars at the exchange rate applicable on April1, 2003.

 

The financial system needsto be restructured for the economy to be able to grow.  Certain foreign controlled banks have closeddown operations and, generally, foreign shareholders have not made additionalcapital contributions.  Given the lossof confidence of depositors in the financial system, the elimination of the *corralón* would likely result in an attemptby such depositors to withdraw all of their deposits and convert such pesosinto U.S. dollars.  If amounts sowithdrawn flow to the foreign exchange market, the recent increase in the levelof bank deposits would most likely be quickly reversed, causing a sharpincrease in the exchange rate and inflation. Moreover, due to the liquidity problems of Argentine banks, such attemptwould likely result in the collapse of the financial system and couldexacerbate the depreciation of the peso. In the event that the Central Bank provides financial assistance tofinancial institutions in order to avoid such collapse, liberated funds wouldlikely flow into the foreign exchange market. As of the date of this Form 20-F, there are numerous cases pendingbefore the Argentine Supreme Court challenging the constitutionality of severalof the measures adopted by the government to protect the financial system.  Even though the Argentine Supreme Court hasyet to render a final judgment, it has indicated that it is considering thepossibility of imposing a re-dollarization of previously pesified bankdeposits.  A judgment to this effectwould have a material adverse effect on the Argentine financial system.

 

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The banking system’scollapse, or the collapse of one or more of the largest banks in the system,would have a material and adverse effect on the prospects for economic recoveryand political stability and most likely, a material adverse affect on us.

 

*Inflationmay continue to escalate and further undermine economic recovery*

 

On January 24, 2002 theArgentine government amended the Central Bank’s charter to allow the monetaryauthority to print currency (without having to maintain a fixed and directratio with the foreign currency and gold reserves), to make advances to thefederal government to cover its anticipated budget deficit, and to providefinancial assistance to financial institutions with liquidity problems.  There is considerable concern that, if theCentral Bank prints currency to finance public-sector spending or financialinstitutions in distress, significant inflation will result.  Past history raises serious doubts as to theability of the Argentine government to maintain a strict monetary policy andcontrol inflation.  In the past,inflation materially undermined the Argentine economy and the government’sability to create conditions that would permit growth.

 

Furthermore, the devaluationof the peso has created pressures on the domestic price system that generatedinflation in 2002, after several years of price stability, and, in recentyears, price deflation.  ThroughDecember 31, 2002, the WPI and the consumer price index exhibited cumulativeincreases of 118% and 41%, respectively. If the value of the peso cannot be stabilized by positive expectationsfor Argentina’s economic future, as well as by strict fiscal and monetarypolicies, an increase in inflation rates can be expected.  Very high inflation and hyperinflationepisodes cannot be ruled out.  Highinflation would likely deepen Argentina’s current economic recession.

 

The devaluation of the pesoand accompanying economic policy measures implemented by the Argentinegovernment were intended primarily to remedy the effects of unemployment and tostimulate economic growth.  To date, itis not apparent that the objectives pursued have been achieved.  The success of such measures, however, isconditional upon the ability of the Argentine government to elicit confidenceamong the local and international financial and business communities.  Without such confidence, inflation rates arelikely to increase significantly, investment is likely to retract and economicactivity to contract further, unemployment could increase beyond currentlevels, tax revenue could drop and the fiscal deficit could widen.

 

*Argentina’sinsolvency and default on its public debt has deepened the current financialcrisis*

 

On December 23, 2001,interim President Rodríguez Saá declared the suspension of payments on most ofArgentina’s sovereign debt, which totaled approximately U.S.$121.8 billion asof December 31, 2002.  President Duhalderatified this measure on January 2, 2002.

 

As a result of its growingfiscal deficit, Argentina’s ability in the short term to stimulate economicgrowth, appease social unrest and repay its debt is likely to depend onexternal financial assistance.  InDecember 2000, Argentina obtained a conditional U.S.$39.7 billion assistancepackage from the IMF, other multilaterals, foreign governments, local banks andinstitutional investors.  The IMFconditioned the availability of a significant portion of the package on theability of the Argentine government to reduce its fiscal deficit and implementa sustainable economic program. Argentina failed to meet the IMF’s conditions in March 2001 and failedto comply with a new fiscal deficit target for the fourth quarter of 2001.  Such failure triggered the suspension, onDecember 5, 2001, of further IMF disbursements.  The IMF’s decision deepened the economic and politicalcrisis.  In January 2002, PresidentDuhalde resumed talks with the IMF, and, although the IMF agreed to refinancecertain debts owed by the Argentine government, the IMF has announced that itwill not provide new funds to Argentina. Widespread political protests and social disturbances are continuingregularly, and to date the IMF and other multilateral and official sectorlenders have indicated an unwillingness to provide any significant amount offinancial aid until a sustainable economic

 

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program has beenpresented.  The IMF, through repeatedpronouncements, indicated that such program should include improving methods oftax collection, forcefully reforming the tax revenue-sharing method between thefederal government and the provinces, and restructuring the foreignindebtedness on which Argentina has defaulted.

 

The Argentine government’sinsolvency and inability to obtain financing can be expected to significantlyaffect its ability to implement any reforms. This will further undermine the private sector’s ability to restoreeconomic growth, and may result in a deeper recession, higher inflation andunemployment and greater social unrest. As a result, our business, financial condition and results of operationswill likely be materially and adversely affected.

 

*Exchangecontrols may prevent us from servicing our external debt obligations*

 

The Argentine foreignexchange market was subject to exchange controls until December 1989, when afreely floating exchange rate was established for all foreign currencytransactions.  From 1989 to December 3,2001, there were no foreign exchange controls preventing or restricting theconversion of pesos into U.S. dollars or the transfer of U.S. dollarsabroad.  From December 3, 2001 untilJanuary 2, 2003, the transfer of foreign currency, except for certaintransactions, was subject to prior authorization by the Central Bank, includingfor the payment by Argentine debtors of principal on financial indebtedness andfor the distribution of dividends. Effective January 2, 2003, the Central Bank’s prior authorization forthe transfer of funds abroad in order to make payments of principal and/orinterest was no longer required provided that certain conditions were met, asset out in Communication “A” 3843 dated December 26, 2002, as amended byCommunication “A” 3866 dated January 16, 2003.

 

Moreover, according to theprovisions of Communication “A” 3859, dated January 7, 2003, Argentinecompanies may freely transfer corporate profits and dividends corresponding toaudited financial statements of local companies without prior Central Bankapproval, and transfers of funds abroad in order to pay reinsurance premiumswill be subject only to the issuance of a statement from the *Superintendencia de Seguros de la Nación*,or the Argentine Superintendency of Insurance Board (the regulatory authorityon insurance matters) with respect to the reason and amount to be transferred.

 

On May 6, 2003, theArgentine Central Bank passed Communication “A” 3944 repealing the priorconsent requirement from Central Bank in order to make payments of principal orinterest on financing debt obligations. Although there are currently no restrictions to transfer funds inpayment of principal or interest out of Argentina for any existing debt,Communication “A” 3944 requires that, if applicable, the paying debtor shouldcomply with Central Bank Communication “A” 3602, which provides for thedisclosure of certain information regarding existing debt.  Notwithstanding the foregoing, Communication“C” 35731 dated May 8, 2003 establishes certain conditions that must be met soas to be exempt from the Central Bank’s prior authorization.

 

The Central Bank has alsoissued Communication “A” 3845, dated December 26, 2002, as amended byCommunication “A” 3944, which states that Argentine individuals and companiesare authorized to buy up to U.S.$500,000 per month for the purposes of, amongother things, (i) real estate investments outside of Argentina; (ii) loansgranted to persons not domiciled in Argentina; (iii) direct investments outsideof Argentina of persons domiciled in Argentina; (iv) portfolio investmentsoutside of Argentina; and (v) payments outside of Argentina of corporatedividends and profits.

 

In the absence of exchangecontrols, due to the scarcity of U.S. dollars, we may find it difficult toconvert large amounts of pesos into U.S. dollars to make principal or interestpayments on our U.S. dollar-denominated debts.

 

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*A new billmay limit our creditors’ ability to acquire equity interests in us in the eventof a “concurso” to restructure our outstanding U.S. dollar-denominatedindebtedness*

 

On June 18, 2003 theCongress passed a bill (*Law No. 25.750*)regarding the protection of, among others, assets related with Argentineculture, requiring that corporations in media-related businesses be owned byArgentine persons (either natural persons or legal or corporate entities) andestablishing a maximum potential foreign ownership of such companies at 30% ofthe outstanding capital stock**representing30% of the voting rights.

 

According to the new bill asapproved by Congress on June 18, 2003, “cramdown” provisions set forth inSection 48 of Title II, Chapter II of Law 24,522 of Argentina, as amended (the“Bankruptcy Law”), which could result in the transfer of up to 100% of theequity to the creditors if a *concurso*did not result in the approval of a reorganization plan proposed by the debtor,are not applicable to media-related companies provided they are owned byArgentine persons. Furthermore, if a media-related company in a *concurso* proceeding does not reachagreement with its creditors, participations of foreign companies in thecapital stock of such media-related company in excess of the 30% ownership capare only allowed if the media-related company requests the authorization of theExecutive Branch to exceed such limit and the Executive Branch previouslyauthorizes such an acquisition.  Unlessvetoed by the Executive Branch, this new bill will become law on July 3, 2003.

 

*Becausethe Argentine standards for disclosure and accounting differ from those of theUnited States and certain other countries, information about us may not be asdetailed or comprehensive as that of non-Argentine issuers, including that ofUnited States companies.*

* *

Publicly availableinformation about the issuers of securities listed on the Buenos Aires StockExchange provides less detail in certain respects than the information that isregularly published by or about listed companies in the United States andcertain other countries. In addition, regulations governing the Argentinesecurities market are not as extensive as those in effect in the United Statesand other major world markets.  While weare subject to the periodic reporting requirements of the Securities andExchange Act of 1934, as amended (the “Exchange Act”), the periodic disclosurerequired by foreign issuers under the Exchange Act is more limited than theperiodic reporting disclosure required by listed United States issuers.Furthermore, there is a lower level of regulation of the Argentine securitiesmarkets and of the investors in such markets as compared with the securities marketsin the United States and certain other developed countries. We prepare ourfinancial statements in accordance with Argentine GAAP which differs in certainrespects from US GAAP.

 

**Risks Relating to Multicanal**

 

*Auditor’sdoubt as to our ability to operate as a going concern*

 

The consolidated financialstatements as of December 31, 2002 have been prepared on the assumption that wewill continue to operate as a going concern. However, as a result of the continued deterioration of the Argentineeconomy and the devaluation of the peso, as further described in these “RiskFactors,” we cannot assure that we will be able to obtain the necessaryfinancial resources to repay or refinance our debt and that the restrictionsimposed by the Central Bank on the transfer of funds abroad will not prevent usfrom paying principal and interest on our U.S. dollar denominated debt as itcomes due.  Accordingly, we cannotassure you that these conditions will not have a material adverse effect on ourfinancial condition or results of operations or that we will be able tocontinue to operate as a going concern.

 

On March 10, 2003, ourindependent accountants issued a report stating that we have suffered recurringlosses from operations and have a net capital deficiency.  The report also states that we have beennegatively impacted by the Argentine government’s adoption of various economicmeasures and by the

 

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devaluation of the peso,matters which raise substantial doubt as to our ability to continue to operateas a going concern.  Investors in oursecurities should review the attached report of our Independent Auditorscarefully.  The consolidated financialstatements do not include any adjustments to reflect the possible negativeeffect that the current uncertain situation may have on us.

 

At December 31, 2002, werecognized net loss in the amount of Ps.938.5 million in accordance withArgentine GAAP and a shortfall in consolidated working capital amounting toPs.1,994.0 million.  As indicated inNote 13 to the Audited Consolidated Financial Statements, the Company fallsunder the provisions of paragraph 5 of section 94 of the *Ley de Sociedades Comerciales* (the“Corporations Law”), which establishes the dissolution of corporations.  By means of Decree No. 1269/02 dated July17, 2002, the Argentine government suspended enforcement of this provisionuntil December 10, 2003.  We cannotassure you that in the future, paragraph 5 of section 94 of the CorporationsLaw or any other pertinent law or regulation will not force us to dissolve.

 

*Recentchanges to Argentine GAAP*

 

Effective for fiscal yearsbeginning on January 1, 2003, the CNV adopted new accounting standards for thepreparation of financial statements. The principal differences from the priorstandards which are relevant to our financial information are the following:(1) the use of the deferred tax method for the recognition of income taxes, and(2) the method to determine the recoverability of long-lived assets, accordingto which an entity estimates the undiscounted future cash flow to determinewhether an impairment loss should be recognized, and if so, conducts a secondcomparison with the discounted future cash flow. Consequently, the Argentineaccounting standards applicable to the preparation of financial information tobe reported in future periods will differ from the standards used in thepreparation of financial information included in this Form 20-F, and this mayeffect comparability from period to period.

 

*Recentlosses and default*

 

As a result of Argentina’ssevere economic recession and the restrictions affecting our ability torefinance our debts, we have dedicated all of our cash flow from operations andany other source of liquidity available to us to fund our operations.  We have defaulted on payments on all ouroutstanding U.S. dollar-denominated indebtedness and all principal payments anda substantial portion of our interest payments on our local Argentine bank debt(affected by the mandatory conversion into pesos at the exchange rate of onepeso per dollar pursuant to Decree No. 214/02 decreed by the Government) sinceFebruary 2002.

 

Our ability to make paymentson our foreign currency-denominated indebtedness was further curtailed by theexchange controls introduced on December 1, 2001, many of which weresubsequently lifted.  See “Item10—Exchange Controls.”  All of ouroutstanding U.S. dollar-denominated indebtedness is in default and ourcreditors could accelerate the maturity thereof.  We do not have the ability to meet our obligations as currentlyscheduled without additional financial assistance, which we do not expect toreceive.

 

We cannot assure you thatour proposed Restructuring (as defined herein), as described in “Item 13 –Defaults, Dividend Arrearages and Delinquencies”, will be successful, or thatwe will be able to resume payments on our outstanding U.S. dollar-denominatedindebtedness.

 

*If theRestructuring fails or the restructuring agreement (*acuerdo preventivo extrajudicial*, or “APE”) is not granted Court Approval we willlikely file for concurso or face quiebra.*

 

Wehave not made principal or interest payments on our outstanding U.S.dollar-denominated indebtedness since February 1, 2002, except for interestpayments on certain of our local Argentine bank debt affected by the mandatorypesification decreed by the Argentine government in January 2002.  As of December 31, 2002, our totalconsolidated bank and financial debt amounted to U.S.$583.7 million

 

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(including accrued interestand seller debt) and Ps.66.0 million (including accrued interest).  As of the date hereof, we have been informedthat creditors holding claims totaling approximately U.S.$2,532,259 have filedat least 34 involuntary bankruptcy (“*quiebra”)*petitions against us.  Of these 34 *quiebra* petitions, we have been servedprocess on 32.  Unless a majority of theholders of our Existing Debt representing 66.7% of our Existing Debtoutstanding as of the Effective Date participate in the Restructuring, we willcontinue to be unable to pay interest or principal on our Existing Debt.  In that case, we will most likely eitherinitiate voluntary bankruptcy proceedings (“*concurso*”)**or face liquidation in a *quiebra*, in each case under the BankruptcyLaw.

 

During the pendency of anyinsolvency proceeding, our ability to operate or manage our business, to retainemployees and to continue to pay for programming and equipment needed toconduct our operations may be materially adversely affected.  Our assets are currently insufficient torepay our creditors.  We believe thatthe ability of our creditors to recover their claims will diminishsubstantially if the Restructuring fails and they are forced to participate ina *concurso* or *quiebra* proceeding.

 

In a *concurso* proceeding, we have been advisedby our Argentine counsel that the holders of Existing Debt should expect thefollowing:

 

•                  Our financial obligations will beaccelerated.

 

•                  The claims of all our existing creditors,including trade creditors who are not holders of Existing Debt, will beconsidered by the Bankruptcy Court. Holders of Existing Debt therefore may not be able to control theprocess, and their interests may be given less weight by the court whenconsidered in comparison with the interests of all creditors as a whole.

 

•                  The claims of holders of Existing Debt willbe restructured.  We cannot predict theterms of the restructured debt, but we believe that they will be less favorablethan the combined terms being offered in the Restructuring.

 

•                  For purposes of calculating the requiredmajority, restructured claims will be denominated in pesos to calculateoutstanding debt and determine the relative position of each creditor at theexchange rate as of the date the bankruptcy trustee’s filing of its reportdiscussing each of the claims filed for proof of claim.

 

•                  Holders of Existing Debt may have to wait foran extended period before the *concurso*proceedings are completed, and during such period we could lose significant value.

 

•                  The accrual of interest will be suspended.

 

•                  Unsecured creditors will not be able toforeclose.

 

•                  Holders of Existing Debt will lose any rightsof set-off against us that they had prior to the *concurso*.

 

•                  U.S. dollar claims may be mandatorily convertedinto pesos at the exchange rate as of the date of the *concurso* filing.  Emergency Decree No. 214/2002, which provided for the mandatoryconversion into pesos of certain dollar-denominated debt based on the governinglaw of the underlying contract, remains subject to challenge onconstitutionality grounds.  A BankruptcyCourt may ultimately resolve the issue in favor of converting into

 

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pesosall outstanding dollar-denominated claims, regardless of governing law,including your claims under your Existing Debt.

 

•                  If the *concurso*fails, holders of Existing Debt will be left with a claim in a *quiebra*.

 

•                  We will continue managing our business,subject to control and supervision of the syndic and a committee ofcreditors.  In addition, certaintransactions will be subject to court approval.

 

In a *quiebra* proceeding, we have been advisedthat holders of Existing Debt should expect the following:

 

•                  The claims of all our existing creditors,including trade creditors who are not holders of Existing Debt, will beconsidered by the Bankruptcy Court. Holders of Existing Debt therefore may not be able to control theprocess, and their interests may be given less weight by the court whenconsidered in comparison with the interests of all creditors as a whole.

 

•                  All of our financial obligations will beaccelerated.

 

•                  Holders of Existing Debt will lose any rightsof set-off against us that they had prior to the *quiebra.*

 

•                  Holders of Existing Debt will have to waitfor a long period of time before the *quiebra*proceedings are completed, and during such period we could lose significantvalue.

 

•                  Our management will be removed and will bereplaced by a syndic who will proceed to liquidate our assets.

 

•                  The court shall order our liquidation, andthe proceeds of such liquidation will be applied to debt owed to senior andsecured creditors first and the balance of such proceeds, if any, to debt owedto unsecured creditors, on a pro rata basis.

 

•                  Foreign-currency denominated claims will bemandatorily converted into Pesos at the exchange rate of the date on which the *quiebra* is declared.

 

*Thedeterioration of the Argentine economy has made it increasingly difficult toobtain financing*

 

Argentine companies thatrely primarily on local revenues, including the Company, have had limitedaccess to the capital markets over the last few years.  Our limited financing alternativesdisappeared completely after December 2001 when the Argentine governmentdefaulted on most of its foreign debt obligations.  Furthermore, the Argentine government has imposed transferrestrictions on payments of foreign financial obligations, creating additionalobstacles to obtaining foreign sources of financing.  The prospects of Argentine companies, including the Company,accessing the financial markets in the near or medium-term are negative.

 

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*Ourability to operate our business will be constrained by restrictions andlimitations imposed by our debt agreements*

 

As of December 31, 2002,debt agreements governing most of our notes contain certain operating andfinancial restrictions and covenants which may adversely affect our ability tofinance our future operations or capital needs or to engage in businessactivities.  These covenants limit, andin some cases prohibit, our ability and the ability of our subsidiaries to:

 

•                  borrow additional funds;

 

•                  make leveraged acquisitions or minorityinvestments;

 

•                  engage in transactions with our stockholdersand affiliates;

 

•                  in the case of subsidiaries, sell or issuecapital stock;

 

•                  sell assets;

 

•                  engage in other lines of business;

 

•                  incur liens; or

 

•                  engage in some mergers.

 

**Risks Relating Specifically to Our Argentine CableTelevision Business**

 

*We facesubstantial and increasing competition in the Argentine pay television industry*

 

The pay television businessin Argentina is very competitive, as cable operators are not given exclusiveterritorial broadcast licenses.  We facecompetition from other cable television operators that have built networks inthe areas we operate, providers of other television services, including directbroadcasting, direct-to-home satellite (“DTH”) and multi-channel multi-pointdistribution system (“MMDS”) services and licensed suppliers of basic telephoneservices.  We expect this competition toincrease in the future due to a number of factors, including the development ofnew technologies.  In addition, freebroadcasting services are currently available to the Argentine population fromfour privately-owned television networks and their local affiliates and onestate-owned national public television network.

 

The consolidation of thecable television industry increases the level of competition that we face, andwill reinforce the need to undertake frequent investments to remaincompetitive. We are currently keeping annual capital expenditures to theminimum level necessary to continue providing the current level of services toour customers.  Furthermore, ourcompetitiveness will depend on our ability to attract and retain customersthrough vigorous consumer service policies and by providing new programmingservices on an exclusive basis for an initial period of time. In light of theforegoing factors, we cannot assure you that we will be able to undertake theinvestments necessary to remain competitive, or that we will be able to retaincustomers through consumer service policies or new programming services.

 

A loss of customers tocompetitors or because of the current macro-economic situation has a directmaterial and adverse effect on our results of operation.

 

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*Ourrevenues may be adversely affected by subscriber termination*

 

Our revenues depend heavilyon our ability to retain customers by limiting our churn rates (churn meanssubscriber termination).  We determineour churn rate by calculating the total number of disconnected cable televisioncustomers over a given period as a percentage of the initial number of cabletelevision customers for the same period. Our annual gross churn rate averaged 32.4% in the year ended December31, 2001, and 43.8% in the year ended December 31, 2002.  To reduce our churn rate and to addressassociated risks, such as the difficulty in collecting receivables, we pursue avigorous customer service and retention policy.  Approximately 352,000 subscribers left our cable systems during2002, negating internal net growth that had occurred through December 31, 2001.The current macro-economic crisis severely affects our subscribers’ purchasingpower and has led to and may continue to lead to increased loss of subscribers.

 

*We may notbe able to provide additional premium services*

 

We have targeted theenhanced revenue opportunities associated with premium service and have beenworking with other cable operators and cable programming providers to createadditional premium tiers by adding new premium channels.  We cannot assure you that this type oftiering will be accomplished, since creating additional premium tiers requiresindustry-wide cooperation and agreement. Additionally, premium subscriptions have decreased during 2002 at ahigher rate than the basic service.  During2002 we lost 96,400 premium subscribers.

 

*We may notbe able to renew programming contracts*

 

We purchase basic andpremium programming from more than 20 program suppliers.  Several programming suppliers have agreed toprovide us volume discount pricing structures because of our growth and marketshare.  Due to the current macro-economicsituation of Argentina, growing inflation beginning in January 2002, and highergross churn rates, the terms of our programming contracts, which in the pastgenerally ranged from 24 to 36 months and were typically based on a flat fee,are now being renewed for an average period of six months with varyingfees.  Most of these contracts aresubject to negotiated renewal in the event that the Argentine peso is devaluedbelow a certain level against the U.S. dollar. As a consequence of the changes imposed by the Public Emergency Law,many of the contracts have been renegotiated. On April 25, 2002, we resumed transmission of Cable News Network(“CNN”), which had been temporarily suspended while the programming contractwas renegotiated in light of the recent macro-economic situation inArgentina.  We and the programmingsupplier, Turner Broadcasting Systems (“TBS”), reached an agreement that issubject to amendment or termination in the event that devaluation or thecumulative official inflation rate increases by a certain percentage.  Accordingly, we cannot assure you that wewill be able to continue providing TBS content such as CNN if themacro-economic situation in Argentina worsens significantly.  We cannot assure you that we will be able tonegotiate renewals of our programming contracts under the current volatilemacro-economic situation, due to the fact that many of our suppliers have U.S.dollar-based costs and are reluctant to accept contracts denominated in pesos.  We also cannot assure you that we will beable to obtain volume discounts in the future.

 

*We dependon third parties for the development of and access to new technologies and wecannot predict the effect of technological changes on our business*

 

The cable televisionindustry is subject to rapid and significant changes in technology and therelated introduction of new products and services.  We do not have significant intellectual property rights withrespect to the technologies we use, and we depend on third parties for thedevelopment of and access to new technologies. We believe that in the foreseeable future, technological changes willnot affect the continued

 

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use of coaxial, fiber opticor other currently available technologies and that we will be able to obtainaccess to appropriate technologies on a timely basis.  However, we cannot predict the effect of unforeseen technologicalchanges on our business.  The cost ofimplementing emerging technologies or expanding capacity could be significantand our ability to fund such implementation may be dependent on our ability toobtain additional financing.

 

*We may notbe able to build and upgrade our networks in accordance with our anticipatedschedule or to comply with regulatory requirements*

 

While in past years we haveupgraded a significant part of our networks to maintain the highesttechnological standards throughout our cable systems and to expand programmingalternatives and services, we are currently keeping annual capital expendituresto the minimum level necessary to continue providing the current level ofservices to our customers. The deployment of the fiber to service area (“FSA”)network architecture throughout our systems will enable us to introduce newservices and expand the services we provide to include pay-per-view programmingutilizing addressable technology and access to the Internet through high-speedcable modems.  We cannot assure you thatwe will be able to obtain the financing necessary to fully deploy FSA.  If we cannot satisfactorily complete thedeployment of FSA network architecture, or do so in a timely manner, we couldlose current and potential customers to competitors and our revenues will beadversely affected.  Furthermore, we maynot be able to make investments needed to comply with existing and futureregulatory requirements such as municipal rules regarding the use of airspace.  Our failure to make thoseinvestments may result in fines and further adversely affect our financialcondition.

 

**Risks Relating to Our Subsidiaries andForeign Operations**

 

*Ourability to meet our financial obligations is in part dependent upon the cashflow and earnings of our subsidiaries*

 

We conduct our cabletelevision business directly and through subsidiaries.  Our ability to meet our financialobligations is in part dependent upon the cash flow and earnings of oursubsidiaries and in some cases the distribution of such earnings to us in theform of dividends, loans or other advances, payment or reimbursement formanagement fees and expenses, and repayment of loans or other advances fromus.  The payment of dividends or themaking of loans or advances by our subsidiaries to us may be subject tostatutory, regulatory or contractual restrictions.  Moreover, we may not have voting control over certain entities inwhich we have ownership interests and such entities will have no obligation,contingent or otherwise, to make any funds available to us, whether bydividends, advances, loans or other payments.

 

*Ourforeign operations expose us to economic, social, and political instability inforeign countries*

 

We have operations inUruguay and Paraguay.  The constructionand operation of systems in these markets involve regulatory and governmentalrequirements that may be different from those in Argentina.  Economic, social, and political instabilityin foreign countries could have a material adverse effect on our revenues andprofitability.  We may also be adverselyaffected by foreign governmental regulations, fluctuations in foreign currencyrates, confiscatory taxation, and difficulties in managing internationaloperations.

 

*Ourresults of operations and financial condition may be adversely affected bymovements in exchange rates*

 

We have primarily revenuesin local currency and a significant portion of our costs areU.S. dollar-denominated.  As aresult, movements in the exchange rate of the U.S. dollar against therespective local currencies in countries where we have operations can have asignificant impact on our revenue, results and financial condition.  A rise in the value of the U.S. dollarrelative to local currencies will increase our programming costs, therebyadversely affecting the margins of our foreign operations.

 

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*We facesubstantial competition in foreign markets*

 

We face substantialcompetition in foreign markets.  InUruguay, for example, we own Telemás S.A., a company that provides programmingand management to UHF, an over-the-air broadcast frequency, systems and toanother seven cable operators in Uruguay. In the City of Montevideo, the UHF system served by Telemás offers eightchannels and competes with other cable systems offering more than 30 channels.  We cannot assure you that the UHF systemwill be able to compete with the cable systems successfully in the future.  We also cannot assure you that we will besuccessful in obtaining required licenses and expanding our multi-channeltelevision operations into other countries or that we can operate profitably inthose countries.

 

**Risks Relating to the Cable Television IndustryGenerally**

 

*Ourability to operate effectively depends on obtaining regulatory approvals*

 

The installation andoperation of cable television service in Argentina is governed by theBroadcasting Law and related regulations. The cable television industry is principally regulated and supervised byComfer but also falls under the jurisdiction of the *Comisión Nacional de Comunicaciones* (the NationalCommunications Commission or “CNC”), for matters related to installation ofcable services and compliance with technical regulations.  The *Secretaríade Prensa y Difusión* (the Department of Press and Transmission,which we refer to as the “*Secretaría dePrensa”*) supervises Comfer and reports directly to the ExecutiveBranch.  It also supervises the generalenforcement of the Broadcasting Law and the regulatory framework for theindustry.

 

Cable television companiesin Argentina are required to obtain a non-exclusive broadcasting license fromComfer in order to carry and distribute programming over their cablenetworks.  Comfer licenses have aninitial 15-year term.  At the end ofthis term, the licensee may apply for a one time ten-year extension.  Comfer must approve any licenseextension.  To do so, Comfer determineswhether the licensee complies with the terms and conditions set forth in theBroadcasting Law.

 

We have applied for anextension of the initial term of some licenses.  Although some of these extensions were not timely filed, wenevertheless expect to be granted these extensions.  We plan to timely file for the extension of the rest of thelicenses 30 months prior to their expiration, in accordance with theBroadcasting Law.  We can give noassurance that we will receive any of these extensions.  In addition, the Broadcasting Law providesonly for a one time ten-year extension and does not provide for subsequentrenewals when such term expires.  As aresult, once the additional ten-year expiration term elapses we may be forcedto apply for new licenses, and we cannot assure you that such licenses will begranted.  At December 31, 2002 theweighted average remaining life of our licenses was 10.55 years, based on thenumber of subscribers and the assumption that a ten-year extension will begranted in all cases.  The weightedaverage remaining life of our licenses based on the number of subscribersassuming that no ten-year extensions will be granted was 0.55 years at December31, 2002.  In the event that Comferdenies us an extension of a license in a specific area, we must ceaseoperations in such area, seek to acquire a company that has a validbroadcasting license for the area or apply for a new license in our ownname.  We cannot assure you that therewill be a cable company with a valid license operating in such area, that wewill be able to acquire such a cable company, or that if we apply for a newlicense in our name, that such licenses will be granted.

 

Please note that due to aninjunction imposed by a federal judge investigating Comfer’s practices,including with respect to the granting of cable television licenses in recentyears, Comfer is currently prevented from issuing resolutions authorizing thetransfer of shares of certain licensees, including us; we cannot tell you if orwhen that Comfer will be allowed to issue these resolutions.

 

Section 45 of theBroadcasting Law requires Comfer approval for any transfer of shares in alicensee company.  In the event that astockholder or partner of a licensee company is another company according to

 

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Section 45 of theBroadcasting Law, Comfer has the authority to review that company’sstockholders and determine whether they comply with the requirements set forthin such Section 45.  Comfer has authorizedthe Grupo Clarín shareholders as our shareholders and of several licensedcompanies that were merged into us. However, Comfer has not yet authorized Arte Gráfico Editorial ArgentinoS.A. (AGEA), Grupo Clarín S.A. and Multicanal Holding LLC, each a corporationcontrolled by the Grupo Clarín shareholders, as our shareholders.  We have given notice but not yet obtainedthe required approvals from Comfer in connection with some of our acquisitionsof shares in companies which hold licenses and the transfer of licenses to usby certain of the subsidiaries merged into us.

 

Failure to obtain Comfer’sapproval of the transfer of an ownership interest in a licensed company mayresult in the unwinding of the transfer. Violation of Comfer regulations regarding the transfer in an ownershipinterest in a licensed company can result in the imposition of fines, thesuspension of advertising or the revocation of the license of the licensee thatviolated Comfer regulations.

 

Additionally, Comfer mustapprove any elimination of “headends”, the collection of hardware thatprocesses and combines signals for distribution within a cable network. We areawaiting approvals for several headend eliminations resulting from theacquisition and division of the VCC Group. Although we expect to receive all of the required approvals, it is notcertain that Comfer or any successor agency will grant all of the approvals.

 

*We may notbe in compliance with local ordinances*

 

We were required to bringour cable systems fully into compliance with municipal regulations relating tothe installation of cables in several areas of the City of Buenos Aires Regionby late 2002, and were required to do so in the City of Mar del Plata byNovember 2001.  We are not in compliancewith the City of Buenos Aires and the City of Mar del Plata regulations as ofthe date of this Form 20-F.  We havefiled with both the City of Buenos Aires and the City of Mar del Plata arequest for an extension of the terms granted. However, we cannot assure you that the terms granted will be extended toallow us to bring our cable systems into compliance.  Although such ordinances generally do not provide for penaltiesto be imposed on non-compliant cable systems, the *Justicia Municipal de Faltas* (the “Municipal Claims Court”)may impose fines on us.  If we havesufficient cash flow and financing is available at commercially attractiverates, we will upgrade our existing cable systems, including any networkupgrades or modifications required by regulatory or local authorities.

 

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**Item 4****.    Information on the Company**

 

**History andDevelopment of the Company**

 

We are a corporation (*sociedad anónima*) organized under the lawsof Argentina.  Our business began in1991 with the incorporation of Multicanal S.A. which offered basic cableservices to the City of Buenos Aires. We were acquired by Clarín shareholders in October of 1992.  Since then, we have become a leader inArgentina’s cable television industry, through an acquisition policy that hasallowed us to diversify the programming we offer and increase our marketshare.  We have established foreignoperations in Paraguay and Uruguay.  Ourcharter documents provide that our corporate existence will continue until2090, but this date may be extended by a resolution of our shareholders.  Our registered office is located at Avalos2057, (1431) Buenos Aires, Argentina, telephone 011-54-11-4-524-4700.

 

**BusinessOverview**

 

We are a multiple systemoperator or MSO with operations in Argentina, Paraguay and Uruguay.  A multiple system operator or MSO is a cablecompany that owns multiple cable systems in different locations under thecontrol and management of a single, common organization.  As of December 31, 2002, we servedapproximately 949,500 subscribers, of which approximately 826,200 reside inArgentina and the balance reside in neighboring countries.  We own cable television systems in many ofArgentina’s most important regions and operate them through three regionalclusters.

 

We derive revenues primarilyfrom monthly subscription fees for basic cable service.  To a lesser extent, we also derive revenuesfrom connection fees and advertising and from fees for premium and pay-per-viewprogramming services and Internet services. See “The Company—Programming and Other Services.”

 

Substantially all of ouroperations, property and customers are located in Argentina.  Accordingly, our revenues are primarily inpesos and our financial conditions and results of operation depends primarilyon macroeconomic and political conditions prevailing in Argentina.  Substantially all of our debt, however, isdenominated in U.S. dollars.  As aresult of the severe economic crisis affecting Argentina since the fourthquarter of 2001, our debt burden became unsustainable.  In February 2002 we suspended payment of ourU.S. dollar denominated debt and focused our efforts on preserving the ongoingviability of our operations.  Our firstpriority was to align our operating costs, to a large extent denominated in U.S.dollars, with our peso revenues.  During2002 we renegotiated various contracts to convert substantially all of our U.S.dollar denominated costs into pesos, and in 2002 and early 2003, have devotedall of our resources to ensure the continuity of our operations.

 

In early 2003 we presented adebt restructuring proposal in an effort to reach agreement with a majority ofour creditors, allowing us to file for an APE. See “Item 13—Defaults, Dividend Arrearages and Delinquencies” and “RiskFactors—Recent Losses and Default.”

 

**Business Strategy**

 

Our business strategyfocuses on maintaining our position as one of the leading cable televisioncompanies in Argentina and, in the long-term, to position ourselves to become aprovider of other cable-based services. As a cable television company, our goal is to continue offering highquality services and programming.  Inlight of the deteriorating Argentine macro-economic environment, we haveemphasized customer service and retention in our efforts to maintain oursubscriber base.

 

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While in past years we haveupgraded a significant part of our networks to maintain the highesttechnological standards throughout our cable systems and to expand programmingalternatives and services, we are currently limiting the amount of annualcapital expenditures to the minimum level required to continue providing thecurrent level of services to our customers.

 

We are continuouslynegotiating arrangements with programming providers to reduce programmingexpenses in line with lower revenues.

 

We seek to differentiateourselves from our competitors and reduce subscriber termination rates byfocusing on the quality of our customer service, the strength of our brand nameand the development of new cable products and services.  Each of our operating regions is managed bya regional manager who is responsible for customer and technical service andwho reports directly to our Chief Executive Officer.  We believe that our flat operating structure enables us torespond effectively to our customers’ needs.

 

Our strategy has beenconsistently based on the premise that the continuation of our operationsoffers our creditors the best prospects for a recovery.  To this end, our management has focused onthe following measures:

 

•                  continuing to provide services to ourcustomers;

 

•                  maintaining access to suppliers ofprogramming;

 

•                  reducing expenses;

 

•                  renegotiating programming and othercontracts;

 

•                  deferring non-essential capital expenditures;and

 

•                  reducing labor costs.

 

Measures implemented in 2002and 2003 to further rationalize our operations and protect our operatingmargins included:

 

•                  minimizing cable/network overlap and reusingequipment in other parts of the network,

 

•                  implementing incentives to retain and/orrecover customers, and

 

•                  requiring payment of a sign-up fee aimed atdissuading customers with insufficient financial means from subscribing to ourservices.

 

Consistent with our focus onimproving operating efficiency, we have consolidated our City of Buenos AiresRegion, Greater Buenos Aires Southern Region and most of the Greater BuenosAires Northwestern Region networks through the installation of fiber opticloops.  This installation eliminated tenheadends and allows us to serve all three regions through one headend.  We have kept an additional headend in theregion to ensure redundant capability in the event of a networkimpairment.  See “Risk—Factors-RisksRelating to the Cable Television Industry Generally—Our ability to operateeffectively depends on obtaining regulatory approvals.”

 

25

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**Cable Networks**

 

*Overview. *We currently operate our cable systems in Argentina through threeregional clusters.  The following tableshows subscriber and related data for all three operating regions as ofDecember 31, 2002 and is based on information published by third parties andour internally generated market information:

 
|                                      |   | **City of  Buenos  Aires  Region** |   | **Atlantic  Coast &  Central  Region** |   | **Litoral  Region** |   | **Total** |   |
|-------------------------------------------|--------|------------------------------------|--------|--------------------------------------------|--------|---------------------|--------|-----------|--------|
|                                      |   |                               |   |                                       |   |                |   |      |   |
| Total  Households(1)                      |   | 3,294,220                          |   | 1,070,280                                  |   | 728,400             |   | 5,092,900 |   |
| Multicanal  Homes Passed(1)(2)(3)         |   | 2,965,800                          |   | 1,043,400                                  |   | 427,000             |   | 4,436,000 |   |
| Multicanal  Homes Passed/Total Households |   | 90.0                               | %      | 97.5                                       | %      | 58.6                | %      | 87.1      | %      |
| Total  Cable Subscribers(1)(2)            |   | 1,153,300                          |   | 387,200                                    |   | 268,100             |   | 1,808,600 |   |
| Multicanal  Subscribers(4)                |   | 440,600                            |   | 265,900                                    |   | 119,700             |   | 826,200   |   |
| Multicanal  Penetration(5)                |   | 14.9                               | %      | 25.5                                       | %      | 28.0                | %      | 18.6      | %      |
| Multicanal  Market Share(6)               |   | 38.2                               | %      | 68.7                                       | %      | 44.6                | %      | 45.7      | %      |

 

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(1)          In areas where we operate.

(2)          Numbers rounded to nearest hundred.

(3)          Homes passed by our cable networks.

(4)          During the first quarter of 2003 the pace atwhich we have been losing subscribers appears to have decreased.  We estimate subscribers lost during theperiod at approximately 6,000.

(5)          Our subscribers as a percentage of totalhomes passed.

(6)          Our subscribers as a percentage of totalcable subscribers.

 

*City ofBuenos Aires Region.*  This region consists of cable systems in theCity of Buenos Aires, the greater Buenos Aires Southern and NorthwesternRegions and the cities of La Plata, Berisso and Ensenada.  Buenos Aires is the federal capital ofArgentina and, together with the Buenos Aires metropolitan area, accounts forapproximately 12 million inhabitants, representing approximately 35% of thetotal Argentine population.  La Plata isthe capital of the province of Buenos Aires, and Berisso and Ensenada areneighboring cities of La Plata.  Weserve approximately 440,600 subscribers in this region, with 2,965,800 homespassed and 10,800 miles of trunk and feeder cable.  We have consolidated the City of Buenos Aires with the GreaterBuenos Aires Southern Region, using fiber optic loops, and our systems have acapacity ranging from 450 MHz to 750 MHz, with approximately 60.4% of oursystems in this region having 750 MHz capacity.

 

*AtlanticCoast and Central Region.*  This region consists of cablesystems in ten major cities of the province of Buenos Aires, eight of which areon the Atlantic coast, including Mar del Plata and Bahía Blanca, seven of thelargest cities in the province of Córdoba, the second largest province ofArgentina in number of inhabitants, and two cities in the province of LaPampa.  Our systems serve approximately265,900 subscribers in this region, with approximately 1,043,400 homes passedand 4,900 miles of trunk and feeder cable. Approximately 52% of our systems have a capacity of 450 MHz in thisregion.

 

*LitoralRegion.*  This region consists of cable systems infive cities in the province of Santa Fe, the third largest province ofArgentina in number of inhabitants, one city in the province of Entre Ríos, theCity of Corrientes in the province of Corrientes, two cities in the province ofChaco and the City of Formosa in the province of Formosa.  Our systems serve approximately 119,700subscribers in this region, with 427,000 homes passed and 2,200 miles of trunkand feeder cable.  Our systems have acapacity ranging from 350 to 750 MHz in this region.

 

*NetworkArchitecture.*  Our strategy emphasizes high technologicalstandards for our cable television systems. While in the past we have upgraded a significant part of our networks tomaintain the

 

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highest technologicalstandards throughout our cable systems and to expand programming alternativesand services, we are currently limiting the amount of annual capitalexpenditures to the minimum level in order to continue providing the currentlevel of services to our customers.  We usea FSA design to upgrade or rebuild our network because it permits bidirectionaltransmission.  FSA network architectureis a design of cable network fiber trunks and coaxial cable extensions whichconnect programming headends to the distribution network and allow signals toflow both to and from headends and the distribution network.

 

Our FSA network is made upof five levels.

 

•                  *Level 1**.*  Thefirst level consists of a principal headend and the fiber optic cable used tolink it with the secondary or back up headends.  This link has redundant capacity and enhances the reliability ofour service.

 

•                  *Level 2**.*  Thesecond level, Optical Transition Node (“OTN”), consists of buildings equippedwith the technology necessary to provide the different services we offer orplan to offer, as well as the fiber optic ring that links each of thesebuildings between themselves and with the principal headend.

 

Eachfirst level is composed of several second levels or OTNs.  These two levels together form the backboneof our network.  The VCC Group networkwas also built following this design in the City of Buenos Aires, GreaterBuenos Aires and the City of Córdoba. This similarity has allowed us to integrate the acquired subscribers andnetwork by linking the OTNs received in the division to our principal headendin each region.

 

•                  *Level 3**.*  Thethird level consists of the fiber optic cable that links the OTNs with“nodes.”  These nodes are equipped withoptical signal receivers.  Each nodeconverts optical signals to electrical codes which are transmitted by coaxialcable to subscribers’ homes.  The designof our nodes permit each node to be further subdivided into four, increasingthe number of homes that may be passed without significant additionalinvestment.

 

•                  *Level 4**.*  Thefourth level consists of a coaxial cable network that covers the servingarea.  The serving area includes thecable network to, but does not include the connection with, the homespassed.  This network is fed by thefiber optic cable and the optical signal receiver of the third level.  The coaxial cable used in the upgrade orrebuilding of our network is mostly 750 MHz.

 

•                  *Level 5**.*  Thefifth level consists of taps into the coaxial cable network for the directconnection to the subscribers.

 

Our network architecturecreates a flexible network that can be used as a platform for additionalservices and products, including cable modems for Internet access and telephonyservices.  It allows us to:

 

•                  monitor our networks,

 

•                  offer approximately 80 analog channels,

 

•                  offer approximately 100 digital channels(assuming a 6-to-1 ratio), and

 

•                  offer additional premium and pay-per-viewservices.

 

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Currently, approximately31.7% of our network has a capacity of 750 MHz.  As a result of the economic instability and cash flowrestrictions affecting our business, we have limited our capital expendituresto the minimum required to continue providing services to our customers.

 

**Acquisitions of Cable Networks**

 

At the time we beganoperations in 1991, the Argentine cable television industry was highlyfragmented and comprised of two large operators, Cablevisión and VCC, and morethan 1,500 small and medium-size operators. Since our creation, we have followed a systematic approach in acquiring,consolidating and operating cable television systems, selected on the basis oftheir subscriber base, location, operational characteristics and growthprospects.  Since our inception throughDecember 31, 2002, we completed 121 acquisitions, adding approximately1,242,400 subscribers to our subscriber base.

 

We have improved theoperating performance and cash flow of the acquired cable television systemsby:

 

•                  consolidating them into regional clusters,

 

•                  eliminating duplicative personnel and officelocations,

 

•                  creating regional customer service centersand headends, and

 

•                  centralizing corporate support functions.

 

In addition to ouracquisition strategy, we have sought to increase our subscriber base byextending the number of homes passed by our systems.  We have also sought to increase our penetration rates bypromoting a distinct image of high quality programming and superior customerservice.  However, during thetwelve-month period ended December 31, 2002, mainly due to the continuedslowdown of the Argentine economy, we lost approximately 352,000 subscribers,negating internal net growth that had occurred through December 31, 2001.

 

We have restructured ourcorporate organization on six occasions to rationalize and streamline ouroperations.  Several regulatoryapprovals required in connection with these corporate reorganizations arecurrently pending.  See “TheCompany—Regulatory Overview” for a discussion of several governmental approvalswhich are applicable to our reorganizations.

 

On June 22, 2001 ourshareholders approved the merger agreement entered into with Plataforma DigitalS.A., Red Argentina S.A., Radio Satel Sociedad Anónima, Cable Espacio del BuenAyre S.A., Video Cable Norte S.A., Televisión por Cable S.A. and CablevisiónCorrientes Sociedad Anónima.  Thiscorporate reorganization, is effective as of January 1, 2001.  We have complied with all necessary legalrequirements and have submitted the agreement to the CNV for its approval.  We expect the CNV to grant its approval andto submit the merger agreement to the IGJ, for its approval andregistration.  The CNV has not yetgranted its approval because it is awaiting the IGJ’s registration of theprevious mergers.

 

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Finally, although we havecompleted all legal requirements necessary to finalize all merger processes, wehave yet to receive the approval for some of the mergers from the IGJ.

 

*RecentAcquisitions*

 

As a result of acquisitionsduring 1997, Fintelco S.A. and VCC continue to be jointly owned by us andCablevisión and will continue operations with their remaining assets, Ps.0.5million, at November 30, 2002, and liabilities, Ps.44.7 million, at November30, 2002 (expressed in Argentine Pesos of December 31, 2002 purchasing power),until the residual liabilities have been paid off.  We and Cablevisión agreed to make capital contributions inFintelco S.A. in proportion to each of our respective equity interests in FintelcoS.A. to enable VCC to discharge its remaining liabilities, including anycontingent liabilities arising from court actions or claims initiated or filedbefore July 1, 1998, which remain in VCC. In an April 30, 1998 agreement, we and Cablevisión agreed to assume anycontingent liabilities arising out of court actions or claims initiated orfiled after June 30, 1998 relating to employees, assets or operations allocatedto either of them, except for administrative and criminal proceedings andpersonal injury claims arising from events that occurred before July 1, 1998and initiated after June 30, 1998. These claims will be assumed by us and Cablevisión in equal parts.

 

We divided the subscribers,assets and liabilities of the VCC Group and the Santa Fe Systems as of July 1,1998.  As a result, we have effected thephysical division of the assets of those systems and, since July 1, 1998, wehave had effective control of the operations and assets transferred to us.  All legal requirements to cause our divisionof the subscribers, assets and liabilities of the VCC Group and the Santa FeSystems to become effective under Argentine law have been completed.  The approvals from Comfer and the IGJ arestill pending.  We expect Comfer and theIGJ to grant their approvals during 2003. See “—Regulatory Overview.”

 

On October 27, 2000, weacquired 49% of the capital stock of Dorrego Televisión S.A. and of Cable VideoSur S.R.L. (two systems in Coronel Dorrego, Province of Buenos Aires), a systemwith 1,487 subscribers as of December 31, 2002, for a total price ofU.S.$1,312,000, of which U.S.$1,150,000 was paid in cash on such date and thebalance, U.S.$162,000 on October 26, 2001. On December 15, 2000, we acquired the remaining 51% of DorregoTelevisión S.A. and Cable Video Sur S.R.L. The price of such transaction was U.S.$1,292,500, of which U.S.$220,000was paid in cash and the balance in 13 installments of U.S.$82,500 each, thelast of which was paid on December 17, 2001. The interests we acquired in Cable Video Sur S.R.L. were subject tocertain liens as security for amounts due by the seller to the formerowners.  Pursuant to an agreement datedOctober 15, 2002, we assumed from the seller the outstanding liabilitiesamounting to Ps.250,000 to former shareholders of Dorrego Televisión S.A. andwe agreed to discharge this debt in 30 monthly installments determined byreference to a formula based on the basic subscription fee charged in CoronelDorrego.  On December 15, 2002, weentered into an agreement whereby we assumed from the seller liabilities owedto former co-owners of Cable Video Sur S.R.L. The seller’s liabilities were guaranteed with a pledge of 99% of thequotas of Cable Video Sur S.R.L.  Inconnection with this agreement, we agreed to pledge the shares of DorregoTelevisión S.A. in exchange for a release of the pledge of the quotas of CableVideo Sur S.R.L.  This is intended tofacilitate the conversion of Video Cable Sur S.R.L. into a *sociedad anónima* and the contribution ofits shares into Dorrego Televisión S.A*.*  We also agreed to pay Ps.829,641 in 39monthly installments and six semi-annual installments.

 

On November 10, 2000,Plataforma Digital S.A. (“Plataforma”), a company merged with us effectiveJanuary 1, 2001, and Grupo Clarín S.A. entered into a share sale agreement withDirecTV Latin America, LLC, one of the shareholders of Galaxy EntertainmentArgentina S.A. (“GEA”), whereby Plataforma was entitled to sell its 51%participation in GEA in exchange for approximately 4% investment in DirecTVLatin America, LLC and a purchase option (the “Operation”).  The consummation of the Operation wassubject to the satisfaction of certain conditions precedent.  The Operation was consummated on April 30,2001 and consequently we transferred to DirecTV Latin America, LLC our entireparticipation

 

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in the capital stock of GEAin exchange for a 3.97% interest in DirecTV Latin America, LLC.  In August 2001, we transferred our interestsin DirecTV Latin America, LLC to an affiliate for U.S.$150 million.  See “Item 5—Liquidity and Capital Resources”and “Major Shareholders-Related Party Transactions.”

 

On September 7, 2001,pursuant to a Trust Agreement the minority shareholders in Tres ArroyosTelevisora Color S.A., a system with 8,171 subscribers as of December 31, 2002,transferred all of their equity interests representing 38.58% of the capitalstock, in favor of the trustee, Mr. José María Sáenz Valiente (h).  During the life of the trust, the trustee isrequired to vote the shares assigned in trust in accordance with ourinstructions, as beneficiary of the trust. The stock being held in trust is gradually transferred to us as trustbeneficiary provided it pays Ps.42,876 per month to the trustee over a ten-yearperiod.  Amounts paid to the trust are distributedto the former minority shareholders of Tres Arroyos Televisora Color S.A., inaccordance with the terms of the Trust Agreement.  The trust will be revoked if we were to fail to pay anyinstallment.

 

As of December 31, 2002, thetrustee transferred 1,389 shares to us under the Trust Agreement.  The share ownership after the transfer is asfollows:  we own 16,129 sharesrepresenting 67.204% of the capital stock and Fideicomiso Tres ArroyosTelevisora Color S.A. owns 7,871 shares representing 32.796% of the capitalstock.

 

*ForeignOperations*

 

*Uruguay.*  OnMay 2, 1997, through our wholly-owned subsidiary Adesol S.A., we acquired 75%of Telemás S.A., a company that provides programming and management services toUHF systems and to another seven cable operators in Uruguay.  Telemás S.A. receives a fee for itsprogramming and management services. This fee accounts for approximately 90% of the monthly billing generatedby each cable operator.  On July 15,1999, we caused Adesol S.A. to acquire the remaining 25% of Telemás S.A. and weagreed to pay U.S.$12.4 million in six semiannual installments, the first fourof which were due and paid on December 15, 1999, June 15 and December 15, 2000,and June 15, 2001 (the December 31, 2001 payment had been made in advance).  We have not yet paid the final installmentdue June 15, 2002.  This installment hasbeen renegotiated and will be paid 24 months from July 2002.  As per an addendum dated November 2002, wehave partially renegotiated the financing obligations due in October 2002through March 2003.  On June 23, 2003 werenegotiated the financing obligations due on April through December 2003.  These financing obligations will be paid asfollows: U.S. $90,000 were paid on June 23, 2003, the sum of $180,000 in six monthlyinstallments of U.S. $30,000 each from July 15, 2003 through December 15,2003.  The balance of U.S. $1,352,250will be payable on August 15, 2004 and the installment due in July 2004 of U.S.$417,889 will be payable on July 15, 2004. Until these installments have been paid, we are restricted from sellingAdesol S.A. and Telemás S.A.  As aresult of the acquisition, the aggregate number of subscribers served by us inUruguay is approximately 78,600 as of December 31, 2002.  In the City of Montevideo, the UHF systemserved by Telemás offers eight channels and competes with other cable systemsoffering more than 30 channels.  Thereis no exclusivity.  We cannot assure youthat the UHF system will be able to compete with the cable systems successfullyin the future.

 

*Paraguay.* Weown the following Paraguayan companies:

 

•                  Cablevisión Comunicaciones, which providescable television services in Paraguay;

 

•                  TVD, which provides UHF services in Paraguayand, together with Cablevisión Comunicaciones, served approximately 44,600subscribers and had an estimated market share of 74.8% as of September 30,2002; and

 

•                  two companies that conduct operations relatedto television services in Paraguay.

 

*Brazil.*  In1997, we participated through a special purpose joint venture with DágabaParticipações Ltda., a member of Grupo Bozano Simonsen, in the auction ofseveral cable television licenses in Brazil. The joint venture was awarded licenses in Brasilia, Recife and Santa Barbarade Oeste, but only retained the license in Recife.  Effective April 5, 1999, we sold our interest in the jointventure to Dágaba Participações

 

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Ltda.  The transfer remains subject to the approvalof the Brazilian telecommunications agency. The transfer request has not been presented to Anatel (the Brazilianregulatory authority) as of the date of this Form 20-F because the licenserequires a minimum operating period of 18 months prior to presentation.  Therefore, the sale of our interest toDágaba Participações Ltda. has not been approved as of the date of this Form20-F.  The joint venture began deployingits network in Recife during June 2001, starting the running of the 18-monthperiod, after having won approval for the use of pole space from the localpower company.

 

The following table is basedon information published by third parties and our internally generated marketinformation and sets forth certain information relating to our cable televisionsystems within Paraguay and Uruguay as of December 31, 2002:

 
|                              |   | **Paraguay** |   | **Uruguay** |   |
|-----------------------------------|--------|--------------|--------|-------------|--------|
|                              |   |         |   |        |   |
| Total  Households(1)(2)           |   | 341,000      |   | 527,000     |   |
| Multicanal  Homes Passed(1)(2)(3) |   | 327,300      |   | 520,000     |   |
| Homes  Passed/Total Households    |   | 96.0         | %      | 987         | %      |
| Total  Cable Subscribers(1)(2)    |   | 59,600       |   | 202,600     |   |
| Multicanal  Subscribers(1)        |   | 44,600       |   | 78,600      |   |
| Multicanal  Penetration(4)        |   | 13.6         | %      | 15.1        | %      |
| Multicanal  Market Share(5)       |   | 74.8         | %      | 38.8        | %      |

 

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(1)           Numbers rounded to nearest thousand.

(2)           In areas where we operate.

(3)           Homes passed by our cable networks.

(4)           Our subscribers as a percentage of total Multicanal homespassed.

(5)           Our subscribers as a percentage of total subscribers.

 

**Programming and Other Services**

 

*Programming*

 

We purchase basic andpremium programming from more than 20 program suppliers, including Grupo Clarín.  Several programming suppliers have agreed toprovide us volume discount pricing structures because of our growth and marketshare.  Due to the currentmacro-economic situation in Argentina, growing inflation beginning in January2002, and higher gross churn rates, the terms of our programming contracts,which in the past generally ranged from 24 to 36 months and were typicallybased on a flat fee, are now being renewed for an average period of six monthswith varying fees.  On April 25, 2002,we resumed transmission of CNN, which had been temporarily suspended while theprogramming contract was renegotiated in light of the recent macro-economicsituation in Argentina.  We and theprogramming supplier, TBS, reached an agreement which is subject to amendmentor termination in the event that devaluation or the cumulative officialinflation rate increase by a certain percentage.  Accordingly, we cannot assure you that we will be able tocontinue providing TBS content such as CNN if the macro-economic situation inArgentina worsens significantly.  Someof our programming arrangements are with affiliates of our parent company,Grupo Clarín S.A.  Most of theprogramming contracts are subject to negotiated renewal in the event that theArgentine peso is devalued to a certain level against the U.S. dollar.  As a consequence of the changes imposed bythe Public Emergency Law, many of the contracts have been renegotiated.  Our programming costs expressed as apercentage of net revenues were 32.8% for the year ended December 31, 2002, ascompared to 28.3% for 2001, 26.5% for 2000 and 25.3% for 1999.  Total programming costs are largelycomprised of costs of programming in key categories like sports and moviechannels.  Programming costs for sportschannels (including payments made to a joint venture in which our shareholderGrupo Clarín owns a 50% interest) are approximately 40% of total programmingcosts.  Programming costs for moviechannels are approximately 30% of total programming costs.

 

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*BasicService*

 

Throughout most ofArgentina, we offer subscribers a uniform basic service plan at an averagemonthly fee of Ps.38.9 at December 31, 2002. The basic service provides between 42 and 68 channels to oursubscribers, depending on the capacity of the local networks.  We divide our programming services intocategories, including movies and television series, news, sports, children’sprogramming, women’s programming, music, over the air and generalinterest/other.

 

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The following table setsforth information regarding the programming we offer customers through many ofour systems:

 
| **Programming Service**          |   | **Origin**  |   | **Language**    |
|----------------------------------|--------|-------------|--------|-----------------|
|                             |   |        |   |            |
| **MOVIES AND TELEVISION SERIES** |   |        |   |            |
| CINE  CLICK                      |   | Argentina   |   | Spanish*        |
| I-SAT                            |   | Argentina   |   | Spanish*        |
| SPACE                            |   | Argentina   |   | Spanish*        |
| FILM  & ARTS                 |   | Argentina   |   | Spanish*        |
| RETRO                            |   | Argentina   |   | Spanish         |
| VOLVER                           |   | Argentina   |   | Spanish         |
| CINECANAL                        |   | U.S.A.      |   | Spanish*        |
| FOX                              |   | U.S.A.      |   | Spanish*        |
| HALLMARK                         |   | U.S.A.      |   | Spanish*        |
| SONY  ENTERTAINMENT              |   | U.S.A.      |   | Spanish*        |
| PRIME  TIME                      |   | Argentina   |   | Spanish*        |
| TNT                              |   | U.S.A.      |   | Spanish*        |
| X-TIME                           |   | Argentina   |   | Spanish*        |
| THE  FILM ZONE                   |   | U.S.A.      |   | Spanish*        |
| THE  WARNER CHANNEL              |   | U.S.A.      |   | Spanish*        |
| EUROPA-EUROPA                    |   | Europe      |   | Spanish*        |
| MGM                              |   | U.S.A.      |   | Spanish*        |
| AXN                              |   | U.S.A.      |   | Spanish*        |
| **NEWS**                         |   |        |   |            |
| CVN                              |   | Argentina   |   | Spanish         |
| TODO  NOTICIAS                   |   | Argentina   |   | Spanish         |
| CNN  INTERNACIONAL               |   | U.S.A.      |   | English         |
| CNN  SPANISH                     |   | U.S.A.      |   | Spanish         |
| CANAL  26                        |   | Argentina   |   | Spanish         |
| CRONICA  TV                      |   | Argentina   |   | Spanish         |
| **SPORTS**                       |   |        |   |            |
| TYC  SPORTS                      |   | Argentina   |   | Spanish         |
| MULTIDEPORTES                    |   | Argentina   |   | Spanish         |
| ESPN                             |   | U.S.A.      |   | Spanish         |
| FOX  SPORTS                      |   | U.S.A.      |   | Spanish         |
| ESPN  INTERNACIONAL              |   | U.S.A.      |   | Spanish         |
| **CHILDREN’S PROGRAMMING**  |   |        |   |            |
| FOX  KIDS                        |   | U.S.A.      |   | Spanish         |
| BOOMERANG                        |   | U.S.A.      |   | Spanish         |
| MAGIC  KIDS                      |   | Argentina   |   | Spanish         |
| CARTOON  NETWORK                 |   | U.S.A.      |   | Spanish         |
| NICKELODEON                      |   | U.S.A.      |   | Spanish         |
| DISCOVERY  KIDS                  |   | U.S.A.      |   | Spanish         |
| **WOMEN’S PROGRAMMING**     |   |        |   |            |
| FASHION  TV                      |   | Argentina   |   | Spanish         |
| UTILISIMA  SATELITAL             |   | Argentina   |   | Spanish         |
| COSMOPOLITAN                     |   | U.S.A.      |   | Spanish         |
| **MUSIC**                        |   |        |   |            |
| MUCH  MUSIC                      |   | Canada      |   | Spanish         |
| SOLO  TANGO                      |   | Argentina   |   | Spanish         |
| MTV                              |   | U.S.A.      |   | Spanish         |
| MUSIC  COUNTRY                   |   | U.S.A.      |   | Spanish         |
| CM  CRONICA MUSICAL              |   | Argentina   |   | Spanish         |
| **OVER THE AIR**                 |   |        |   |            |
| ARTEAR                           |   | Argentina   |   | Spanish         |
| AMERICA                          |   | Argentina   |   | Spanish         |
| CANAL  9                         |   | Argentina   |   | Spanish         |
| CANAL  7                         |   | Argentina   |   | Spanish         |
| TELEFE                           |   | Argentina   |   | Spanish         |
| **GENERAL INTEREST/OTHER**       |   |        |   |            |
| PLUS  SATELITAL                  |   | Argentina   |   | Spanish         |
| METRO                            |   | Argentina   |   | Spanish         |
| GOURMET.COM                      |   | Argentina   |   | Spanish         |
| CANAL  RURAL                     |   | Argentina   |   | Spanish         |
| INFINITO                         |   | Argentina   |   | Spanish         |
| MAGAZINE                         |   | Argentina   |   | Spanish         |
| GUIA  EN PANTALLA                |   | Argentina   |   | Spanish         |
| THE  HISTORY CHANNEL             |   | U.S.A.      |   | Spanish         |
| TV  5                            |   | France      |   | French          |
| DEUSTCHE  WELLE                  |   | Germany     |   | German          |
| ANTENA  3                        |   | Spain       |   | Spanish         |
| MENORAH                          |   | Israel      |   | Hebrew/ Spanish |
| RAI                              |   | Italy       |   | Italian         |
| EL  CANAL DE LAS ESTRELLAS       |   | México |   | Spanish         |
| TVE  ESPAÑA                 |   | Spain       |   | Spanish         |
| TV  CHILE                        |   | Chile       |   | Spanish         |
| DISCOVERY                        |   | U.S.A.      |   | Spanish         |
| P&E                          |   | Argentina   |   | Spanish         |
| REDE  O GLOBO                    |   | Brazil      |   | Portuguese      |
| MUNDO  OLE                       |   | U.S.A.      |   | Spanish*        |
| E!  ENTERTAINMENT TELEVISION     |   | U.S.A.      |   | Spanish*        |
| ARGENTINISIMA                    |   | Argentina   |   | Spanish         |
| ANIMAL  PLANET                   |   | U.S.A.      |   | Spanish         |
| NUEVA  IMAGEN                    |   | U.S.A.      |   | Spanish         |
| EWTN                             |   | U.S.A.      |   | Spanish         |
| LOCOMOTION                       |   | U.S.A.      |   | Spanish         |
| BLOOMBERG  TV                    |   | U.S.A.      |   | Spanish         |
| GALICIA  TV                      |   | Spain       |   | Spanish         |
| PEOPLE  & ARTS               |   | U.S.A.      |   | Spanish*        |
| CANAL  A                         |   | Argentina   |   | Spanish         |
| CANAL  LUZ                       |   | Argentina   |   | Spanish         |
| DISCOVERY  HEALTH                |   | U.S.A.      |   | Spanish*        |
| NATIONAL  GEOGRAPHIC             |   | U.S.A.      |   | Spanish*        |
| BBC  WORLDWIDE                   |   | U.K.        |   | English         |
| REALITY  TV                      |   | U.S.A.      |   | Spanish*        |
| **PREMIUM CHANNELS**             |   |        |   |            |
| MOVIE  CITY                      |   | U.S.A.      |   | English         |
| CINE  CANAL 2                    |   | U.S.A.      |   | English         |
| HBO                              |   | U.S.A.      |   | English         |
| HBO  PLUS                        |   | U.S.A.      |   | English         |
| CINEMAX                          |   | U.S.A.      |   | English         |
| VENUS                            |   | Argentina   |   | Spanish*        |
| PLAYBOY                          |   | U.S.A.      |   | Spanish*        |

 

----

*      Includes programming in English with Spanish subtitles.

 

*Premiumand Pay-Per-View Services*

 

We were the first Argentinecable operator to develop and offer premium channels in Argentina.  Currently we offer premium services in allthe regions in which we operate.  Ourpremium services include

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programming dedicated tolive soccer, movies and adult programming. As of December 31, 2002, the penetration rate of the movie and adultprogramming premium service was approximately 11.5%.

 

To receive premiumprogramming, subscribers pay an incremental monthly fee which ranges from Ps.5to Ps.70.  To receive the service,premium subscribers must either rent or purchase from us an addressable set topunit or utilize readily available low quality decoding devices known astraps.  Approximately 98,800 set topsare currently in use by our subscribers. We purchase addressable set top units with the capability of decodingaudio and video signals, and we are implementing a plan to aggressively marketthese units to our subscribers.

 

Set top units also have thecapacity for pay-per-view service.  Wehave introduced pay-per-view programming to subscribers with set top units,including sports events and movies. Subscribers can elect to receive both individual events and a series ofevents through the pay-per-view service.

 

We were the first to launcha weekly live soccer program, *El Clásico delDomingo*, which is now available in all of our systems either as apremium channel at an average monthly premium fee of Ps.13.50, or as apay-per-view service in the regions where we have introduced addressabletechnology.  Since August 2001, we havealso offered *El Quinto Partido*, asecond weekly live soccer program.  *El Quinto Partido* is offered together with*El Clásico del Domingo* in asingle premium package called *Super Domingo*.  It is offered either as a premium service atan average monthly premium fee of Ps.20.90 at December 31, 2002, or as apay-per-view service in those regions where addressable technology has alreadybeen implemented.  We estimate that thesoccer premium service has achieved a 5.2% penetration rate within oursubscriber base.

 

We have targeted theenhanced revenue opportunities associated with premium service and have beenworking with other cable operators and cable programming providers to createadditional premium tiers by adding new premium channels.  We can give no assurance that this type oftiering will be accomplished, since creating additional premium tiers requiresindustry-wide cooperation and agreement.

 

*OtherServices*

 

We currently provideInternet high-speed access through one-way and two-way cable modems, testingthe service with approximately 3,000 subscribers in areas where we havedeployed our FSA network.  Additionallywe offer, together with Primera Red Interactiva de Medios Argentinos (Prima)S.A. (“Prima”), another broadband technology called “asymmetric digital subscriberline” (ADSL).  We charge an up-front feeof Ps.50 or Ps.130 for the installation of cable modems (depending on theservice) and Prima, a company owned and controlled by our shareholders,provides Internet service to our subscribers for a monthly fee of Ps.49.9 (plusvalue-added tax) for Internet access through one-way cable modems and Ps.79.9(plus value-added tax) for Internet access through two-way cable modems atDecember 31, 2002.  We have entered intoa revenue-sharing agreement with Prima pursuant to which we currently receive50% of the monthly fees charged by Prima to our subscribers for Internetservices.

 

Additionally, we areoffering, together with Prima, a dial-up Internet package for a monthly fee ofPs.13.4 (plus value-added tax) at December 31, 2002.

 

*AdvertisingRevenue*

 

We also provide advertisingservices.  These services accounted for1.8% of our net revenues in the year ended December 31, 2002, 2.6% of our netrevenues in 2001 and 2.7% of our net revenues in 2000.** **Wedevelop cable television advertising services as a means to increase our netrevenues.

 

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**Marketing and Customer Service**

 

We seek to differentiateourselves from our competitors on the basis of the strength of our brand name,and our focus on the quality of our customer service.

 

*TheMulticanal Brand Name*

 

We have taken and continueto take action to promote our corporate image with the public and increaseconsumer awareness of our brand name. We began trademarking the names of our cable television operations in1994.  Most of our operations, exceptfor those in Paraguay, Uruguay and certain areas in the Province of BuenosAires, operate under our brand name.  Wecontinued to expand the use of our brand name throughout Argentina during 2002,except in several regions in the interior where we utilize shared brandingbetween well-regarded local trademarks and our trademark.

 

We employ advertising in avariety of forms to increase our brand awareness and customer recognition.  These forms include:

 

•                  advertising in print media including bothnational and local newspapers and magazines,

 

•                  publishing a monthly programming guide forour subscribers,

 

•                  advertising on national and local radiostations,

 

•                  advertising on our cable systems,

 

•                  advertising on billboards,

 

•                  sending mailings to subscribers andnon-subscribers offering special promotions,

 

•                  our “Attention Centers” which are designed tobe both sales centers and customer service centers, and

 

•                  other advertising campaigns.

 

Since 1996, we havemaintained a website, http://www.multicanal.com.ar, to provide programming newsand financial information on us.

 

*SuperiorCustomer Service*

 

We have licensed asubscriber management software system from CableData International Ltd., asoftware company specializing in subscriber management applications for cablesystem operators.  We have fullyimplemented this system in most regions of Argentina where we operate, andbelieve that this technology enabled us to centralize subscriber data andmanage account information more efficiently, respond more quickly to customers’needs and measure the effectiveness of customer service and retentioninitiatives.  This license is due toexpire in late 2003.

 

*Billingand Subscriber Management*

 

Our billing system wascentralized in the regions and cities where we have deployed the subscribermanagement software system licensed from Cable Data International Ltd.  In our Uruguay and Paraguay operations, as wellas those of our Argentine subsidiaries Televisora Privada del Oeste S.A. andTeledifusora San Miguel Arcángel S.A., our billing systems aredecentralized.  Subscribers receive abill issued by our regional

 

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administrative office intheir home area.  We bill all of oursubscribers in advance for monthly basic cable service.  Subscribers are given 30 days from the dateof issuance to pay their bills without penalty.  As of December 31, 2002, an average of 83% of our subscribers paytheir bills within this period.  We seekto enforce a strict disconnection policy. If subscribers do not pay their bills within the first 30 days, theyreceive a letter and, in most cases, a telephone call indicating that theiraccount is overdue.  We repeat this processif we do not receive payment after the expiration of the next monthly billingcycle.  In the third month, we no longermail either a bill or the monthly programming magazine to the subscriber and,if payment is not received within this period, we disconnect the subscriber assoon as practicable after the expiration of this period.  Our efforts to improve customer retentionand collections in 2002 have resulted in a reduction in the lag betweeninvoicing and collection and, accordingly, a decrease in our charges fordoubtful accounts.

 

*Managementof Churn*

 

Churn means subscribertermination.  We determine our churnrate by calculating the total number of disconnected cable television customersover a given period as a percentage of the initial number of cable televisioncustomers for the same period.  Weexperienced a favorable trend in our churn rates from 1997 to 2000, with ourannual gross churn rates averaging approximately 29.7% in 2000, 30.9% in 1999,30% in 1998, and 37% in 1997.  However,our annual gross churn rate averaged 32.4% in 2001 and 43.8% in the year endedDecember 31, 2002, with a net loss of approximately 352,000 subscribers duringthe year ended December 31, 2002.

 

The historical averageannual gross churn rate for U.S. cable operators has been between 25% and30%.  We believe that our higher churnrates in comparison with U.S. cable operators have been principally due to thecontinued slowdown of the Argentine economy that started in 1998, an increasein the value-added taxes imposed on cable television services and the loss inthe purchasing power of the Argentine peso generated by high inflation ratesduring 2002, together with the increase in prices of basic and premiumservices.

 

Approximately 352,000subscribers left our cable systems during 2002.  This significant subscriber loss occurred as a consequence of thecurrent macro-economic crisis.

 

To reduce our churn rate andto address associated risks, such as the difficulty in collecting receivables,we pursue a vigorous customer service and retention policy.  This policy contributed to our reduction ofour annual gross churn rate between 1995 and 2000.  In addition, in April 2002, we re-instituted an initialactivation fee for new subscribers in an effort to reduce churn.  However, we cannot assure you that we willbe able to maintain the prior reduction in churn in light of the macro-economicsituation that continues to affect Argentina. See “The Company—Marketing and Customer Service.”

 

**Competition**

 

The pay television businessin Argentina is very competitive.  Weface competition from other cable television operators and providers of othertelevision services, including direct broadcasting, DTH and MMDS services.  As a result of the non-exclusive nature ofour licenses, many of our cable systems have been overbuilt by one or morecompeting cable networks.  This has ledto aggressive price competition and marketing programs to encourage subscribersto switch networks.  Free broadcastingservices are

 

36

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currently available to theArgentine population mainly from four privately-owned television networks andtheir local affiliates and one state-owned national public televisionnetwork.  There are also some independentoperators in cities in the interior of the country.

 

Although the Argentine cableindustry, with over 700 operators, is highly fragmented, it is dominated by twoMSOs, us and Cablevisión, which compete primarily on the basis of customerservice and brand recognition.  In 1996,a third MSO was created to operate in the northwest of Argentina.  This operation, called Supercanal, does notcompete directly with Multicanal or Cablevision.  A fourth MSO focused in the City of Buenos Aires region,Telecentro, S.A., entered the market in 1999 using an aggressive pricingpolicy.  We believe that for the timebeing the adverse impact of this competitor has been less significant for usthan for the other MSO.  As of December31, 2002, our penetration rate in the Argentine cable market (measured bysubscribers) was approximately 18.6%. Among the cable systems, competition is based primarily on:

 

•                  price,

 

•                  programming services offered,

 

•                  customer satisfaction, and

 

•                  quality of the system.

 

We believe that we are ableto compete efficiently against other providers of pay television services oneach of these counts.  We also seek toattract and retain customers through our vigorous customer servicepolicies.  See “The Company—Marketingand Customer Service.”

* *

*MMDS. *MMDS, often referred to as wireless cable, is a cable distributiontechnology based upon a microwave transmission system which operates from aheadend, consisting of a satellite receiver or other equipment.  Programming is then transmitted by microwavetransmitters from an antenna located on a tower or on top of a building to asmall receiving antenna located at a subscriber’s premises, where the encodedmicrowave signals are decoded.  Althoughestablishing an MMDS network is less capital intensive than constructing acable television network, we believe that cable television has a number ofcompetitive advantages over MMDS:

 

•                  MMDS transmissions cannot be received in“shadowed” areas where microwave transmission is blocked by terrain, buildingsor other physical objects.  In somecases, however, signal blockages may be overcome through the use of low powersignal repeaters which retransmit an otherwise blocked signal over a limitedarea.

 

•                  MMDS has limited channel capacity, lowerreliability and lower quality of signal.

 

We provide MMDS service inthe cities of Mar del Plata and Tres Arroyos and serve approximately 2,000 MMDSsubscribers in these areas.  There arepresently approximately 200 MMDS operators serving approximately 60,000 subscribersin Argentina.

* *

*DTH. *DTH systems use high power satellites to deliver signals to satellitedish antennae at homes, hotels and apartment buildings.  In comparison to MMDS signals which arelocally transmitted, a DTH satellite footprint can cover large land areas.  High frequency Ku-Band DTH technology, whichpermits the use of a smaller satellite receiver dish of 60 centimeters, offersmore channels and better picture quality than C-Band DTH technology.  DTH Service in Argentina is regulated by theBroadcasting Law 22,285 of September 15, 1980 .

 

At present, only twocompanies, TDH S.A. and DirecTV Latin America, LLC provide DTH services inArgentina.  A third company thatformerly provided such services, Sky Latin America, 

 

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announced on June 10, 2002,that it would cease operations in Argentina as of July 10, 2002 due to theeconomic crisis in Argentina.  The firstof the two companies presently providing such services, TDH S.A., offers approximately24 video channels to its approximately 6,000 subscribers.  On March 26, 2000, TDH S.A. initiatedproceedings to determine the composition of creditors prior to an adjudicationin bankruptcy.  The second, DirecTVLatin America, LLC, is a consortium comprised of Hughes Communications, Inc., adivision of the Hughes Electronics subsidiary of General Motors Corporation andthe Cisneros Group.  DirecTV LatinAmerica, LLC began offering services in Argentina in June 1998 through anaffiliate, Galaxy Entertainment Argentina S.A., in which Grupo Clarín S.A. hada majority interest of 51% through its wholly-owned subsidiary PlataformaDigital S.A.  Plataforma Digital S.A.was merged into us on January 1, 2001, and on April 30, 2001 we transferred toDirecTV Latin America, LLC its interest in Galaxy Entertainment Argentina S.A.in exchange for a 3.97% investment in DirecTV Latin America, LLC.  On August 24, 2001, we transferred all ofour interests in DirecTV Latin America, LLC and certain contractual rights relatedthereto to Raven Media Investments, LLC, a company organized under the laws ofthe state of Delaware and wholly-owned by Grupo Clarín S.A., forU.S.$150,000,000.

 

DTH service in Argentina maygrow throughout the country over the next five years, primarily in rural areaswhere there are no cable networks. Although we believe that cable television has advantages over DTHbecause cable television does not require the subscriber to bear the up-frontcost for the purchase of an outdoor reception dish and related hardwarenecessary for DTH, we cannot assure you that DTH will not in the future, becomea significant competitor in Argentina’s pay television market.

 

**Regulatory Overview**

 

The installation andoperation of cable television service in Argentina is governed by theBroadcasting Law as amended and related regulations.  The cable television industry is principally regulated andsupervised by Comfer but also falls under the jurisdiction of the CNC, formatters related to installation of cable services and compliance with technicalregulations.  The *Secretaría de Prensa*supervises Comfer andreports directly to the Executive Branch. It also supervises the general enforcement of the Broadcasting Law andthe regulatory framework for the industry.

 

Comfer has the authority to:

 

•                  grant operating licenses on a non-exclusivebasis and extend the term of these licenses,

 

•                  approve the shareholders of licensedcompanies and the transfer of shares or other ownership interests in licensedcompanies,

 

•                  supervise the cultural, artistic and legalcontent of programming,

 

•                  approve amendments to the by-laws of licensedcompanies, and

 

•                  impose penalties on licensed companies in theform of fines, suspension of advertising and the revocation of licenses (see“Legal Matters—Regulatory Proceedings” below).

 

Rates charged by cabletelevision companies are not presently regulated.

 

As a condition to obtaininga broadcast license, a cable operator must demonstrate that it has receivedpermission to utilize municipal airspace from the relevant municipality andthat it has obtained the rights to install poles that will carry thecable.  The CNC must then approve theoperator’s technical plans for installation of cable service.

 

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The CNC monitors compliancewith technical regulations related to installation of the cable service throughits surveillance of the use of the broadcasting spectrum and the granting offrequencies.

 

Cable television companiesin Argentina are required to obtain a non-exclusive broadcasting license fromComfer in order to carry and distribute programming over their cablenetworks.  Comfer licenses have aninitial 15-year term.  At the end ofthis term, the licensee may apply for a one time ten-year extension.  Comfer must approve any license extension.  To do so, Comfer determines whether thelicensee complied with the terms and conditions set forth in the BroadcastingLaw.

 

We have applied for anextension of the initial term of some licenses.  Although some of these extensions were not timely filed, wenevertheless expect to be granted these extensions.  The extension of the rest of the licenses will be timely filedthirty months prior to their expiration, in accordance with the BroadcastingLaw.  We can give no assurance that wewill receive any of these extensions. In addition, the Broadcasting Law provides only for a one time ten-yearextension and does not provide for subsequent renewals when such termexpires.  As a result, once theadditional ten-year term elapses we may be forced to apply for new licenses,and we cannot assure you that such licenses will be granted.  At December 31, 2002 the weighted averageremaining life of our licenses was 10.55 years, based on the number ofsubscribers and the assumption that a ten-year extension will be granted in allcases.  The weighted average remaininglife of our licenses based on the number of subscribers assuming that noten-year extensions will be granted was 0.55 years at December 31, 2002.  In the event that Comfer denies us anextension of a license in a specific area, we must cease operations in sucharea, seek to acquire a company that has a valid broadcasting license for thearea or apply for a new license in our own name.  We cannot assure you that there will be a cable company with a validlicense operating in such area, that we will be able to acquire such a cablecompany, or that if we apply for a new license in our name, that such licenseswill be granted.

 

Please note that due to aninjunction imposed by a federal judge investigating Comfer’s practices,including with respect to the granting of cable television licenses in recentyears, Comfer is currently prevented from granting new licenses or extensions;we cannot assure you if or when Comfer will reinitiate these activities.

 

In addition, due to thevarious corporate reorganizations we have undergone, several licensee operatingcompanies have been merged into us.  Insome cases operating companies merged into us hold licenses for areas where wealready hold a license and because we are not legally allowed to keep bothlicenses, we have elected in most cases to keep in force the license with thelongest remaining period of life. However, we cannot guarantee that Comfer will approve our choice to doso.  Broadcasting licenses are transferableupon approval by Comfer and subject to compliance with the regulatoryconditions set forth in Resolution No. 870/93.

 

Comfer issues broadcastinglicenses upon a review of several qualifications of the applicant and itsshareholders and partners.  UnderSection 45 of the Broadcasting Law, a licensee’s shareholders and partnersmust:

 

•                  be Argentine nationals that do not havecorporate, legal or other affiliations with foreign media or broadcastingentities,

 

•                  have good moral qualifications and no criminalrecord,

 

•                  possess financial capabilities of whichevidence is presented, and

 

•                  not be a judge, legislator, public officialor a member of the Armed Forces.

 

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In addition, in the eventone or more of the licensee’s shareholders is a corporation, the corporateshareholder must be duly organized and the members of its board of directorsmust meet the conditions set forth above, except that the directors of thecorporate shareholder are not required to show financial capability.

 

Section 46 of theBroadcasting Law establishes that licensed companies may not be affiliates,subsidiaries or under the control of foreign persons.  An exception to the nationality requirement set forth in Section45 exists for U.S., Italian and French corporations and persons under bilateraltreaties between Argentina and each of these countries.  Resolutions 350/95, 0008/96 and 1323/96provide the qualifications and conditions these U.S., Italian and Frenchcorporations and companies must fulfill. These treaties grant persons of other nationalities non-discriminatorytreatment with Argentine nationals with respect to investments in Argentina.

 

Finally, Section 45 requiresComfer approval for any transfer of shares in a licensee company, including theroll up transaction discussed in “Major Shareholders-Overview of GrupoClarín.”  In the event that astockholder or partner of a licensee company is another company, Comfer has theauthority to review that company’s stockholders and determine whether theycomply with the requirements set forth in the Broadcasting Law.  The Grupo Clarín shareholders have beenauthorized by Comfer as our shareholders and of several licensed companies thatwere merged into us.  However, Comferhas not yet authorized Arte Gráfico Editorial Argentino S.A. (AGEA), GrupoClarín S.A. and Multicanal Holding LLC, each a corporation controlled by theGrupo Clarín shareholders, as our shareholders.  We have given notice but not yet obtained the required approvalsfrom Comfer in connection with all of our acquisitions of shares in companieswhich hold licenses and the transfer of licenses to us by certain of thesubsidiaries merged into us.

 

Failure to obtain Comfer’sapproval of the transfer of an ownership interest in a licensed company mayresult in the unwinding of the transfer. Violation of Comfer regulations regarding the transfer of an ownershipinterest in a licensed company can result in the imposition of fines, thesuspension of advertising or the revocation of the license of the licensee thatviolated the Comfer regulations.

 

We have notified Comfer ofthe following transactions, among others, but Comfer has not yet approved them:

 

•                  our acquisition of the Megacable Group,

 

•                  the subscription of shares in us by AGEA onApril 7, 1998,

 

•                  our acquisition of an interest in the VCCGroup, the Bahía Blanca Systems and the Santa Fe Systems,

 

•                  the transfer of shares resulting from thedivision of the subscribers, assets and liabilities of the VCC Group, the BahíaBlanca Systems and the Santa Fe Systems with Cablevisión,

 

•                  the Grupo Clarín shareholders’ transfer toGrupo Clarín S.A. and Multicanal Holding LLC of 94% of our capital in December1999 and of the remaining 6% in February 2000.

 

The division of theoperations of the VCC Group resulted in the transfer of several broadcastinglicenses of the VCC Group’s companies to us. Comfer Resolution 870/93 establishes regulatory procedures for thetransfer of a license.  We have followedthese procedures.  On July 16, 2001Comfer issued Resolution 1110/2001 which establishes the procedure anddocumentation necessary for the transfer of shares, interests andlicenses.  Such resolution grantedpetitioners a term of 90 days to complete the

 

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documentation required to befiled with Comfer.  The 90-day termexpired on December 4, 2001.  Althoughwe have completed the documentation in accordance with the new procedure, thereare documents that we were not able to file because we could not obtain themfrom previous license holders. Nevertheless, as of the date of this Form 20-F we are not aware of thesuspension of any transfers.

 

On July 17, 2001, Comferissued Resolution 1111/2001 requiring all licensees of cable systems inArgentina to register by October 15, 2001 by filing a sworn affidavit.  Any licensee that failed to register beforethe deadline would be subject to penalties. We filed the required affidavit for each of the licenses we had eitherabsorbed or acquired on October 15, 2001.

 

Additionally, Comfer mustapprove any elimination of headends.  Weare awaiting approvals for several headend eliminations resulting from theacquisition and division of the VCC Group. Although we expect to receive all of the required approvals, we cannotassure you that Comfer or any successor agency will grant all of the approvals.

 

The Broadcasting Lawprovides that Comfer may cancel licenses because of, among other things:

 

•                  fraud regarding ownership of the licenses,

 

•                  approval by the competent corporate authorityof a licensed company of any transfer of ownership interests without Comfer’sapproval, and

 

•                  any false statement made by the licensee inconnection with the assets affected to the service being provided under the license.

 

In the past, the applicationof the regulatory framework by Comfer has resulted in numerous and in theaggregate substantial fines.  At thesame time, Comfer periodically agreed to “payment programs” that resulted inmaterial discounts from the face value of the fines imposed and deferrals ofpayment dates.  On November 20, 2002,Comfer issued Resolution No. 830/02, adopting a new regime for imposingsanctions for violations of the Broadcasting Law.  Such Resolution classifies each violation as a *falta grave*(severe violation) or as a *falta leve* (minor violation).  Minor violations are sanctioned by *llamados de atención* (reprimands), *apercibimientos* (warnings).  Severe violations, such as the broadcast ofobscene programs or the illegal installation and operation of a cable system,are subject to incremental fines, which may, in the case of numerous severeviolations, eventually lead to the revocation of the license.  We can give no assurance that we will not besanctioned or have any of our licenses revoked under this Resolution.

 

*AntitrustConsiderations*

 

Our operations are subjectto the Argentine antitrust law (Law No. 22,262, enacted in 1980, as amended in1995 by the Law No. 24,481) which provides that certain acts, including:

 

•                  fixing, establishing or altering marketprices, directly or indirectly, through concerted actions,

 

•                  limiting or controlling, by means ofconcerted action, technical developments or investments in the production,distribution or marketing of goods or services, and

 

•                  entering into agreements or undertakingconcerted actions to distribute zones, markets, clientele or sources of supply,in each case that limit, restrict or distort competition or which constitute anabuse of a dominant position in the market,

 

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may give rise topenalties.  Penalties include finespayable by the entity engaged in the prohibited practice and its directors,legal representatives, attorneys-in-fact, managers, statutory auditors ormembers of the supervisory committee, all of which are jointly and severallyliable.  In addition, Argentineantitrust law vests the National Commission for the Defense of Competition withthe power to order a party to abstain from or cease any anti-competitive activities,and to request the relevant court to liquidate or dissolve companies violatingthe law.

 

**OrganizationalStructure**

 

The following table setsforth our significant subsidiaries, as of December 31, 2002, including thecountry of incorporation, ownership interest and percentage of voting powerheld.

 
| **Subsidiary**                               |   | **Country  of  Incorporation** |   | **Ownership  Interest** |   | **Voting   Power Held** |   |
|----------------------------------------------|--------|--------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                         |   |                           |   |                    |   |                    |   |
| AVC  Continente Audiovisual S.A.             |   | Argentina                      |   | 90                      | %      | 90                      | %      |
| CV  Berazategui S.A.                         |   | Argentina                      |   | 70                      | %      | 70                      | %      |
| Delta  Cable S.A.                            |   | Argentina                      |   | 84                      | %      | 84                      | %      |
| San  Lorenzo TV Cable S.A.                   |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| TV  Cable San Francisco S.A.                 |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Telesur  Teledifusora Río Cuarto S.A.   |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Televisora  Privada del Oeste S.A.           |   | Argentina                      |   | 51                      | %      | 51                      | %      |
| Bridge  Management Holdings Corp.            |   | Panamá                    |   | 100                     | %      | 100                     | %      |
| La  Capital Cable S.A.                       |   | Argentina                      |   | 50                      | %      | 50                      | %      |
| Chaco  Cable Color S.R.L.                    |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Teledifusora  San Miguel Arcángel S.A.  |   | Argentina                      |   | 50                      | %      | 50                      | %      |
| Tevemundo  S.A.                              |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Cable  Imagen S.R.L.                         |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Televisión  Dirigida S.A.E.C.A.         |   | Paraguay                       |   | 89                      | %      | 89                      | %      |
| Orange  Television Productions S.A.          |   | Paraguay                       |   | 100                     | %      | 100                     | %      |
| Cablepar  S.A.                               |   | Paraguay                       |   | 100                     | %      | 100                     | %      |
| Cablevisión  Communicaciones S.A.E.C.A. |   | Paraguay                       |   | 90                      | %      | 90                      | %      |
| Tres  Arroyos Televisora Color S.A.          |   | Argentina                      |   | 67                      | %      | 67                      | %      |
| Wolves  Televisión S.A.                 |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Adesol  S.A.                                 |   | Uruguay                        |   | 100                     | %      | 100                     | %      |
| Cable  Video Sociedad Anónima.          |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Pem  S.A.                                    |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Dorrego  Televisión S.A.                |   | Argentina                      |   | 100                     | %      | 100                     | %      |
| Cable  Video Sur S.R.L.                      |   | Argentina                      |   | 100                     | %      | 100                     | %      |

** **

All of our subsidiaries are cable television operators except for PemS.A., Cablepar S.A., Orange Television Productions S.A., Bridge ManagementHoldings Corp., Adesol S.A., San Lorenzo TV Cable S.A, TV Cable San FranciscoS.A and Telesur Teledifusora Río Cuarto S.A.

 

**Property,Plants, and Equipment**

 

We own most of our principalphysical assets, which consist of:

 

•                  cable television operating plants andequipment, including signal receiving devices, such as satellite andterrestrial antennae, antennae towers and related equipment,

 

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•                  headends, consisting of associated electronicequipment necessary for the reception and processing of signals,

 

•                  distribution systems, consisting primarily ofcoaxial and fiber optic cable, and

 

•                  customer home drop cables and equipment.

 

Our cable distributionsystem is generally attached to utility poles, and we either own or lease spaceon these poles from local public utilities. In addition, some of our distribution systems are located on buildingrooftops under arrangements with the owners of the buildings, or are located inunderground ducts under lease arrangements with local subway authorities.  We have entered into an agreement withAutopistas del Sol S.A. pursuant to which we have the ability to placedistribution systems under certain highways serving Buenos Aires and canthereby avoid locating a significant portion of these systems in undergroundconducts, which are less readily accessible. The physical components of our cable systems require maintenance andperiodic upgrading to keep pace with technological change.  We own our service vehicles, data processingfacilities and test equipment and either own or lease our business offices andcustomer service center locations.

 

We lease roof rights andspace on utility poles and in underground ducts for the placement of our cableand certain equipment from third parties.

 

We believe that our properties,both owned or leased, are in good operating condition and are suitable andadequate for our business purposes. Despite the adverse economic conditions affecting our market and ourcompany, the book value of our assets reflects our current plans and cash-flowprojections, based on information available to us.  These plans and projections assume that we continue to operateand that the economy recovers.  Wecannot assure you that the current book value of our assets can or will berecovered.

 

**Capital Expenditures**

 

During 2000, we investedPs.85.4 million in purchases of property and equipment, and Ps.7.4 million wasinvested in our acquisition of cable systems. During 2001, our investment in purchases of property and equipment wasPs.46.2 million, and generated Ps.313.2 million from sales of investments, netof acquisitions.  During the year endedDecember 31, 2002 we invested Ps.11.2 million in purchases of property andequipment, and Ps.1.1 million in our acquisition of cable systems.** **Thesecapital expenditures were made with funds generated by our operations andfinancings.

 

**Item 5.****                                  ****Operating and FinancialReview and Prospects**

 

**Overview**

 

The following discussionshould be read in conjunction with the audited and financial statements andrelated notes.   The financialinformation included in the discussion below as at December 31, 2002 and 2001and for the three years ended December 31, 2002 derive from the financialstatements included in this Form 20-F. The financial statements have been prepared in accordance with ArgentineGAAP, which differ in certain respects from U.S. GAAP.  See Note 15 to the Audited ConsolidatedFinancial Statements, describing the principal significant differences betweenArgentine GAAP and U.S. GAAP, as they relate to us.  Note 16 to the Audited Consolidated Financial Statements providesa reconciliation to U.S. GAAP of net loss for the years ended December 31,2002, 2001, and 2000 and shareholders’ (deficit) equity as of December 31, 2002and 2001 and Note 17 to the Audited Consolidated Financial Statements providescertain additional disclosures required under U.S. GAAP.

 

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Our audited financialstatements included the effects of inflation through August 31, 1995, utilizingthe inflation restatement methodology established in Technical Resolution N°6of the Professional Council in Economic Sciences of the Autonomous City ofBuenos Aires (CPCECABA).  EffectiveSeptember 1, 1995, as required by rules issued by the CNV, we discontinued therestatement methodology, maintaining the effects of inflation accounted for inprior periods.  The discontinuance ofinflation accounting is in compliance with Argentine GAAP, provided that theannual variation in the WPI does not exceed 8% per annum.  During the years ended December 31, 2000,2001 and 2002 the WPI increased by 2.5%, decreased by 5.6% and increased by118%, respectively.  Beginning inJanuary 2002, the inflation rate in Argentina began to increase significantly.

 

To counter both the highinflation rates brought about by the end of the convertibility monetary systemin Argentina at the beginning of 2002 and the distortion this caused inArgentine companies’ financial statements, the Argentine government issuedDecree No 1269/02 on July 17, 2002. This decree provides for the reestablishment of the restatement offinancial information to account for inflation and instructed the CNV to issuespecific regulations regarding its application to companies such as us subjectto the CNV’s jurisdiction. Consequently, on July 25, 2002, the CNV issued Resolution 415/2002,providing that financial statements filed subsequent to the date of theResolution be restated to recognize changes in the purchasing power of thepeso, starting January 1, 2002. Accordingly, our results have been restated as follows:

 

•                  results accumulating monetary transactions,such as net sales, operating costs, and administrative and selling expenses,have been restated in constant Argentine pesos, applying to the original valuethe conversion factor referenced in the WPI from the month in which thetransaction took place to the date of the year end.

 

•                  results related to non-monetary assets valuedat restated costs, such as amortization and depreciation, have been computedbased on the restated amounts of such assets.

 

Financial results have beenvalued net of general inflation on the related assets and liabilities.  The effect of inflation on the remainingmonetary assets and liabilities has been disclosed as “Results of exposure toinflation.”

 

Additionally, amounts forthe years ended December 31, 2001, 2000, 1999, and 1998 presented herein forcomparative purposes, are presented in comparable monetary terms at December31, 2002 using a conversion factor equal to 2.182099, which represents theinflation index rate during the year ended December 31, 2002.

 

The restatement forwholesale-price level changes recorded in the income statement reflects theeffects of inflation on our net holdings of monetary assets and liabilitiesduring a period of inflation.  Assetsand liabilities are considered “monetary” for purposes of restatement forwholesale-price level changes if their values are fixed by contract orotherwise in terms of number of currency units, regardless of changes inspecific prices or in the WPI.  Examplesof “monetary” assets and liabilities include accounts receivable, accountspayable and cash stated in pesos.  Therestatement merely reflects the effects of inflation, and does not imply eithera generation or use of funds.

 

On March 25, 2003 theArgentine government issued Decree No. 664/03 providing that financialstatements for periods ending on a date subsequent to the date of that Decreebe expressed in nominal currency. Consequently, the CNV issued Resolution No. 441/03 providing for theelimination of inflation adjustment for all financial statements effectiveMarch 1, 2003.  As of the date of thisForm 20-F, given that the CPCECABA has not yet approved the discontinuance ofthe restatement of financial statements, the elimination of inflationadjustment for all financial statements does not comply with Argentine GAAP.

 

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Our Audited ConsolidatedFinancial Statements have been audited by our Independent Auditors, whosereport is included herein.  Ourfinancial statements as of and for the year ended December 31, 2002 have beenprepared on the assumption that we will continue to operate as a going concern.  Our Independent Auditors have issued reportsstating that we have suffered recurring losses from operations and have a netcapital deficiency.  The reports alsostate that we have been negatively impacted by the Argentine government’sadoption of various economic measures and by the devaluation of the peso.  These matters raise substantial doubt as toour ability to continue to operate as a going concern.  The financial statements as of and for theyear ended December 31, 2002 do not include any adjustments that might resultfrom the outcome of this uncertainty. See “Risk Factors—Risks Relating to Multicanal—Auditor’s Doubt as to OurAbility to Operate as a Going Concern.”

 

At December 31, 2002, ourforeign currency consolidated balance financial debt including accrued interestand seller debt was U.S.$583.7 million.

 

As of February 11, 2002, thegovernment had established a single market for all exchange transactions at asingle free-floating exchange rate, although foreign exchange controls remainedin place for numerous transactions.

 

Assets and liabilities incurrencies other than the Argentine peso as of December 31, 2001 were valued atthe exchange rate of Ps.1.00 per U.S.$1.00, or the equivalent in the currencyof denomination, as of the date of the suspension of the foreign exchangemarket in accordance with General Resolution No. 392 of the CNV.  Our total consolidated bank and financialdebt as of December 31, 2002 amounted to U.S.$583.7 million (including accruedinterest and seller debt) and Ps.66.0 million (including accruedinterest).  The effects of thedevaluation of the Argentine peso was reflected in the 2002 consolidatedfinancial statements in accordance with Argentine GAAP.  Net losses originating from the applicationof foreign exchange rates to foreign currency-denominated assets and liabilitiesas of the effective date of the Public Emergency Law are only deductible forincome tax purposes up to 20% per annum in each of the first five fiscal yearsended after the effective date of the Public Emergency Law.

 

Our revenues are realizedprincipally through monthly fees charged to our subscribers payable inpesos.  Although substantially all ofour financial expenses are denominated in U.S. dollars, we have not usedfinancial instruments to hedge our currency risk.  The significant devaluation of the peso beginning in January 2002has resulted in an increase in the cost of servicing our debt and, therefore,has had a material adverse effect on our results of operations.  We have defaulted on all payments on ourExisting Notes and on all principal payments and a significant portion of ourinterest payments on our Bank Loans since February 2002.

 

As of the date of this Form20-F, we have been informed that at least 34 involuntary bankruptcy petitionshave been filed against us.  Of those 34petitions, we have been served with process on 32, and 26 have been dismissedby the court.  Of the 26 dismissedpetitions, 18 have appealed and the dismissal of all 18 has been upheld by theCourt of Appeals.  Eight remain subjectto appeal and are therefore not final. We have been informed by Argentine counsel that 6 cases have beenappealed and are still pending resolution by the Court of Appeals.  We have deposited in escrow with the courtthe peso equivalent of the amounts claimed by the plaintiffs (converted at anexchange rate of U.S.$1.00 per Ps.1.00, adjusted by applying the CER), togetherwith accrued interest at a rate of 8% and an amount to cover legal costs.

 

We can provide no assurancethat the court (i) will not allow the remaining 8 petitions that have beendismissed to be appealed, (ii) will dismiss the 6 petitions that are stillpending, or (iii) not require us to deposit additional amounts in escrow.

 

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**The Argentine Economy**

 

We are an Argentine *sociedad anónima* (a corporation withlimited liability) and substantially all of our facilities and approximately87% of our subscribers are presently located within Argentina.  In the fourth quarter of 1998, the Argentineeconomy entered into a recession that caused the gross domestic product todecrease by 3.4% in 1999, 0.8% in 2000 and 4.4% in 2001 (with a 10% drop in thefourth quarter compared to the third quarter) led by large declines in theconstruction and automotive sectors, according to the Argentine EconomyMinistry.  During 2002 the GDP decreasedby an estimated 10.9%.  The unemploymentrate increased from 14.5% in May 1999 to 15.4 % in May 2000 and 16.4% in May2001 and 18.3% in October 2001.  In May2002, the unemployment rate increased to 21.5%, while in October 2002 itdecreased to 17.8%.

 

Measures taken by theArgentine government during 2001 were insufficient to restore investorconfidence, and spreads on Argentine government securities reached recordhighs, as speculation increased that Argentina would cease honoring its debtobligations.  The government respondedto the lack of investor confidence by adopting additional measures designed tofurther control public sector spending, such as the Zero Deficit Law No. 25,453passed on July 30, 2001, which provided that the government’s monthlyexpenditures could not exceed the revenues of such month (excluding theproceeds of any financing) and empowered the Secretary of the Treasury toeliminate dispensable expenditures to meet the balanced budgetrequirement.  In addition, in December2001, the Argentine government adopted severe measures to safeguard theviability of the banking system in light of increasing withdrawals of depositsin the second half of 2001.  Thesemeasures barred transfers of funds outside Argentina, except (i) trade relatedpayments, (ii) payments or withdrawals through credit or debit cards issued inArgentina, and (iii) payments on financial transactions approved by the CentralBank.

 

On December 1, 2001, in theface of increasing withdrawals of deposits from the financial system, theArgentine government imposed restrictions on the amount of money holders couldwithdraw from banks and introduced exchange controls restricting capitaloutflows.  As of December 3, 2001, remittancesof foreign exchange, including for the payment of debt obligations, weresubject to Central Bank approval with certain exceptions.

 

On December 19, 2001,President de la Rúa and his entire cabinet resigned (which was accepted onDecember 20, 2001) amidst continued economic turmoil and social unrest.  After a series of interim presidents, inJanuary 1, 2002 at a joint session of Congress, Eduardo Duhalde, a Peronistsenator who had been defeated by former President de la Rúa in 1999, waselected to complete Mr. de la Rúa’s term through the end of 2003.

 

On January 6, 2002 Congressenacted the Public Emergency Law, which amended certain provisions of theConvertibility Law and eliminated the requirement that the Central Bank’sreserves in gold and foreign currency be at all times equivalent to at least100% of the monetary base.  The PublicEmergency Law abolished the U.S. dollar to peso parity regime and granted theexecutive branch the power to set the exchange rate between the peso andforeign currencies and to issue regulations related to the foreign exchangemarket.  The peso now floats freely andon June 24, 2003 traded at an exchange rate Ps.2.77 per U.S.$1.00.

 

Since January 6, 2002,additional regulations were approved by the Argentine government, including:

 

•                  ending the Convertibility Law, with theresulting devaluation of the peso;

 

•                  converting U.S. dollar-denominated debts intopeso-denominated debts at a one-to-one exchange rate;

 

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•                  converting U.S. dollar-denominated bankdeposits into peso-denominated bank deposits at an exchange rate of Ps.1.40 perU.S. dollar;

 

•                  restructuring bank deposits and continuingrestrictions on bank withdrawals and transfers abroad;

 

•                  amending the Central Bank’s charter to allowit to print currency in excess of the amount of the foreign reserves it holds,make short-term advances to the federal government and provide financialassistance to financial institutions with liquidity constraints or solvencyproblems;

 

•                  requiring the obligatory sale, currentlysuspended, by all banks of all their foreign currency within Argentina to theCentral Bank at an exchange rate of Ps.1.40 per U.S. dollar; and

 

•                  repealing the prior consent requirement fromthe Central Bank in order to make payments of principal or interest onfinancing debt obligations.

 

Although the long-termeffect of the current crisis and the new governmental measures remainsuncertain, they have had an immediate and materially adverse effect on ourliquidity, financial condition, anticipated results of operations and businessprospects, including:

 

•                  eliminating expectations that we may be ableto raise in the capital or banking markets the funds needed to refinancesignificant maturities that became due in 2002 and coming due in 2003; and

 

•                  giving rise to a significant decline in thevalue of our assets and anticipated revenues. The recent developments described above have caused us to revise ourstrategy and, based on our current projections of future cash flows, impair thecarrying value of the goodwill related to past acquisitions as of December 31,2002 by Ps.312.7 million.

 

The Argentine governmentfaces severe constraints on its ability to service its debt obligations due tothe devaluation of the Argentine currency. Peso-denominated tax revenues constitute the primary source of itsearnings, but most of its financial liabilities are U.S.dollar-denominated.  To date, there isuncertainty as to the terms of the restructuring of Argentina’s external debt,or the timing of any such restructuring. The adoption of austere fiscal measures, which may be required to repaythe Argentine government’s debt, even after a restructuring, and to keep itsbudget balanced, may lead to renewed social unrest and political instability.

 

Prior to the adoption of theConvertibility Law, the Argentine government proved unable to maintain a strictmonetary policy and control inflation. In the past, inflation materially undermined the Argentine economy andthe government’s ability to create conditions that would permit growth.  Continued high inflation could deepenArgentina’s current economic recession.

 

It is premature to predicthow the government will ultimately address the crisis that continues to affectthe Argentine economy.

 

The Argentine government hashistorically exercised significant influence over the economy.  Due to the Argentine crisis, the Argentinegovernment has promulgated numerous, far-reaching and not always consistent lawsand regulations affecting the economy. We cannot assure you that laws and regulations currently governing theeconomy will not continue to change in the future, particularly in light of the

 

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continuing economic crisis,or that any changes will not adversely affect our business, financial conditionor results of operations as well as our ability to honor our debt obligations.

 

**Other Factors Affecting our Results and FinancialCondition**

* *

*Source ofRevenues. *Since our formation in 1991, we havegenerated approximately 90% of our revenues from monthly customer charges forbasic cable service and the balance from connection fees and advertising.  More recently, we have also generatedrevenues from premium and pay-per-view fees. A decrease in the number of subscribers has a direct impact on netrevenues, although it also causes a reduction in certain of our operatingexpenses.  During 2002, our subscriberbase decreased by approximately 352,000 subscribers.  We believe that this decrease is primarily attributable to thecontinued slow-down of the Argentine economy and an increase in the value-addedtaxes imposed on cable television services.

* *

*Effects ofInflation*.  For almost ten years, Argentina experiencedvery low levels of inflation and in certain years, deflation.  During several of these years, thepurchasing power of a large segment of the population increased, together withconsumer confidence.  We initiated ourbusiness during that period, and our growth internally and through acquisitionsreflects the overall increase in the level of economic activity.  The recession which affected the countrysince 1998 gradually undermined the purchasing power of many of our customers,induced an increase in our churn and adversely affected our results ofoperations.  These adverse trendsaccelerated with the significant devaluation and the inflation thatfollowed.  During 2002 the WPI increasedby 118%, compared to slight deflation during 2001.  During periods of high inflation, effective wages and salariestend to fall and consumers adjust their consumption patterns to eliminateunnecessary expenses, including cable television services.  Our subscriber base contracted by 27% during2002.  Our ability to compensate for thedecrease in revenues resulting from such a drop in our subscriber base throughincreases in monthly fees were limited and inadequate to compensate us for ourincreasing costs.  Our financialcondition and results of operations may continue to deteriorate if the rates ofinflation experienced in 2002 continue.

* *

*Acquisitionand Internal Growth. *We operate primarily in Argentina.  A principal element of our strategy was toincrease our subscriber base through the acquisition of cable televisioncompanies and the expansion of our existing systems.  We acquired 121 companies between 1991 and 2002, withapproximately 1,242,400 subscribers at acquisition.  Approximately 352,000 subscribers left our cable systems during2002, negating internal net growth that had occurred through December 31, 2001.

 

We seek to improve operatingperformance and cash flow through the consolidation of acquired systems.  Our consolidation effort has intensifiedsince 1995 through the implementation of an administrative structure thatfacilitated the consolidation and centralization process.  These efforts resulted in a significantimprovement in our results of operations since 1996.  In addition, we have absorbed 71 of our wholly-owned subsidiariesand have further consolidated our operations through the elimination ofduplicative administrative functions. At December 31, 2002, we served directly approximately 80% of thecombined subscriber base of ourselves and our subsidiaries.

 

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We do not expect any significantincrease in our subscriber base whether through internal growth oracquisitions, unless the economy stabilizes and conditions for growth in theservice sectors of the economy are restored.

* *

*FactorsAffecting Period-to-Period Comparability*. Period-to-period comparisons of our financial results for prior periodsare affected by the acquisitions we completed and by differences in theclassification of certain revenues and expenses by acquired companies.  These classification differences do notaffect the calculation of Adjusted EBITDA under Indentures (as defined herein)and are eliminated on a going forward basis as acquired businesses areintegrated into our system.  In theopinion of management, these classification differences are not material withinthe context of our financial statements, taken as a whole.  The difference between the book value of theassets of companies we acquired and the price paid for those companies isrecorded as goodwill.  At December 31,2002, goodwill amounted to Ps.1,164.7 million and represented 57.1% of ourtotal assets and 544.5% of our shareholders’ equity.  As of the date of this Form 20-F Comfer has not approved some ofour new acquisitions.** **As of the date of this Form 20-FComfer has approved Multicanal as shareholder of 25 licensees out of 99licensees we have acquired.

 

Period-to-period comparisonsof financial results for future periods are likely to be affected byinflation.  While inflation accountingimproves the comparability of financial statements, it does not eliminate orcorrect many of the distortions created by inflation, that will affectperiod-to-period comparisons of our financial results.

* *

*AdjustedEBITDA under Indentures*.  We define Adjusted EBITDA under Indenturesas operating income (loss) plus depreciation and amortization.  We believe that Adjusted EBITDA underIndentures is a meaningful measure of performance because it is commonly usedin the cable television industry to analyze and compare cable televisioncompanies on the basis of operating performance, leverage and liquidity.  Nonetheless, Adjusted EBITDA underIndentures is not a measure of net income or cash flow from operations andshould not be considered as an alternative to net income, an indication of ouroperating performance, an alternative to cash flow from operating activities ora measure of liquidity.  Because EBITDAmeasures are not determined in accordance with U.S. GAAP, other companies maycompute EBITDA in a different manner. Therefore, EBITDA as reported by other companies may not be comparableto Adjusted EBITDA under Indentures as we report it.  See footnote 7 to the table in “Item 3—Selected Financial Data” for a reconciliation of Adjusted EBITDAunder Indentures to cash flows from operating activities.

* *

*Consolidationof the Industry*.  The consolidation of the cable televisionindustry increases the level of competition that we face.  In October 1997, a further consolidation ofthe Argentine cable television industry resulted from the joint acquisition byus and Cablevisión of 100% of the shares of the VCC Group.  Before its acquisition by us andCablevisión, the VCC Group constituted Argentina’s second largest MSO.  We and Cablevisión divided the subscribers,assets and liabilities of the VCC Group effective as of July 1, 1998.  See “The Company—Acquisitions of CableNetworks—Recent Acquisitions.”  Webelieve that the consolidation of the cable television industry in Argentinahas reinforced the need to undertake frequent investments to remaincompetitive.

* *

*Tax Reform*. Since 1998, the Argentine government has approved a series of revisionsto the Argentine taxation system.  Ithas:

 

•                  extended the scope of value-added tax (“VAT”)to amounts we charge for advertising and for cable television services at arate of 21%; and

 

•                  increased the general corporate income taxfrom 33% to 35%.

 

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In May 2001, the cabletelevision industry signed an agreement with the Argentine Federal Governmentto improve the competitiveness of the sector. Under its terms, companies who acceded to the agreement could:

 

•                  credit payments made to SADAIC, FondoNacional de las Artes, Argentores, and AADI-CAPIF against VAT; and

 

•                  be exempted from the minimum notional incometax.

 

We acceded to the agreementand became eligible for its benefits as of August 2001, and the benefits onlyapplied until March 2003.  Also onAugust 13, 2001, the Argentine government issued Decree No. 1008/01 allowing usto reduce our payment obligations on account of VAT by the amounts previouslypaid to Comfer that were not previously applied to reduce our paymentobligations on account of VAT.  Theamounts paid to Comfer that are not applied in a given fiscal period can betransferred to any future fiscal period. On March 31, 2003 the “competition tax regime” created in 2001 expiredalong with the tax benefits arising under that regime.  In our case, this will result in (1) there-imposition of the minimum notional income tax, and (2) the inability tocredit payments made SADAIC, Fondo Nacional de las Artes, Argentores, andAADI-CAPIF against VAT.

 

In April 2003, the Argentinegovernment issued Decree No. 743/03 which allows companies in our industry topartially credit social security taxes accrued in the period between April 1,2003 and July 31, 2003 against VAT. Presently, the rate applicable to social security taxes is 21% overgross salaries.

 

*CriticalAccounting Policies*

 

In connection with thepreparation of the financial statements included in this Form 20-F, we haverelied on variables and assumptions derived from historical experience andvarious other factors that we deemed reasonable and relevant.  Although we review these estimates andassumptions in the ordinary course of business, the portrayal of our financialcondition and results of operations often requires our management to makejudgments regarding the effects of matters that are inherently uncertain on thecarrying value of our assets and liabilities. Actual results may differ from those estimated under differentvariables, assumptions or conditions. In order to provide an understanding about how management forms itsjudgments about future events, including the variables and assumptionsunderlying the estimates, and the sensitivity of those judgments to differentvariables and conditions, we have included the following comments related toeach critical accounting policy described below.

 

*UnderArgentine GAAP*

* *

*Impairmentof Long Lived Assets*

 

Ouraccounting policies require that we testlong-lived assets for impairment whenever indicators of impairment exist.  If any impairment were indicated as a resultof such reviews, we would measure it using techniques such as comparing thediscounted cash flows of the business to our book value or by obtainingappraisals of the related business. As of December 31, 2002 Argentine GAAPrequires that if the sum of the future discounted cash flows expected to resultfrom the assets is less than a company’s reported value of the assets, then theasset is not recoverable and the company must recognize an impairment.  The amount of impairment to be recognized isthe excess of the reported value of the assets over the fair value of thoseassets.

 

Managementhas reviewed our long-lived assets, primarily property and equipment to be heldand used in the business, long-term investments and goodwill for the purposesof determining and measuring impairment. Given the significant negative impactthat is expected on our operating results as a result of the 

 

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devaluation,the pesification and the continued macro-economic slowdown in Argentina, and asmanagement’s best estimate of discounted future cash flows is below thecarrying value of our long-lived assets, under Argentine GAAP we recordedimpairment charges during the years ended December 31, 2002 and 2001 amountingto Ps.312.7 million and 326.1 million, respectively.

 

Webelieve that the accounting estimate related to this asset impairment is a“critical accounting estimate” because: (1) it is highly susceptible to change from period to period because itrequires management to make assumptions about future revenues and costs; and(2) the impact that recognizing an impairment has on the assets reported on ourbalance sheet as well as our net loss is material.  Management’s assumptions about future revenues, as well as futurenumber of subscribers, operating costs and selling, general and administrativecosts require significant judgment because actual revenues and subscribers havebeen seriously affected by the continued macro-economic slowdown in Argentinaand are expected to continue to be so affected. In estimating future revenues,as well as future number of subscribers, operating costs and selling, generaland administrative costs, we used our internal projections.

 

Although we believe ourestimates are appropriate, significant differences in the actual performance ofthe asset or group of assets may materially affect our asset values and resultsof operations.

 

*Allowancesfor Doubtful Accounts*

 

Management makes estimatesof the uncollectability of its accounts receivable and maintains allowances fordoubtful accounts for estimated losses resulting from customers’ failure tomake required payments.  If the futurepayments by our customers were to differ from the estimates, we may need toincrease or decrease the allowances for doubtful accounts, which could affectthe reported results of operations.

 

*Provisionfor Obsolescence of Materials*

 

Provision for potentiallyobsolescent or slow-moving materials is made based on management’s assumptionsabout their future consumption.

 

While, based on ourexperience, losses due to obsolescence of materials have been withinexpectations and the provisions established, if circumstances change (i.e., significantchanges in technology), management’s estimates of the recoverability of thesematerials could be reduced by a material amount. In this case, our results ofoperations, financial condition and net worth would be further materially andadversely affected.

 

*LossContingencies*

 

Loss contingencies areaccrued when it is reasonably certain that the loss will be incurred, butuncertainty exists relating to the amount or the date on which they willarise.  Accruals for such contingenciesreflect a reasonable estimate of the losses to be incurred based on informationavailable as of the date of preparation of the financial statements. However,if reserves prove to be inadequate and we incur a charge to earnings, suchcharges could have a material adverse effect on our earnings and liquidity forthe applicable period.

 

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*Under USGAAP*

 

*Impairmentof Goodwill*

 

The determination as towhether goodwill is impaired requires a great deal of judgment. Prior to January1, 2002, we evaluated goodwill for impairment whenever events or changes incircumstances indicated that the carrying value might not be recoverable.

 

Under US GAAP, on January 1,2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”.  In accordance with such adoption, weidentified all reporting units in conjunction with the provisions of SFAS No.142 and allocated all goodwill accordingly. Beginning in 2002, goodwill isevaluated for impairment annually, or whenever events or changes incircumstances indicate that the carrying amount of goodwill may not berecoverable. We tested goodwill for impairment using the two-step processprescribed in SFAS No.142. The first step is a comparison of the fair value ofthe reporting unit with its carrying amount, including goodwill. If this stepreflects impairment, then the loss would be measured as the excess of recordedgoodwill over its implied fair value. Implied fair value is the excess of thefair value of the reporting unit over the fair value of all recognized andunrecognized assets and liabilities.

 

Under U.S. GAAP we recordeda Ps.300 million impairment charge during the year ended December 31, 2002 andPs.183 million as the cumulative effect of the adoption of SFAS No. 142. Thefair value of that reporting unit was estimated using the expected presentvalue of future cash flows.

 

Although we believe ourestimates are appropriate, significant differences in the actual performance ofthe reporting units may materially affect our goodwill values and results ofoperations

 

*DeferredIncome Taxes*

 

Deferred income taxes areprovided to reflect the net tax effects of temporary differences between thefinancial reporting and the tax bases of assets and liabilities and aremeasured using the currently enacted tax rates and laws in each of the relevantjurisdictions.  Deferred income taxesreflect management’s assessment of actual future taxes to be paid on itemsreflected in the financial statements, giving consideration to both timing andprobability of realization.

 

Deferred tax assets arereduced by a valuation allowance if, based on the weight of available evidence,it is more likely than not that some portion or all of the deferred tax assetswill not be realized.  Actual incometaxes could vary from these estimates due to future changes in income tax lawor results from final review of our and our subsidiaries’ tax returns by taxingauthorities.

 

We have recorded a valuationallowance of Ps.592 million as of December 31, 2002 due to uncertaintiesrelated to our ability to utilize certain deferred tax assets, primarilyconsisting of tax losses carried forward, before they expire. We haveconsidered future taxable income and ongoing prudent and feasible tax planningstrategies in assessing the need for the valuation allowance.  However, in the event management were todetermine that it would be able to realize its deferred tax assets in thefuture in excess of its net recorded amount, an adjustment to the deferred taxasset would increase income in the period such determination was made.

 

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**Results ofOperations**

 

The following table setsforth, for the periods indicated, certain statement of operations data andAdjusted EBITDA under Indentures in thousands of pesos and as a percentage ofnet revenues:

 

|                                                       |   | **Year  Ended December 31,** |   |
|------------------------------------------------------------|--------|------------------------------|--------|
|                                                       |   | **2002**                     |   | **2001** |   | **2000** |   |
|                                                       |   | **(thousands  of pesos)**    |   |
| Net  revenues                                              |   | 574,728                      |   | 1,015,473 |   | 1,040,170 |   |
| Direct  operating expenses                                 |   | (310,170                     | )      | (498,531 | ) | (492,303 | ) |
| Selling,  general, administrative and  marketing      |   | (122,631                     | )      | (194,559 | ) | (221,259 | ) |
| Depreciation  and amortization                             |   | (306,855                     | )      | (332,188 | ) | (334,944 | ) |
| Operating  (loss) income                                   |   | (164,927                     | )      | (9,805 | ) | (8,337 | ) |
| Financial  income (expenses) and  holding gains,  net |   | (471,466                     | )      | (222,452 | ) | (244,305 | ) |
| Other  non-operating income (expenses), net                |   | (309,500                     | )      | (356,225 | ) | (34,286 | ) |
| Gain  (loss) on sale of investees                          |   | 25                           |   | 322,515 |   | — |   |
| Income  taxes and/or tax on minimum notional income        |   | (4,932                       | )      | (11,328 | ) | (21,654 | ) |
| Net  loss                                                  |   | (938,461                     | )      | (284,044 | ) | (319,477 | ) |
| Adjusted  EBITDA under Indentures                          |   | 141,928                      |   | 322,382 |   | 326,607 |   |

 

|                                                  |   | **Year  Ended December 31,**           |   |
|-------------------------------------------------------|--------|----------------------------------------|--------|
|                                                  |   | **2002**                               |   | **2001** |   | **2000** |   |
|                                                  |   | **(as a  percentage of net revenues)** |   |
| Net  revenues                                         |   | 100.0                                  | %      | 100.0 | % | 100.0 | % |
| Direct  operating expenses                            |   | (54.0                                  | )      | (49.1 | ) | (47.3 | ) |
| Selling,  general, administrative and  marketing |   | (21.3                                  | )      | (19.2 | ) | (21.3 | ) |
| Depreciation  and amortization                        |   | (53.4                                  | )      | (32.7 | ) | (32.2 | ) |
| Operating  (loss) income                              |   | (28.7                                  | )      | (1.0 | ) | (0.8 | ) |
| Financial  income (expenses) and holding gains, net   |   | (82.0                                  | )      | (21.9 | ) | (23.5 | ) |
| Other  non-operating income (expenses), net           |   | (53.9                                  | )      | (35.1 | ) | (3.3 | ) |
| Gain  (loss) on sale of investees                     |   | —                                 |   | 31.8 |   | — |   |
| Income  taxes and/or tax on minimum notional income   |   | (0.9                                   | )      | (1.1 | ) | (2.1 | ) |
| Net  loss                                             |   | (163.3                                 | )      | (28.0 | ) | (30.7 | ) |
| Adjusted  EBITDA under Indentures                     |   | 24.7                                   |   | 31.7 |   | 31.4 |   |

 

Set forth below is adiscussion and analysis of our results of operations for the years endedDecember 31, 2002, 2001, and 2000.

 

**Years Ended December 31, 2002 and 2001**

* *

*NetRevenues.*  Net revenues were Ps. 574.7 million for theyear ended December 31, 2002. This figure represents a decrease of 43.4%compared to net revenues of Ps. 1,015.5 million for the year ended December 31,2001.  The decrease in net revenues inthis period as compared to the year ended December 

 

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31, 2001 is attributable toour inability to increase the basic fees for our services at a rate equal to orgreater than the general rate of inflation (during the year ended December 31,2002 we increased prices approximately 48%, compared with an increase in theWPI of 118%), the continued loss of subscribers (approximately 352,000 over theyear ended December 31, 2002) and a reduction in advertising sales.  The decrease in Argentine net revenues waspartially offset by an increase in revenues (in peso terms) from ourinternational operations (Uruguay and Paraguay), a decrease of charges for theallowance for doubtful accounts, an increase in other sales and a reduction indirect taxes.

 

Our revenues are presentednet of various direct taxes that are charged on our gross revenues and whichrepresent on average approximately 0.5% of gross revenues.  These taxes, which are levied on billedamounts excluding amounts charged off, include several direct taxes and a taxon gross revenues generated in La Pampa, Chaco and Corrientes.  From January 1, 1999 through August 12,2001, we were allowed to reduce our payment obligations on account ofvalue-added taxes at the end of each month by the amounts paid to Comfer duringthat month.  From August 13, 2001 toDecember 2002, we were also allowed to reduce our payment obligations onaccount of value-added taxes by the amounts previously paid to Comfer that werenot previously applied to reduce our payment obligations on account ofvalue-added taxes.  Our revenues arealso presented net of charges for the allowance for doubtful accounts.

* *

*DirectOperating Expenses.*  Our direct operating expenses were Ps. 310.2million for the year ended December 31, 2002. This figure represents a decrease of 37.8% over our direct operatingexpenses of Ps. 498.5 million in the year ended December 31, 2001, which ismainly attributable to a decrease in programming rights, payroll and socialsecurity, printing and distribution of magazines, taxes rates andcontributions, rentals and sundry.

 

Direct operating expensesconsist principally of:

 

•                  signal delivery fees paid to programmingsuppliers,

 

•                  wages, benefits and fees paid to employeesand subcontracted service firms for the repair and maintenance ofMulticanal-owned cable networks and customer disconnections, and

 

•                  to a lesser extent, the costs of relatedmaterials consumed in these repair and maintenance activities (primarily inforeign currency, since these inputs are imported), costs associated with polerental and the printing cost for Multicanal’s monthly publication.

* *

*Selling,General, Administrative and Marketing Expenses.*  Ourselling, general, administrative and marketing expenses were Ps. 122.6 millionin the year ended December 31, 2002. This figure represents a decrease of 37.0% from Ps. 194.6 million in theyear ended December 31, 2001, which is attributable principally to a decreasein payroll and social security, sales commissions, taxes rates andcontributions, personnel expenses, building expenses and sundry, and waspartially offset by an increase in employee dismissals.

 

Our selling, general,administrative and marketing expenses consist of:

 

•                  professional fees,

•                  wages and benefits of non-technicalemployees,

•                  sales commissions,

•                  advertising,

•                  insurance,

•                  rental of office space, and

 

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•                  other office related expenses.

* *

*Depreciationand Amortization.*  Depreciation and amortization expenses werePs. 306.9 million in the year ended December 31, 2002.  This figure represents a decrease of 7.6%compared to depreciation and amortization expenses of Ps. 332.2 million in theyear ended December 31, 2001. This decrease in the Company’s depreciation andamortization expenses was mainly due to the decrease in the value of intangibleassets as a result of the impairment charge recorded as of December 31, 2001.

* *

*Financial(Income)Expenses and Holding Gains Net*.  Our net financial expensesand holding losses were Ps. 471.5 million in the year ended December 31,2002.  This figure represents anincrease of 111.9% from financial expenses and holding losses, net, of Ps.222.5 million in the year ended December 31, 2001.  This increase is attributable principally to the impact of thedevaluation of the peso in relation to the U.S. dollar on the Company’s U.S.dollar-denominated debt (Ps. 833.0 million) and was partially offset by thegain on cancellation of Notes acquired in the open market (Ps. 417.8 million)and the net gains resulting from the impact of inflation on our monetary assetsand liabilities (Ps. 176.7 million).

* *

*OtherNon-Operating Income (Expenses), Net*.  Other non-operating expenses,net, were Ps. 309.5 million in the year ended December 31, 2002, compared toother non-operating expenses, net, of Ps. 356.2 million in the year endedDecember 31, 2001.  Other non-operatingexpenses, net, during the year ended December 31, 2002 decreased mainly due toa lower impairment charge recorded in the year ended December 31, 2002 (Ps.312.7 million) as compared to the impairment charge recorded in the year endedDecember 31, 2001 (Ps. 326.1 million), a lower provision for employeedismissals, lower provisions made on account of contingent liabilities, and adecrease in sundry.

* *

*Gain(Loss) on Sale of Investees.* Gains on sale of investees werePs. 322.5 million during the year ended December 31, 2001 as a result of a netgain from the sale of the Company’s interest in DirecTV Latin America LLC.

* *

*IncomeTaxes and/or Tax on Minimum Notional Income.* Income taxes were Ps. 4.9 million in the year ended December 31, 2002,compared to Ps. 11.3 million in the year ended December 31 2001.  In October 2001 the Company was added to theregister of beneficiaries of the agreements to improve competitiveness andemployment and as a result, the Company was exempted from the tax on minimumnotional income for fiscal year 2001 and future years.  That exemption as originally contemplated inthe competitiveness law expired on March 31, 2003.  In our case, this will result in the reimposition of the minimumnotional income tax.

* *

*NetLoss. *We had a net loss of Ps. 938.5 million in theyear ended December 31, 2002, as compared to a net loss of Ps. 284.0 million inthe year ended December 31, 2001, as a result of the factors described above.

* *

*AdjustedEBITDA under Indentures. *Our Adjusted EBITDA under Indentures in theyear ended December 31, 2002 was Ps. 141.9 million.  This figure represents a decrease of 56.0% compared to ourAdjusted EBITDA under Indentures of Ps. 322.4 million in the year endedDecember 31, 2001.  Our Adjusted EBITDAunder Indentures margin (Adjusted EBITDA under Indentures/net revenues)decreased to 24.7% compared to 31.7%, due primarily to a decrease in revenuesat a faster pace than our reduction of costs. See footnote 7 to the tablein  “Item 3—Selected Financial Data” fora reconciliation of Adjusted EBITDA under Indentures to cash flows fromoperating activities.

 

**Years Ended December 31, 2001 and 2000**

* *

*NetRevenues.*  Net revenues were Ps. 1,015.5 million forthe year ended December 31, 2001.  Thisfigure represents a decrease of 2.4% over net revenues of Ps. 1,040.2 millionfor the year ended December 31, 2000. 

 

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The decrease in net revenuesin this period was mainly attributable to the loss of approximately 70,000subscribers over the year ended December 31, 2001 due to the continuedslow-down of the Argentina economy as well as a decrease in advertising sales,and an increase in the charges for the allowance for doubtful accounts, whichwas partially offset by an increase in other sales, a reduction in direct taxesand the authorization to apply Comfer taxes paid in previous months (and notpreviously applied) to reduce the Company’s value added tax liabilities.

 

Our revenues for 2001 arepresented net of various direct taxes that are charged on our gross revenuesand which represent on average approximately 1.4% of gross revenues.  These taxes, which are levied on billed amountsexcluding amounts charged off, include several direct taxes and a tax on grossrevenues generated in La Pampa, Chaco and Corrientes.  From January 1, 1999 through August 12, 2001, we were allowed toreduce our payment obligations on account of valued added taxes at the end ofeach month by the amounts paid to Comfer during that month.  Since August 13, 2001, we are also allowedto reduce our payment obligations on account of value added taxes by theamounts previously paid to Comfer that were not previously applied to reduceour payments obligations on account of value added taxes.  Our revenues are also presented net ofcharges for the allowance for doubtful accounts.

* *

*DirectOperating Expenses.*  Our direct operating expenses were Ps. 498.5million in the year ended December 31, 2001. This figure represents an increase of 1.3% over our direct operatingexpenses of Ps. 492.3 million in the year ended December 31, 2000.  This increase was primarily due to a highercost in programming rights and increased provisions for various contingentobligations, and was partially offset by a reduction in payroll and socialsecurity and in sundry.

 

Direct operating expensesconsist principally of:

 

•                  signal delivery fees paid to programmingsuppliers,

 

•                  wages, benefits and fees paid to employeesand subcontracted service firms for the repair and maintenance ofMulticanal-owned cable networks and customer disconnections, and

 

•                  to a lesser extent, the costs of relatedmaterials consumed in these repair and maintenance activities, costs associatedwith pole rental and the printing cost for Multicanal’s monthly publication.

* *

*Selling,General, Administrative and Marketing Expenses.*  Ourselling, general, administrative and marketing expenses were Ps. 194.6 millionin the year ended December 31, 2001. This figure represents a decrease of 12.1% from Ps. 221.3 million in theyear ended December 31, 2000. The decrease was principally due to savings inpublicity and advertising and in payroll and social security, and to a lesserextent, to the decrease in building expenses, security and surveillanceservices, rentals, office expenses and representation and travel expenses, andwas partially offset by an increase in fees and compensation for services, andincreased provisions for various contingent obligations.

 

Our selling, general,administrative and marketing expenses consist of:

 

•                  professional fees,

 

•                  wages and benefits of non-technicalemployees,

 

•                  sales commissions,

 

•                  advertising,

 

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•                  insurance,

 

•                  rental of office space, and

 

•                  other office related expenses.

 

*Depreciationand Amortization.*  Depreciation and amortization expenses werePs. 332.2 million in the year ended December 31, 2001.  This figure represents a decrease of 0.8%over depreciation and amortization expenses of Ps 334.9 million in the yearended December 31, 2000. Depreciation and amortization expenses consist ofdepreciation of property and equipment and amortization of goodwill, deferredcharges and other intangible assets.

* *

*Financial(Income) Expenses and Holding Gains Net.*Our net financial expenses and holding losseswere Ps. 222.5 million in the year ended December 31, 2001.  This figure represents a decrease of 8.9%from financial expenses and holding losses, net, of Ps. 244.3 million in theyear ended December 31, 2000.  The lowerfinancial expenses are attributable to a decrease in the outstanding principalamount of our debt as a result of amortizations and the cancellation of notesacquired in open market repurchases, and a lower charge for tax oninterest.  Such savings were partiallyoffset by an increase in bank expenses, a tax on debits and credits to bankaccounts and a higher level of commissions.

* *

*OtherNon-Operating Income (Expenses), Net.*  Other non-operating expenses,net, were Ps. 356.2 million in the year ended December 31, 2001, compared toother non-operating expenses, net, of Ps. 34.3 million in the year endedDecember 31, 2000.  Other non-operatingexpenses, net, during the year ended December 31, 2001 consisted primarily ofan impairment charge on the value of goodwill of Ps.326.1 million based uponthe Company’s projections and severance payments made in connection with thereorganization of our personnel structure and reserves made on account ofcontingent liabilities.

* *

*Gains onSales of Investments.*  Gains on sales of Investments were Ps. 322.5in the year ended December 31, 2001 as a result of a net gain from the sale ofthe Company’s interest in DirecTV Latin America LLC.

* *

*IncomeTaxes and/or Tax on Minimum Notional Income.* Income taxes were Ps. 11.3 million in the year ended December 31, 2001,compared to Ps. 21.7 million in the year ended December 31, 2000.  This decrease was principally due to theeffect of a lower minimum notional income tax charge as a result of the minimumnotional income tax allowance generated in year ended December 31, 2001 ascompared to the year ended December 31, 2000. In October 2001, the Company became a beneficiary of a special regimegranting it an exemption from the tax on minimum notional income for fiscalyear 2001 and future years.

* *

*NetLoss. *We had a net loss of Ps. 284.0 million in theyear ended December 31, 2001, as compared to a net loss of Ps. 319.5 million inthe year ended December 31, 2000.  The netgain resulting from the sale of the Company’s interest in DirecTV Latin AmericaLLC, described above, almost offset the net loss resulting from the impairmentcharge on the value of goodwill.

* *

*AdjustedEBITDA under Indentures. *Our Adjusted EBITDA under Indentures in theyear ended December 31, 2001 was Ps. 322.4 million.  This figure represents a decrease of 1.3% over our AdjustedEBITDA under Indentures of Ps. 326.6 million in the year ended December 31,2000.  Our Adjusted EBITDA underIndentures margin (Adjusted EBITDA under Indentures/net revenues) increasedslightly to 31.7% compared to 31.4%. See footnote 7 to the table in “Item 3—Selected Financial Data” for a reconciliation of Adjusted EBITDAunder Indentures to cash flows from operating activities.

 

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**Income Taxes**

 

In accordance with previousArgentine tax regulations, the income tax was applied at a statutory rate of33% on taxable income for each fiscal year. Effective December 31, 1998, the statutory corporate income tax rate inArgentina was increased by the tax reform enacted by the Argentine Congressfrom 33% to 35%, retroactive to January 1, 1998.  See “Item 5. Operating and Financial Review and Prospects-Overview-TaxReform.”

 

Under Argentine law, eachcorporation within a group is independently liable for income taxes and,although the Company presented pre-tax accounting losses on a consolidatedbasis (net loss before income taxes) of Ps.933.5 million, Ps.272.7 million andPs.297.8 million for the years ended December 31, 2002, 2001, and 2000, some ofits subsidiaries generated taxable income and paid income taxes.  Under Argentine GAAP, income tax expense isgenerally recognized based upon the estimate of the current income tax liability.When income and expense recognition for financial statement purposes does notaccrue in the same period as income and expense recognition for tax purposes,the resulting temporary differences are not considered in the computation ofincome tax expense for the period. Similarly, under Argentine GAAP, no deferredtax assets are recorded to reflect net operating loss carryforwards. Tax losscarryforwards in Argentina may be used for five years. In our case, Ps.44.8million expire in 2003, Ps.53.1 in 2004, Ps.63.9 million in 2005, Ps.1.2million in 2006, and Ps.1,058.8 million in 2007.  See Note 18(a) to the Audited Financial Statements included inthis annual report.

 

In June 1998, the Argentinetax authorities notified VCC that it had failed to maintain adequate collateralwith respect to certain deferred tax obligations generated by its investmentsin Sierras de Mazán S.A. under an industrial promotion regime.  In consequence, the tax authorities demandedpayment of approximately Ps.6.9 million and fines and interest accruedthereon.  The Company and Cablevisióncaused VCC to institute administrative proceedings to challenge suchdecision.  On April 8, 1999, the *Administración Federal de Ingresos Públicos*(“Federal Administration of Public Revenues”) reversed the decision previouslyrendered by the Argentine tax authorities confirming that the deferred taxobligations are properly collateralized.

 

**U.S. GAAP Reconciliation**

 

Net loss determined inaccordance with U.S. GAAP would have been Ps.(52.8) million, Ps.(1,544.9)million, and Ps.(385.4) million for the years ended December 31, 2002, 2001,and 2000 respectively, as compared with net loss of Ps.(938.5) million,Ps.(284.0) million, and Ps.(319.5) million determined under Argentine GAAP forthe same periods.  The principaldifferences affecting the determination of net loss are (i) organizational andpreoperating costs have been written off for U.S. GAAP purposes and,accordingly, the amortization charge is reversed, (ii) the effects ondepreciation and amortization of the different bases for determination of theunderlying net asset acquired and the goodwill on the combination of businesseswhich have been treated on the purchase method, (iii) vacation accrual, (iv)effect on the amortization of goodwill of the discounting of non-interestbearing acquisition related debt, (v) the recognition of deferred income taxeffects, (vi) the discounting of non-interest bearing acquisition-related debt,(vii) interest capitalization, (viii) foreign currency translation adjustment,(ix) the reversal of the provision for severance indemnities, (x) foreignexchange differences, (xi) transfer of financial assets, (xii) impairmentadjustment, and (xiii) the effects on deferred taxes, investments carried underthe equity method and minority interest of the above reconciling items.Shareholders’ (deficit) determined in accordance with U.S. GAAP would have beenPs.(636.2) million and Ps.(575.1) million as of December 31, 2002 and 2001,respectively. The principal differences affecting the determination ofshareholders’ equity are those described above. For a discussion of theprincipal differences between Argentine and U.S. GAAP as they relate to theCompany’s consolidated net loss and shareholders’ deficit, see Note 15 to theAudited Financial Statements and for a quantitative reconciliation of suchdifferences, see Note 16 to the Audited Financial Statements.

 

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**Liquidity and Capital Resources**

 

We operate in a capitalintensive industry which requires significant investments. In the past, ourgrowth strategy has involved the acquisition of other cable televisioncompanies and the active improvement and expansion of our existing and acquirednetworks and equipment. We have historically relied on four main sources offunds:

 

(1)          equity contributions from our shareholders,

 

(2)          borrowings under bank facilities or debt security issuances,

 

(3)          cash flow from operations; and

 

(4)          financing by sellers of cable systems we acquire.

 

The conditions affecting theArgentine economy since 1998 and the uncertainties as to future developmentshave prevented us from raising the funds required to discharge our debtobligations as they became due in 2002 and coming due in 2003.  As a result, we have defaulted on allpayments on our Existing Notes, and all principal payments and a substantialportion of our interest payments on our Bank Loans since February 2002.  As a result of these payment defaults, allof our Existing Notes that have not yet matured could be declared immediatelydue and payable by the holders. Furthermore, our decision to seek arestructuring of substantially all our financial debt may be considered to giverise to an automatic acceleration under our existing Indentures.  Since February 2002, we have devoted ourcash flow from operations primarily to ensure the continuation of ouroperations.  We have been informed thatas of the date of this Form 20-F, at least 34 involuntary bankruptcy (*quiebra*) petitions have been filed againstus, although as of such date we have been served with process on 32petitions.  The final outcome of thesepetitions, together with the economic conditions in Argentina and their impacton our financial condition, and the possibility that the APE Solicitation willbe unsuccessful, may cause us to commence a voluntary bankruptcy (*concurso*) proceeding.  The filing of a *concurso* proceeding may result in a partial or total loss ofan investment in our Existing Debt.

 

From our formation throughDecember 31, 2002, we received US$875.1 million in equity contributions. ** **DuringOctober 1997, we received a US$500 million contribution as an advance on futureshare issues from a company controlled by the Grupo Clarín shareholders. TheUS$500 million contribution was applied to the payment of the purchase pricefor interests in various cable companies, including the 50% interest in the VCCGroup, the Bahía Blanca Systems and the Santa Fe Systems. This capitalcontribution from the Grupo Clarín shareholders was capitalized on April 7, 1998.

 

Fintelco S.A. and itswholly-owned subsidiaries continue to be jointly owned by us and Cablevisiónand will continue operations with their remaining assets, of Ps.0.5****million and liabilities, of Ps.44.7million, at November 30, 2002, until the residual liabilities have been paidoff.  We and Cablevisión have agreed tomake capital contributions in Fintelco S.A., in proportion to our equityinterests in that company, to enable VCC to discharge its remainingliabilities. Fintelco S.A. had a negative shareholders’ equity as of November30, 2002.  Under the Corporations Law,this could result in its dissolution, unless its capital is restored to thelevel required by Law No. 19.550.  TheCompany and Cablevisión S.A. each hold 50% of the equity of Fintelco S.A. and,in that proportion, the Company has undertaken to make the contributionsrequired to pay the liabilities of Fintelco S.A. and its subsidiaries when due.

 

Net cash (used in) providedby financing activities (excluding shareholders’ contributions) amounted toPs.(255.7) million for the year ended December 31, 2002, Ps.(205.4) million forthe year ended December 31, 2001, and Ps.(37.8) million for the year endedDecember 31, 2000. Cash provided by financing activities were proceeds from theissuance of our negotiable obligations, bank debt and seller financing, asdescribed below.

 

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At December 31, 2002, ourconsolidated indebtedness was Ps.2,033.2 million (US$583.7 million and Ps.66.0million). This indebtedness was comprised of:

 

•                  US$37.6 million to holders of our 101⁄2% SeriesC Notes due 2018,

 

•                  US$195.5 million to holders of our 91⁄4% Notesdue 2002 and 101⁄2% Notes due 2007,

 

•                  US$130.8 million to holders of our 13.125%Series E Notes due 2009,

 

•                  US$144.0 million to holders of our Series JFloating Rate Notes due 2003,

 

•                  US$72.3 million of accrued interest on ournotes,

 

•                  Ps.66.0 million under short-term bank debt,including accrued interest, and

 

•                  US$3.6 million of seller financing.

 

During the last quarter of2001 and in January 2002, using the funds provided by the sale of itsparticipation in DirecTV Latin America, LLC in August 2001, the Companyrepurchased Notes issued by it for US$211,148,000, obtaining a discount withrespect to the face value of the Company’s debt amounting to US$130,995,548.

 

On February 1, 2002, theCompany defaulted on the payment of principal and interest on its 91⁄4% Notes due2002 and interest payments on its 101⁄2% Notes due 2007 due to the situation ofthe Argentine economy and the political and social crisis that resulted fromthe economic, exchange, and regulatory measures.  For the same reasons, on February 26, 2002, the Company defaultedon interest payments on its Series J Floating Rate Notes due 2003, and on April15, 2002, defaulted on interest payments on its Series C 101⁄2% Notes due 2018and its Series E 13.125% Notes due 2009. See “Item 3. Key Information—Risk Factors—Risks Relating toMulticanal—Recent losses and default.”

 

As a result of these paymentdefaults, cross-default and cross acceleration provisions of the Company’sagreements with certain creditors permit these creditors to declare theindebtedness in default and accelerate the maturity thereof.  We have submitted a restructuring proposalto our creditors under the Bankruptcy Law that to date has not garnished thesupport required to request court approval. See “Item 3. Key Information—Risk Factors—Risks Relating toMulticanal—Recent losses and default” and “Item 13—Defaults, Dividend Arrearagesand Delinquencies”.

 

In addition, the significantdevaluation of the Argentine currency since January 6, 2002 has had a materialadverse impact on the Company’s financial position due to the exposure of theCompany’s debt, most of which is denominated in dollars.

 

On April 28, 1998, wereceived approximately US$144.3 million of net proceeds, after deduction ofunderwriting fees and related expenses, from the issue of our US$150 million101⁄2% Series C Notes due 2018, pursuant to the Indenture dated January 7, 1998as supplemented and amended by a Third Supplemental Indenture dated April 28,1998.  We used the net proceeds of theSeries C Notes to refinance debt incurred in connection with the purchase ofcable television systems, other short term bank debt and other indebtedness andrelated costs and expenses.  The SeriesC Notes contain customary affirmative and negative covenants.

 

On April 15, 1999, wereceived approximately US$170.5 million of net proceeds from the sale of ourUS$175 million Series E Notes due 2009 pursuant to the Indenture dated February11, 1999 as supplemented and amended by a Second Supplemental Indenture datedApril 15, 1999.  We used the netproceeds of the Series E Notes to refinance indebtedness.  The Series E Notes contain customaryaffirmative and negative 

 

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covenants.  The holders of the Series E Notes also havethe option to require us to repurchase all or a part of the Series E Notes onApril 15, 2004.  We cannot assure youthat we will have sufficient funds to repurchase the Series E Notes if theholders exercise this option.

 

On August 24, 2001, theCompany issued the Series J Floating Rate Notes due 2003, which were exchangedfor the Series G and Series I Notes (the maturity of which was extended untilAugust 30, 2001 with the unanimous consent of their holders in connection withthe issuance of the Series J Notes). Pursuant to the terms and conditionsagreed upon, the Company paid US$20,000,000 in cash to the Series G and SeriesI holders to satisfy all of the Company’s obligations corresponding to suchNotes.

 

On August 24, 2001, wereceived approximately US$139.4 million of net proceeds from the issuance ofour US$144 million Series J Floating Rate Notes due 2003 pursuant to anIndenture dated February 11, 1999 as supplemented and amended by a FifthSupplemental Indenture dated February 18, 2000 and by an Eighth SupplementalIndenture dated August 24, 2001.  Weused the net proceeds of the Series J Notes, plus US$24.6 million generated bythe Company in the ordinary course of business, to repay in full our issuanceof US$150 million Series G Floating Rate Notes Due 2001 and US$14.0 millionSeries I Notes due 2001.

 

Pursuant to the terms of theSeries J Floating Rate Notes, the Company must comply with certain covenants,including, without limitation, obligations that restrict: (i) indebtedness;(ii) dividend payments or the making of certain restricted payments; (iii) thegranting of certain pledges; and (iv) the sale of certain assets of the Companyand certain of its subsidiaries.  Inaddition, the Company agreed that its net debt (bank and financial debts plusacquisition-related debt less cash and cash equivalents) would not exceedU.S$700,000,000, that it will not invest in fixed or capital assets in excessof US$40,000,000 during any 12-month period and that the balances resultingfrom the sale of its investment in DirecTV Latin America, LLC to Raven MediaInvestment, LLC would be applied to discharge financial debt.

 

We generated cash flows fromoperating activities of Ps.187.4 million for the year ended December 31, 2002,Ps.43.5 million for the year ended December 31, 2001, and Ps.50.3 million forthe year ended December 31, 2000.  Theincrease in cash flows from operating activities in the year ended December 31,2002 was mainly due to the decision of the Company to default on its existingfinancial obligations and defer payments of interest.  We used cash in acquisitions of cable systems and increase ingoodwill and intangible assets of Ps.1.1 million for the year ended December31, 2002, and we generated cash in sales of investments, net of cash used inacquisitions of cable systems, of Ps.(313.2) million for the year endedDecember 31, 2001, and used cash in acquisitions of cable systems and increasein goodwill and intangible assets of Ps.(7.4) million for the year endedDecember 31, 2000.

 

Purchase of property andequipment (net of proceeds from sales) of Ps.11.2  million for the year ended December 31, 2002, Ps.46.2 million foryear ended December 31, 2001, and Ps.85.4 million for the year ended December31, 2000, have been related to the continued construction, expansion andupgrading of our existing systems.  Fromour formation through December 31, 2002, we have increased our subscriber basethrough internal growth, by expanding our existing systems and increasingpenetration of these systems. We have only minimal commitments to capitalexpenditures required by the terms of our operating licenses. We are requiredto bring our cable systems fully into compliance with municipal regulationsrelating to the installation of cables in several areas of the City of BuenosAires Region by late 2002, and were required to do so in the City of Mar delPlata by November 2001.  The Company isnot in compliance with the City of Mar del Plata regulations as of the date ofthis Form 20-F.  We have filed with boththe City of Buenos Aires and the City of Mar del Plata a request for anextension of the terms granted. However, we cannot assure you that the terms granted will be extended toallow us to bring our cable systems into compliance.  If we have sufficient cash flow and financing is available atcommercially attractive rates, we will upgrade our existing cable systems, includingany network upgrades or modifications required by regulatory or localauthorities.

 

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We have often financedacquisitions of cable systems directly with the sellers of the acquiredcompanies.  As of December 31, 2002, weowed an aggregate amount of US$3.6 million in connection with these sellerfinancings. All outstanding seller financing obligations which originallymatured not later than June 30, 2002 have been renegotiated and will be paid in24 monthly installments, which payments commenced in July 2002.  As per an addendum dated November 2002, wehave partially renegotiated the financial obligations due in October 2002through March 2003.  On June 23, 2003 werenegotiated the financing obligations due on April through December 2003.  These financing obligations will be paid asfollows: U.S. $90,000 were paid on June 23, 2003, the sum of U.S. $180,000 insix monthly installments of U.S. $30,000 each from July 15, 2003 throughDecember 15, 2003.  The balance of U.S.$1,352,250 will be payable on August 15, 2004 and the installment due in July2004 of U.S. $417,889 will be payable on July 15, 2004.  See “Item 4.  Information on the Company-Business Overview—Acquisitions ofCable Networks—Foreign Operations.”

 

In the year ended December31, 2002, the Company recognized a net loss of Ps. 938.5 million and ashortfall in consolidated working capital amounting to Ps. 1,994.0million.  Continuing adverse marketconditions and their negative effect on the Company’s cash flows, coupled withlimited liquidity, are likely to limit the Company’s ability to meet itsobligations.  All of these matters raisesubstantial doubt about the Company’s ability to continue as a going concern.

 

In addition, as a result ofthe recording of the negative shareholders’ equity mentioned above the Companyfalls under the provisions of paragraph 5 of section 94 of the CorporationsLaw, which establishes the dissolution of corporations.  Those regulations were suspended untilDecember 10, 2003 by Decree No. 1269/02 issued by the National Government.

 

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**Item 6.****          ****Directors, Senior Managementand Employees**

 

**Directorsand Senior Management**

 

We are managed by our *Directorio,* or Board of Directors.  In accordance with our charter, theshareholders elect each director for a term of one year.  As of the date of this Form 20-F, thecurrent term expired on December 31, 2002, but the directors continue to serveuntil the next shareholders meeting designates new directors.  The shareholders also elect alternatedirectors for one-year terms who replace principal directors duringabsences.  Executive officers serve atthe discretion of the board of directors. We also have a *Comisión Fiscalizadora*,or Supervisory Board, which is in charge of the supervision of our legalmatters.  The Supervisory Board consistsof three members, *síndicos* orsyndics, and three alternate syndics appointed annually by the shareholders.

 

Listed below is selectedinformation concerning our directors and executive officers:

 

| **Name**                         |   | **Position**                                                 |   | **Age** |   |
|----------------------------------|--------|--------------------------------------------------------------|--------|---------|--------|
|                             |   |                                                         |   |    |   |
| Saturnino  L. Herrero Mitjans    |   | President of the Board                                       |   | 70      |   |
| Alejandro  Alberto Urricelqui    |   | Director of Multicanal and  Alternate President of the Board |   | 43      |   |
| Vicente  Gabriel Di Loreto       |   | Director of Multicanal                                       |   | 37      |   |
| Ignacio  Jorge Rosner            |   | Director of Multicanal                                       |   | 45      |   |
| Jorge  Carlos Rendo              |   | Director of Multicanal                                       |   | 50      |   |
| Ignacio  Rolando Driollet        |   | Director of Multicanal                                       |   | 41      |   |
| Horacio  Eduardo Quirós     |   | Director of Multicanal                                       |   | 54      |   |
| Carlos  Alberto Moltini          |   | Chief Executive Officer                                      |   | 42      |   |
| Adrián  Jorge Mészaros |   | Chief Financial and  Administrative Officer                  |   | 37      |   |
| Antonio  José Alvarez       |   | Programming Manager                                          |   | 39      |   |

 

Listed below is selectedinformation concerning the members of our Supervisory Board:

 

| **Name**                        |   | **Position**                        |   | **Age** |   |
|---------------------------------|--------|-------------------------------------|--------|---------|--------|
|                            |   |                                |   |    |   |
| Carlos A.P. di Candia           |   | President of the  Supervisory Board |   | 54      |   |
| Raúl Antonio Morán    |   | Syndic                              |   | 57      |   |
| Hugo Ernesto López         |   | Syndic                              |   | 46      |   |
| Eduardo Germán Padilla Fox |   | Alternate Syndic                    |   | 62      |   |
| Juan María de la Vega      |   | Alternate Syndic                    |   | 40      |   |
| Horacio Marcelo Silva           |   | Alternate Syndic                    |   | 37      |   |

 

**Biographical Information**

 

*SaturninoL. Herrero Mitjans*hasbeen the President of our board of directors since 2000.  Mr. Herrero is the President of severalArgentine companies including AGEA, Radio Mitre S.A. (Mitre), Primera RedInteractiva de Medios Argentinos (Prima) S.A., and Editorial La Razón S.A. (LaRazón), among others.  Mr. Herrero holdsa degree in Business Administration from the Universidad Argentina de laEmpresa.

* *

*AlejandroAlberto Urricelqui*hasbeen a member of the board of directors as both an alternate director sinceFebruary 1996 and a director since September 1997.  He joined Grupo Clarín in 1990, and held the position of CFO ofGrupo Clarín until 1994.  From 1994 todate, he has been Corporate Chief

 

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Financial Officer of GrupoClarín.  Before joining Grupo Clarín,Mr. Urricelqui was Chief Financial Officer of Grupo Juncal.

* *

*VicenteGabriel di Loreto* hasbeen a member of the board of directors since 2000.  Mr. Di Loreto also serves on the boards of several Argentinecompanies including various subsidiaries of Grupo Clarín, such as La Razón,Arte Radiotelevisivo Argentino S.A. (Artear), Teledifusora Bahiense S.A.,Mitre, Pem S.A., Prima, Clarín Global S.A., GC Gestión Compartida S.A., UnirS.A., and Diario Los Andes Calle S.A.. He has been with Grupo Clarín since 1998.  Mr. Di Loreto has held positions at Molinos Rio de la Plata,Bunge y Born, Pepsi Co. and Arthur Andersen. Mr. Di Loreto graduated as a Certified Public Accountant from theUniversidad de Buenos Aires and later obtained a Master Degree in BusinessAdministration from I.A.E. Management and Business School.

* *

*IgnacioJorge Rosner*wasappointed director in September 1997. He joined Grupo Clarín in August 1997 and is currently the Director ofNew Business in Grupo Clarín.

* *

*JorgeCarlos Rendo* has beena member of the board of directors since 2001. He joined Grupo Clarín in 1998, and is currently the Director ofExternal Relations of Grupo Clarín.  Hegraduated with a law degree from Universidad de Buenos Aires and later obtaineda Master’s degree from the Wharton School of the University of Pennsylvania.  Mr. Rendo also serves on the boards ofseveral Argentine companies, including: Papel Prensa y de Mandatos S.A.C.I.F., Prima, Clarín Global S.A.,Artear, Artes Gráficas Rioplatense S.A. and Mitre.

* *

*IgnacioRolando Driollet*hasbeen a member of the board of directors since 2002.  He joined Grupo Clarín in 1992, and served until 1994 as Deputyof Institutional Relations.  UntilDecember 1997, Mr. Driollet led Grupo Clarín’s New Development Projects Groupand during 1997, also served as Manager of Strategic Analysis.  From 1998 to date, he has been the Directorof Corporate Strategy.  Mr. Driolletgraduated with a law degree from Universidad Católica Argentina.

* *

*HoracioEduardo Quirós*hasbeen a member of the board of directors since 2002.  Since 1997, Mr. Quirós has served as Director of Corporate HumanResources at Grupo Clarín.  Previouslyhe has worked in the human resources area at various businesses in theautomotive, industrial agriculture, and communications media sectors.  He has also served as President to theAMCham Commission on Industrial Relations and is currently President of theArgentina Association of Human Resources (ADRHA) and regional Vice President ofthe Inter-American Federation of Professional Associations for HumanResources.  Mr. Quirós graduated fromthe *Universidad Argentina de la Empresa*in 1992 with a degree in Industrial Relations.

* *

*CarlosAlberto Moltini*wasappointed our Chief Executive Officer in October 2001 after one year as ViceChief Executive Officer.  Mr. Moltinijoined us after seven years as the Chief Financial Officer of Artear, a leadingbroadcasting channel in the City of Buenos Aires, owned by Group Clarín since1990.  Previously Mr. Moltini worked atBagley and other companies in the broadcasting sector.

* *

*AdriánJorge Mészaros* joinedus as Chief Financial Officer in 1994. Previously, he was senior business officer in the media andcommunications division of corporate banking for BankBoston in BuenosAires.  Before his career withBankBoston, Mr. Mészaros worked as head of financial operations at IMAR S.A., ametallurgy products company.

* *

*AntonioJosé Alvarez* joinedus in 1992 and was appointed programming manager in 1999.  Prior to joining us, he worked asrelationship manager at Banco Río, from 1989 to 1992, and head of investmentsat Financiera Bullrich, from 1986 to 1989.

* *

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*Duties andLiabilities of Directors*

 

Under Argentine law,directors have the obligation to perform their duties with the loyalty and thediligence of a prudent business person. Directors are jointly and severally liable to us, the shareholders andthird parties for the improper performance of their duties, for violating thelaw, our Bylaws or regulations, if any, and for any damage caused by fraud,abuse of authority or gross negligence. Under Argentine law, specific duties may be assigned to a director byour Bylaws or by a resolution of a shareholders’ or board meeting.  In such cases, a director’s liability willbe determined with reference to the performance of such duties, provided thatcertain recording requirements are met. Under Argentine law, directors are prohibited from engaging inactivities that are against the interest of the company on whose board theyserve.  Certain transactions betweendirectors and us are subject to ratification procedures established byArgentine law; these procedures do not apply in connection with transactionsbetween affiliates of directors and us or between shareholders and us.  A director must inform the Board of anyconflicting interest he may have in a proposed transaction and must abstainfrom voting thereon.

 

In general, a director willnot be liable if, notwithstanding his presence at the meeting at which aresolution was adopted or his knowledge of such resolution, a written recordexists of his objection thereto and he reports his objection to the SupervisoryBoard before any complaint against him is brought to the Board, the SupervisoryCommittee, a shareholders’ meeting, the competent governmental agency or thecourts.  Except in the event of ourmandatory liquidation or bankruptcy, shareholder approval of a director’sperformance terminates any liability of a director *vis-à-vis* us, *provided*that shareholders representing at least 5% of our capital stock do not objectand provided further that such liability does not result from a violation ofthe law or the Bylaws.

 

Causes of action againstdirectors may be initiated by us upon a majority vote of shareholders.  If a cause of action has not been initiatedwithin three months of a shareholders’ resolution approving its initiation, anyshareholder may start the action on behalf and on our account.  A cause of action against the directors maybe also initiated by shareholders who object to the approval of the performanceof such directors if such shareholders represent, individually or in theaggregate, at least 5% of our capital stock.

 

**Compensation**

 

Each of the executiveofficers referred to above receives annual remuneration from us exceedingPs.80,000.  For the year ended December31, 2002, the aggregate compensation of all executive officers was Ps.0.7million.  There are no labor contractsbetween us and our directors or members of our Supervisory Board.  There are no contracts between us and ourdirectors, members of our Supervisory Board or executive officers in violationof Section 271 of the Argentine Corporation Law.

 

**Employees**

 

As of December 31, 2002, wehad approximately 2,654 employees. Approximately 72% of our employees are unionized and are represented bythe *Sindicato Argentino de la Televisión*.  A 1975 collective bargaining agreement withthe *Sindicato Argentino de la Televisión*governs relations with the television industry.  The bargaining agreement was amended on August 9, 2002, and theamended bargaining agreement now governs our labor relationships with ourunionized employees.  This latestamendment has not yet been confirmed by the Labor Ministry.  In addition to the 1975 bargainingagreement, our labor relations with employees are also subject to variousagreements with the *Sociedad*

 

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*Argentinade Locutores* based onthe particular duties of the employee. We believe that our relations with our employees are good.

 

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**Item 7.****          ****Major Shareholders andRelated Party Transactions**

 

**MajorShareholders**

 

We currently have twoclasses of shares of common stock issued and outstanding:

 

•                  Class A Shares, which are entitled to fivevotes and have a par value of Ps.1 per share, and

 

•                  Class B Shares which are entitled to one voteand have a par value of Ps.1 per share.

 

The following table setsforth the ownership of our share capital as of the date of this Form 20-F.

 
| **Title of Class** |   | **Identity  of Owner** |   | **Amount  Owned** |   | **% of  Class** |   |
|--------------------|--------|------------------------|--------|-------------------|--------|-----------------|--------|
| Class A Shares     |   | Grupo Clarín S.A. |   | 80,679,409        | (5)    | 40.27           | %      |
| Class A Shares     |   | Multicanal Holding LLC |   | 119,655,068       | (1)    | 59.72           | %      |
| Class B Shares     |   | Grupo Clarín S.A. |   | 138,577,088       | (2)(4) | 83.24           | %      |
| Class B Shares     |   | Multicanal Holding LLC |   | 27,909,472        | (3)    | 16.76           | %      |

 

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(1)                                  Includes 40,094,948 shares that were pledgedby the Grupo Clarín shareholders in favor of T.I. Telefónica Internacional deEspaña S.A. as collateral for their payment obligations under the assignmentagreement dated April 8, 1998.  OnNovember 10, 2000 TI Telefónica Internacional de España S.A. informed us thatit assigned its rights in the pledged shares to Telefónica Media S.A.

(2)                                  Includes 116,619,894 Class B shares owned byArte Gráfico Editorial Argentino S.A. (AGEA) as a result of our April 7, 1998capital increase.  AGEA is an Argentine *sociedad anónima*wholly-owned by GrupoClarín, S.A. and the Grupo Clarín shareholders.

(3)                                  Includes 22,238,385 shares that were pledgedby the Grupo Clarín shareholders in favor of T.I. Telefónica Internacional deEspaña S.A. as collateral for their payment obligations under the assignmentagreement dated April 8, 1998.  OnNovember 21, 2000 T.I. Telefónica Internacional de España S.A. notified us ofthe assignment to Telefónica Media S.A. of their right to payment on thepledged shares.  It is expected that allshares of Multicanal held by Multicanal Holding LLC will be contributed toGrupo Clarín S.A., effective as of December 27, 2002.

(4)                                  On March 30, 2001, our Board of Directorsauthorized the granting and registering of a pledge on 4,791,503 Class B sharesowned by Grupo Clarín S.A., as collateral for Video Cable Comunicación S.A.’sdeferred taxes in the amount of Ps.2,982,126 and Ps.3,055,166 corresponding toinvestments made in Sierras de Mazán S.A. In addition, in line with the *AdministraciónFederal de Ingresos Públicos* (Tax Authority, or the “AFIP”) GeneralResolution No. 846, we pledged 4,791,503 Class B shares as collateral withBankBoston N.A. in favor of the AFIP. On January 24, 2002, our Board of Directors authorized the creation andregistration of a security interest on (i) 367,954 ordinary book entry Class Bshares held by Grupo Clarín S.A. to secure tax deferrals in the amount ofPs.463,620 by Video Cable Comunicación S.A. in Sierras de Mazán S.A.; (ii)2,146,107 ordinary book entry Class B shares held by Grupo Clarín S.A. tosecure tax deferrals in the amount of Ps.2,704,095 by Enequis S.A. in Sierrasde Mazán S.A.; and (iii) 1,299,489 ordinary book entry Class B shares held byGrupo Clarín S.A. to secure Ps.1,637,355 (the total amount of the debt deferredby Cable Video Sociedad Anónima in Valle del Tulum).  The shares listed in (i), (ii), and (iii) above were pledged ascollateral in favor of the AFIP through BankBoston N.A.

(5)                                  Includes 867,810 shares that have not beenissued due to pending approval of our merger with, among others, PlataformaDigital S.A.

 

**Overview ofGrupo Clarín**

 

We were acquired by theGrupo Clarín shareholders (Mrs. Ernestina L.H. de Noble, Mr. Héctor HoracioMagnetto, Mr. José Antonio Aranda and Mr. Lucio Rafael Pagliaro) in October1992.  Grupo Clarín is Argentina’sleading media group and produces programming content, including sports,entertainment and news.

 

In the second half of 1999,the Grupo Clarín shareholders effected a roll up transaction pursuant to whichthey contributed their shares of Multicanal to Grupo Clarín S.A., an Argentineholding company, and Multicanal Holding L.L.C., a Delaware limited liabilitycompany.  In December 1999, the GrupoClarín shareholders sold a minority interest in each of Grupo Clarín S.A. andMulticanal Holding L.L.C. to affiliates of The Goldman Sachs Group, Inc. andother investors.  As a result of theseand other related transactions, the Grupo Clarín shareholders, through GrupoClarín S.A. and Multicanal Holding L.L.C., currently beneficially own 82% ofour capital stock.  In connection withand as a condition to the sale of the minority interest in each of Grupo ClarínS.A. and Multicanal Holding L.L.C., our corporate charter was amended torequire among other things, that a number of corporate actions (including theincurrence of net

 

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debt in excess of U.S.$899million) be approved by a shareholders’ resolution.  The approval of a shareholders’ resolution on these mattersrequires, in turn, the approval by the board of directors of Grupo Clarín S.A.,where directors appointed by The Goldman Sachs Group, Inc. hold certain vetorights.  This amendment was approved bythe IGJ on March 23, 2000.

 

The Grupo Clarín shareholdersalso own:

 

•                  *Diario Clarín*, the Spanish language newspaper with thelargest circulation in the world,

 

•                  television and radio broadcast groups inArgentina,

 

•                  printing and newsprint production plants,

 

•                  Prima, an Internet service provider, and

 

•                  Clarín Digital, an integrated Internetbusiness that provides an Internet portal for multimedia service providers,Internet content, e-commerce, a search engine (Clarín Buscador), and otherInternet-related activities.

 

**RelatedParty Transactions**

 

In the ordinary course ofbusiness, we purchase programming from Grupo Clarín at market prices.  The amounts invoiced by Grupo Clarín to usfor programming were approximately Ps.69.9 million for the year ended December31, 2002, Ps.110.4 million for the year ended December 31, 2001 and Ps.104.3million for the year ended December 31, 2000. In addition, also in the ordinary course of business, we placeadvertising in media owned by Grupo Clarín, such as newspapers, and televisionand radio stations, at market prices. Grupo Clarín also purchases advertising time from us, and we and GrupoClarín occasionally exchange advertising space and air time with eachother.  In the year ended December 31,2002, the aggregate amount invoiced by us to Grupo Clarín for advertising wasapproximately Ps.2.3 million.  Thisamount was approximately Ps.5.5 million for the year ended December 31, 2001and Ps. 0.2 million for the year ended December 31, 2000.  The aggregate amounts invoiced by GrupoClarín to us for advertising were approximately Ps.3.3 million for the yearended December 31, 2002, Ps.1.3 million for the year ended December 31, 2001and Ps. 2.6 million for the year ended December 31, 2000.  Our monthly subscriber magazine is alsopublished by Grupo Clarín.  The amountsinvoiced by Grupo Clarín to us were approximately Ps. 12.3 million for the yearended December 31, 2002, Ps.15.7 million for the year ended December 31, 2001and Ps.19.5 million for the year ended December 2000.  In the year ended December 31, 2002, the aggregate amountsinvoiced by us to such related parties for new business were approximatelyPs.0.8 million and Ps.1.7 million for the year ended December 31, 2001.  Related parties balances at December 31,2002 and 2001 were as follows:  accountsreceivable of Ps.4.8 million and accounts payable of Ps.18.5 million atDecember 31, 2002 and accounts receivable of Ps.12.7 million and accountspayable of Ps.47.8 million at December 31, 2001.

 

In addition, in 2001, webought property owned by Grupo Clarín for a total of Ps.1.1 million.

 

Additionally, we transferredall of our interests in DirecTV Latin America, LLC and certain contractualrights related thereto to Raven Media Investments, LLC, a company organizedunder the laws of the state of Delaware and wholly-owned by Grupo Clarín S.A.,for US$ 150,000,000, recording a gain of Ps.322,375,462.

 

At December 31, 2001, we hada balance of Ps.3.4 million payable on a loan from Grupo Clarín S.A., which hasgenerated an interest charge of Ps. 0.2 million.

 

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During the year endedDecember 31, 2002, Grupo Clarín invoiced to us the aggregate amount of Ps.5.4million for fees for financial and administrative services, human resources,information technology and purchasing logistical services.

 

**Item 8.****                                  ****Financial Information**

 

See “Item 18.  Financial Statements” beginning on page F-1.

 

**Item 9.****                                  ****The Offer and Listing**

 

**Nature ofTrading Market**

 

Trading in the Notes takesplace primarily in the over-the-counter-market.  Accordingly, Multicanal has been unable to obtain reliableinformation on such trading.

 

**Item 10.****                           ****Additional Information**

 

**Bylaws**

 

Set forth below is a briefsummary of certain significant provisions of our bylaws and Argentine law.  This description does not purport to becomplete and is qualified by reference to our bylaws, which have been filed asan exhibit to this annual report.  For adescription of the provisions of our bylaws relating to our board of directorssee Item 6.

 

*Organizationand Register*

 

Multicanal is a *sociedad*anónima organized inArgentina.  It was registered in thePublic Registry of Commerce of Buenos Aires on July 26, 1991 under the number5225 of Book 109, Volume A of Corporations.

 

*Shareholders’Meetings*

 

General shareholders’meetings may be ordinary meetings or extraordinary meetings.  Extraordinary general meetings are thosecalled to consider matters which should not be considered by the ordinarymeetings as specified in the Corporations Law Number 19.550, includingamendment of the bylaws, liquidation, merger and transformation from one typeof company to another, as well as to consider the removal of our shares fromany local stock exchange or any foreign stock exchange.  General meetings to consider all othermatters are ordinary meetings.

 

The quorum for an ordinarygeneral meeting is 50% of the shares entitled to vote, and decisions may beadopted by an absolute majority of the votes present.  If a quorum is not available, a second meeting may be called atwhich decisions may be adopted by a majority of the votes present, regardlessof the number of such votes present. The quorum for extraordinary meetings is 60% of the shares entitled tovote.  If a quorum is not available, asecond meeting may be called and decisions may be adopted, based on a majorityof the votes present.

 

*CorporatePurpose*

 

Our corporate purpose is theinstallation and exploitation of broadcasting services pursuant to Argentinelaw, via closed television circuits; community antennas; cable systems; UHF,VHF and MMDS air systems; satellite transmission and reception and private andpublic advertising in all their modalities.

 

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*CapitalStock*

 

Our capital stock isPs.366,821,037.  Our capital stock maybe increased by a resolution of an extraordinary meeting.  The issuance of ordinary shares to beoffered for subscription may be resolved by an ordinary meeting.  If our shares join the public offeringregime, the meeting may delegate to our board of directors the power toestablish the date and means of placement, as well as the issue price, subjectto the guidelines established at the ordinary meeting.  Subject to the same conditions, preferredshares may be issued, the rights and characteristics of which are determined atan ordinary meeting.  Preferred sharesmay have voting rights.

 

*PreemptiveRights*

 

In the event of a capitalincrease, a holder of existing shares of a given series has a preferentialright to subscribe for a sufficient number of shares of the same series tomaintain the holder’s existing proportionate holdings of shares of thatseries.  Preemptive rights must beexercised within the term fixed by the ordinary meeting of our board ofdirectors following the publication of notice in a newspaper of generalcirculation in Argentina.  UnderArgentine law, preemptive rights may be assigned and are instrumental uponrequest of the holder against presentation of slips “to bearer” issued by us atno cost to the shareholder.

 

**Enforceabilityof Civil Liabilities**

 

Multicanal is organizedunder the laws of Argentina and our directors, officers and controlling personsreside outside the United States.  As aresult, it may be difficult for investors to effect service of process withinthe United States on such persons.  Itmay be difficult to enforce against them, either inside or outside the UnitedStates, judgments obtained against them in U.S. courts, or to enforce in theU.S. court judgments obtained against them in courts in jurisdictions outsidethe United States, in any action based on civil liabilities under the U.S.federal securities laws.  There is doubtas to the enforceability against such persons in Argentina, whether in originalactions or in actions to enforce judgment of U.S. courts, of liabilities basedsolely on the U.S. federal securities laws.

 

**LegalProceedings**

 

*AntitrustLitigation*

 

We are a party to thefollowing administrative proceedings initiated against us under the ArgentineAntitrust Law:

 

•                  On August 24, 1998, the Interior Trade and ConsumerDefense Bureau of the Province of Entre Ríos filed a complaint with the *Comisión Nacional de Defensa de la Competencia*(theNational Commission for the Defense of Competition, or “CNDC”) alleging division of areas between Multicanal and its competitors.  On May 4, 1999, the Company requested thatthe claim be rejected pursuant to section 20 of the Competition Defenselaw.  We cannot provide assurance thatthe final ruling will be in our favor.

 

•                  In September 1998, the Santa Fe branch of *Asociación del Consumidor*,**Consumer Association, filed with the CNDCa complaint against us and Cablevisión for alleged anticompetitive practices inthe city of Santa Fe, in connection with the division of the subscribers,assets and liabilities of the VCC Group and the Santa Fe Systems. We filed ananswer to the complaint requesting that the CNDC dismiss the action.  We cannot guarantee that the final decisionwill be favorable to us.

 

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•                  On January 13, 1999, the CNDC notified usthat a complaint had been filed by the Santa Fe commerce department, allegingthat VCC had engaged in anticompetitive practices in the city of Rosario,Province of Santa Fe prior to our acquisition. Although we have responded tothe complaint, we cannot assure you that our arguments will prevail or that wewill not be fined.

 

•                  On February 18, 1999, the CNDC commenced aformal proceeding investigating an alleged price fixing agreement for soccer****programs from 1995 onwards involvingMulticanal, Cablevisión, VCC and other cable signal providers.  On August 30, 1999 the CNDC notified us andthe other cable companies and cable signal providers that it had completed itssummary investigation and granted us 30 days to submit either our reply to thefindings of the CNDC or our settlement offer. On October 12, 1999 the Company filed an answer to the complaint.  As of the date of this Form 20-F, althoughthe discovery period has ended no final ruling has yet been issued.  The Company can give no assurance that thefinal outcome will be favorable to it.

 

•                  On March 12, 1999, the owner of a cabletelevision company in the city of Roldán, Province of Santa Fe, filed acomplaint against us for alleged anticompetitive practices in this city.Although we filed an answer to the complaint with the CNDC, we cannot assureyou that the final decision will be favorable to us or that we will not befined.

 

•                  On November 29, 1999, the CNDC notified usthat a complaint had been filed against us and Cablevisión by Empresa SurcorT.V. S.A., a cable television operator in the city of Córdoba, for allegedconcerted actions to distribute the Córdoba market among ourselves.  In addition, the CNDC notified us on thesame date that Empresa Surcor T.V. S.A. also filed a complaint against us foralleged anticompetitive practices in the Córdoba market, includingdiscriminatory pricing and abuse of a dominant market position. We filed ananswer to the complaints on December 22, 1999 and the CNDC dismissed thecomplaints against us.

 

•                  In December 2001 a cable television operatorin Santa Fe and Corrientes, Gigacable S.A., filed a complaint against us foralleged division of markets with Cablevisión and for discriminatorypricing.  On December 6, 2001, we filedan answer to the complaint.  As of thedate of this Form 20-F, the CNDC is analyzing the answer filed byMulticanal.  We cannot provide assurancethat the dispute will be settled or that we will not be fined if no agreementis reached.

 

*ParaguayAcquisitions*

 

We are also involved in alawsuit filed by the seller of several cable television companies located inAsunción, the Greater Asunción area and several interior regions ofParaguay.  On December 12, 1997, wesigned two agreements granting us the option to acquire 100% of the subscribers,assets and liabilities of these cable television companies.  We paid an initial sum of US$0.3 million onJune 30, 1997 and exercised our options on October 24, 1997.  The closing was scheduled to occur November15, 1997, and was subject to the satisfaction of certain conditions by theseller, including the granting of several regulatory approvals by theParaguayan government, which did not occur. We subsequently agreed with the seller to reschedule the payments andpostpone the closing to April 30, 1998. On the date of this agreement we paid a first installment of US$2.0million, leaving a balance of US$16.7 million on the purchase price.  The seller delivered a promissory note forUS$2.3 million and pledged the shares of some of the Paraguayan companies inour favor as security if the seller failed to meet the closing conditions.  The closing was not completed because theseller failed to satisfy the closing conditions.  We demanded payment on the US$2.3 million promissory note, butthe seller initiated an action for damages and/or specific performance beforethe Paraguayan courts and obtained a preliminary injunction.  The seller filed a motion with the Argentinecourts seeking an order to compel Multicanal to furnish the seller a number ofdocuments and information in connection with the action before the Paraguayancourts.  We requested that theParaguayan court both lift the preliminary injunction and

 

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dismiss the action on thegrounds that the seller had not paid the required Paraguayan court tax withrespect to the Paraguayan action. Although the court did not dismiss the action, it did lift thepreliminary injunction restricting our ability to demand payment on the US$2.3million promissory note.  We cannotassure you that we will be able to collect on this promissory note.

 

On June 19, 2001 the sellercommunicated to the court the assignment of rights and lawsuits in favor ofLisker S.A., for which court fees were paid. When we were informed of this assignment, we filed an appeal challengingthe court’s decision pursuant to which Lisker S.A. was assigned seller’srights, on the grounds that the agreement had an intuitu personae nature, andthat the seller was restricted from assigning rights, according to theagreement.  Through a resolution datedAugust 17, 2001, the court approved the appeal and revoked the rights assignedto Lisker S.A.  That ruling was appealedby Lisker S.A., which filed an appeal of the dismissal.  This appeal was also dismissed.  Subsequently, Lisker S.A. filed an appealwith the Supreme Court of Justice of Paraguay claimingunconstitutionality.  This action ispending.  On September 17, 2001, werequested the lifting of the provisional remedy, which restrains us fromcollecting the promissory note for US$2,300,000 drawn in the name of theseller.  The court has not yet ruled onthe petition filed by us.  We have againrequested that the remedy be lifted.  Wecannot assure you that the appeal will be resolved in our favor.

 

*SupercanalProceedings*

 

We own, directly andindirectly, a minority equity interest in Supercanal Holding S.A., an Argentinecompany that operates cable systems in the city of Mendoza and the northwesternand southern regions of Argentina, which, together with its subsidiaries**,**we refer to as the Supercanal Group. OnMarch 26, 2000, the Supercanal Group initiated judicial proceedings forcomposition of creditors prior to an adjudication of bankruptcy.  These proceedings were commenced pursuant toa decision taken by the board of directors of Supercanal Holding S.A.  The decision of the board of directors wasratified at a shareholders’ meeting held on April 26, 2000.

 

The terms of our investmentin the Supercanal Group are governed by a shareholders’ agreement, assupplemented by a second shareholders’ agreement, that provides us a number ofminority rights regarding corporate governance matters.  We encountered significant obstacles inexercising the rights provided by the shareholders’ agreement. Consequently, wehave commenced several judicial actions against Supercanal Holding S.A. seekingto annul several shareholders’ resolutions adopted without our consent and toobtain a judicial declaration of dissolution and liquidation of SupercanalHolding S.A. and the removal and replacement of the entire board of directorsand the supervisory board with a court-appointed administrator.

 

On December 12, 2001, wewere notified of the filing of a claim by Supercanal Holding S.A. for damagescaused by the granting of a preliminary injunction requested by us.  We had sought the injunction in connectionwith our action to declare null and void resolutions adopted in theextraordinary shareholders’ meeting of Supercanal Holding S.A. on January 25,2000 that reduced the capital stock of and increased the capital of SupercanalHolding S.A.  The preliminary injunctionwas subsequently revoked.  It has beenclaimed that the suspension of the implementation of the shareholders’resolution of the meeting held on January 25, 2000 resulted in the cessation ofpayments to Supercanal Holding S.A.  Weanswered the complaint and rejected the liability attributed to it based on thefact that the cessation of payments had taken place before the date of themeeting that was suspended by the preliminary injunction, according todocumentation provided by the plaintiff itself.  Based on the record of the case, we consider that the filed claimshould be rejected in its entirety, and the legal costs should be borne by theplaintiff.  However, we cannot assureyou that the court will reject the claim or that it will be resolved in ourfavor.

 

On April 28, 2000, amediation hearing requested by Supercanal Holding S.A. was held in connectionwith a claim brought against us by Supercanal Holding S.A.  On May 10, 2000 the parties resolved to

 

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conclude the mediationprocedure.  Consequently, SupercanalHolding S.A. is entitled to file whatever action it considers necessary toprotect its interest.  We have not beennotified of any such action.  We cannotassure you that Supercanal Holding S.A. will not initiate such legal action.

 

We cannot guarantee that theoutcome of any of the judicial actions initiated by us or by the SupercanalGroup will be favorable to our interests, or that the Supercanal Group or itsshareholders will not bring any other judicial actions against us.

 

*RegulatoryProceedings*

 

*AdministrativeProceedings*.  From January 1, 2001 through June 17, 2003,Comfer has notified us that it commenced summary proceedings against us for 93violations of minority age protection and content regulations of Argentina’sBroadcasting Law.

 

Violations of minority ageprotection and content regulations constitute *faltasgraves* or severe violations under the Argentine BroadcastingLaw.  In particular, if we are penalizedin connection with 46 or more *faltas graves*or severe violations during any year, Comfer may, in its discretion, revoke ourbroadcasting licenses.  See “Item4.  Information on the Company—BusinessOverview-Regulatory Overview.”  A lossof our broadcasting licenses in a particular area would result in our beingunable to provide cable service in that area and force us to dispose of our cableassets in that area.  The Company’s opinionis that there are grounds in its favor to make Comfer review its position, butthe Company cannot provide any assurance that its appeal will be successful.

 

The Executive Branch has, byvarious decrees, granted us a compensation-based moratorium with respect to anymonetary penalties that may be imposed against us in summary proceedingscommenced by Comfer.  The amounts owedunder the moratorium may be offset against the broadcast value of anyadvertising of public interest campaigns by the Argentine government that ispurchased from us by Telam S.A., a state-owned news agency.  The moratorium also provides for anautomatic 85% reduction in the amount of any monetary fines that may beassessed against us.

 

Under Decree No. 762/01published on June 14, 2001, the Executive Branch approved a new installmentpayment plan for fines imposed for violations of current legal provisionsrelating to broadcasting, applicable to violations which occurred from December10, 1999 through December 31, 2000. Under the new installment plan, Comfer willforgive 70% of the aggregate amount of the fines and the remaining 30% can besettled as follows: (a) up to 66%, by ceding advertising space and (b) therest, which must be at least 34%, shall be paid in cash.  Comfer will approve a non-interest bearingpayment plan of up to 24 monthly installments, and each installment cannot beless than Ps.500 or greater than Ps.50,000. If the amount due cannot be paid in 24 months by means of installmentsunder the Ps.50,000 cap, the installment payment plan can be extended.  Furthermore, the new system extends thebenefits of the installment payment plan approved by Decree No. 1201 datedOctober 9, 1998 to cover infringements up to and including December 9, 2000.

 

On July 10, 2001 the Companyand certain merged subsidiaries (Circuito Cable Visión S.A., Difusora S.A. andTV Cable S.A.) and Chaco TV Cable S.R.L. filed a request for an extension ofthe installment payment plan under Decree No. 1201/198, which was approved byDecree No. 762/01.  On September 12,2001, the Company agreed to the installment payment plan instituted by DecreeNo. 762/01 to pay the fines imposed for violating legal provisions relating tobroadcasting violations that occurred from December 10, 1999 through December 31,2000. Comfer calculated the amount to be settled at Ps.20,646,293.  On October 1, 2001, Comfer and the Companysigned an “Installment Payment Agreement - Decree No. 762/01” under whichComfer forgave 70% of the fine amount and the balance in the amount ofPs.6,193,888, was to be paid as follows: Ps.4,087,966, by ceding advertising time and Ps.2,105,922 to be paid incash in forty-three non-interest bearing monthly and consecutive installmentsof Ps.48,975.

 

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On October 3, 2001, theMinistry of the Interior, Comfer and the Company signed an agreement underwhich they amended the terms of the cash payments owed by the Company to Comferunder the Installment Payment Agreement signed on October 1, 2001.  As a result of such amendment, the Companyagreed to pay to the Ministry of the Interior the cash amount previously owedto Comfer in the form of advertising time. Additionally, the Company agreed that the Ministry of the Interior canassign such advertising time to duly registered political parties.  After October 25, 2001 the Company filedadditional appeals against new rulings issued by the authorities which imposednew fines. As of the date of this Form 20F, the Company is in compliance withthe requirements pursuant to the Installment Payment Agreement signed onOctober 1, 2001.

 

We have filed an installmentplan pursuant to Decree No. 1201/98, as amended by Decree No. 644/99 and DecreeNo. 937/99, applicable to fines imposed against us in summary proceedingscommenced by Comfer for alleged violations of the Broadcasting Law whichoccurred before December 9, 1999. Under such an installment plan, Comfer willforgive 85% of the aggregate amount of the fines that may be assessed againstus, and will offer us the choice of either repaying the balance in cash orceding advertising time to Telam, a state-owned news agency, for publicinterest advertising campaigns. Comfer calculated the amount to be settled atPs.5.292.359.  We intend to cancel suchamount by ceding advertising time. However, because such amount was calculatedby Comfer based on the *Régimen de Gradaciónde Sanciones* (“Fine Grading System”) instituted by Decree No.626/CFR/98, Decree No. 772/CFR/98 and Decree No. 609/CFR /98, we have filed amotion requesting that Comfer recalculate the amount based on the new FineGrading System instituted by Decree No. 830/ CFR/2002, effective as of November21, 2002.  Our motion argues that thelatter Fine Grading System should apply, based upon the principle that the mostfavorable regime is to be applied.

 

On December 13, 2002 wefiled for a new installment plan instituted by Decree No. 2362/02, which plancovers fines imposed for alleged violations of the Broadcasting Law whichoccurred between January 1, 2001 and October 31, 2002.  Pursuant to this Decree, the Company mayelect either to pay the fines in cash, or to cede advertising time for publicinterest campaigns.  We have elected tocede advertising time.

 

*Demand forpayment from Vidycom S.A. *Comfer filed a claim whereby it demandedpayment from Vidycom S.A. (“Vidycom”), a company absorbed by Multicanal in1995, of all the differences in its favor as a result of its participation inthe tax exemption established by Resolution No. 393/93.  The tax authorities based their rejection ofthe aforementioned tax exemption on the following grounds: (a) Vidycom wasasked to make payment on several occasions, but did not comply with Comfer’srequirements, (b) no documentation supporting the investments committed by thecompany was provided and (c) no evidence was provided of the weather phenomenonas a result of which the previous shareholders had requested the tax exemption.The amount of the claim, which would be equivalent to 30% of the rate paid in1994, 20% of the rate paid in 1995 and 10% of the rate paid in 1996, plus thecorresponding interest, has not yet been determined.

 

We believe that there arequestions of fact and of law in our favor that would lead Comfer to reassessits position. Consequently, no amount has been recorded in the financialstatements at December 31, 2002. The grounds are as follows: (a) Comfer did nottake into account that the notices had to be served at our legal address, as wehad absorbed Vidycom, a circumstance of which Comfer was aware, (b) althoughthe administrative procedures had not been concluded, investments were made byus, and (c) we provided evidence of the contingency giving rise to the requestfor exemption.

 

*Claimsbased upon Comfer’s rejection of requests for tax exemptions *Comfer has issued resolutions notifying several companies absorbed byus, of the rejection of the request for exemption made under the terms ofResolution No. 393/93 and claiming payment of the unpaid amount pluscompensatory interest.  In some cases,the amount payable has not yet been determined. In certain cases where suchamount has been determined, we have filed an appeal. We, as in the case ofVidycom, believe that there are questions of fact and of law in favor of thosecompanies that would lead Comfer to reassess its position.

 

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*Claimsagainst Difusora S.A*.  On April 25, 2001 Comfer notified DifusoraS.A. (“Difusora”), a company absorbed by us, of the amount it must pay as aresult of its participation in the payment facilities regime. The amount isPs.107,106, which we have has elected to pay by ceding advertising time.

 

In addition, on February 8,2002, Comfer notified Difusora that the amount to be settled corresponding toan action brought due to infringements that allegedly occurred between May 1and December 9, 1999 is Ps.17,054. Difusora. presented an appeal challenging this assessment, but theappeal was rejected by Comfer.  Difusorahas agreed to pay this claim by ceding advertising time.

 

On December 17, 2002 Comfernotified Difusora that the amount to be settled under the installment planinstituted by Decree No. 762/01 is Ps.23,708. Comfer forgave 70% of such amount and the remaining 30% is to be cancelledby the Company as follows: (i) Ps.4,694 by ceding advertising time, and (ii)Ps.2,418 in cash payments. On April 15, 2003 Comfer approved Difusora’s filingand on May 29, 2003 Comfer and Difusora signed the “Installment PaymentAgreement Decree No. 762/01” formalizing the agreement.

 

*TaxMatters*

 

Pursuant to Resolution No.18/2001, AFIP set the amounts due for VAT on revenue derived from advertisingincluded in the Company’s monthly subscriber magazine for the fiscal periodfrom and including September 1996 through September 1998.  Resolution No. 18/2001 imposed thefollowing:

 

•                  Ps.1,861,705 on account of VAT on revenuederived from advertising,

 

•                  Ps.2,161,971 in interest, and

 

•                  a fine of Ps.1,489,364, an amount equivalentto 80% of the VAT on advertising revenue that AFIP claimed the Company owed.

 

The Company timely filed anappeal with the *Tribunal Fiscal*contesting the imposition of Resolution No. 18/2001, and requesting that theVAT, interest, and fine determined by the AFIP be declared null and void. Wecannot assure you that the Company’s appeal will be resolved in our favor.

 

*Other*

 

We are also involved, assuccessor to Video Cable Privado, S.A., known as VCPSA, in two lawsuits filedby:

 

1.               a concessionaire of VCPSA in connection withan eight year concession agreement dated December 1990 between VCPSA and thatconcessionaire, and

 

2.               an assignee of 50% of that concessionaire’srights under the concession agreement.

 

We acquired VCPSA in October1992 and later merged it into Multicanal. The plaintiffs seek damages for lost profits from Multicanal, allegedlyarising from VCPSA’s rescission of the concession agreement without cause inAugust 1991.  We requested that bothlawsuits be dismissed.  The expertappraiser appointed by the court in both lawsuits reported damages ofapproximately Ps.13 million.  Bothlawsuits were subsequently joined into one proceeding.  On July 20, 2001 the Judge issued a decisionin which he awarded damages in the amount of Ps.107,000 and lost profits to bedetermined in accordance with a complex formula to be applied by the expertappraiser.  Both parties challenged thedecision in the Court of Appeals, which court set an amount of Ps.750,000,which we have deposited in escrow.  Theplaintiffs have challenged the 

 

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Court of Appeals decisionbefore the Supreme Court.  Although wehave deposited the Ps.750,000 amount in escrow, the Supreme Court may not rulein our favor and may require us to pay additional amounts.  We cannot give any assurance that the finaloutcome of the lawsuit will be favorable to our interests, and we cannot giveany assurance that a decision rendered against us will not be materiallyadverse to our financial condition and results of operations.

 

We are also involved in otherlitigation from time to time in the ordinary course of business. Inmanagement’s opinion, the litigation in which we are currently involved,individually and in the aggregate, is not material to our financial conditionor results of operations.

 

**MaterialContracts**

 

Multicanal has not enteredinto any material contracts, other than contracts entered into in the ordinarycourse of business, to which it is a party for the two years preceding thepublication of this document.

 

**ExchangeControls**

 

The Argentine foreignexchange market was subject to exchange controls until December 1989, when afreely floating exchange rate was established for all foreign currencytransactions.  From 1989 to December 3,2001, there were no foreign exchange controls preventing or restricting theconversion of pesos into dollars.  FromDecember 3, 2001 until January 2, 2003, the transfer of foreign currency,except for certain transactions, was subject to prior authorization by theCentral Bank, including for the payment by Argentine debtors of principal onfinancial indebtedness and for the distribution of dividends.  Effective January 2, 2003, the CentralBank’s prior authorization for the transfer of funds abroad in order to makepayments of principal and/or interest was no longer required provided thatcertain conditions were met, as set out in Communication “A” 3843 datedDecember 26, 2002, as amended by Communication “A” 3866 dated January 16, 2003.

 

On February 8, 2002, theCentral Bank issued Communication “A” 3471, which specified that, until June13, 2002, transfers of funds abroad by the financial sector to effect principalpayments on certain indebtedness, such as the Notes, required Central Bankapproval. On April 29, 2002 the Central Bank extended the effective date of “A”3471 and the related Communication “A” 3537 to August 12, 2002 pursuant toCommunication “A” 3584.  Also, due tothe scarcity of dollars, we may find it difficult to convert sufficient amountsof pesos to dollars to make interest payments on our dollar-denominatedindebtedness.  In addition, on February3, 2002, the government required all banks to transfer all of their foreigncurrency to the Central Bank.  However,that measure was suspended on February 8, 2002.

 

On May 6, 2003, theArgentine Central Bank passed Communication “A” 3944 repealing the priorconsent requirement from the Central Bank in order to make payments ofprincipal or interest on financing debt obligations.  Although there are currently no restrictions on the transfer offunds in payment of principal or interest out of Argentina for any existingdebt, Communication “A” 3944 requires that, if applicable, the paying debtorshould comply with Central Bank Communication “A” 3602 that provides fordisclosing information of existing debt. Notwithstanding the foregoing, Communication “C” 35731 dated May 8, 2003establishes certain conditions that must be met so as to be exempt from theCentral Bank’s prior authorization.  Ifthe Central Bank further restricts our ability to transfer dollars abroad, wewill continue to be unable to pay principal and interest on ourdollar-denominated liabilities when they come due.  See “Risks Relating to Multicanal – Recent losses and default.”

 

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**Taxation**

 

**General**

 

The following is a generalsummary of certain Argentine and U.S. federal income tax considerations thatmay be relevant to the ownership or disposition of the Notes.  No assurance can be given that the courts orfiscal authorities responsible for the administration of the laws andregulations described herein will agree with this interpretation or thatchanges to such laws will not occur.

 

The following discussiondoes not address tax consequences applicable to purchasers of the Notes inparticular jurisdictions that may be relevant so such purchasers. Prospectivepurchasers of the Notes are advised to consult their own tax advisers as to theconsequences under the tax laws of the country of which they are residents ofan investment in the Notes, including, without limitation, the receipt ofinterest and the sale, redemption or any disposition of the Notes.

 

**Argentine Tax Considerations**

 

*Income Tax*

 

Except as described below,interest payments on the Notes, including any original issue discount, are currentlyexempt from Argentine income tax, provided that the Notes were issued inaccordance with the Negotiable Obligations Law and qualify for tax exempttreatment under Section 36 of this law. Under this section, interest on the Notes is exempt if the followingconditions (which we refer to as the Section 36 Conditions) are satisfied:

 

1.                                       Multicanal places the Notes through a publicoffering authorized by the CNV;

 

2.                                       Multicanal uses the proceeds of the offeringfor any of the following purposes:

 

•                  investments in physical assets located inArgentina,

 

•                  working capital in Argentina,

 

•                  refinancing of liabilities, and/or

 

•                  capital contributions to controlled oraffiliated companies, the proceeds of which are applied exclusively for thepreceding purposes; *and*

 

3.                                       Multicanal provides evidence to the CNV, inthe time and manner prescribed by regulation, that the proceeds of the sale ofthe Notes have been used for any of the purposes described in paragraph (2)above.

 

The Notes were issued incompliance with the Section 36 Conditions.

 

If we do not comply withthese conditions, Section 38 of the Negotiable Obligations Law makes Multicanalresponsible for tax payments that would have otherwise been payable by theholders with respect to interest received on the Notes.  In this case, pursuant to the terms of theNotes, Multicanal will be liable for the payment of this tax so that holderswould receive the amount of interest provided in the Notes as if none of thesetaxes had been required.

 

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Presidential Decree No.1,076 of June 30, 1992, as amended and ratified (the “Decree”) eliminated theexemption described above for those taxpayers subject to the tax adjustment forinflation rules under Title VI of the Argentine Income Tax Law.  In general, these taxpayers are entitiesorganized or incorporated under Argentine law, local branches of foreignentities, sole proprietorships and individuals carrying on certain commercialactivities in Argentina.  As a result ofthe Decree, interest paid to the holders that are subject to the tax adjustmentfor inflation rules is subject to withholding at a rate of 35%, as prescribedby Argentine tax regulations.  Thewithholding is credited towards the assessed income tax which is at a rate of35% on net income.

 

Resident and non-residentindividuals and foreign entities not having a permanent establishment inArgentina are not subject to taxation on capital gains derived from the sale orother disposition of the Notes if the Section 36 Conditions have beensatisfied.  As a result of the Decree,those taxpayers subject to the tax adjustment for inflation rules of theArgentine Income Tax Law are subject to taxes on capital gains on the sale orother disposition of the Notes as prescribed by Argentine tax regulations.

 

*PersonalAssets Tax*

 

In accordance with Law No.23.966 dated August 20, 1991, as amended (the “Personal Assets Tax Law”),individuals domiciled and undivided estates located in Argentina or abroad mustinclude securities, such as the Notes, in the composition of their assets inorder to determine their tax liability for the tax on personal assets.  The annual rate of this tax is 0.5%, if theyear-end value of the assets does not exceed Ps.200,000, and 0.75%, if the year-endvalue of the assets exceeds Ps.200,000, with a non-taxable amount of up toPs.102,300 for individuals and undivided estates located in Argentina.  Although Notes directly held by individualsdomiciled and undivided estates located outside Argentina would technically besubject to the tax on personal assets, the Personal Assets Tax Law provides nomethod or procedure for the collection of this tax for securities, includingthe Notes, that are directly held by such individuals or undivided estates.  Legal entities, whether domiciled inArgentina or abroad, are not subject to the tax on personal assets for theNotes.

 

In addition, the PersonalAssets Tax Law establishes a legal presumption, which does not allow proof ofany kind to the contrary, that certain assets directly owned (“*titularidad directa*”) by a foreign legalentity that is located in a country which does not require shares or privatesecurities to be held in registered form, are deemed to be owned by individualsdomiciled or undivided estates located in Argentina.  Therefore, these assets are subject to the tax on personalassets.  In these cases, the law imposesthe obligation to pay the tax on personal assets at an increased rate of 1.0percent on any individual or legal entity domiciled or located in Argentina whois related to the securities by means of, among other things, co-ownership,deposit, custody or administration. This individual or legal entity acts as a substitute obligor.  The Personal Assets Tax Law also authorizesthe substitute obligor to seek recovery of the amount so paid, withoutlimitation, by way of withholding or by foreclosing on the assets that gaverise to such payment.

 

The above described legalpresumption does not apply to the following foreign legal entities thatdirectly own securities:

 

•                  insurance companies,

 

•                  open-end investment funds,

 

•                  pension funds, and

 

•                  banks or financial entities whose head officeis located in a country whose central bank or equivalent authority has adoptedthe international standards of supervision established by the Basle Committee.

 

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Notwithstanding the above,Decree No. 812/96 dated July 24, 1996 establishes that the legal presumptiondiscussed above does not apply to shares and debt-related private securities,such as the Notes, whose public offering has been authorized by the CNV andwhich are tradable on the stock exchanges located in Argentina or abroad.  In order to ensure that this legalpresumption will not apply to, and, correspondingly, that Multicanal will notbe liable as a substitute obligor on, the Notes, Multicanal will keep in itsrecords a duly certified copy of the CNV resolution authorizing the publicoffering of the shares or debt-related private securities as well as the timelimit it will be in effect as required by Resolution No. 4203 of the *Administración Federal de Ingresos Públicos*(AFIP) dated August 1, 1996.

 

On May 15, 2002, Law 25.585was issued amending requirements related to the registration of personal assettax corresponding to holders of the capital stock of Argentine corporations. Asfrom January 1, 2002, issuers must register personal asset tax corresponding toshareholders who are Argentine individuals, foreign individuals or legalpersons.  The applicable rate is 0.5% onthe proportional net worth as of December 31 of each year. As our net worth asof 2002 was negative, we did not register this tax.

 

*MinimumNotional Income Tax*

 

Pursuant to a tax lawapproved by the Argentine Congress on December 7, 1998 (the “Tax Law”),Argentine entities are subject to a “minimum notional income” tax at a rate of1% of total assets.  This tax may affectholders of Notes having a presence in or other relationship with Argentina,including corporations domiciled in Argentina, Argentine trusts and open-endedinvestment funds, and permanent establishments in Argentina of foreignholders.  This tax will not affect anyother holders of the Notes.

 

As mentioned above, in May2001, the cable television industry signed an agreement with the ArgentineFederal Government to improve the competitiveness of the sector.  Under this agreement, companies who accededto the agreement could be exempted from the minimum notional income tax.  Multicanal acceded to the agreement and becameeligible for its benefits as of August 2001. Because this benefit has expired, we will again be subject to this taxbeginning in April 2003.  See “Item5-Other Factors Affecting our Results and Financial Condition-Tax Reform.”

 

*Value-AddedTax or VAT*

 

Pursuant to the NegotiableObligations Law, the satisfaction of the Section 36 Conditions with respect tothe Notes also exempts interest payments on the Notes from any value-added tax.Further, to the extent the Notes satisfy the Section 36 Conditions, anybenefits related to the offering, subscription, underwriting, transfer,amortization, interest and cancellation will be exempt from any value-added taxin Argentina.  The Tax Law does notaffect this exemption.

 

*Stamp andTransfer Taxes.*

 

No Argentine stamp tax ispayable by holders of the Notes under Section 35 of the Negotiable ObligationsLaw.  No Argentine transfer taxes areapplicable on the sale or transfer of the Notes.

 

*Court Tax*

 

If it becomes necessary toinstitute enforcement proceedings in relation to the Notes in Argentina, acourt tax (currently at a rate of 3%) will be imposed on the amount of anyclaim brought before the Argentine courts sitting in the City of Buenos Aires.

 

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*Tax Treaties*

 

Argentina has entered intotax treaties with several countries. There is currently no income tax treaty or convention between Argentinaand the United States.

 

**U.S. Tax Considerations**

 

*Thefollowing is a summary of certain United States federal income taxconsiderations that may be relevant to a holder of a Note that is a citizen orresident of the United States or a domestic corporation that otherwise issubject to United States federal income taxation on a net income basis withrespect to the Note (a “U.S. Holder”). This summary deals only with U.S. Holders who will hold the Notes ascapital assets and does not deal with special situations, such as those ofdealers in securities or currencies, traders in securities or currencies thatelect mark-to-market treatment, financial institutions, life insurancecompanies, persons holding Notes as part of a hedging or conversion transactionor a straddle or holder of Notes whose “functional currency” is not the U.S.dollar. This discussion does not deal with all aspects of United States federalincome and estate taxation that may be relevant to U.S. Holders in view oftheir particular circumstances, nor does it address the effect of anyapplicable state or local tax law. Furthermore, this discussion is based on current provisions of theInternal Revenue Code of 1986, as amended (the “Code”) and administrative andjudicial interpretations thereof as of the date hereof, all of which aresubject to change (possibly with retroactive effect) and to differing interpretations.  For purposes of the following discussion, itis assumed that the Notes will constitute debt for federal income taxpurposes.  Prospective U.S. Holders ofNotes should consult their own tax advisors as to the United States federal,state and local and the foreign tax consequences of the ownership anddisposition of the Notes.*

 

*Taxationof Interest*

 

The gross amount of interestand additional amounts, if any, payable with respect to the Notes to a U.S.Holder will be treated as interest income from sources without the UnitedStates which is subject to federal income taxation as ordinary income at thetime that such payments are accrued or are received (in accordance with theU.S. Holder’s method of tax accounting).

 

*Taxationof Dispositions*

 

Upon the sale, exchange orretirement of a Note, a U.S. Holder generally will recognize gain or loss equalto the difference between the amount realized on the sale, exchange orretirement (not including any amounts attributable to accrued and unpaidinterest) and the U.S. Holder’s tax basis in such Note.  Gain or loss recognized by a U.S. Holderwill generally be long-term capital gain or loss if the U.S. Holder has heldthe Note for more than one year at the time of disposition.  Long-term capital gains recognized by anindividual holder are subject to tax at a lower rate than short-term capitalgain or ordinary income.

 

*Non-U.S.Persons*

 

Holders of the Notes who arenot United States persons, which we refer to as Non-U.S. Holders, will not besubject to United States federal income taxes, including withholding taxes, onpayments of interest on the Notes so long as the requirements****described under “Information Reporting andBackup Withholding” are satisfied, unless such income is effectively connectedwith the conduct by the Non-U.S. Holder of a trade or business in the UnitedStates.

 

The gain realized on anysale or exchange of the Notes by a Non-U.S. Holder will not be subject toUnited States federal income tax, including withholding tax, unless (i) suchgain is effectively connected with the conduct by the Non-U.S. Holder of atrade or business in the United States or (ii) in the case of gain 

 

80

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realized by an individualNon-U.S. Holder, the Non-U.S. Holder is present in the United States for 183days or more in the taxable year of sale and either (a) such gain or income isattributable to an office or other fixed place of business maintained in theUnited States by such Non-U.S. Holder or (b) such Non-U.S. Holder has a taxhome in the United States.

 

*InformationReporting and Backup Withholding*

 

Payment of the proceeds froma sale of Notes to or through a U.S. office of a broker will be subject toinformation reporting and backup withholding unless the owner establishes anexemption.  Any amount withheld underthe backup withholding rules would be credited against the holder’s federalincome tax liability or refunded, *provided*that the required information is furnished to the Internal RevenueService.  Non-U.S. Holders may berequired to comply with applicable certification procedures to establish thatthey are not U.S. Holders in order to avoid the application of such informationreporting requirements and backup withholding tax.

 

**Documentson Display**

 

The materials included inthis annual report on Form 20-F, and exhibits thereto, may be inspected andcopied at the U.S. Securities and Exchange Commission’s public reference roomsin Washington, D.C., New York, New York and Chicago, Illinois.  Please call the Commission at 1-800-SEC-0330for further information on the public reference rooms.  As a foreign private issuer, we are notrequired to make filings with the Commission by electronic means, although wemay do so.  Any filing we makeelectronically will be available to the public over the Internet at theCommission’s web site at http://www.sec.gov.

 

**Item 11.****                           ****Quantitative and QualitativeDisclosures About Market Risk**

 

We are exposed to variousmarket risks, including changes in foreign currency exchange rates, interestrates and inflation.  Market risk is thepotential loss arising from, among other things, adverse changes in foreigncurrency exchange rates, interest rates and inflation.

 

Exchange rate risk existsprincipally with respect to our indebtedness denominated in currencies otherthan Argentine pesos.  Interest raterisk exists principally with respect to our dollar-denominated externalindebtedness that bears interest at floating rates, as well as with respect toour peso-denominated Argentine bank and financial debt.  Obligations converted into pesos accordingto Decree No. 214/02 are subject to varying interest rates.  Communication “A” 3507 as modified byCommunication “A” 3561 of the Central Bank applied, as of February 4, 2002, a *Coeficiente de Estabilización de Referencia*(“Reference Stabilization Rate,” or “C.E.R.”) to the principal amount ofdollar-denominated indebtedness converted into pesos.  After adjustment in accordance with the C.E.R. (an indexationrate), Communication “A” 3507 further imposed a maximum rate of 8% as ofFebruary 3, 2002 on such dollar-denominated indebtedness converted into pesos.However, we cannot assure you that this Central Bank policy limiting increasesin interest rates will remain in place, or that we will not be adverselyaffected by future fluctuations in the rates charged on our peso-denominatedbank and financial debt denominated in dollars and later converted intopesos.  Inflation risk existsprincipally with respect to the adjustment in accordance with the C.E.R. of ourpeso-denominated bank and financial debt. In light of the current macro-economic situation in Argentina, thispeso-denominated bank and financial debt is susceptible to inflationarypressures.

 

While we realizesubstantially all of our earnings in Argentina through sales denominated inArgentine pesos, a substantial portion of our debt obligations, operating costs(including programming costs) and expenses are and will continue to bedenominated in dollars and will therefore be exposed to currency exchange raterisks.  Since the abandonment of theConvertibility Law, as well as the January 11, 2002 lifting of the bankingholiday and the subsequent free float of the exchange rate, the peso hascontinued to fluctuate 

 

81

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significantly.  Additionally, due to the scarcity ofdollars, we may find it difficult to convert sufficient amounts of pesos todollars to make interest and principal payments on our dollar-denominatedindebtedness in the event that we become able to make payments on which we arecurrently in default.

 

Multicanal continuouslymonitors its economic exposure to changes in foreign exchange rates.  At December 31, 2002, Multicanal ́s netmonetary position in dollars subject to foreign currency exchange ratefluctuations was approximately US$560 million. Multicanal’s foreign exchange rate-related exposure is determined basedon the monetary position of the Company and of its subsidiaries, and primarilyreflects dollar-denominated bank and financial debt and accounts payable,reduced by Multicanal ́s cash and cash equivalents and other dollar-denominatedassets (mainly receivables).

 

The following table providesinformation on our bank and financial debt and acquisition related debtoutstanding at December 31, 2002. Variable interest rates are based on effective rates at December 31,2002.  See Note 7 to the auditedfinancial statements for further information. All amounts are presented in thousands.

 

Bank and financial debt:

 
|                    |   | **Currently  due** |   | **2003** |   |
|-------------------------|--------|--------------------|--------|----------|--------|
| U.S. dollars            |   | 363,852            |   |     |   |
| Fixed rate (average)    |   | 11.1               | %      |     |   |
|                    |   |               |   |     |   |
| U.S. dollars            |   | 144,000            |   |     |   |
| Pesos                   |   | 44,600             |   | 238      |   |
| Variable rate (average) |   | 7.4                | %      | 14       | %      |

 

Acquisition related debt:

 
|         |   | **2003** |   |
|--------------|--------|----------|--------|
| U.S. dollars |   | 3.6      |   |
| Fixed rate   |   | 10       | %      |

 

Multicanal has not usedfinancial instruments to hedge its exposure to fluctuations in foreign currencyexchange or interest rates.

 

**Item 12.****                           ****Description of SecuritiesOther than Equity Securities**

 

Not applicable.

 

**Item 13.****                           ****Defaults, DividendArrearages and Delinquencies**

 

As a result of Argentina’ssevere economic recession and the restrictions affecting Multicanal’s abilityto refinance its debts, on February 1, 2002, Multicanal announced that it haddefaulted on payment of principal and interest on its 91⁄4% Notes due 2002 andinterest payments on its 101⁄2% Notes due 2007, on February 26, 2002, defaultedon interest payments on its Series J Floating Rate Notes due 2003, and on April15, 2002, defaulted on interest payments on its Series C 101⁄2% Notes due 2018and its Series E 13.125% Notes due 2009. On June 4, 2002, we announced the designation of JPMorgan SecuritiesInc., as financial advisor to assist us in designing alternative means ofdischarging the deferred payments.  Inconsultation with our financial advisor, we have undertaken to restructure our91⁄4% Notes due 2002, 101⁄2% Notes due 2007, 13.125% Series E Notes due 2009,Series C 101⁄2% Notes due 2018 and Series J Floating Rate Notes due 2003 

 

82

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(together, the “ExistingNotes”), and other financial indebtedness (the “Bank Debt” and together withthe Existing Notes, the “Existing Debt”) (the “Restructuring”) in accordancewith Title II, Chapter II of Law 24,522 of Argentina, as amended (the“Bankruptcy Law”) by means of an APE. On January 31, 2003, the Company announced an offer to purchase (the“Cash Tender Offer”) for cash U.S.$100 million of its Existing Debt at a priceof U.S.$300 per U.S.$1,000 aggregate principal amount of Existing Debt tenderedfor purchase.  The Company will not payany accrued and unpaid interest (including default interest and additionalamounts, if any) on the Existing Debt that is tendered for purchase in the CashTender Offer.  The Cash Tender Offer, asoriginally announced, was subject to several conditions precedent, including(a) U.S.$100 million aggregate principal amount of Existing Debt shall havebeen tendered by holders of Existing Debt, (b) the Company’s controllingshareholders shall have made an irrevocable cash contribution of U.S.$10million to the Company on or after the date of the Offer, and (c) the executionof an APE by the Company and an attorney-in-fact representing holders of atleast U.S.$380 million aggregate principal amount of Existing Debt inaccordance with the terms prescribed by Argentine law to make such agreementenforceable in Argentina for purposes of Chapter VII, Title II of the ArgentineBankruptcy Law; provided that the participants agree in the aggregate toallocate their Existing Debt between the two options presented to them so thatthe level of participation in one option does not exceed by more than 10% thelevel of participation in the other option (as a percentage of the totalconsideration being offered in each of such options).

 

On February 7, 2003, theCompany announced that it was soliciting (the “APE Solicitation”) from holdersof its Existing Debt powers of attorney in favor of an attorney-in-fact, toexecute an**APE.  The APE Solicitation as originally announcedwas subject to several conditions precedent, including (i) the Company’scontrolling shareholders shall have made an irrevocable cash contribution ofU.S.$10 million to the Company on or after the date of the Cash Tender Offer,(ii) an APE shall have been executed by the Company and an attorney-in-factrepresenting holders of at least U.S.$380 million aggregate principal amount ofExisting Debt in accordance with the terms prescribed by Argentine law to makesuch agreement enforceable in Argentina for purposes of Chapter VII, Title IIof the Argentine Bankruptcy Law; provided that the participants agree in theaggregate to allocate their Existing Debt between the two options presented tothem so that the level of participation in one option does not exceed by morethan 10% the level of participation in the other option (as a percentage of thetotal consideration being offered in each of such options), and (iii) U.S.$100million aggregate principal amount of Existing Debt shall have been tendered inthe Cash Tender Offer.

 

Upon approval (*homologación*) of the APE by an Argentinecommercial court of competent jurisdiction (the “Bankruptcy Court”, andapproval by such court, the “Court Approval”), each holder that accepted theAPE Solicitation as initially proposed would receive, for each U.S.$1,000principal amount of Existing Debt tendered in connection with the APESolicitation, at its option, either (i) U.S.$1,000 principal amount of theCompany’s 10-Year Step-Up Notes (the “10-Year Notes”), or (ii) U.S.$315principal amount of either (A) the Company’s 7% 7-Year Notes (the “7-Year FixedRate Notes”), or (B) the Company’s 7-Year Floating Rate Notes (the “7-YearFRNs”, together with the 7-Year Fixed Rate Notes, the “7-Year Notes”, and the7-Year Notes together with the 10-Year Notes, the “New Notes”), and 598 of theCompany’s class C shares of common stock (the “Class C Shares”).  Through its APE Solicitation Company isseeking to exchange (i) approximately U.S.$100 million principal amount of itsExisting Debt for U.S.$100 million of 10-Year Notes, (ii) U.S.$157.4 millionprincipal amount of its Existing Debt for U.S.$102.3 million of its 7-YearNotes and to capitalize approximately U.S.$167.4 million principal amount ofits Existing Debt.  The Company will notpay any accrued and unpaid interest (including default interest and additionalamounts, if any) on the Existing Debt that is exchanged pursuant to the APE.

 

On March 26, 2003, theCompany announced amendments to certain terms of its Cash Tender Offer and APESolicitation, most notably among other changes, a reduction in the minimumparticipation in the APE Solicitation of holders of Existing Debt from U.S.$380million principal amount to seventy percent (70%) of the aggregate principalamount of any Existing Debt outstanding after giving effect to the Cash TenderOffer, provided that holders electing the 10-Year Notes shall not represent, inthe aggregate, an amount of Existing Debt in excess of U.S.$120,000,000.

 

83

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The Company has subsequentlyextended the expiration dates of both the Cash Tender Offer and the APESolicitation on several occasions.  Boththe Cash Tender Offer and the APE Solicitation are each currently scheduled toexpire at 5:00 p.m., New York City time, on July 2, 2003, unless furtherextended by the Company in its sole discretion.

 

The APE Solicitation and theCash Tender Offer proposed by the Company afford the Company’s creditors anopportunity to achieve a restructuring of the Company’s Existing Debt on aconsensual basis.  The Company believesthat the APE procedure presents important advantages for the Company as well asits creditors by avoiding the complexities and costs of the *concurso preventivo* process.  Furthermore, the Company’s current proposalis in its view substantively responsive to the interests of all of itsstakeholders under the current circumstances and addresses concerns raised bycertain of the Company’s creditors after the proposal was initiallylaunched.  To date, however, creditorsholding in excess of 33% of the Company’s Existing Debt have not yet consentedto the Company’s offer.  Certain ofthese creditors have approached the Company to demand further modifications tothe Company’s proposal, which modifications, in the Company’s view, wouldrender the success of a consensual restructuring highly unlikely.

 

The Company remainscommitted to preserving the continuity of its operations.  This long-term objective, however, requiresthat the Company’s Existing Debt be adequately restructured, whether pursuantto an APE or, if the support required to effect an APE is not forthcoming, anyother means available to the Company under the existing legal framework.

 

This information has beenpreviously reported by the Company on its Form 6-K filings.

 

**Item 14.****                           ****Material Modifications tothe Rights of Security Holders and Use of Proceeds**

 

Not applicable.

 

**Item 15.****                           ****Controls and Procedures**

 

Within the 90 days prior tothe date of this report, the Company carried out an evaluation under thesupervision and with the participation of the Company’s management, includingthe Chief Executive Officer and Chief Financial and Administrative Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures.  There areinherent limitations to the effectiveness of any system of disclosure controlsand procedures, including the possibility of human error and the circumventionor overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can onlyprovide reasonable assurance of achieving their control objectives.  Based upon and as of the date of theCompany’s evaluation, the Chief Executive Officer and Chief Financial andAdministrative Officer concluded that the disclosure controls and proceduresare effective in all material respects to ensure that information required tobe disclosed in the reports the Company files and submits under the ExchangeAct is recorded, processed, summarized and reported as and when required.  Such officers also confirm that there havebeen no significant changes in the Company’s internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of the evaluation referred to above.

 

**Item 17.****                           ****Financial Statements**

 

The Registrant has respondedto Item 18 in lieu of this Item.

 

**Item 18.****                           ****Financial Statements**

 

Reference is made to Item19(a) for a list of all financial statements filed as part of this Form 20-F.

 

84

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**Item 19.****                           ****Financial Statements andExhibits**

 

(a)  List of Financial Statements. 

 
| Report of independent  auditors                                 | F-2  |
|-----------------------------------------------------------------|------|
| Consolidated balance sheet                                      | F-3  |
| Consolidated  statement of operations                           | F-4  |
| Consolidated  statement of changes in shareholders’ equity | F-5  |
| Consolidated  statement of cash flows                           | F-6  |
| Notes  to the consolidated financial statements                 | F-7  |
| Exhibit                                                         | F-47 |

 

(b)  List of Exhibits

 

1.1.                              Amendment to bylaws (*estatutos*) of Multicanal S.A., datedJanuary 11, 2000 (together with an English translation).

 

1.2.                              Amendment to bylaws (*estatutos*) of Multicanal S.A., dated May8, 2001 (together with an English translation).

 

1.3.                              Amendment to bylaws (*estatutos*) of Multicanal S.A., datedFebruary 13, 2003 (together with an English translation).

 

12.1.                        Certification of Carlos Alberto Moltinipursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

12.2.                        Certification of Adrián Mészaros pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.

 

85

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**MULTICANAL S.A.**

 

**Signature**

 

Pursuant to the requirementsof Section 12 of the Securities Exchange Act of 1934, the registrant certifiesthat it meets all the requirements for filing on Form 20-F and has duly causedthis annual report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                  | MULTICANAL S.A.                      |
|-----------------------|--------------------------------------|
|                  |                                 |
|                  |                                 |
|                  | By:                                  | /s/ Adrián Mészaros |   |
|                  | Name: Adrián Mészaros      |
|                  | Title:  Chief Financial Officer |
|                  |                                 |
| Dated: June 30, 2003. |                                 |

 

----

 

Certification

Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Carlos Alberto Moltini,certify that:

 

1.               I have reviewed this annual report on Form20-F of Multicanal S.A.

 

2.               Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to theperiod covered by this annual report;

 

3.               Based on my knowledge, the financialstatements, and other financial information included in this annual report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this annual report;

 

4.               The registrant’s other certifying officersand I are responsible for establish and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

(i)            designed such disclosure controlsand procedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

(ii)                                  evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

(iii)                               presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

(i)                                     all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

(ii)                                  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

----

 

6.               The registrant’s other certifying officersand I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Dated: June 30, 2003 |                            |   |
|----------------------|---------------------------------|--------|
|                 |                            |   |
|                 | /s/ Carlos Alberto Moltini      |
|                 | Title: Chief Executive  Officer |

 

----

 

CertificationPursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Adrián Mészaros, certifythat:

 

1.               I have reviewed this annual report on Form20-F of Multicanal S.A.

 

2.               Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3.               Based on my knowledge, the financialstatements, and other financial information included in this annual report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this annual report;

 

4.               The registrant’s other certifying officersand I are responsible for establish and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

(i)                                                    designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

(ii)                                                 evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

(iii)                                              presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

(i)                                                    all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

(ii)                                                 any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

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6.               The registrant’s other certifying officersand I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Dated: June 30, 2003 |                                               |   |
|----------------------|----------------------------------------------------|--------|
|                 |                                               |   |
|                 | /s/ Adrián Mészaros                      |
|                 | Title: Chief Financial and  Administrative Officer |

 

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**INDEX TO THE CONSOLIDATED FINANCIALSTATEMENTS**

** **

**MULTICANAL S.A.**

** **

**CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER31, 2002 AND 2001**

**AND FOR THE THREE YEARS IN THE PERIOD ENDEDDECEMBER 31, 2002**

 
| Report of independent auditors                                            |
|---------------------------------------------------------------------------|
| Consolidated balance sheet                                                |
| Consolidated statement of operations                                      |
| Consolidated statement of changes in  shareholders’ (deficit) equity |
| Consolidated statement of cash flows                                      |
| Notes to the consolidated financial  statements                           |
| Exhibit                                                                   |

 

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**REPORT OF INDEPENDENT AUDITORS**

 

To the Board of Directors and Shareholders ofMulticanal S.A.

 

In our opinion, the accompanying consolidated balance sheet and therelated consolidated statements of operations, of cash flows and of changes inshareholders’ (deficit) equity, present fairly, in all material respects, thefinancial position of Multicanal S.A. and its subsidiaries at December 31, 2002and 2001, and the results of their operations and their cash flows for each ofthe three years in the period ended December 31, 2002, in conformity withgenerally accepted accounting principles in Argentina.  These consolidated financial statements arethe responsibility of the Company’s management; our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.  We conducted our audits of theconsolidated financial statements in accordance with auditing standardsgenerally accepted in the United States of America, which require that we planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementspresentation.  We believe that ouraudits provide a reasonable basis for the opinion expressed above.

 

The accompanying financial statements have been prepared assuming thatthe Company will continue as a going concern. As discussed in Note 13 to theconsolidated financial statements, the Company has suffered recurring lossesfrom operations and has a net capital deficiency. Additionally, as alsodiscussed in Note 13 to the consolidated financial statements, the Company hasbeen negatively impacted by the Argentine government’s adoption of variouseconomic measures and by the devaluation of the Argentine peso. These mattersraise substantial doubt about the Company’s ability to continue as a goingconcern. Management’s plans in regard to these matters are also described inNotes 13 and 14. The accompanying consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

Accounting principles generally accepted in Argentina vary in certainimportant respects from accounting principles generally accepted in the UnitedStates of America and as allowed by Item 18 to Form 20-F.  The application of the latter would haveaffected the determination of consolidated net loss for each of the three yearsin the period ended December 31, 2002 and the determination of consolidatedshareholders’ (deficit) equity at December 31, 2002 and 2001 to the extentsummarized in Note 16 to the consolidated financial statements.

 

 
| Buenos Aires, Argentina                                             |                                  | PRICE WATERHOUSE & CO. |
|---------------------------------------------------------------------|---------------------------------------|----------------------------|
| March 10, 2003, except as to Note 14, which  is as of June 20, 2003 |
|                                                                | by/s/Alberto E. Fandiño(Partner) |
|                                                                | Alberto E. Fandiño               |

 

F-2

----

 

**MULTICANAL S.A.**

**CONSOLIDATED BALANCE SHEET**

**(At December 31, 2002 and 2001)**

**(Expressed in Argentine pesos of December 31,2002 purchasing power)**

 
|                                                            |   | **December  31,** |       |
|-----------------------------------------------------------------|--------|-------------------|------------|
|                                                            |   | **2002**          |       | **2001** |   |
| **ASSETS**                                                      |   |              |       |   |   |
| CURRENT ASSETS                                                  |   |              | ** ** |   | ** ** |
| Cash and deposits in banks                                      |   | 104,792,097       |       | 28,862,313 |   |
| Short-term investments (Note 3 (a))                             |   | 1,444,899         |       | 158,105,519 |   |
| Trade receivables (Note 3 (b))                                  |   | 24,908,692        |       | 71,180,536 |   |
| Receivables from related parties                                |   | 12,758,388        |       | 16,839,628 |   |
| Other (Note 3 (c))                                              |   | 38,045,107        |       | 95,625,925 |   |
| Total current assets                                            |   | 181,949,183       |       | 370,613,921 |   |
| NON-CURRENT ASSETS                                              |   |              |       |   |   |
| Long-term investments (Note 3 (e))                              |   | 6,841,368         |       | 8,991,668 |   |
| Property and equipment, net (Note 4)                            |   | 620,104,322       |       | 797,750,566 |   |
| Goodwill and intangible assets, net (Note  5)                   |   | 1,201,530,427     |       | 1,621,772,033 |   |
| Other (Note 3 (d))                                              |   | 29,536,381        |       | 42,073,573 |   |
| Total non-current assets                                        |   | 1,858,012,498     |       | 2,470,587,840 |   |
| Total assets                                                    |   | 2,039,961,681     |       | 2,841,201,761 |   |
| **LIABILITIES**                                                 |   |              |       |   |   |
| CURRENT LIABILITIES                                             |   |              |       |   |   |
| Accounts payable and accrued liabilities                        |   | 109,914,396       |       | 244,193,134 |   |
| Short-term bank and financial debt (Notes 3  (f) and 7)         |   | 2,020,944,245     |       | 1,665,709,390 |   |
| Acquisition related debt                                        |   | 8,739,851         |       | 6,824,082 |   |
| Taxes payable                                                   |   | 15,614,051        |       | 46,147,354 |   |
| Debt with related parties                                       |   | 1,020,870         |       | 2,966,047 |   |
| Payroll and social security payable                             |   | 6,583,314         |       | 16,955,977 |   |
| Other (Note 3 (g))                                              |   | 13,094,224        |       | 9,143,697 |   |
| Total current liabilities                                       |   | 2,175,910,951     |       | 1,991,939,681 |   |
| NON-CURRENT LIABILITIES                                         |   |              |       |   |   |
| Taxes payable                                                   |   | 2,129,032         |       | 5,324,809 |   |
| Acquisition related debt                                        |   | 3,324,586         |       | 219,591 |   |
| Long-term bank and financial debt                               |   | 237,986           |       | 237,986 |   |
| Other (Note 3 (h))                                              |   | 22,262,660        |       | 39,366,923 |   |
| Provision for lawsuits and contingencies  (Note 6 (c))          |   | 18,359,697        |       | 51,928,726 |   |
| Total non-current liabilities                                   |   | 46,313,961        |       | 97,078,035 |   |
| Total liabilities                                               |   | 2,222,224,912     |       | 2,089,017,716 |   |
| MINORITY INTEREST IN CONSOLIDATED  SUBSIDIARIES                 |   | 31,639,916        |       | 27,626,677 |   |
| SHAREHOLDERS’ (DEFICIT) EQUITY (as per  related statement) |   | (213,903,147      | )          | 724,557,368 |   |
| Total liabilities and shareholders’  (deficit) equity      |   | 2,039,961,681     |       | 2,841,201,761 |   |

 

The accompanying notes and exhibit are anintegral part of these consolidated financial statements.

 

F-3

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**MULTICANAL S.A.**

** **

**CONSOLIDATED STATEMENT OF OPERATIONS**

**(For the years ended December 31, 2002, 2001and 2000)**

**(Expressed in Argentine pesos of December 31,2002 purchasing power)**

 
|                                                                                                                        |   | **December  31,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                        |   | **2002**          |   | **2001** |   | **2000** |   |
| Net  revenues (Note 3 (i))                                                                                             |   | 574,728,315       |   | 1,015,472,548 |   | 1,040,169,749 |   |
| Operating  costs                                                                                                       |   |              |   |   |   |   |   |
| Direct  operating expenses (Exhibit I)                                                                                 |   | (310,169,780      | )      | (498,531,491 | ) | (492,302,981 | ) |
| General  and administrative expenses (Exhibit I)                                                                       |   | (84,107,399       | )      | (135,151,173 | ) | (144,754,276 | ) |
| Selling  and marketing expenses (Exhibit I)                                                                            |   | (38,523,106       | )      | (59,407,667 | ) | (76,505,111 | ) |
| Depreciation  and amortization                                                                                         |   | (306,855,204      | )      | (332,187,651 | ) | (334,943,930 | ) |
| Operating  loss                                                                                                        |   | (164,927,174      | )      | (9,805,434 | ) | (8,336,549 | ) |
| Non-operating  expenses                                                                                                |   |              |   |   |   |   |   |
| Financial  expenses and holding results, net (Note 3 (j))                                                              |   | (471,466,443      | )      | (222,451,756 | ) | (244,305,101 | ) |
| Other  non-operating expenses, net (Note 3 (k))                                                                        |   | (309,500,025      | )      | (356,224,731 | ) | (34,286,228 | ) |
| Loss  before gain on sale of investees, taxes, minority interest and equity in  gains (losses) of affiliated companies |   | (945,893,642      | )      | (588,481,921 | ) | (286,927,878 | ) |
| Gain on sale of investees                                                                                              |   | 25,327            |   | 322,514,989 |   | — |   |
| Income  taxes and/or tax on minimum notional income                                                                    |   | (4,931,939        | )      | (11,328,076 | ) | (21,654,199 | ) |
| Loss  before minority interest and equity in gains (losses) of affiliated companies                                    |   | (950,800,254      | )      | (277,295,008 | ) | (308,582,077 | ) |
| Minority  interest in results of consolidated subsidiaries                                                             |   | (7,992,416        | )      | (2,978,976 | ) | (2,478,007 | ) |
| Loss  before equity in gains (losses) of affiliated companies                                                          |   | (958,792,670      | )      | (280,273,984 | ) | (311,060,084 | ) |
| Equity  in gains (losses) of affiliated companies (Note 10)                                                            |   | 20,332,155        |   | (3,770,463 | ) | (8,416,569 | ) |
| Net loss                                                                                                               |   | (938,460,515      | )      | (284,044,447 | ) | (319,476,653 | ) |

 

The accompanying notes and exhibit are anintegral part of these consolidated financial statements.

 

F-4

----

 

**MULTICANAL S.A.**

** **

**CONSOLIDATED STATEMENT OF CHANGES INSHAREHOLDERS’ (DEFICIT) EQUITY**

**(For the years ended December 31, 2002, 2001and 2000)**

**(Expressed in Argentine pesos of December 31,2002 purchasing power - except number of shares)**

 
|                                                                     |   |                                                                  |   | **SHAREHOLDERS’  CONTRIBUTIONS** |   |                                                        |   |                              |   |                |   |                           |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------------------------------|--------|-----------------------------------|--------|---------------------|--------|--------------------------------|--------|
|                                                                     |   | **Number of  issued  and authorized  common shares  par value Ps. 1** |   | **Common  stock**                     |   | **Inflation  adjustments of  common stock  (Note 2.5.(g))** |   | **Additional  paid-  in-capital** |   | **Merger  premium** |   | **Irrevocable  contributions** |   | **Voluntary  reserve** |   | **Legal  reserve** |   | **Accumulated  deficit** |   | **Total  shareholders’  (deficit)  equity** |   |
| At December 31, 1999                                                     |   | 365,953,227                                                           |   | 365,953,227                           |   | 463,040,405                                                 |   | 1,044,710,015                     |   | —              |   | —                         |   | 25,461,525 |   | 6,309,660 |   | (578,756,635 | ) | 1,326,718,197 |   |
|                                                                     |   |                                                                  |   |                                  |   |                                                        |   |                              |   |                |   |                           |   |   |   |   |   |   |   |   |   |
| Net loss for the year                                                    |   | —                                                                |   | —                                |   | —                                                      |   | —                            |   | —              |   | —                         |   | — |   | — |   | (319,476,653 | ) | (319,476,653 | ) |
| At December 31, 2000                                                     |   | 365,953,227                                                           |   | 365,953,227                           |   | 463,040,405                                                 |   | 1,044,710,015                     |   | —              |   | —                         |   | 25,461,525 |   | 6,309,660 |   | (898,233,288 | ) | 1,007,241,544 |   |
| Incorporation of balances following merger with  Plataforma Digital S.A. |   | 867,810                                                               |   | 867,810                               |   | —                                                      |   | —                            |   | 33,681,119          |   | 4,778,667                      |   | 38,583,510 |   | — |   | (76,550,835 | ) | 1,360,271 |   |
| Net loss for the year                                                    |   | —                                                                |   | —                                |   | —                                                      |   | —                            |   | —              |   | —                         |   | — |   | — |   | (284,044,447 | ) | (284,044,447 | ) |
| At December 31, 2001                                                     |   | 366,821,037                                                           |   | 366,821,037                           |   | 463,040,405                                                 |   | 1,044,710,015                     |   | 33,681,119          |   | 4,778,667                      |   | 64,045,035 |   | 6,309,660 |   | (1,258,828,570 | ) | 724,557,368 |   |
| Net loss for the year                                                    |   | —                                                                |   | —                                |   | —                                                      |   | —                            |   | —              |   | —                         |   | — |   | — |   | (938,460,515 | ) | (938,460,515 | ) |
| At December 31, 2002                                                     |   | 366,821,037                                                           |   | 366,821,037                           |   | 463,040,405                                                 |   | 1,044,710,015                     |   | 33,681,119          |   | 4,778,667                      |   | 64,045,035 |   | 6,309,660 |   | (2,197,289,085 | ) | (213,903,147 | ) |

 

The accompanying notes and exhibit are anintegral part of these consolidated financial statements.

 

F-5

----

 

**MULTICANAL S.A.**

**CONSOLIDATED STATEMENT OF CASH FLOWS**

**(For the years ended December 31, 2002, 2001and 2000)**

**(Expressed in Argentine pesos of December 31,2002 purchasing power)**

 
|                                                                                                                    |   | **December  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                    |   | **2002**          |   | **2001** |   | **2000** |   |
| CASH FLOWS  FROM OPERATING ACTIVITIES                                                                                   |   |              |   |   |   |   |   |
| Net loss for the year                                                                                                   |   | (938,460,515      | )      | (284,044,447 | ) | (319,476,653 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities:                                        |   |              |   |   |   |   |   |
| Depreciation and loss on disposal of fixed  assets                                                                      |   | 191,867,508       |   | 198,312,360 |   | 201,699,928 |   |
| Goodwill and intangible assets amortization                                                                             |   | 114,987,696       |   | 133,875,291 |   | 134,948,190 |   |
| Equity in   (gains) losses of affiliated companies                                                                 |   | (20,332,155       | )      | 3,770,463 |   | 8,416,569 |   |
| Provision for obsolescence of materials                                                                                 |   | —            |   | — |   | 115,732 |   |
| Loan indexation                                                                                                         |   | (30,198,098       | )      | — |   | — |   |
| Interest accrued on financial liabilities  and acquisition related debt                                                 |   | 243,141,792       |   | — |   | — |   |
| Gain on redemption of debt                                                                                              |   | (417,776,648      | )      | (9,211,242 | ) | — |   |
| Exchange difference on negotiable  obligations                                                                          |   | 813,348,878       |   | — |   | — |   |
| Exchange difference on acquisition related  debt                                                                        |   | 6,100,169         |   | — |   | — |   |
| Minority interest in results of  consolidated subsidiaries                                                              |   | 7,992,416         |   | 2,978,976 |   | 2,478,007 |   |
| Provision for lawsuits and contingencies                                                                                |   | 2,014,204         |   | 8,625,158 |   | 12,591,449 |   |
| Allowance for unrecoverable investments                                                                                 |   | 7,521,000         |   | — |   | — |   |
| Impairment of goodwill and other intangible  assets                                                                     |   | 312,728,070       |   | 326,077,446 |   | — |   |
| Gain on sale of long-term investments                                                                                   |   | (25,327           | )      | (322,514,989 | ) | — |   |
| Exchange difference on advances for the  purchase of investments                                                        |   | (2,324,857        | )      | — |   | — |   |
| Result of exposure to inflation of bank and  financial debt and acquisition related debt denominated in Argentine pesos |   | (7,783,916        | )      | — |   | — |   |
| Result from conversion of acquisition  related debt                                                                     |   | 235,187           |   | — |   | — |   |
| Result from conversion of fixed and  intangible assets                                                                  |   | (4,238,459        | )      | — |   | — |   |
| Result from holding of long-term  investments                                                                           |   | (26,314           | )      | 393,476 |   | — |   |
| Decrease (increase) in assets                                                                                           |   |              |   |   |   |   |   |
| Trade receivables                                                                                                       |   | 46,271,844        |   | (4,613,977 | ) | 17,383,904 |   |
| Other current assets                                                                                                    |   | 57,580,818        |   | (14,696,005 | ) | (6,667,436 | ) |
| Other non-current assets                                                                                                |   | 12,537,192        |   | (5,458,015 | ) | 11,452,269 |   |
| Receivables from related parties                                                                                        |   | 4,081,240         |   | (1,400,391 | ) | (4,164,314 | ) |
| Increase (decrease) in liabilities                                                                                      |   |              |   |   |   |   |   |
| Debt with related parties                                                                                               |   | (1,945,177        | )      | (1,952,599 | ) | (3,165,004 | ) |
| Other current and non-current liabilities                                                                               |   | 3,950,535         |   | (4,193,412 | ) | 1,436,644 |   |
| Accounts payable and accrued liabilities                                                                                |   | (134,278,738      | )      | 23,691,055 |   | 7,367,734 |   |
| Payroll and social security payable                                                                                     |   | (10,372,663       | )      | (8,444,659 | ) | 5,025,067 |   |
| Current and non-current taxes payable                                                                                   |   | (33,729,080       | )      | 3,525,518 |   | (11,568,121 | ) |
| Provision for lawsuits and contingencies                                                                                |   | (35,583,233       | )      | (1,248,034 | ) | (7,572,745 | ) |
| Dividends received                                                                                                      |   | 110,817           |   | — |   | — |   |
| Cash provided by operations                                                                                             |   | 187,394,186       |   | 43,471,973 |   | 50,301,220 |   |
| CASH FLOWS  FROM INVESTMENT ACTIVITIES                                                                                  |   |              |   |   |   |   |   |
| Purchases of property and equipment                                                                                     |   | (11,248,288       | )      | (46,220,001 | ) | (85,370,763 | ) |
| Sale of investee                                                                                                        |   | —            |   | 327,314,907 |   | — |   |
| Acquisitions of cable systems and  subscribers and increase in goodwill and intangible assets                           |   | (1,141,744        | )      | (14,101,370 | ) | (7,354,783 | ) |
| Cash (used in) provided by investment  activities                                                                       |   | (12,390,032       | )      | 266,993,536 |   | (92,725,546 | ) |
| CASH FLOWS  FROM FINANCING ACTIVITIES                                                                                   |   |              |   |   |   |   |   |
| Increase in acquisition related debt                                                                                    |   | 354,563           |   | — |   | 2,513,778 |   |
| Repayments of acquisition related debt                                                                                  |   | (4,428,751        | )      | (11,249,912 | ) | (15,106,497 | ) |
| Borrowings of bank and financial loans                                                                                  |   | —            |   | 405,717,738 |   | 429,080,171 |   |
| Repayments of bank loans                                                                                                |   | (247,681,625      | )      | (598,513,720 | ) | (451,114,096 | ) |
| Decrease of minority interest in  consolidated subsidiaries                                                             |   | (3,979,177        | )      | (1,316,142 | ) | (3,193,869 | ) |
| Cash used in financing activities                                                                                       |   | (255,734,990      | )      | (205,362,036 | ) | (37,820,513 | ) |
| (DECREASE)/ INCREASE  IN CASH AND CASH EQUIVALENTS                                                                 |   | (80,730,836       | )      | 105,103,473 |   | (80,244,839 | ) |
| Increase in cash and cash equivalents  provided by merger                                                               |   | —            |   | 43,656 |   | — |   |
| Cash and cash equivalents at the beginning  of year                                                                     |   | 186,967,832       |   | 81,820,703 |   | 162,065,542 |   |
| CASH AND CASH EQUIVALENTS AT THE END OF  YEAR                                                                           |   | 106,236,996       |   | 186,967,832 |   | 81,820,703 |   |

 

The accompanying notes and exhibit are anintegral part of these consolidated financial statements.

 

F-6

----

 

**MULTICANAL S.A.**

** **

**NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS**

**(Expressed in Argentine pesos of December 31,2002 purchasing power)**

 

**NOTE 1 – DESCRIPTION AND BUSINESS**

 

Multicanal S.A. (the “Company” or “Multicanal”), an Argentinecorporation formed on July 26, 1991, is a multiple system cable operator withbusiness in Argentina, Paraguay and Uruguay.

 

Since 1994, the Company has made significant investments, initially inthe acquisition of cable systems and their subsequent development andexpansion.  These investments have beensubstantially financed by loans from financial institutions and former ownersof certain acquired cable systems, as well as shareholders’ contributions.

 

**NOTE 2 - BASIS OF PRESENTATION ANDSIGNIFICANT ACCOUNTING POLICIES**

 

2.1.*                              Basisof presentation of the consolidated financial statements*

 

The consolidated financial statements include the accounts ofMulticanal and its majority owned subsidiaries.  All material intercompany balances, transactions and profits havebeen eliminated in consolidation. Investments in affiliates in which theCompany has an ownership interest between 20% and 50% are accounted for underthe equity method.  Investments inaffiliates in which the Company has an ownership interest of less than 20% areaccounted for under the cost method.

 

The consolidated financial statements include accounts of Multicanaland the following subsidiaries:

 
|                                         |   | **% of  capital and votes held by  Multicanal** |   |
|----------------------------------------------|--------|-------------------------------------------------|--------|
|                                         |   | **December  31,**                               |   |
|                                         |   | **2002**                                        |   | **2001** |   |
| Pem S.A.                                     |   | 100.00                                          |   | 100.00 |   |
| AVC Continente Audiovisual S.A.              |   | 90.00                                           |   | 90.00 |   |
| CV Berazategui S.A.                          |   | 70.00                                           |   | 70.00 |   |
| Delta Cable S.A.                             |   | 84.00                                           |   | 84.00 |   |
| San Lorenzo TV Cable S.A.                    |   | 100.00                                          |   | 100.00 |   |
| TV Cable San Francisco S.A.                  |   | 100.00                                          |   | 100.00 |   |
| Telesur Teledifusora Río Cuarto S.A.    |   | 100.00                                          |   | 100.00 |   |
| Televisora Privada del Oeste S.A.            |   | 51.00                                           |   | 51.00 |   |
| Bridge Management Holdings Corp.             |   | 100.00                                          |   | 100.00 |   |
| La Capital Cable S.A.                        |   | 50.00                                           |   | 50.00 |   |
| Chaco Cable Color S.R.L. (1)                 |   | 100.00                                          |   | 100.00 |   |
| Teledifusora San Miguel Arcángel S.A.   |   | 50.10                                           |   | 50.10 |   |
| Tevemundo S.A.                               |   | 100.00                                          |   | 100.00 |   |
| Cable Imagen S.R.L. (1)                      |   | 100.00                                          |   | 100.00 |   |
| Televisión Dirigida S.A.E.C.A.          |   | 89.39                                           |   | 89.39 |   |
| Orange Producciones S.A.                     |   | 100.00                                          |   | 100.00 |   |
| Cablepar S.A.                                |   | 100.00                                          |   | 100.00 |   |
| Cablevisión Comunicaciones S.A.E.C.A.   |   | 89.81                                           |   | 89.81 |   |
| Tres Arroyos Televisora Color S.A. .         |   | 67.20                                           |   | 63.35 |   |
| Wolves Televisión Sociedad Anónima |   | 100.00                                          |   | 100.00 |   |
| Adesol S.A.                                  |   | 100.00                                          |   | 100.00 |   |
| Cable Video Sociedad Anónima            |   | 100.00                                          |   | 100.00 |   |
| Dorrego Televisión S.A                  |   | 100.00                                          |   | 100.00 |   |
| Cable Video Sur S.R.L.                       |   | 100.00                                          |   | 100.00 |   |

 

----

(1)          Companies in the processof being transformed from a S.R.L. to a S.A. (Corporation).

 

F-7

----

 

2.2.          *Recognitionof the effects of inflation*

 

The financial statements were prepared in constant currency, reflectingthe overall effects of inflation through August 31, 1995. As from that date, inconformity with accounting principles generally accepted in Argentina(“Argentine GAAP”) and the requirements of the control authorities, restatementof the financial statements was discontinued until December 31, 2001.  As from January 1, 2002, in accordance withResolution No. 3/2002 of the Professional Council in Economic Sciences of theCity of Buenos Aires (“CPCECABA”) and Resolution No. 415 of the NationalSecurities Commission (“CNV”) on July 25, 2002, recognition of the effects ofinflation has been restored.  To thatend, the restatement method established by Technical Pronouncement No. 6 of theArgentine Federation of Professional Councils in Economic Sciences (“FACPCE”)was adopted, considering that the accounting measurements restated by thechange in the purchasing power of the currency through August 31, 1995, as wellas those arising between that date and December 31, 2001, are stated in currencyas of the latter date.

 

The financial statements as of December 31, 2001 and for the two yearsin the period ended on December 31, 2001, which are presented for comparativepurposes, were restated into year-end currency.

 

The result of exposure to the changes in the purchasing power of thecurrency is shown in the statement of income as “Financial expenses and holdingresults, net”.

 

2.3.                              *GenerallyAccepted Accounting Principles*

 

The consolidated financial statements have been prepared in accordance withArgentine GAAP and the requirements of the CNV and are presented in Argentinepesos (“Ps.”).  Additionally, certainreclassifications and additional disclosures have been included in theseconsolidated financial statements in order to conform more closely to the formand content required by accounting principles generally accepted in the UnitedStates of America (“US GAAP”).  Theseconsolidated financial statements do not include all the additional disclosuresrequired by the US Securities and Exchange Commission (“SEC”) or US GAAP.

 

Argentine GAAP require companies with controlling financial interest inother companies to present both parent company, where investments insubsidiaries are accounted for under the equity method, and consolidatedfinancial statements as primary and supplementary information,respectively.  Because of the specialpurpose of these consolidated financial statements, parent company financialstatements are not included.  Thisprocedure has been adopted for the convenience of the reader of the financialstatements.

 

The preparation of the financial statements requires management to makeestimates and assumptions which affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at thebalance sheet dates, and the reported amounts of revenues and expenses duringthe reporting years.  Actual results maydiffer from these estimates.

 

2.4.          *Comparative financial statements*

 

Certain reclassifications have been included in the financial statementsat December 31, 2001 and for the two years in the period ended December 31,2001, to conform to the current year’s presentation.

 

F-8

----

 

2.5.                              *Significantaccounting polices*

 

The following is a summary of the significant accounting policesfollowed by the Company:

 

*(a)**                               Foreigncurrency*

 

Assets and liabilities denominated in foreign currency are translatedto Argentine pesos at the prevailing exchange rates at year-end.  Exchange differences have been included inthe determination of income.

 

*(b)**                               Short-terminvestments*

 

Publicly traded securities have been valued at their year-end marketvalue.  Time deposits and other highlyliquid financial investments are carried at cost plus accrued interest.  The carrying value of these investmentsapproximates fair value.

 

*(c)**                                Tradereceivables*

 

Accounts receivables are stated at estimated realizable values.  An allowance for doubtful accounts isprovided in an amount considered by management to be sufficient to meetprobable future losses related to uncollectible accounts.

 

*(d)          Property and equipment*

 

Property and equipment acquired are presented at restated cost (Note2.2.), less accumulated depreciation. Materials are valued at their weighted average cost.

 

Depreciation commences in the month of acquisition or placement of theassets in service and is computed on a straight-line basis over the estimateduseful lives of the assets, which generally range from 5 to 50 years.  Changes to useful life estimates are recognizedin depreciation.

 

Improvements that extend asset lives are capitalized; other repairs andmaintenance charges are expensed as incurred. The cost and related accumulateddepreciation applicable to assets sold or retired are removed from the accountsand are recognized as a component of depreciation expense.

 

Management considers that there has been no impairment in the carryingvalue of property and equipment.

 

*(e)           Long-term investments*

 

Generally, investments in which the Company has ownership interestsbetween 20% and 50% are accounted for under the equity method.  Equity method investments are recorded atcost and adjusted to recognize the Company’s proportional share of theinvestee’s income or loss; the Company discontinues recognition of its proportionalshare of the investee’s losses when the investment is reduced to zero, unlessthe Company has assumed the commitment to recognize the correspondingliability.  Investments in which theCompany had ownership below 20% are recorded at cost.

 

Management considers that there has been no impairment in the carryingvalue of the Company’s investments.

 

Financial statements, which are prepared in currencies other than theArgentine peso, have been translated into that currency in accordance withTechnical Pronouncement No. 13 of the FACPCE (restate-convert-disclose method).

 

F-9

----

 

*(f)            Goodwill and intangible assets*

 

Goodwill,representing the excess of cost over the fair value of net identifiable assetsacquired, is stated at restated cost (Note 2.2.) and isamortized on a straight-line basis over its estimated economic life, notexceeding 20 years.

 

Other intangible assets are stated at restated cost (Note 2.2.) and areamortized over a period of 5 years.

 

The Company regularly evaluates the carrying value of its goodwill andother intangible assets for impairment. The carrying value of goodwill andother intangible assets is considered impaired by the Company when expecteddiscounted cash flow is less than its carrying value.

 

As of December 31, 2002 and 2001 as a result of the continueddeterioration of the Argentine economy, the Company has reevaluated thecarrying value of its goodwill and other intangible assets recording animpairment loss of Ps. 312,728,070 and Ps. 326,077,446, respectively. (Note 3(k)).

 

*(g)**                               Shareholders’(deficit) equity*

 

These accounts have been restated on a constant Argentine pesos basis(included in Inflation adjustment of common stock) (Note 2.2.).  Inflation adjustments of common stock andadditional paid-in-capital may be used to absorb accumulated deficits or toincrease capital at the discretion of the shareholders.  These amounts cannot be distributed in theform of cash dividends.

 

*(h)**                               Revenuerecognition*

 

Revenues are recognized on an accrual basis, which are recorded in themonth the service is rendered. The Company’s revenues are presented net ofsales-related taxes, which include state, municipal and regulatory taxes, inaddition to being presented net of the allowance for doubtful accounts.

 

*(i)**                                  Sellingand marketing expenses*

 

Selling and marketing expenses are expensed as incurred.

 

*(j)            Programming rights*

 

Programming rights pending invoicing at the year-end are estimated onthe basis of existing agreements and other judgment criteria at that date.

 

*(k)**                               Employeeseverance indemnities*

 

Severance indemnities are expensed when paid or when they are expectedto have an impact on the results for the year because they represent a certainand quantified risk.

 

*(l)           Income taxes*

 

Income taxes are those estimated to be paid for each year.  In accordance with Argentine taxregulations, income taxes are calculated at the statutory rate on each entity’staxable income for the year (35% for each of 2002, 2001 and 2000). The companydoes not recognized deferred taxes.

 

F-10

----

 

*(m)          Tax on minimum notional income*

 

In the event a company has a loss for tax purposes, current Argentinelegislation requires the payment of a tax on minimum notional income, which iscalculated as 1% of assets. Such payments may be utilized during a ten yearcarryforward period to offset income taxes that would otherwise be payable. Thetax on minimum notional income, which is estimated to be offset within the tenfollowing years with income tax, has been disclosed under Other receivables.

 

In October 2001 the Company was added to the register of beneficiariesof the agreements to improve competitiveness and employment (Decree No.730/01).  According to theseregulations, the Company is exempt from the aforementioned tax for fiscal year2001 and future years.

 

**NOTE 3 -****            DETAILSOF CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS ACCOUNTS**

** **
|                                          |   | **December  31,** |   |
|-----------------------------------------------|--------|-------------------|--------|
|                                          |   | **2002**          |   | **2001** |   |
| CONSOLIDATED BALANCE SHEET                    |   |              |   |   |   |
| CURRENT ASSETS                                |   |              |   |   |   |
| (a)   Short-term investments             |   |              |   |   |   |
| Money market instruments                      |   | 56,601            |   | 305,014 |   |
| Time deposits                                 |   | 1,368,110         |   | 157,772,995 |   |
| Other                                         |   | 20,188            |   | 27,510 |   |
|                                          |   | 1,444,899         |   | 158,105,519 |   |
| (b)   Trade receivables                  |   |              |   |   |   |
| From subscriptions                            |   | 39,934,178        |   | 97,014,805 |   |
| From advertising                              |   | 9,337,661         |   | 24,889,641 |   |
| Notes receivable                              |   | 250,182           |   | — |   |
| From new businesses                           |   | 1,927,078         |   | 4,666,249 |   |
| Credit cards                                  |   | 2,054,353         |   | 1,510,091 |   |
| Other                                         |   | 283,055           |   | 1,306,428 |   |
| Allowance for doubtful accounts (Note 6  (a)) |   |              |   |   |   |
| From subscriptions                            |   | (22,087,688       | )      | (47,080,782 | ) |
| From advertising                              |   | (6,389,968        | )      | (9,427,158 | ) |
| From new businesses                           |   | (400,159          | )      | (1,698,738 | ) |
|                                          |   | 24,908,692        |   | 71,180,536 |   |

 

F-11

----

 
|                                                                |   | **December  31,** |   |
|---------------------------------------------------------------------|--------|-------------------|--------|
|                                                                |   | **2002**          |   | **2001** |   |
| (c)   Other                                                    |   |              |   |   |   |
| Advances to suppliers                                               |   | 1,107,008         |   | 2,877,960 |   |
| Receivables from minority shareholders                              |   | 2,759,523         |   | 6,395,537 |   |
| Tax advances                                                        |   | 7,270,371         |   | 40,003,073 |   |
| Deposits in guarantee                                               |   | 555,045           |   | 931,850 |   |
| Other receivables                                                   |   | 9,373,488         |   | 22,625,344 |   |
| Advances to be rendered                                             |   | —            |   | 32,649 |   |
| Debtors in litigation                                               |   | 11,351            |   | 897,314 |   |
| Prepaid expenses                                                    |   | 9,934,122         |   | 14,114,517 |   |
| Advances to employees                                               |   | 528,847           |   | 903,132 |   |
| Judicial deposits                                                   |   | 2,984,778         |   | 5,424,579 |   |
| Other                                                               |   | 3,520,574         |   | 1,419,970 |   |
|                                                                |   | 38,045,107        |   | 95,625,925 |   |
| NON-CURRENT ASSETS                                                  |   |              |   |   |   |
| (d)   Other                                                    |   |              |   |   |   |
| Prepaid expenses                                                    |   | 26,123,455        |   | 33,993,735 |   |
| Tax advances                                                        |   | 223,563           |   | 6,435,607 |   |
| Deposits in guarantee                                               |   | 350               |   | 938,752 |   |
| Other                                                               |   | 3,189,013         |   | 705,479 |   |
|                                                                |   | 29,536,381        |   | 42,073,573 |   |
| (e)   Long-term investments                                    |   |              |   |   |   |
| Investments in companies carried under the  equity method (Note 10) |   | 6,488,278         |   | 3,369,703 |   |
| Advances for the purchase of companies                              |   | 7,671,000         |   | 5,346,143 |   |
| Allowance for unrecoverable investments  (Notes 6 (d) and 9 (a)(i)) |   | (7,521,000        | )      | — |   |
| Investments in companies carried at cost                            |   | 203,090           |   | 275,822 |   |
|                                                                |   | 6,841,368         |   | 8,991,668 |   |
| CURRENT LIABILITIES                                                 |   |              |   |   |   |
| (f)   Short-term bank and financial debt                       |   |              |   |   |   |
| Overdraft facilities                                                |   | 56,724            |   | 748,288 |   |
| Corporate Bonds                                                     |   |              |   |   |   |
| Capital                                                             |   | 1,711,461,240     |   | 1,521,874,664 |   |
| Interests payable                                                   |   | 243,662,389       |   | 41,049,531 |   |
| Loans                                                               |   |              |   |   |   |
| Capital                                                             |   | 44,600,385        |   | 97,288,914 |   |
| Interests payable and restatements                                  |   | 21,163,507        |   | 1,393,061 |   |
| Credits/ debts from related parties                                 |   | —            |   | 3,354,932 |   |
|                                                                |   | 2,020,944,245     |   | 1,665,709,390 |   |

 

F-12

----

 
|                                                                                     |   | **December  31,** |   |
|------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                     |   | **2002**          |   | **2001** |   |
| (g)   Other                                                                         |   |              |   |   |   |
| Other provisions                                                                         |   | 7,783,755         |   | 4,368,327 |   |
| Debt with minority shareholders                                                          |   | 468,919           |   | 242,846 |   |
| Dividends payable                                                                        |   | 2,269,017         |   | 1,070,414 |   |
| Advanced subscriptions fees                                                              |   | —            |   | 110,290 |   |
| Sundry creditors                                                                         |   | 312,974           |   | 711,901 |   |
| Other                                                                                    |   | 2,259,559         |   | 2,639,919 |   |
|                                                                                     |   | 13,094,224        |   | 9,143,697 |   |
| NON-CURRENT LIABILITIES                                                                  |   |              |   |   |   |
| (h)   Other                                                                         |   |              |   |   |   |
| Investments in companies carried under the  equity method — Fintelco S.A. (Note 10) |   | 22,007,433        |   | 39,111,696 |   |
| Other                                                                                    |   | 255,227           |   | 255,227 |   |
|                                                                                     |   | 22,262,660        |   | 39,366,923 |   |

 
|                                  |   | **December  31,** |   |
|---------------------------------------|--------|-------------------|--------|
|                                  |   | **2002**          |   | **2001** |   | **2000** |   |
| CONSOLIDATED STATEMENT OF OPERATIONS  |   |              |   |   |   |   |   |
| (i)   Net revenues               |   |              |   |   |   |   |   |
| Gross sales                           |   |              |   |   |   |   |   |
| From subscriptions                    |   | 594,713,052       |   | 1,029,261,943 |   | 1,104,548,708 |   |
| From advertising                      |   | 10,510,841        |   | 26,891,955 |   | 28,528,311 |   |
| Other                                 |   | 8,354,416         |   | 6,630,523 |   | 2,449,496 |   |
| Allowance for doubtful accounts       |   |              |   |   |   |   |   |
| From subscriptions                    |   | (34,976,475       | )      | (67,730,936 | ) | (46,628,769 | ) |
| From advertising                      |   | (1,161,464        | )      | (986,597 | ) | (6,246,203 | ) |
| From new business                     |   | 400,000           |   | (1,698,738 | ) | — |   |
| Direct taxes                          |   | (3,112,055        | )      | (15,112,221 | ) | (42,481,794 | ) |
| Recovery from Comfer - Decree 1008/01 |   | —            |   | 38,216,619 |   | — |   |
|                                  |   | 574,728,315       |   | 1,015,472,548 |   | 1,040,169,749 |   |

 

F-13

----

 
|                                                   |   | **December  31,** |   |
|--------------------------------------------------------|--------|-------------------|--------|
|                                                   |   | **2002**          |   | **2001** |   | **2000** |   |
| (j)   Financial expenses and holding results, net |   |              |   |   |   |   |   |
| On assets                                              |   |              |   |   |   |   |   |
| Result of exposure to inflation                        |   | (160,142,743      | )      | — |   | — |   |
| Exchange gain and results from conversion              |   | 21,010,407        |   | 1,473,563 |   | 1,640,476 |   |
| Bank expenses                                          |   | (877,407          | )      | (1,390,556 | ) | (943,116 | ) |
| Holding gains/short-term investments                   |   | 5,015,358         |   | 1,854,942 |   | 3,654,595 |   |
| Interest                                               |   | 570,314           |   | 2,435,325 |   | 2,902,967 |   |
|                                                   |   | (134,424,071      | )      | 4,373,274 |   | 7,254,922 |   |
| On liabilities                                         |   |              |   |   |   |   |   |
| Result of exposure to inflation                        |   | 336,888,258       |   | — |   | — |   |
| Interest                                               |   | (245,421,360      | )      | (196,367,682 | ) | (207,814,028 | ) |
| Loan indexation                                        |   | 30,198,098        |   | — |   | — |   |
| Gain on redemption of debt                             |   | 417,776,648       |   | 9,211,242 |   | — |   |
| Exchange loss                                          |   | (854,035,147      | )      | (4,683,828 | ) | (2,706,742 | ) |
| Taxes and commissions                                  |   | (22,448,869       | )      | (34,984,762 | ) | (41,039,253 | ) |
|                                                   |   | (337,042,372      | )      | (226,825,030 | ) | (251,560,023 | ) |
|                                                   |   | (471,466,443      | )      | (222,451,756 | ) | (244,305,101 | ) |
| (k)   Other non-operating expenses, net           |   |              |   |   |   |   |   |
| Employee’s dismissals                             |   | —            |   | (10,007,767 | ) | (7,282,706 | ) |
| Provision for lawsuits and contingencies               |   | (2,014,204        | )      | (8,625,158 | ) | (12,591,449 | ) |
| Uncollectibility of other receivables                  |   | (400,000          | )      | (4,518,580 | ) | (3,793,425 | ) |
| Impairment of goodwill an other intangible  assets     |   | (312,728,070      | )      | (326,077,446 | ) | — |   |
| Loss on disposal of fixed assets                       |   | —            |   | — |   | (1,704,188 | ) |
| Allowance for unrecoverable investments                |   | (7,521,000        | )      | — |   | — |   |
| Other                                                  |   | 13,163,249        |   | (6,995,780 | ) | (8,914,460 | ) |
|                                                   |   | (309,500,025      | )      | (356,224,731 | ) | (34,286,228 | ) |

 

F-14

----

 

**NOTE 4 - PROPERTY AND EQUIPMENT, NET**

 
|                                                                 |   | **December  31, 2002** |   |
|-----------------------------------------------------------------|--------|------------------------|--------|
|                                                                 |   | **Original value**     |   | **Accumulated  depreciation** |   | **Net book value** |   | **Assets  lives years** |   |
| Installations, external wiring and  transmission equipment |   | 1,403,385,192          |   | (954,212,800 | ) | 449,172,392 |   | 10 |   |
| Properties                                                      |   | 119,557,196            |   | (38,185,930 | ) | 81,371,266 |   | 50 |   |
| Computer equipment                                              |   | 63,661,039             |   | (53,842,217 | ) | 9,818,822 |   | 5 |   |
| Furniture, fixtures and tools                                   |   | 52,956,874             |   | (47,782,182 | ) | 5,174,692 |   | 10 |   |
| Vehicles                                                        |   | 30,070,447             |   | (26,302,925 | ) | 3,767,522 |   | 5 |   |
| Materials, net of provision for  obsolescence of materials      |   | 61,420,715             |   | — |   | 61,420,715 |   | — |   |
| Work in progress                                                |   | 6,595,669              |   | — |   | 6,595,669 |   | — |   |
| Advances to suppliers                                           |   | 2,783,244              |   | — |   | 2,783,244 |   | — |   |
| Total                                                           |   | 1,740,430,376          |   | (1,120,326,054 | ) | 620,104,322 |   |   |   |

 
|                                                            |   | **December  31, 2001** |   |
|------------------------------------------------------------|--------|------------------------|--------|
|                                                            |   | **Original value**     |   | **Accumulated  depreciation** |   | **Net book value** |   | **Assets  lives years** |   |
| Installations, external wiring and  transmission equipment |   | 1,412,324,484          |   | (818,553,347 | ) | 593,771,137 |   | 10 |   |
| Properties                                                 |   | 118,649,629            |   | (32,570,629 | ) | 86,079,000 |   | 50 |   |
| Computer equipment                                         |   | 63,225,664             |   | (46,008,961 | ) | 17,216,703 |   | 5 |   |
| Furniture, fixtures and tools                              |   | 54,708,262             |   | (45,402,343 | ) | 9,305,919 |   | 10 |   |
| Vehicles                                                   |   | 31,893,100             |   | (26,207,808 | ) | 5,685,292 |   | 5 |   |
| Materials, net of provision for obsolescence  of materials |   | 64,546,735             |   | — |   | 64,546,735 |   | — |   |
| Work in progress                                           |   | 15,257,285             |   | — |   | 15,257,285 |   | — |   |
| Advances to suppliers                                      |   | 5,888,495              |   | — |   | 5,888,495 |   | — |   |
| Total                                                      |   | 1,766,493,654          |   | (968,743,088 | ) | 797,750,566 |   |   |   |

 

The consolidated depreciation expense ofproperty and equipment for the years ended December 31, 2002, 2001 and 2000amounted to Ps. 191,867,508, Ps 198,312,360 and 199,995,740, respectively.

 

F-15

----

 

**NOTE 5 - GOODWILL AND INTANGIBLE ASSETS**

 
|                     |   | **December  31, 2002** |   |
|--------------------------|--------|------------------------|--------|
|                     |   | **Original  value**    |   | **Accumulated  amortization** |   | **Net book  value** |   |
| Goodwill                 |   | 2,654,222,819          | (1)    | (851,116,577 | ) | 1,803,106,242 |   |
| Others                   |   | 45,556,302             |   | (26,530,396 | ) | 19,025,906 |   |
| Sub-Total                |   | 2,699,779,121          |   | (877,646,973 | ) | 1,822,132,148 |   |
| Allowance for impairment |   | (638,805,516           | )      | 18,203,795 |   | (620,601,721 | ) |
| Total                    |   | 2,060,973,605          |   | (859,443,178 | ) | 1,201,530,427 |   |

 
|                     |   | **December 31, 2001** |   |
|--------------------------|--------|-----------------------|--------|
|                     |   | **Original  value**   |   | **Accumulated  amortization** |   | **Net book  value** |   |
| Goodwill                 |   | 2,650,334,232         | (2)    | (723,095,500 | ) | 1,927,238,732 |   |
| Others                   |   | 42,778,675            |   | (22,167,928 | ) | 20,610,747 |   |
| Sub-Total                |   | 2,693,112,907         |   | (745,263,428 | ) | 1,947,849,479 |   |
| Allowance for impairment |   | (326,077,446          | )      | — |   | (326,077,446 | ) |
| Total                    |   | 2,367,035,461         |   | (745,263,428 | ) | 1,621,772,033 |   |

 

The consolidated amortization expense ofgoodwill and intangible assets for the years ended December 31, 2002, 2001 and2000 amounted to Ps. 114,987,696, Ps. 133,875,291 and Ps. 134,948,190,respectively.

 

----

(1)           Includesan addition for the recording of goodwill on the purchase of Tres ArroyosTelevisora Color S.A. for Ps. 497,274.

 

(2)           Includes:an addition for the recording of goodwill on purchase of Dorrego TelevisiónS.A. and Cable Video Sur S.R.L. for Ps. 7,087,433 and increase in goodwill onthe purchase of Tres Arroyos Televisora Color S.A. for Ps. 1,053,190.

 

**NOTE 6 - ALLOWANCES AND CERTAIN PROVISIONS**

 

*(a)**       Allowancefor doubtful accounts*

* *
|                                                      |   | **December 31,**        |   |
|------------------------------------------------------|--------|-------------------------|--------|
|                                                      |   | **2002**                |   | **2001** |   | **2002** |   | **2001** |   | **2002** |   | **2001** |   |
|                                                 |   | **From  subscriptions** |   | **From  advertising** |   | **From new  businesses** |   |
| Balance  at the beginning of the year                |   | 47,080,782              |   | 37,875,170 |   | 9,427,158 |   | 9,306,658 |   | 1,698,738 |   | — |   |
| Increase / (Decrease) (recorded as loss /  (income)) |   | 34,976,475              |   | 67,730,936 |   | 1,161,464 |   | 986,597 |   | (400,000 | ) | 1,698,738 |   |
| (Write-off)  (*)                                     |   | (59,969,569             | )      | (58,525,324 | ) | (4,198,654 | ) | (866,097 | ) | (898,579 | ) | — |   |
| Balance  at the end of the year                      |   | 22,087,688              |   | 47,080,782 |   | 6,389,968 |   | 9,427,158 |   | 400,159 |   | 1,698,738 |   |

 

----

(*) Includes result of exposure to inflation.

 

F-16

----

 

*(b)**       Provisionfor obsolescence of materials*

* *
|                                  |   | **December  31,** |   |
|---------------------------------------|--------|-------------------|--------|
|                                       |   | **2002**          |   | **2001** |   |
| Balance  at the beginning of the year |   | 11,068,728        |   | 11,211,280 |   |
| Decrease                              |   | (65,448           | )      | (142,552 | ) |
| Balance  at the end of the year       |   | 11,003,280        |   | 11,068,728 |   |

 

*(c) Provision for lawsuits and contingencies*

* *
|                                  |   | **December  31,** |   |
|---------------------------------------|--------|-------------------|--------|
|                                       |   | **2002**          |   | **2001** |   |
| Balance  at the beginning of the year |   | 51,928,726        |   | 44,551,602 |   |
| Increase  (recorded as loss)          |   | 2,014,204         |   | 8,625,158 |   |
| (Decrease) increase of provision (*)  |   | (35,583,233       | )      | (1,248,034 | ) |
| Balance  at the end of the year       |   | 18,359,697        |   | 51,928,726 |   |

 

----

(*) Includes result of exposure to inflation.

 

*(d) Allowance for unrecoverable investments*

* *
|                                  |   | **December  31,** |   |
|---------------------------------------|--------|-------------------|--------|
|                                       |   | **2002**          |   | **2001** |   |
| Balance  at the beginning of the year |   | —            |   | — |   |
| Increase  (recorded as loss)          |   | 7,521,000         |   | — |   |
| Balance  at the end of the year       |   | 7,521,000         |   | — |   |

 

**NOTE 7 - BANK AND FINANCIAL DEBT**

 

In addition to the financial loans with local financial entities, whichhave been converted into pesos and restated at the end of the year endedDecember 31, 2002 through application of the Reference StabilizationCoefficient (“CER”), the Company’s financial debt is as follows:

 

*(a) US$ 125 million 9.25% Notes due 2002 and US$ 125 million10.50% Notes due 2007*

 

The Shareholders’ Ordinary and Extraordinary General Meeting held onOctober 7, 1996 approved the issuance of non-convertible unsecured corporatebonds for up to US$ 300,000,000 and authorized the Board of Directors todetermine the remaining terms and conditions, including issue date, price, interestrate, placement and payment form and conditions.

 

On October 11, 1996, filings with the CNV, the BCBA and the MercadoAbierto Electrónico S.A. (Electronic Open Market or MAE) were made to obtainapproval for the public issuance of the Notes, which was obtained on January23, January 30, and February 5, 1997, respectively.

 

On January 28, 1997, the Board of Directors of Multicanal approved theissuance of two series of securities, theUS$ 125 million 9.25% Notes due 2002 and the US$ 125 million 10.50%Notes due 2007 (collectively, the “Notes”), in each case interest to be paidsemi-annually.  The aggregate netproceeds of the issue of the Notes due 2002 and the Notes due 2007 ofUS$ 244,882,500, together with US$ 5,117,500 corresponding to cashgenerated by the operations, were used to repay a US$ 200 million loanfacility arranged by The Boston Investment Group S.A., Banco Río de la PlataS.A. and Galicia Capital Markets S.A. in 1995 (the “1995 Loan Facility”) and torefinance short-term bank debt and other indebtedness.  Appropriation to payment was effected onFebruary 3, 1997.

 

F-17

----

 

The Notes due 2002 and the Notes due 2007 contained customaryaffirmative and negative covenants, including, but not limited to, restrictionson the incurrence of additional debt, creation of liens on assets, disposal ofassets, mergers and payments of dividends.

 

On July 2, 1997, the Notes due 2002 and the Notes due 2007 wereregistered with the SEC and the Company made a duly registered exchange offerto holders of the Notes.  The 30-dayexchange offer concluded on August 3, 1997.

 

On June 26, 2001 the Company filed a registration application with theCNV for a public offering for the purchase of Notes in the amount of US$ 125,000,000maturing on February 1, 2002, addressed to all of its holders and to be carriedout simultaneously in Argentina and in foreign markets in which the Notes wereoriginally placed.  This purchaseoffering was subject to: (a) the assignment of the Company’s rights in DirecTVLatin America LLC and of certain contractual rights relating to it, theproceeds of which would be used in part to purchase the Notes offered; (b) theabsence, according to the Company’s reasonable judgement, of any legalimpediment, whether actual or threatened, including any noncompliance under anagreement, indenture or any other instrument or obligation, which the Companyor one of its affiliates is a party to, to purchase the Notes offered; or (c)the absence of events or changes, including in the economic, financial,exchange or general market conditions of the United States of America,Argentina or any other country which, according to the reasonable judgement ofthe Company, has or may have a material adverse effect on the market price, thetrading of or the value of the Notes to the Company.

 

On June 28, 2001 the Board of the CNV acknowledged the procedureimplemented by the Company for the public offering involving the purchase ofthe Notes issued by it and maturing in 2002, up to an amount of US$125,000,000. On July 19, 2001, due to the economic and financial conditions inArgentina, the Company concluded that the conditions for the consummation ofits offer to purchase the Notes had not been met and were unlikely to be met andthus, the Company decided to withdraw the purchase offer as of that date.

* *

*(b) Establishment of a Medium-Term Note Program of up toUS$ 350,000,000*

 

During the Ordinary Shareholders’ Meeting held on April 4, 1997, theShareholders approved the establishment of a Medium-Term Note Program (the“Program”) for the issue of unsecured corporate debt, in different currencies,provided that the maximum outstanding amount, after adding all series andclasses of notes issued under the Program, does not exceed US$ 350,000,000,or an equivalent amount if any such issue is in another currency, at anytime.  On May 8, 1997, the CNV approvedthe public offer of Corporate Bonds under the abovementioned Program.  On July 24, 1997, the abovementioned Programwas approved by the BCBA.

 

*(i) Issue of US$ 150 million Series C10.50% Notes due 2018*

 

On March 15, 1998, the Board of Directors of Multicanal approved theterms and conditions for the issuance under the Program of US$ 150 millionSeries C 10.50% Notes due 2018 (the “Series C Notes”).  The Series C Notes will mature on April 15,2018 and bear interest at the rate of 10.50% payable semi-annually.

 

The net proceeds received by the Company from the placement, amountingto approximately US$ 144.3 million, were used to refinance debt incurredby the Company in connection with the purchase of cable systems, short-termbank debt, other liabilities and costs and related expenses.

 

The Series C Notes contain customary affirmative and negativecovenants, which are similar to those mentioned for the issue of the Notes due2002 and Notes due 2007.

 

On September 4, 1998, the Series C 10.50% Notes due 2018 (the “NewNotes”) were registered with the SEC and the Company made a duly registered30-day exchange offer to the holders of the Series C Notes. The 30-day exchangeoffer concluded on October 6, 1998.

 

F-18

----

 

*(c) Increase in the maximum amount of notes outstanding under theMedium-Term Note Program*

 

The Company’s shareholders approved, at a self-summoned UnanimousOrdinary Meeting held on November 24, 1998, an increase in the maximumaggregate amount of notes outstanding under the Medium-Term Note Program byUS$  200,000,000 to US$ 550,000,000. On December 2 and 22, 1998 and February 16, 1999, the CNV, the BCBA andthe MAE, respectively, approved the abovementioned increase.

 

Subsequently, on January 19, 1999, the Company’s shareholders approvedan additional increase in the maximum aggregate amount of notes outstandingunder the Medium-Term Note Program by US$ 500,000,000 toUS$ 1,050,000,000.  On March 31 andApril 5 and 13, 1999, the CNV, the BCBA and the MAE, respectively, approved theabovementioned increase.

 

*(i)* Issue ofUS$ 175 million Series E Notes due 2009

 

In March 1999 the Board of Directors of Multicanal approved the termsand conditions for the issue of the Series E Notes under the Medium-Term NoteProgram.  The CNV approved the publicoffer of such Notes on March 31, 1999.

 

The principal amount of the Series E Notes totals US$ 175 millionand matures on April 15, 2009. The Series E Notes are subject to earlyrepayment, in whole or in part, at the option of holders, on April 15,2004.  If a holder exercises its earlyrepayment option, the Series E Notes will be repaid at a price equal to 100% ofthe principal amount plus interest accrued thereon and unpaid and additionalamounts, if any, which could be claimed through the repayment date.  The Notes bear interest at the rate of 13.125%,payable semi-annually.

 

The net proceeds of the issue, which amountedto US$ 170.5 million, were used to refinance debt incurred by the Companyin connection with the purchase of cable systems and other short-term financialliabilities.

 

The listing and negotiation of the Series E Notes were authorized bythe BCBA and the MAE on April 14 and 15, 1999, respectively.

 

The Series E Notes contain customary affirmative and negativecovenants, which are similar to those mentioned for the issue of the Notes due2002 and Notes due 2007.

 

On September 13, 1999, the Series E Notes due 2009 were registered withthe SEC. The 30-day exchange offer concluded on October 21, 1999.

* *

*(ii)* Issue of US$ 150 million Series GFloating Rate Notes due 2001

 

On January 17, 2000 the Board of Directors ofMulticanal approved the terms and conditions for the issue of Series G FloatingRate Notes for an amount of up to US$ 200,000,000, issued under theMedium-Term Note Program.  TheShareholders’ Meeting held on February 7, 2000 confirmed this Board Resolution.

 

The principal amount of the issue totaledUS$ 150 million, which fell due in eighteen months as from February 18,2000, and beared interest at LIBOR plus 4.5% p.a., payable monthly for thefirst three months and quarterly thereafter. On February 17, 2000 the BCBA authorized the listing of these Series GNotes.

 

F-19

----

 

The net proceeds of the issue,which amounted to US$ 146.6 million, were used to refinance debt incurredby the Company, among others the prepayment of the principal and accruedinterest due on the 1997 Loan Facility.

 

Pursuant to the terms of the Series GFloating Rate Notes, the Company was required to comply with certainobligations, such as restrictions on: i) incurrence of additional debt, ii)issuance of liens on assets, and iii) disposal of assets, among other items.

 

See issue of US$ 144 million Series JFloating Rate Notes (Note 7 (c) (iv)).

 

*(iii)*     Issueof US$ 14 million Series I 10.25% Notes due 2001

 

On December 28, 2000 the Board of Directors of Multicanal approved theterms and conditions of Series I Notes issued under the Global Program for upto US$ 1,050,000,000, the public offer of which was approved by the CNV onMarch 31, 1999.

 

The issue was carried out on January 11, 2001 for a total amount of US$14 million due on August 21, 2001; interest accrued from the date of issue at afixed annual percentage rate of 10.25%, with final repayment upon maturity.

 

The net proceeds from the placement, which amounted to approximatelyUS$ 13.7 million plus US$ 24.6 million generated by the Company’s ordinarycourse of business, were used to pay the last interest installment and fullamortization of the Series A Floating Rate Notes.

 

The Series I Notes contained similar affirmative and negative covenantsto those contained in the Series G Floating Rate Notes (Note 7 (c) (ii)).

 

On January 9, 2001, the BCBA authorized the listing of Series I Notes.

 

See description of the settlement in Note 7 (c) (iv).

 

*(iv)*       Issueof US$ 144 million Series J Floating Rate Notes due 2003

 

On August 22, 2001, the Board of Directors of Multicanal approved theissue of US$ 144,000,000 of its Series J Floating Rate Notes under theGlobal Program for up to US$ 1,050,000,000.

 

The Series J Notes were issued on August 24, 2001 in the amount of US$144 million, and the maturity date is August 22, 2003.  The Series J Floating Rate Notes bearinterest at the LIBO rate indicated for deposits in dollars on page “3,750” ofthe Telerate monitor plus 5.5%. Interest is payable on a quarterly basis.

 

On August 24, 2001 the Company issued the Series J Floating Rate Notes,which were exchanged for the Series G and Series I Notes (the maturity of whichwas extended until August 30, 2001 with the unanimous consent of their holdersin connection with the issuance of the Series J Notes).  Pursuant to the terms and conditions agreedupon, the Company paid US$ 20,000,000 in cash to the Series G and Series Iholders to satisfy all of the Company’s obligations corresponding to suchNotes.

 

Pursuant to the terms of the Series J Floating Rate Notes, the Companymust comply with certain covenants, including, without limitation, obligationsthat restrict: (i) indebtedness; (ii) dividend payments or the making ofcertain restricted payments; (iii) the granting of certain pledges, and (iv)the sale of certain assets of the Company and certain of its subsidiaries.  In addition, the Company agreed that its netdebt (Bank and financial debts plus Acquisition-related debt less Cash and cashequivalents) would not 

 

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exceed US$ 700,000,000, that it will not invest in fixed or capitalassets in excess of US$ 40,000,000 during any 12 month-period and that thebalances resulting from the sale of its investment in DirecTV Latin America,LLC to Raven Media Investment, LLC would be applied to discharge financialdebt.

 

**Repurchases**

 

During the fourth quarter of fiscal year 2001 and in January 2002, theCompany repurchased notes for US$ 211,148,000, at different prices below parplus accrued interest. In connection with the redemption, the Companyrecognized a gain in the years ended December 31, 2002 and 2001 of Ps.417,776,648 and Ps. 9,211,242, respectively which is included under the captionFinancial expenses and holding results, net in the consolidated statement ofoperations.

 

**DeferredPayments**

 

On February 1, 2002, the Company defaulted the payment of principal andinterest on its 9.25% Notes due 2002 and interest on its 10.50% Notes due 2007due to the situation of the Argentine economy and the political and socialcrisis that resulted from the economic, exchange and regulatory measuresdescribed in Note 13. Subsequently on February 26, 2002, the Company alsodefaulted the payment of interest on its Series J Floating Rate Notes due 2003.

 

On April 15, 2002, the Company defaulted the payments of interest onits Series C 10.50% Notes due in 2018, and its Series E 13.125% Notes due in2009 due to the worsening of the Argentine economic crisis.

 

Accordingly, all financial debt was classified as current in theaccompanying balance sheet.

 

On June 4, 2002, the Company designated JP Morgan Securities Inc. asfinancial advisor, to assist it in designing alternative means of dischargingthe deferred payments. (Note 14 (a)).

 

**NOTE 8 - SHAREHOLDERS’ CAPITAL**

 

On January 1, 2001 the Company carried out a business reorganizationprocess through which it absorbed Plataforma Digital S.A., Red Argentina S.A.,Radio Satel Sociedad Anónima, Cable Espacio del Buen Ayre S.A., Video CableNorte S.A., Televisión por Cable S.A. and Cable Visión Corrientes SociedadAnónima, which were dissolved without being liquidated.  In its capacity as the absorbing company,the Company continued with the operations of the absorbed companies. As aresult of the merger, the Company increased its capital stock by Ps. 867,810,i.e. from Ps. 365,953,227 to Ps. 366,821,037, through the issuance of 867,810ordinary, nominal and non-endorsable Class A shares of Ps. 1 par value and 5votes each, which will be delivered to Grupo Clarín S.A. in exchange of16,303,000 ordinary, nominal and non-endorsable shares held in PlataformaDigital S.A. This capital increase is pending registration.

 

As a result, the shares of the Company are currently held as follows:

 
|                                       |   | **Number of  shares** |   |        |   |
|--------------------------------------------|--------|-----------------------|--------|-------------|--------|
| **Shareholder**                            |   | **Class A**           |   | **Class B** |   | **Total** |   | **% Holding** |   |
| Grupo Clarín S.A.                     |   | 80,679,409            |   | 21,957,194  | (1)    | 102,636,603 |   | 27.98 |   |
| Multicanal Holding LLC                     |   | 119,655,068           |   | 27,909,472  |   | 147,564,540 | (2) | 40.23 |   |
| Arte Gráfico Editorial Argentino S.A. |   | —                |   | 116,619,894 |   | 116,619,894 |   | 31.79 |   |
| Total                                      |   | 200,334,477           |   | 166,486,560 |   | 366,821,037 |   | 100.00 |   |

 

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(1)          On March 30, 2001, theCompany’s Board of Directors authorized the granting and registering of apledge on 4,791,503 Class B shares owned by Grupo Clarín S.A., as collateralfor Video Cable Comunicación 

 

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S.A.’s deferred taxes in the amount of Ps.2,982,126 and Ps. 3,055,166 corresponding to investments made in Sierras deMazán S.A.  In addition, in line withthe Administración Federal de Ingresos Públicos (Tax Authority or the “AFIP”)General Resolution No. 846, the Company set up a pledge in its favor on4,791,503 Class B shares as collateral with BankBoston N.A. in favor of theAFIP. On January 24, 2002 the Board of Directors of the Company authorized thecreation and registration of a security interest on (i) 367,954 ordinary bookentry Class B shares held by Grupo Clarín S.A. to secure tax deferrals for Ps.463,620 made by Video Cable Comunicación S.A. in Sierras de Mazán S.A.; (ii)2,146,107 ordinary book entry Class B shares held by Grupo Clarín S.A. tosecure tax deferrals for Ps. 2,704,095 made by Enequis S.A. in Sierras deMazán; and (iii) 1,299,498 ordinary book entry Class B shares held by Grupo ClarínS.A. to secure Ps. 1,637,355, i.e. the total amount of the debt deferred byCable Video Sociedad Anónima in Valle del Tulum.  Those shares were pledged as collateral in favor of the AFIPthrough BankBoston N.A.

 

(2)          Of this holding,62,333,333 shares (40,094,948 ordinary Class A shares and 22,238,385 ordinaryClass B shares) are pledged in favor of TI Telefónica Internacional de EspañaS.A. On November 11, 2000 TI Telefónica Internacional de España S.A. gavenotice of the assignment of the right to collect the price balances and therights on the shares pledged in favor of Telefónica Media S.A.

 

**NOTE 9 - COMMITMENTSAND CONTINGENCIES**

 

*(a) Acquisition and sale of cable systems*

 

(i) Acquisition of cable systems in Paraguay

 

On December 12, 1997, the Company entered into two agreements for theacquisition of 14 cable systems (13 in Paraguay and 1 in Clorinda,Argentina).  The closing of thetransaction was scheduled for November 15, 1997, which was subject to the seller’scompliance with certain conditions, including obtaining various regulatoryapprovals from the government of Paraguay, which were ultimately notobtained.  The Company renegotiated thepurchase of the subscribers, and the assets and liabilities of the Paraguayancompanies. So far, US$ 2,300,000 corresponding to the payment on account of thetotal price has been paid.

 

The final agreement was not signed due to the seller’s failure tocomply with its obligations.  The sellersigned a promissory note amounting to US$ 2,300,000 and pledged the sharescorresponding to certain TV systems in favor of the Company to guaranteecompliance with the conditions for the closing of the transaction.  As a result of the seller’s non-compliance,the Company demanded payment of the promissory note, but the seller brought aclaim demanding compliance with the agreement signed on December 12, 1997,reserving the right to determine the amount of damages, and an injunction whichwas resolved by the Paraguayan court in favor of the plaintiff.  This measure prevents collection by theCompany of the promissory note amounting to US$ 2,300,000.

 

On June 19, 2001, the seller communicated to the court the assignmentof rights and lawsuits in favor of Lisker S.A., for which court fees werepaid.  When the Company was informed ofthis assignment, it filed an appeal challenging the court’s decision pursuantto which Lisker S.A. was assigned seller’s rights, on the grounds that theagreement had an intuitu personae nature, and that the seller was restrictedfrom assigning rights, according to the agreement. Through a resolution datedAugust 17, 2001, the court approved the appeal and revoked the rights assignedto Lisker S.A. That ruling was appealed by Lisker S.A., which filed an appealof the dismissal.  This appeal was alsodismissed.  Subsequently, Lisker S.A.filed an appeal with the Supreme Court of Justice of Paraguay****claimingunconstitutionality. Once the complaint regarding the unconstitutional natureof the measure had been replied to, the case was submitted to the AttorneyGeneral for a ruling. To answer the requirement the Attorney General asked forthe file on the complaint because of refusal to appeal, but as it has beenmislaid at present the Civil and Commercial Court of Appeal has not yet sentit. In view of the situation an application will 

 

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be made for the time periods to be extended and for a reply to thesubmission on the action brought for lack of constitutionality.

 

On July 10,2001 the court ordered that the evidence filed by the seller, which it hadobtained in Buenos Aires, be removed from the court file and returned toit.  The seller filed a motion toreverse this court decision and an appeal. On July 24, 2001, the court rejected the motion and the appeal.  The seller appealed but the appeal wasrejected by the Appellate Court in Civil and Commercial Matters, Room 2, onAugust 13, 2001.

 

On September17, 2001, the Company requested the lifting of the provisional remedy, whichrestrains it from collecting the promissory note for US$ 2,300,000 drawn in thename of the seller. The Court lifted the injunction that had preventedMulticanal from bringing legal action against the seller.

 

The Company is unable to assure that it willcollect the amount due once the injunction has been lifted.

 

(ii) Sale of assets and rights in DirecTV Latin America, LLC.

 

On August 24, 2001, the Company transferred all of its interests inDirecTV Latin America, LLC and certain contractual rights related thereto toRaven Media Investments, LLC, a company organized under the laws of the stateof Delaware and wholly-owned by Grupo Clarín S.A., for US$ 150,000,000.

 

The Company received the full purchase price upon the execution of thetransfer agreement.

 

Multicanal reserved the right, subject to certain conditions, toindirectly repurchase the assets sold. This option expires by no later than November 10, 2003.

 

(iii) Tres Arroyos Televisora Color S.A. trusts

 

On September 7, 2001, a Trust Agreement was signed under which theminority shareholders transferred all of their equity interests in Tres ArroyosTelevisora Color S.A., representing 38.58% of the stock capital, in favor ofthe trustee, Mr. José María Sáenz Valiente (h).  Multicanal was appointed the trust beneficiary so that the stockin trust is gradually transferred to it provided it pays Ps. 42,876 per monthto the trustee over a 10-year period. The trust will be revoked if Multicanal were to fail to pay theconsecutive monthly installments.

 

Additionally, on the same date, September 7, 2001, a beneficialinterest on the shares of Tres Arroyos Televisora Color S.A., representing38.58% of the Company’s capital stock and voting rights, was set up in favor ofMulticanal, for the earlier of 10 years or the Trust life.

 

As of December 2002, the trustee transferred 1,389 shares to Multicanalunder the Trust Agreement.  Theparticipations after the transfer are as follows: Multicanal owns 16,129 sharesrepresenting 67.20% of the capital stock and Fideicomiso Tres ArroyosTelevisora Color S.A. owns 7,871 shares representing 32.80% of the capitalstock.

 

(iv) Acquisition of Telemás S.A. Renegotiation of payment of the pricebalance

 

On May 2, 1997, through its wholly-owned subsidiary Adesol S.A., theCompany acquired 75% of Telemás S.A., a company that provides programming andmanagement services to UHF systems and another seven cable operators inUruguay. On July 15, 1999 the Company established that Adesol S.A. wouldacquire the remaining 25% of Telemás S.A. and agreed to pay US$ 12.4 million insix half-yearly installments, the first four of which were paid on December 15,1999, June 15 and December 15, 2000 and June 15, 2001 (payment corresponding toDecember 31, 2001 had been made in advance). The amount of the finalinstallment due on June 15, 2002 was 

 

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renegotiated, being payable in 24 installments from July 2002. Inaccordance with an addendum dated November 2002, the Company and Adesol S.A.partially renegotiated their financing obligations with maturities from October2002 through March 2003, reducing the amount of the installments and adding afinal installment corresponding to the difference. The restriction on the saleof Adesol S.A. and Telemás S.A. will continue to be in effect until thoseinstallments have been settled.

 

(v) Acquisition of Dorrego Televisión S.A

 

Through the agreement entered into on October 15, 2002 in relation tothe purchase of the capital stock of Dorrego Televisión S.A. and Cable VideoSur S.R.L., the Company assumed the outstanding obligations of the purchaser –amounting to Ps. 250,000 – with the previous shareholders of Dorrego TelevisiónSA. and agreed to settle that debt in 30 monthly installments using a formulabased on a basic subscription fee charged in Coronel Dorrego. On December 15,2002 the Company entered into an agreement whereby it assumed the obligationsof the seller with the previous owners of Cable Video Sur SRL. The obligationsof the seller were secured with a pledge on 99% of the quotas of Cable VideoSur S.R.L. The Company agreed to pledge the shares of Dorrego Televisión SA. inexchange for the release of the pledge on the installments of Cable Video SurS.R.L. It was also agreed that the total payment of Ps. 829,641 would be madein 39 monthly installments and six semi-annual installments.

 

*(b) Litigation*

 

The Company is involved in litigation from time to time in the ordinarycourse of business.  In Management’sopinion, the lawsuits in which the Company is currently involved, individuallyand in the aggregate, are not expected to be resolved for amounts that would bematerial to the Company’s financial condition or results of operations.

 

*(c) Operating licenses*

 

The Company’s operating licenses, obtained from the Comité Federal deRadiodifusión (Federal Broadcasting Committee or “COMFER”), have been generallygranted for a period of 15 years, with the option to extend the licenses for anadditional ten-year period, counted as from the expiration of the originalterm.  The Company has requested theextension of the term for several licenses. The extension of the licenses is subject to approval by the COMFER.Although management considers that the risk that the Company will be unable torenew its licenses in the future remote, it cannot provide assurance that theCompany will obtain any such extensions.

 

*(d) Pending approvals*

 

The Company has applied for COMFER approval of several transactions,including the various corporate reorganizations in which several operatingsubsidiaries were merged into the Company, certain transfers and otheracquisitions of cable television companies. In addition, the Company has requested the COMFER to approve theelimination of certain headends. Although most of these approval petitions are pending, the Companyexpects to receive all such approvals in due course.  Notwithstanding the foregoing, the Company can give no assurancethat such approvals will be granted by the COMFER or any successor agency.

 

The merger-spin-off of Fintelco S.A., Video Cable Comunicación S.A.(“VCC”) and CV Inversiones S.A. are pending approval by the IGJ.

 

The last increase in capital stock resulting from the merger that willbe deemed effective as of January 1, 2001 is pending registration with the IGJ.Furthermore, the reorganization processes carried out by the Company before themerger are also pending registration.

 

*(e*) *Claims byCOMFER*

 

(i) Administrative proceedings

 

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The COMFER has brought administrative proceedings against the Companybecause of failure to comply with certain terms of the Broadcasting Act.

 

As a result of these proceedings, the Company has taken part in apayment facilities regime established by Government Decree 1201/98, as amendedby Decrees 644/99 and 937/99, in order to pay the penalties for violations ofthe broadcasting law that allegedly occurred prior to December 9, 1999. Thismechanism provides for: (i) an 85% reduction in any fines in connection withthese proceedings, and (ii) cash payments of the amount to be determined, orcrediting of the amount to TELAM S.A. for use in public service campaigns runby the Federal Government. The COMFER notified the Company, by means of Note2872/02, that the “Amount payable” amounts to Ps. 5,295,359. The Companyintends to pay this amount by providing advertising time in future broadcasts.

 

On December 13, 2001 the Company took part ina new payment facilities regime established by Decree 2362/02 of the NationalGovernment for the payment of fines imposed on the Company or derived fromnon-compliance with broadcasting regulations between January 1, 2001 andOctober 31, 2002, inclusive. Under this regime, the following alternatives areavailable: (i) to make payment in cash, or (ii) to apply the resulting amountsin favor of the National Secretariat of Communication Media and the Comfer forcampaigns for the public interest organized by the National Government.It is the Company’s intention to pay the fines by providing advertising time infuture broadcasts, accordingly, no accrual in this connection was made.

 

(ii) Demand for payment from Vidycom S.A.

 

The COMFER filed a claim whereby it demandedpayment from Vidycom S.A. (“Vidycom”), a company absorbed by Multicanal in1995, of all the differences in its favor as a result of its participation inthe tax exemption established by Resolution No. 393/93.

 

The tax authorities based their rejection of the mentioned taxexemption on the following grounds: (a) Vidycom was asked to make payment onseveral occasions, but did not comply with COMFER’s requirements, (b) nodocumentation supporting the investments committed by the company was providedand (c) no evidence was provided of the weather phenomenon as a result of whichthe previous shareholders had requested the tax exemption.

 

The amount of the claim, which would be equivalent to 30% of the ratepaid in 1994, 20% of the rate paid in 1995 and 10% of the rate paid in 1996,plus the corresponding interest, has not yet been determined.

 

According to Multicanal, there are questions of fact and of law in itsfavor, which would lead COMFER to reassess its position. Consequently, noamount has been recorded in the financial statements at December 31, 2002.

 

(iii) Demand for payment due to rejection of requests for exemption

 

The COMFER issued various resolutions announcing the rejection of therequest for exemptions filed under the terms of Resolution No. 393/93 to theholders of broadcasting licenses absorbed by Multicanal and to demand paymentof sums due plus interest.

 

The Company considers that there are allegations of fact and questionsof law in its favor that would require Comfer to review its position, but theCompany cannot provide any assurance that the authorities will rule in favor ofthe Company.

 

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(iv) Claims against Difusora S.A.

 

On April 25, 2001 COMFER notified Difusora S.A., a company absorbed byMulticanal, of the amount it must pay as a result of its participation in thepayment facilities regime. The amount is Ps. 107,106, which will be paid withadvertising time according to the option elected by the Company.

 

In addition, on February 8, 2002, the COMFER notified Difusora S.A.that the “Amount to be Settled” corresponding to an action brought due toinfringements that allegedly occurred between May 1 and December 9, 1999 is Ps.17,054.  An application to inspect thefile was presented in order to challenge that assessment.

 

*(f) Other regulatoryaspects*

 

In February 1995, the City of Buenos Aires issued a municipal ordinanceregulating the authorization for the installation of TV cable networks.  Such ordinance establishes severalalternatives for cable installation on the street, namely: by underground laying,center of city block or posting. The ordinance established a maximum term of 7years for cable operators to adapt their wiring networks according to therequirements of the ordinance. Although the Company has been adapting itsnetwork, it has had difficulties making its network fully compliant as a resultof the economic crisis in Argentina, the current lack of financial stabilityand the successive tax charges, which have forced the Company to apply itsresources and income to ensuring the continuity of its business and greatlyreduce its capital expenditures. On September 30, 2002 the Company requestedsuspension of the terms established by ordinance 48,899.

 

*(g) Commitments tomake contributions to Fintelco S.A.*

 

Fintelco S.A. had a negative shareholders’ equity as of November 30,2002.  Under the Argentine CommercialCompanies Law, this could bring its dissolution, unless its capital isrestored. Decree No. 1269/02 of the National Executive Branch suspended theapplication of the abovementioned regulation until December 10, 2003. The Companyand Cablevisión S.A. each hold 50% of the equity of Fintelco S.A. and, in thatproportion, the Company has undertaken to make the contributions required topay the liabilities of Fintelco S.A. and of its subsidiaries when due.

 

*(h) Complaintsagainst the Supercanal Group*

 

The Company brought various claims against Supercanal Holding S.A. andits subsidiaries (the “Supercanal Group”), including an action to declareresolutions adopted during the Extraordinary Shareholders’ Meeting ofSupercanal Holding S.A. on January 25, 2000 to reduce capital stock ofSupercanal Holding S.A. to Ps. 12,000 and subsequently increase capital toPs. 83,012,000 null and void.  TheCourt issued an injunction requested by the Company but required that theCompany post bond for Ps. 22,000,000 for potential damages that could beassessed against the defendant, should the complaint be dismissed. The remedywas granted against the issue of a surety bond.  The Court of Appeals revoked the injunction.  The Company has filed an extraordinaryappeal against that resolution, claiming it is both “arbitrary” and “damagingto the institution”.  The appeal is inthe process of being heard, and a ruling thereon is pending.

 

Other legal actions were initiated, claiming the suspension of: i) the lastthree Ordinary Shareholders’ Meetings of Supercanal Holding S.A. and ii) theguarantees granted by Supercanal S.A. on bank loans exclusively in favor of thegroup controlling Supercanal Holding S.A. (Grupo Uno S.A. and affiliatedcompanies).  In addition, a claim fordissolution and liquidation of Supercanal Holding S.A. was brought jointly withthe action for removal of all the members of the Board of Directors and theSurveillance Committee, and the dissolution of Supercanal Capital N.V.

 

Supercanal Holding S.A. and other companies of the Supercanal Groupfiled for voluntary insolvency proceedings with the National Court of FirstInstance on Commercial Matters No. 20, Secretariat No. 40. and theprocedures began on April 19, 2000.

 

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As a result of the revocation of the preliminary injunction mentionedabove, on December 12, 2001 the Company was notified of the filing of a claimby Supercanal Holding S.A. for damages caused by the granting of the preliminaryinjunction that was subsequently revoked. It has been claimed that the suspension of the effects of the meetingheld on January 25, 2000 resulted in the cessation of payments to SupercanalHolding S.A.

 

The Company answered the complaint and rejected the liabilityattributed to it based on the fact that the cessation of payment had takenplace before the date of the meeting that was suspended by the preliminaryinjunction, according to documentation provided by the plaintiff itself.Furthermore, the suspension of the meeting did not prevent capitalization ofthe Company through other means.  Basedon the record of the case, the Company considers that the claim filed should berejected in its entirety, and the legal costs should be borne by the plaintiff.

 

No assurance can be provided that the Company will obtain an economicor financial gain as a result of these actions.  Presently, as a result of the ancillary jurisdiction of thebankruptcy proceedings of Supercanal Holding S.A., all the claims are broughtin the abovementioned Court.

 

*(i) Value AddedTax.  Tax Authority assessment*.

 

The Tax Authority notified the Company of theissuance of Resolution No. 18/2001, under which the Tax Authority hasofficially assessed the tax debits corresponding to the monthly fiscal periodsbetween September 1996 and September 1998 for value added tax, as a result ofincome from advertising in the cable TV program magazine which is distributedmonthly by the Company. Consequently, the Tax Authority resolved that theCompany must pay: (i) Ps. 1,861,705 in this respect; (ii) Ps. 2,161,971 ascompensatory interest and (iii) a fine of Ps. 1,489,364, equivalent to 80% ofthe value added tax allegedly omitted.

 

The Company filed an appeal against thisresolution with the National Fiscal Court, requesting it to declare theresolution unfounded, and invalidating the Tax Authority’s official assessment,the compensatory interest and the fine imposed. The tax authorities haveresponded to the pleading forwarded and the case is pending ruling. Even thoughthe Company has factual and legal arguments, which uphold its position, wecannot give any assurance that the Company will obtain a favorable decision onthe filed appeal.

 

**NOTE 10 - LONG-TERM INVESTMENTS**

 

Investments carried under the equity methodare as follows:

 
| **Company**       |   | **Direct  percentage  participation in  voting stock** |   | **Investments**   |   | **Equity  in  gains (losses) of affiliated  companies** |   |
|-------------------|--------|--------------------------------------------------------|--------|-------------------|--------|--------------------------------------------------------------|--------|
|              |   | **%**                                                  |   | **December  31,** |   | **For the  year ended December 31,**                         |   |
|              |   |                                                   |   | **2002**          |   | **2001**                                                     |   | **2002** |   | **2001** |   | **2000** |   |
| VER T.V. S.A. (1) |   | 49.00                                                  |   | 6,488,278         |   | 3,369,703                                                    |   | 3,227,892 |   | 275,357 |   | (843,615 | ) |
| Fintelco S.A.     |   | 50.00                                                  |   | (22,007,433       | )      | (39,111,696                                                  | )      | 17,104,263 |   | (4,045,820 | ) | (7,572,954 | ) |
|              |   |                                                   |   | (15,519,155       | )      | (35,741,993                                                  | )      | 20,332,155 |   | (3,770,463 | ) | (8,416,569 | ) |

 

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(1) At December31, 2002 the retained earnings that represent undistributed earnings amount toPs. 6,324,971.

 

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**NOTE 11 - EXEMPTIONSOBTAINED**

 

By Resolution No. 1080/97 dated October 26, 1998, the COMFER released certainsubsidiaries that had merged with Multicanal from taxes payable to the COMFERover a three-year period in an amount of up to Ps. 10,000,000 beginningSeptember 1, 1998 as per the following detail: first year, from September 1,1998 through August 30, 1999, 40%; second year, from September 1, 1999 throughAugust 30, 2000, 45%; and third year, from September 1, 2000 through August 30,2001, 50%.

 

The amount of tax charges accrued over the exemption period must beassigned to the execution of investment and operating recovery projects.  In the event of a failure to satisfy theconditions under which the COMFER granted the exemption, the COMFER reservedthe right to unilaterally declare the annulment of the administrative actapproving the exemption, once arrears have been confirmed and correspondingsupplementary term fixed.

 

**NOTE 12 - ANTITRUST CONSIDERATIONS**

 

In September 1998, the Santa Fe branch of Asociación del Consumidor(“Consumer Association”) filed with the Comisión Nacional de Defensa de la Competencia(the “National Commission for the Defense of Competition” or “CNDC”) acomplaint against Multicanal and Cablevisión S.A. alleging the existence ofanticompetitive practices in the city of Santa Fe. Consumer Association claimsthat by dividing the subscribers, assets and liabilities of the VCC Group andthe Santa Fe Systems, the Company and Cablevisión S.A. engaged in abuse of adominant market position and concerted actions to distribute the Santa Fe cablemarket among themselves.  The Companyfiled an answer to the complaint in which it requests the CNDC to dismiss thecomplaint on the grounds of lack of a factual basis and for failure to state acause of action under the relevant provisions of the Antitrust Law.  The Company cannot assure that the finaldecision shall be favorable to Multicanal, or that no further actions shall bebrought against the Company and/or Cablevisión S.A. with respect to thedivision of the VCC Group, the Bahía Blanca Systems and the Santa Fe Systems.

 

On January 13, 1999, the CNDC notified the Company that a complaint hadbeen filed by the Santa Fe commerce department alleging the existence ofanticompetitive practices by VCC in the city of Rosario, Province of Santa Fe,prior to Multicanal’s acquisition of this company.  Although the Company has filed an answer to the complaint withthe CNDC, the Company cannot give any assurance that its arguments will prevailand the final decision will be favorable to it or that it will not be fined.

 

On February 18, 1999, the CNDC issued a resolution initiating aninvestigative proceeding into an alleged agreement between the TV cableoperating companies VCC, Multicanal and Cablevisión S.A. and those providingTelevisión Satelital Codificada S.A. and Tele Red Imagen S.A. channels.  Such agreement is alleged to consist offixing of minimum prices for the trading of channels owning rights to thebroadcasting of football tournaments organized by the “Asociación de FútbolArgentino” in Federal Capital and Greater Buenos Aires.  The investigation spans from the year 1995through the date of the resolution.  OnOctober 12, 1999 the Company filed a discharge with CNDC under the terms ofsection 23 of the Competition Defense Law, producing corresponding evidence.  OnFebruary 10, 2000, the submission of evidence period concluded and the case wassubmitted for a ruling by the Court, by means of a resolution datedSeptember 26, 2001 the Commission penalized the companies with a fine, which inthe case of Multicanal amounts to Ps. 352,859. The resolution under which thefine was applied has been appealed by the Company on October 8, 2002. The Company can give no assurance thatthe final outcome will be favorable to it.

 

On March 12, 1999, the owner of a cable television operating company inthe city of Roldán, Province of Santa Fe, filed a complaint against Multicanalfor alleged anticompetitive practices in such city.  Although the 

 

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Company has filed an answer to the complaint with the CNDC, the Companycannot give any assurance that its arguments will prevail and the finaldecision will be favorable to it or that it will not be fined.

 

In December 2001, Gigacable SA., a cable TV operator operating incertain areas of the Provinces of Santa Fe and Corrientes, filed a complaintbefore the CNDC accusing Multicanal of (i) having divided areas in which thecompanies provide services with Cablevisión S.A., (ii) uncompetitive practices,and (iii) selling the subscription for a price below Multicanal S.A.’s usualprice.  On December 6, 2001 the Companyanswered the complaint.

 

As of the date of the issuance of the financial statements, the CNDC isanalyzing the answer filed by Multicanal. The Company cannot provide assurance that the dispute will be settled orwhether it will be fined if no agreement is reached.

 

The Interior Trade and Consumer Defense Bureau of the Province of EntreRíos filed a complaint against the CNDC for the presumed division of areasbetween Multicanal and its competitors. On May 4, 1999, the Company filed a document providing explanations inaccordance with section 20 of the Competition Defense Law, requesting that theclaim be rejected.  However, noassurance can be provided that the final ruling will be in the Company’s favor.

 

**NOTE13 – ARGENTINE ECONOMIC SITUATION AND ITS IMPACT ON THE COMPANY’S ECONOMIC ANDFINANCIAL POSITION**

 

Argentina is immersed in a critical economic situation. The mainfeatures of the current economic context are a major external debt burden, highinterest rates, a financial system in crisis, country risk indicators far abovenormal average and an economic recession that has already lasted more than fouryears.  This situation has led to asignificant decrease in the demand for goods and services and a large rise inthe level of unemployment. The Government’s ability to comply with itscommitments has been impaired, which led it to default in the payment ofexternal debt services at the beginning of 2002.  Furthermore, it is expected that there will be presidentialelections during 2003.

 

To overcome the crisis the country is undergoing, as from December 2001the government issued measures to restrict the free availability andcirculation of cash and the transfer of foreign currency abroad.  Subsequently, as from January 2002, laws,decrees and regulations were enacted that involved profound changes to theprevailing economic model. Among the measures adopted was the floating of theexchange rate, that led to a significant devaluation of the Argentine peso duringthe first months of 2002; the pesificationand indexation of certain assets and liabilities in foreign currency held inArgentina, the deferral of tax deduction of certain losses caused by thedevaluation, and the suspension of the causes of dissolution due to loss ofcapital stock and obligatory capital reduction established by the CorporationsLaw.

 

As a result of the changes adopted, in 2002 there was a 118% increasein the internal wholesale price index, according to information published bythe National Institute of Statistics and Census.

 

The impact generated by all these measures adopted to date by theGovernment on the financial situation of the Company at December 31, 2002 wascalculated according to the evaluations and estimates made by Management at thedate of preparing the financial statements. Actual results could differ from the evaluations and estimates made atthe date of preparing these financial statements and these differences could besignificant. Therefore, the Company’s financial statements may not report allthe adjustments that could result from these adverse conditions.  Furthermore, at this time it is not possibleto foresee the future development of the country’s economy or its consequenceson the economic and financial situation of the Company.  Thus, any decision that must be made on thebasis of these financial statements must take into account the effects of thesemeasures and 

 

F-29

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their future development and the Company’s financial statements must beconsidered in the light of these uncertain circumstances.

 

In the year ended December 31, 2002, the Company recognized a net lossof Ps. 938,460,515 and a shortfall in consolidated working capital amounting toPs. 1,993,961,768. Continuing adverse market conditions and their negativeeffect on the Company’s cash flows, coupled with limited liquidity, are likelyto limit the Company’s ability to meet its obligations. All of these mattersraise substantial doubt about the Company’s ability to continue as a goingconcern.

 

In addition, as a result of the recording of the negative shareholders’equity mentioned above the Company falls under the provisions of paragraph 5 ofsection 94 of the Corporations Law, which establishes the dissolution ofcorporations. Those regulations were suspended until December 10, 2003 byDecree No. 1269/02 issued by the National Government.

 

The financial statements have been preparedassuming that the Company will continue as a going concern.  Therefore, these financial statements do notinclude any adjustments relating to the recoverability andclassification of recorded asset amounts or the amounts and classification ofliabilities that might be necessary should the Company be unable to continue asa going concern. The Company’s continuation as a going concern is dependentupon its ability to generate sufficient cash flows to meet its obligations on atimely basis, to obtain additional financing as may be required, and ultimatelyto attain profitable operations and positive cash flows.

 

**NOTE 14 – SUBSEQUENT EVENTS**

 

a)             Restructuringprocess

 

As a result of the expiration of the existingGlobal Program, on January 22, 2003 the shareholders approved a new globalprogram for the issuance of unsecured negotiable obligations, in variouscurrencies, for a maximum amount of the equivalent of US$ 300,000,000 over aterm of five years as from the date of authorization of the program by the CNV.An application for public offer and listing of the Global Program was filedwith the CNV and the BCBA (Buenos Aires Stock Exchange) on January 24, 2003,which is pending as of the date of issue of these financial statements.

 

As a first stage in the financial debtrestructuring process, on January 31, 2003 the Company launched an offer topurchase (the “Cash Tender Offer”) a part of its 91⁄4% Notes due 2002, 101⁄2% Notesdue 2007, 13.125% Series E Notes due 2009, Series C 101⁄2% Notes due 2018 andSeries J Floating Rate Notes due 2003 (together, the “Existing Notes”), andother financial indebtedness (the “Bank Debt” and together with the ExistingNotes, the “Existing Debt”) at a price of U.S.$300 per U.S.$1,000 aggregateprincipal amount of Existing Debt tendered for purchase. The Cash Tender Offeris subject to several conditions precedent, including (a) U.S.$100 millionaggregate principal amount of Existing Debt shall have been tendered by holdersof Existing Debt (b) the Company’s controlling shareholders shall have made anirrevocable cash contribution of U.S.$10 million to the Company on or after thedate of the Offer and (c) the execution of an APE by the Company and holders ofat least U.S.$380 million aggregate principal amount of Existing Debt, actingdirectly or through an attorney-in-fact, in accordance with the terms prescribedby Argentine law to make such agreement enforceable in Argentina for purposesof Chapter VII, Title II of the Argentine Bankruptcy Law; provided that theparticipants agree in the aggregate to allocate their Existing Debt between thetwo options presented to them so that the level of participation in one optiondoes not exceed by more than 10% the level of participation in the other option(as a percentage of the total consideration being offered in each of suchoptions).

 

F-30

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On February 7, 2003, as a second stage of therestructuring process Multicanal announced that it is soliciting (the “APESolicitation”) from holders of Existing Debt powers of attorney in favor of anattorney-in-fact, to execute an*acuerdo preventivo extrajudicial*(the“APE”). Upon approval (*homologación*) of the APE by the BankruptcyCourt (the “Court Approval”), each holder that accepted the APE Solicitationwill receive, for each U.S.$1,000 principal amount of Existing Debt tendered inconnection with the APE Solicitation, at its option, either (i) U.S.$1,000principal amount of the Company’s 10-Year Step-Up Notes (the “10-Year Notes”)or (ii) U.S.$315 principal amount of either (A) the Company’s 7% 7-Year Notes(the “7-Year Fixed Rate Notes”) or (B) the Company’s 7-Year Floating Rate Notes(the “7-Year FRNs”, together with the 7-Year Fixed Rate Notes, the “7-YearNotes”, and the 7-Year Notes together with the 10-Year Notes, the “New Notes”),and 598 of the Company’s class C shares of common stock (the “Class CShares”).  The Company is seeking to (i)exchange approximately U.S.$100 million principal amount of its Existing Debtfor U.S.$100 million of 10-Year Notes, (ii) exchange U.S.$157.4 millionprincipal amount of its Existing Debt for U.S.$102.3 million of its 7-YearNotes and capitalize approximately U.S.$167.4 million principal amount of itsExisting Debt.  The Company will not payany accrued and unpaid interest (including default interest and additionalamounts, if any) on the Existing Debt that is exchanged or capitalized pursuantto the APE.

 

The APE Solicitation is subject to severalconditions precedent, including (i) the Company’s controlling shareholdersshall have made an irrevocable cash contribution of at least U.S.$10 million tothe Company on or after the date of the Cash Tender Offer, (ii) an APE shallhave been executed by the Company and holders of at least U.S.$380 millionaggregate principal amount of Existing Debt, acting directly or through anattorney-in-fact, in accordance with the terms prescribed by Argentine law tomake such agreement enforceable in Argentina for purposes of Chapter VII, TitleII of the Argentine Bankruptcy Law; provided that the participants agree in theaggregate to allocate their Existing Debt between the two options presented tothem so that the level of participation in one option does not exceed by morethan 10% the level of participation in the other option (as a percentage of thetotal consideration being offered in each of such options) and (iii) U.S.$100million aggregate principal amount of Existing Debt shall have been tendered inthe Cash Tender Offer.

 

On March 26, 2003, the Company announced amendments to certain terms ofits Cash Tender Offer and APE Solicitation, most notably among other changes, areduction in the minimum participation in the APE Solicitation of holders ofExisting Debt from U.S.$380 million principal amount to seventy percent (70%)of the aggregate principal amount of any Existing Debt outstanding after givingeffect to the Cash Tender Offer, provided that holders electing the 10-YearNotes shall not represent, in the aggregate, an amount of Existing Debt inexcess of U.S.$120,000,000.

 

The Company has extended the expiration dates of both the Cash TenderOffer and the APE Solicitation on several occasions.  Both the Cash Tender Offer and the APE Solicitation are eachcurrently scheduled to expire at 5:00 p.m., New York City time, on July 2,2003, unless further extended by the Company in its sole discretion.

 

Since the Cash Tender Offer and the APESolicitation are not regulated by applicable CNV and BCBA regulations, theCompany has notified both restructuring stages to the CNV and the BCBA andfiled the prospectuses prepared by the Company and the remaining relateddocumentation.  The mentionedprospectuses were published for investors in the daily gazette of the BCBA.

 

b)            Notificationof petitions for bankruptcy filed against the Company

 

In February 2003 the Company was notified of the filing of 21 petitionsfor bankruptcy against it as a result of the Company’s postponing of paymentsof principal and interest on its negotiable obligations. The Company answeredthe notices served and requested that the intervening judge reject thosepetitions based on the grounds explained in the filings.

 

F-31

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If the restructuring process undertaken by the Company is unsuccessfulit will likely have to file voluntary insolvency proceedings.

 

**NOTE 15 - SUMMARY OF SIGNIFICANT DIFFERENCESBETWEEN ACCOUNTING PRINCIPLES ADOPTED BY THE COMPANY AND ACCOUNTING PRINCIPLESGENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA**

 

The consolidated financialstatements have been prepared in accordance with Argentine GAAP, which differin certain significant respects from US GAAP. The significant differences at December 31, 2002 and 2001 and for thethree years in the period ended December 31, 2002 are reflected in thereconciliations provided in Note 16 and principally relate to the itemsdiscussed in the following paragraphs:

 

*(a) Restatement of financial statements forgeneral price-level changes*

 

The Argentine GAAP consolidatedfinancial statements of the Company were prepared in constant currency,reflecting the overall effects of inflation in accordance with Argentine Technical Resolution No. 6, with themodification established in the Argentine Technical Resolution No. 17 (Note 2.2.).

 

The US GAAP reconciliation doesnot reverse the effects of the general price-level restatement included in theArgentine GAAP financial statements because the application of that Resolution represents a comprehensivemeasure of the effects of price level changes in the Argentine economy.

 

*(b) Foreign currency translation adjustment*

 

UnderArgentine GAAP, financial statements of foreign investees have been translatedto Argentine pesos on the basis of the financial statements of such investeesexpressed in the local currency of the country of origin. The method oftranslation involves the translation of monetary assets and liabilities at theexchange rate prevailing at the end of each period, and non-monetary assets andliabilities and equity accounts on the basis of the inflation-adjusted amountsat the exchange rate prevailing at the end of each period. The net gain ontranslation is included in the Company’s result of operations.

 

Under US GAAP, financialstatements of foreign subsidiaries have been translated into Argentine pesosfollowing the guidelines established in SFAS 52 “Foreign Currency Translation”.  The economy of certain of the Company’sforeign operations (Uruguay) was no longer considered to be highly inflationaryas from January 1999. Therefore, for each of the three years in the periodended December 31, 2002, the local currency was considered the functionalcurrency.  Assets and liabilities ofthese foreign subsidiaries are translated at the exchange rates in effect atperiod-end, and the statement of operations is translated at the averageexchange rates during the period. Exchange rate fluctuations on translating foreign currency financialstatements into pesos that result in unrealized gains or losses are referred toas foreign currency translation adjustments. Under US GAAP, cumulative translation adjustments are recorded as aseparate component of shareholders’ equity. Accordingly, the reconciling difference for this item is presented inthe quantitative reconciliation in Note 16.

 

Additionally, account balancesand transactions of certain Company’s foreign operations (Paraguay) are statedin the local currency.  Under ArgentineGAAP, the financial statements of these foreign subsidiaries are restated toreflect the effects of local inflation. The financial statements are translated at the exchange rates in effectat period-end.  Exchange ratefluctuations on translating foreign currency financial statements into pesosthat result in unrealized gains or losses is included in the Company’s resultof operations.  Under US GAAP, thedollar was considered the functional currency for the year ended December 31,2000 and as from January 1, 2001, the local currency was considered thefunctional currency.  Accordingly, thereconciling difference for this item is presented in the quantitativereconciliation in Note 16.

 

F-32

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*(c) Goodwill*

 

Under Argentine GAAP, and USGAAP the Company applied the purchase method of accounting to the Company’sacquisition transactions. Accordingly, the fair market value of the assets andliabilities of the acquired companies were estimated and the excess of thepurchase price over the fair value of the assets acquired and liabilitiesassumed is considered goodwill. The US GAAP adjustment reflects the applicationof certain US GAAP adjustments when estimating the fair value of such assetsand liabilities.

* *

*The Company adopted SFAS No. 142 “*Goodwill and OtherIntangible Assets” in the year endedDecember 31, 2002. SFAS No. 142 states that goodwill is not amortized butrather is tested at least annually for possible impairment.

 

*(d) Impairment of long-lived assets*

 

Management reviews long-livedassets, primarily property and equipment to be held and used in the business,long-term investments and goodwill for the purposes of determining andmeasuring impairment. The Company recognized during the year ended December 31,2002 and 2001 an impairment of Ps. 312,728,070 and Ps 326,077,446,respectively.  Under US GAAP, SFAS No.121 “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed of” required a company to review assets for impairmentwhenever events or changes in circumstances indicate the carrying amount of anasset may not be recoverable.  Assetswere grouped and evaluated for possible impairment at the level of cabletelevision systems by region. As a resultof a different basis of goodwill determined on acquisition; as described inNote 15 (c), the impairment recognized under Argentine GAAP for the year endedDecember 31, 2001 differed from the one recognized under US GAAP. Accordingly,the reconciling difference for this item is presented in the quantitativereconciliation in Note 16.

* *

*As a result of the adoption of SFAS No. 142, the Companytested the goodwill for impairment. The steps taken are fully explained in Note17 (i) and* the reconciling difference for this item is presented inthe quantitative reconciliation in Note 16.The impairment losses at the beginning of the year ended December 31, 2002 arepresented as a cumulative effect of a change in an accounting principle in thequantitative reconciliation in Note 16.

 

*(e) Organizational and preoperating costs*

 

Under Argentine GAAP,organizational and preoperating costs may be deferred and amortized over theestimated period of benefit.  Under USGAAP, such costs are generally charged to operations.  Accordingly, the reconciling difference for this item ispresented in the quantitative reconciliation in Note 16.

 

*(f) Vacation accrual*

 

Under Argentine GAAP, there areno specific requirements governing the recognition of accruals forvacations.  The accepted practice inArgentina is to expense vacation when taken and to accrue only the amount ofvacation in excess of normal remuneration.

 

Under US GAAP, vacation expenseis fully accrued in the year the employee renders service to earn suchvacation.  Accordingly, the reconcilingdifference for this item is presented in the quantitative reconciliation inNote 16.

 

F-33

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*(g) Non-interest bearing debt instruments*

 

Under Argentine GAAP, non-interestbearing debt instruments are not generally presented with an imputed rate ofinterest in order to recognize the economic substance of the underlyingtransaction.  Under US GAAP, APB No. 21“Interest on Receivables and Payables”, such adjustment would be required.

 

APB No. 21 requires theimputation of a reasonable, market-based rate of interest for non-interestbearing debt instruments over the maturity period of the note.  Additionally, the carrying value of the debtinstrument is reported net of any resulting discount or premium.  As reflected in the US GAAP reconciliation,certain non-interest bearing debt instruments for acquisition debt werediscounted at 10%, which approximated the Company’s weighted average annualinterest rate.  Accordingly, thereconciling difference for this item is presented in the quantitativereconciliation in Note 16 under the item Discounting of non-interest bearingacquisition related debt.

 

*(h) Income taxes*

 

Under Argentine GAAP, income taxexpense is generally recognized based upon the estimate of the current incometax liability.  When income and expenserecognition for financial statements purposes does not accrue in the sameperiod as income and expense recognition for tax purposes, the resultingtemporary differences are not considered in the computation of income taxexpense for the year.

 

Under US GAAP, the liabilitymethod is used to calculate the income tax provision.  Under the liability method, deferred tax assets or liabilitiesare recognized with the corresponding charge or credit to income fordifferences between the financial and tax basis of assets and liabilities ateach year-end. Additionally, all availableevidence, both positive and negative, should be considered to determinewhether, based on the weight of that evidence, a valuation allowance is neededfor some portion or all of a deferred tax asset.  Accordingly, the reconciling difference for this item ispresented in the quantitative reconciliation in Note 16.

 

*(i) Severance indemnities*

 

As described in Note 2.5. (k),the Company expenses severance indemnities when paid or when they should havean impact on the results for the year because they represent a certain andquantified risk.  Under Argentine law,the Company is required to pay a minimum severance indemnity based on years ofservice and age when an employee is dismissed without adequatejustification.  Under US GAAP, theCompany applied the guidance of Emerging Issues Task Force Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitand Activity” (“EITF 94-3”). As such, during fiscal year 2001 the Companyreversed the severance provision recognized under Argentine GAAP as certaincriteria specified by EITF 94-3 were not met.

 

*(j) Equity in earnings (losses) of affiliatedcompanies and investments in companies carried under equity method*

 

For purposes of thisreconciliation, the Company has assessed the impact of US GAAP adjustments onthe Argentine GAAP financial statements of its equity investees.  The significant differences that give riseto US GAAP adjustments on equity investees are as follows: (i) the applicationof SFAS No 109 “Deferred Income Taxes”, (ii) the effects on depreciation ofdifferent bases for determination of the underlying net asset acquired, (iii)vacation accrual and (iv) foreign exchange differences (see Note 15 (l)).

 

*(k) Interest capitalization*

 

Argentine GAAP allows, but doesnot require, companies to capitalize interest on self-constructed assets.  The Company does not capitalize interest onprojects under construction which are of a short-term nature. Under US 

 

F-34

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GAAP, the Company would berequired to capitalize interest on the qualifying self-constructed assets.  Accordingly, the reconciling difference forthis item is presented in the quantitative reconciliation in Note 16.

 

*(l) Foreign exchange differences*

 

The Argentine Governmentdeclared exchange holidays all working days between December 21, 2001 and December31, 2001. On January 11, 2002, when the exchange market first opened, theexchange rate was Ps. 1 to US$ 1.4 (buying rate) and Ps. 1 to US$ 1.6 (sellingrate). Under Argentine GAAP, the Company accounted for its foreign currencyassets and liabilities at an exchange rate of Ps. 1 to US$ 1. Under US GAAP,the Company applied the guidance set forth in the EITF D-12 “Foreign CurrencyTranslation — Selection of the Exchange Rate When Trading is TemporarilySuspended”, that states that when exchangeability between two currencies istemporarily lacking at the balance sheet date, the first subsequent rate atwhich exchange could be made shall be used. Accordingly, the reconcilingdifference for this item is presented in the quantitative reconciliation inNote 16.

 

*(m) Transfer of financial assets*

 

As explained in Note 9 (a) (ii)the Company transferred all of its interests in DirecTV Latin America, LLC andcertain contractual rights related thereto to Raven Media Investments, LLC.Under Argentine GAAP a transfer of financial assets is recognized as a sale tothe extent that contractual terms result in the passage of title.

 

Under US GAAP, the existence ofan agreement that constraints the transferee right to exchange the transferredasset or gives the transferor the ability to unilaterally cause the holder toreturn specific assets, preclude a transfer subject to such a condition frombeing accounted for as a sale. Accordingly, the reconciling difference for thisitem is presented in the quantitative reconciliation in Note 16.

 

*(n) Specific pronouncement for cabletelevision companies*

 

Under Argentine GAAP, there areno specific pronouncements related to cable television companies.  Under US GAAP, SFAS No. 51 “Financial Reporting by Cable Television Companies” establishesthat:

 

(1)                The network in each area is considered to passthrough a “prematurity” period when it is in construction and yet partially inservice.  This period commences whentransmission is made to the first subscriber and ends when the network for aparticular area is substantially complete and attains the number of subscribers(penetration rate) expected for that specific area.  During the prematurity period, SFAS No. 51 requires that chargesfor capitalized costs other than those of the main cable television plant,interest and financing charges be allocated to both current and future periodsbased upon the ratio of active subscribers to the total estimated subscribersat the end of the prematurity period. As the Company’s systems are relatively mature, management considersthat SFAS No. 51 prematurity period accounting would not materially affect thefinancial position or the results of operations for the years presented.

 

(2)                Hookup revenues that exceed related directselling expenses must be deferred and amortized in the period in which theCompany expects the subscriber to be connected to the system.  Hookup services charged by the Company arenot a significant component of revenues. All related direct selling expenses are recognized as incurred.

* *

*(o) Extraordinary items*

 

Under Argentine GAAP, the gainof repurchase of debt is reported as an ordinary item. Under US GAAP, SFAS 4“Reporting Gains and Losses from Extinguishment of Debt” requires that a gainfrom the early extinguishment 

 

F-35

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of debt be classified as anextraordinary item. Accordingly, the reconciling difference for this item ispresented in the quantitative reconciliation in Note 16.

 

*(p) Allowance for doubtful accounts*

 

Under Argentine GAAP, theallowance is charged against revenues whereas under US GAAP the charge would bepresented as an operating cost.  As thisdifference has no effect on net income/loss or on shareholders’ equity, no reconcilingadjustment is presented in the US GAAP reconciliation.

 

*(q) Advances to suppliers*

 

Under Argentine GAAP, fundsadvanced to suppliers are capitalized and included under Property and equipmentprior to purchase and specifically identified as property or equipmentitems.  Under US GAAP, these funds areaccounted for as a deposit until the actual property or equipment procured bysuch funds has been purchased. Accordingly, such funds are generally classifiedas “Other assets”.

 

However, due to the nature ofsuch funds and their relative immateriality to the consolidated financialstatements taken as a whole (Note 4), the quantitative difference betweenArgentine and US GAAP would be a reclassification from Property and equipmentto Other assets and, accordingly, it does not affect the reconciliation of netloss and shareholders’ equity in Note 16.

 

*(r) Earningsper share*

 

Argentine GAAP do not requiredisclosure of earnings per share.  UnderUS GAAP, SFAS No. 128 “Earnings per share”, earnings per share have beencalculated for all periods presented based on the weighted average number ofcommon shares outstanding during the year (Note 16).

 

*(s)Disclosures about segments of an enterprise and related information*

 

US GAAP require reportinformation about operating segments in annual financial statements.  SFAS No. 131 “Disclosures about segments ofan enterprise and related information” establishes standards for relateddisclosures about products and services, geographic areas and major customers.  Multicanal is in only one segment, cabletelevision, and assets, revenues and earnings (losses) from operations outsideArgentina are less than 10% of consolidated assets and operations.  Accordingly, no information about segmentsis presented in these consolidated financial statements.

 

*(t) Other income and expenses*

 

Under Argentine GAAP certainexpenses are included in Other non-operating income (expenses), net (see Note 3(k)). Under US GAAP, these items are classified as operating expenses.

 

However, the quantitativedifference between Argentine and US GAAP would be a reclassification from“Other non-operating income (expenses), net” to “Direct operating expenses”,“General and administrative expenses”, “Selling and marketing expenses” orOther operating expenses, as appropriate, and, accordingly, it does not affectthe reconciliation of net loss and shareholders’ equity summarized in Note 16.

 

F-36

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**NOTE16 - RECONCILIATION OF NET LOSS AND SHAREHOLDERS’ (DEFICIT) EQUITY TO US GAAP**

 

The following is a summary ofthe significant adjustments to net loss for the three years in the period endedDecember 31, 2002 and shareholders’ (deficit) equity for the years endedDecember 31, 2002 and 2001, which would be required if the financial statementshad been prepared in accordance with US GAAP instead of Argentine GAAP.

 
|                                                                                 |   | **Years  ended December 31,** |   |
|--------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                 |   | **2002**                      |   | **2001** |   | **2000** |   |
| Net loss in accordance with Argentine GAAP                                           |   | (938,460,515                  | )      | (284,044,447 | ) | (319,476,653 | ) |
| US GAAP adjustments – income (expense)                                          |   |                          |   |   |   |   |   |
| Amortization of organizational and  preoperating costs (Note 15 (e))                 |   | 1,956,921                     |   | (7,413,318 | ) | 2,811,941 |   |
| Deferred income taxes, net of allowance  (Note 15 (h))                               |   | (46,555,025                   | )      | 356,079 |   | (64,590,046 | ) |
| Amortization of goodwill (Note 15 (c))                                               |   | 111,427,707                   |   | 4,290,871 |   | 4,284,140 |   |
| Depreciation of property and equipment  (Note 15 (c))                                |   | (6,799,452                    | )      | (10,421,449 | ) | (11,403,767 | ) |
| Vacation accrual (Note 15 (f))                                                       |   | 3,011,914                     |   | 927,665 |   | 503,162 |   |
| Discounting of non-interest bearing  acquisition related debt (Note 15 (g))          |   | —                        |   | (125,375 | ) | (177,047 | ) |
| Equity in the earnings (losses) of  affiliated companies(Note 15 (j))                |   | 1,970,194                     |   | (5,560,291 | ) | 893,538 |   |
| Interest capitalization (Note 15 (k))                                                |   | (410,408                      | )      | 1,229,257 |   | 2,659,617 |   |
| Severance indemnities (Note 15 (i))                                                  |   | (860,258                      | )      | (994,527 | ) | 1,854,784 |   |
| Foreign currency translation adjustment  (Note 15 (b))                               |   | (8,380,040                    | )      | 682,176 |   | (3,011,352 | ) |
| Foreign exchange differences (Note 15 (l))                                           |   | 1,001,839,325                 |   | (1,001,839,325 | ) | — |   |
| Transfer of financial assets (Note 15 (m))                                           |   | —                        |   | (322,390,145 | ) | — |   |
| Extraordinary item (Note 15 (o))                                                     |   | (417,776,648                  | )      | (9,211,242 | ) | — |   |
| Impairment adjustment (Note 15 (d))                                                  |   | 7,994,627                     |   | 77,015,016 |   | — |   |
| Minority interest in above reconciling  items                                        |   | 3,940,659                     |   | 3,387,129 |   | 250,835 |   |
| Net loss before extraordinary item and  cumulative effect of accounting change       |   | (287,100,999                  | )      | (1,554,111,926 | ) | (385,400,848 | ) |
| Extraordinary gain on repurchase of debt                                             |   | 417,776,648                   |   | 9,211,242 |   | — |   |
| Income / (loss) before cumulative effect of  accounting change                       |   | 130,675,649                   |   | (1,544,900,684 | ) | (385,400,848 | ) |
| Cumulative effect of accounting change                                               |   | (183,476,812                  | )      | — |   | — |   |
| Net loss in accordance with US GAAP                                                  |   | (52,801,163                   | )      | (1,544,900,684 | ) | (385,400,848 | ) |
| Loss per share before extraordinary item  and cumulative effect of accounting change |   | (0.78                         | )      | (4.24 | ) | (1.05 | ) |
| Gain per share on extraordinary gain on  repurchase of  debt                    |   | 1.14                          |   | 0.03 |   | — |   |
| Loss per share on cumulative effect of  accounting change                            |   | (0.50                         | )      | — |   | — |   |
| Net loss per share in accordance with US  GAAP                                       |   | (0.14                         | )      | (4.21 | ) | (1.05 | ) |
| Weighted average number of shares                                                    |   | 366,821,037                   |   | 366,821,037 |   | 365,953,227 |   |

 

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|                                                                                      |   | **At December 31,** |   |
|--------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                      |   | **2002**            |   | **2001** |   |
| Shareholders’  (deficit) equity in accordance with Argentine GAAP               |   | (213,903,147        | )      | 724,557,368 |   |
| US  GAAP adjustments – increase (decrease)                                      |   |                |   |   |   |
| Organizational and preoperating costs –  Original value (Note 15 (e))           |   | (9,191,389          | )      | (20,376,052 | ) |
| Organizational and preoperating costs –  Accumulated amortization (Note 15 (e)) |   | 1,869,436           |   | 11,097,178 |   |
| Goodwill,  net (Note 15 (c))                                                         |   | 100,436,175         |   | (10,991,532 | ) |
| Depreciation of property and equipment  (Note 15(c))                                 |   | (66,376,691         | )      | (59,577,239 | ) |
| Deferred  income taxes (Note 15 (h))                                                 |   | (39,078,465         | )      | 7,476,560 |   |
| Vacation  accrual (Note 15 (f))                                                      |   | (3,322,009          | )      | (6,333,923 | ) |
| Investments  in companies carried under equity method (Note 15 (j))                  |   | (1,166,249          | )      | (3,136,443 | ) |
| Interest capitalization– Original value  (Note 15 (k))                          |   | 5,930,973           |   | 5,930,973 |   |
| Interest capitalization– Accumulated  depreciation (Note 15 (k))                |   | (659,576            | )      | (249,168 | ) |
| Severance indemnities (Note 15 (i))                                                  |   | —              |   | 860,258 |   |
| Foreign exchange differences (Note 15 (l))                                           |   | —              |   | (985,150,503 | ) |
| Transfer of financial assets (Note 15 (m))                                           |   | (322,390,145        | )      | (322,390,145 | ) |
| Impairment adjustment (Note 15 (d))                                                  |   | (98,467,169         | )      | 77,015,016 |   |
| Minority  interest in above reconciling items                                        |   | 10,145,044          |   | 6,204,385 |   |
| Shareholders’  deficit in accordance with US GAAP                               |   | (636,173,212        | )      | (575,063,267 | ) |

 

Changes in Shareholders’ (deficit) equity under US GAAP are as follows:

 
|                                                                                              |   | **Years ended December 31,** |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                              |   | **2002**                     |   | **2001** |   |
| Shareholders’  (deficit) equity at the beginning of the year in accordance with US GAAP |   | (575,063,267                 | )      | 951,444,663 |   |
| Incorporation of balances following merger  with Plataforma Digital S.A.                     |   | —                       |   | 2,386,108 |   |
| Foreign currency translation adjustment  (Note 17 (g))                                       |   | (8,308,782                   | )      | 16,006,646 |   |
| Net  loss for the year in accordance with US GAAP                                            |   | (52,801,163                  | )      | (1,544,900,684 | ) |
| Shareholders’  deficit at the end of the year in accordance with US GAAP                |   | (636,173,212                 | )      | (575,063,267 | ) |

 

F-38

----

 

**NOTE17 - OTHER SIGNIFICANT US GAAP DISCLOSURE REQUIREMENTS**

 

*(a) Income taxes*

 

The Company’s deferred income taxes under US GAAP are comprised asfollows:

 
|                                                                        |   | **Years ended December 31,** |   |
|------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                        |   | **2002**                     |   | **2001** |   |
| Deferred  tax assets                                                   |   |                              |   |  |   |
| Tax  loss carryforwards                                                |   | 427,610,797                  |   | 126,832,364 |   |
| Allowance  for doubtful accounts and others                            |   | 10,747,438                   |   | 20,326,166 |   |
| Vacation  accrual                                                      |   | 1,154,793                    |   | 2,199,238 |   |
| Provision  for lawsuits and others                                     |   | 9,120,504                    |   | 18,937,188 |   |
| Provision for obsolescence of materials                                |   | 1,756,727                    |   | 4,113,170 |   |
| Difference between tax and accounting basis  of property and equipment |   | —                       |   | 8,513,733 |   |
| Deferred tax loss                                                      |   | 114,643,516                  |   | — |   |
| Foreign exchange differences                                           |   | —                       |   | 353,759,458 |   |
| Transfer of financial assets                                           |   | 112,283,064                  |   | 112,283,064 |   |
| Other  temporary differences                                           |   | 1,861,023                    |   | 3,244,036 |   |
| Less:  Valuation allowance                                        |   | (592,077,868                 | )      | (624,270,613 | ) |
|                                                                        |   | 87,099,994                   |   | 25,937,804 |   |
| Deferred  tax liabilities                                              |   |                         |   |   |   |
| Difference  between tax and accounting basis of property and equipment |   | (114,510,825                 | )      | — |   |
| Prepaid expenses                                                       |   | (11,667,634                  | )      | (16,472,611 | ) |
| Other  temporary differences                                           |   | —                       |   | (1,988,633 | ) |
|                                                                        |   | (126,178,459                 | )      | (18,461,244 | ) |
| Net  deferred tax assets (liabilities)                                 |   | (39,078,465                  | )      | 7,476,560 |   |

 

Of the outstanding balance at December 31, 2002 and 2001, Ps.11,902,231 and Ps. 22,525,404, respectively are current.

 

The tax loss carryforwards at December 31, 2002 expire as follows:

 
| **Expiry date** |   | **Ps.**       |   |
|-----------------|--------|---------------|--------|
| 2003            |   | 44,795,216    |   |
| 2004            |   | 53,102,940    |   |
| 2005            |   | 63,880,988    |   |
| 2006            |   | 1,189,820     |   |
| 2007            |   | 1,058,776,170 |   |
| Total           |   | 1,221,745,134 |   |

 

Valuation allowances are provided against future deferred tax benefitsto the extent their realization is unlikely.

 

F-39

----

 

The changes in the carrying amount of the valuation allowances for theyear ended December 31, 2002, are as follows:

 
|                             |   | **Ps.**      |   |
|----------------------------------|--------|--------------|--------|
| Balance as of  January 1, 2002   |   | (624,270,613 | )      |
| Decrease                         |   | 32,192,745   |   |
| Balance as of  December 31, 2002 |   | (592,077,868 | )      |

 

The provision for income taxes computed in accordance with US GAAPdiffers from that computed at the statutory tax rate, as follows:

 
|                                                                                       |   | **Years ended December 31,** |   |
|---------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                       |   | **2002**                     |   | **2001** |   | **2000** |   |
| Income  tax benefit at statutory tax rate on pretax income in accordance with US GAAP |   | (459,970                     | )      | (536,875,040 | ) | (104,704,811 | ) |
| Permanent differences                                                                 |   |                         |   |   |   |   |   |
| (Decrease) / increase in valuation  allowance                                         |   | (32,192,745                  | )      | 465,976,649 |   | 100,564,579 |   |
| Gain on sale of investees                                                             |   | —                       |   | (66,446,729 | ) | — |   |
| Amortization of goodwill and intangible  assets                                       |   | —                       |   | 45,354,547 |   | 45,732,417 |   |
| Impairment adjustment                                                                 |   | 170,873,589                  |   | 87,140,611 |   | — |   |
| Effect of inflation adjustment                                                        |   | (92,631,611                  | )      | — |   | — |   |
| Other                                                                                 |   | 5,897,701                    |   | 15,709,367 |   | 31,922,104 |   |
| Income  tax (benefit) expense in accordance with US GAAP                              |   | 51,486,964                   |   | 10,859,405 |   | 73,514,289 |   |
| Tax on minimum notional income                                                        |   | —                       |   | 112,592 |   | 12,729,956 |   |
| Income taxes and/or tax on minimum notional  income in accordance with US GAAP        |   | 51,486,964                   |   | 10,971,997 |   | 86,244,245 |   |

 

Although the Company presented pre-tax accounting losses on aconsolidated basis (net loss before income taxes), some of its subsidiariesgenerated taxable income and paid income taxes.

 

*(b)  Fair value of financialinstruments*

 

The estimated fair value of afinancial instrument is the amount at which the instrument could be exchangedin a current transaction between willing parties, other than in a forced orliquidation sale.  The following methodsand assumptions were used to estimate the fair value of each class of financialinstrument for which it is practicable to estimate that value:

 

•           The fair value of certain financial assetscarried at cost, including cash, short-term investments, trade receivables,receivables from related parties and other assets is considered to approximatetheir respective carrying value.

 

•            The fair value of accounts payableand accrued liabilities, taxes payable, debt with related parties, payroll andsocial security and other liabilities is considered to approximate theirrespective carrying value.

 

•           The fair values of bank andfinancial debt are based on quoted market prices or, where quoted prices arenot available, on the present value of future cash flows discounted atestimated borrowing rates for similar debt instruments.

 

F-40

----

 

•           The fair values of acquisitionrelated debt are based on the present value of future cash flows discounted atestimated borrowing rates for similar debt instruments.

 

The estimated fair values of financial instruments are as follows:

 
|                                           |   | **Years ended December 31,** |   |
|-------------------------------------------|--------|------------------------------|--------|
|                                           |   | **2002**                     |   | **2001** |   |
|                                      |   | **Carrying  amounts**        |   | **Fair  Value** |   | **Carrying  amounts** |   | **Fair  Value** |   |
| Financial assets                          |   |                         |   |   |   |   |   |   |   |
| Cash  and banks                           |   | 104,792,097                  |   | 104,792,097 |   | 28,862,313 |   | 28,862,313 |   |
| Short-term  investments                   |   | 1,444,899                    |   | 1,444,899 |   | 158,105,519 |   | 158,105,519 |   |
| Trade  receivables                        |   | 24,908,692                   |   | 24,908,692 |   | 71,180,536 |   | 71,180,536 |   |
| Receivables from related parties          |   | 12,758,388                   |   | 12,758,388 |   | 16,839,628 |   | 16,839,628 |   |
| Other                                     |   | 67,581,488                   |   | 67,581,488 |   | 137,699,498 |   | 137,699,498 |   |
|                                           |   |                         |   |   |   |   |   |   |   |
| Financial liabilities                     |   |                         |   |   |   |   |   |   |   |
| Accounts  payable and accrued liabilities |   | 109,914,396                  |   | 109,914,396 |   | 244,193,134 |   | 244,193,134 |   |
| Bank and financial debt                   |   | 2,021,182,231                |   | 1,138,231,078 |   | 1,665,947,376 |   | 867,273,736 |   |
| Acquisition  related debt                 |   | 12,064,437                   |   | 9,117,766 |   | 7,043,673 |   | 6,775,659 |   |
| Taxes  payable                            |   | 17,743,083                   |   | 17,743,083 |   | 51,472,163 |   | 51,472,163 |   |
| Debt  with related parties                |   | 1,020,870                    |   | 1,020,870 |   | 2,966,047 |   | 2,966,047 |   |
| Payroll  and social security              |   | 6,583,314                    |   | 6,583,314 |   | 16,955,977 |   | 16,955,977 |   |
| Other                                     |   | 35,356,884                   |   | 35,356,884 |   | 48,510,620 |   | 48,510,620 |   |

 

*(c) Financial instruments with off-balance sheet risk and concentrationsof credit risk*

 

The Company has not used financial instruments to hedge its exposure tofluctuations in foreign currency exchange or interest rates and, accordingly,has not entered into transactions that create off-balance sheet risks associatedwith such financial instruments.

 

Accounts receivable substantially comprise balances with a large numberof subscribers.  Management does notbelieve significant concentrations of credit risk exist.

 

*(d) Supplementary information on thestatement of cash flows*

 
|                                                                        |   | **Years  ended December 31,** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                        |   | **2002**                      |   | **2001** |   | **2000** |   |
| Cash payments:                                                              |   |                          |   |   |   |   |   |
| Income tax and/or tax on minimum notional  income                           |   | 3,167,902                     |   | 18,765,049 |   | 27,084,800 |   |
| Interest                                                                    |   | 23,038,056                    |   | 197,533,301 |   | 205,915,617 |   |
| Cash and cash equivalents include:                                          |   |                          |   |   |   |   |   |
| Cash                                                                        |   | 104,792,097                   |   | 28,862,313 |   | 23,057,192 |   |
| Short-term investments (original maturity  < 90 days)                    |   | 1,444,899                     |   | 158,105,519 |   | 58,763,511 |   |
|                                                                        |   | 106,236,996                   |   | 186,967,832 |   | 81,820,703 |   |
| Non-cash investing and financing activities                                 |   |                          |   |   |   |   |   |
| Common stock issued as a result of the  merger with Plataforma Digital S.A. |   | —                        |   | 2,386,108 |   | — |   |

 

F-41

----

 

Under Argentine GAAP the effect of inflation and of exchange ratechanges on cash and cash equivalents was not disclosed by presenting additionalcash flow statement categories as required by US GAAP. The following tablepresents the cash flows from operating, investing and financing activities andthe effects of inflation accounting and of exchange rate changes on cash andcash equivalents that would be reported in the statement of cashflows, whichcontemplate classification differences under US GAAP.

 
|                                                  |   | **Years  ended December 31,** |   |
|-------------------------------------------------------|--------|-------------------------------|--------|
|                                                  |   | **2002**                      |   | **2001** |   | **2000** |   |
| Cash provided by operations                           |   | 210,660,201                   |   | 43,471,973 |   | 50,301,220 |   |
| Cash (used in) provided by investment  activities     |   | (12,390,032                   | )      | 266,993,536 |   | (92,725,546 | ) |
| Cash used in financing activities                     |   | (255,734,990                  | )      | (205,362,036 | ) | (37,820,513 | ) |
| Effect of inflation accounting                        |   | (27,573,665                   | )      | — |   | — |   |
| Effect of exchange rate changes                       |   | 4,307,650                     |   | — |   | — |   |
| Net (decrease) increase in cash and cash  equivalents |   | (80,730,836                   | )      | 105,103,473 |   | (80,244,839 | ) |

 

*(e) Aging of long-term bank and financialdebt and non-current acquisition related debt under US GAAP*

 
|                                 |   | **Maturity  in the  year 2004** |   | **Total** |   |
|--------------------------------------|--------|---------------------------------|--------|-----------|--------|
| Long-term bank and financial debt    |   | 237,986                         |   | 237,986   |   |
| Non-current acquisition related debt |   | 3,324,586                       |   | 3,324,586 |   |
|                                 |   | 3,562,572                       |   | 3,562,572 |   |

 

*(f) Interest expense*

 
|                                                               |   | **Years ended December 31,** |   |
|---------------------------------------------------------------|--------|------------------------------|--------|
|                                                          |   | **2002**                     |   | **2001** |   | **2000** |   |
| Total  interest expense under Argentine GAAP                  |   | 245,421,360                  |   | 196,367,682 |   | 207,814,028 |   |
| Interest capitalization                                       |   | —                       |   | (1,229,257 | ) | (2,659,617 | ) |
| Discounting of non-interest bearing  Acquisition related debt |   | —                       |   | 125,375 |   | 177,047 |   |
| Total interest expense under US GAAP                          |   | 245,421,360                  |   | 195,263,800 |   | 205,331,458 |   |

 

*(g) Statement of consolidated comprehensiveloss*

 

The Company has adopted SFAS No. 130, “Reporting Comprehensive Income”,which requires that an enterprise (i) classify items of othercomprehensive income (loss) by their nature in a financial statement and (ii)display the accumulated balance of other comprehensive income (loss) separatelyfrom retained earnings and additional paid-in capital in the equity section ofa statement of financial position.

 

F-42

----

 
|                                          |   | **Years ended December 31,** | ** ** |
|------------------------------------------|--------|------------------------------|------------|
|                                          |   | **2002**                     | ** ** | **2001** | ** ** | **2000** | ** ** |
| Net loss in accordance with US GAAP      |   | (52,801,163                  | )          | (1,544,900,684 | ) | (385,400,848 | ) |
| Other comprehensive income:              |   |                         |       |   |   |   |   |
| Foreign currency translation adjustments |   | (8,308,782                   | )          | 16,006,646 |   | 824,338 |   |
| Total other comprehensive income         |   | (8,308,782                   | )          | 16,006,646 |   | 824,338 |   |
| Comprehensive loss                       |   | (61,109,945                  | )          | (1,528,894,038 | ) | (384,576,510 | ) |

 

The accumulated balances related to each component of othercomprehensive income were as follows:

 
|                                     |   | **December  31,** | ** ** |
|------------------------------------------|--------|-------------------|------------|
|                                     |   | **2002**          |       | **2001** | ** ** |
| Balance at the beginning of the year     |   | 15,659,319        |       | (347,327 | ) |
| Other comprehensive income:              |   |              |       |   |   |
| Foreign currency translation adjustments |   | (8,308,782        | )          | 16,006,646 |   |
| Total other comprehensive income         |   | (8,308,782        | )          | 16,006,646 |   |
| Balance at the end of the year           |   | 7,350,537         |       | 15,659,319 |   |

 

*(h) Transactions with related parties*

 

In the ordinary course of business and pursuant to a shareholdersagreement among the Company’s shareholders, the Company purchases programmingfrom related parties, the amounts invoiced by such related parties to theCompany for programming were approximately Ps.69.9 million, Ps.110.4 million andPs.104.3 million for the years ended December 31, 2002, 2001 and 2000,respectively.  In addition, also in theordinary course of business, the Company places advertising in media owned bysuch related parties, including newspapers and radio stations.  The related parties also purchaseadvertising time from the Company, and the parties occasionally exchangeadvertising space and air time with each other.  In the years ended December 31, 2002, 2001 and 2000, the aggregateamounts invoiced by Multicanal to such related parties for advertising wereapproximately Ps. 2.3 million, Ps. 5.5 million and Ps. 0.2 million,respectively, and the aggregate amounts invoiced by such related parties to theCompany for advertising were approximately Ps. 3.3 million, Ps. 1.3 millionand Ps. 2.6  million for the years ended December 31, 2002, 2001 and 2000,respectively.  Multicanal’s monthlysubscriber magazine is also published by a related party, the amounts invoicedto the Company were approximately Ps. 12.3 million, Ps. 15.7  million andPs. 19.5 million for the years ended December 31, 2002, 2001 and 2000,respectively.  In the years endedDecember 31, 2002 and 2001, the aggregate amounts invoiced by Multicanal tosuch related parties for new business were approximately Ps. 0.8 million andPs. 1.7.  Related parties balances atDecember 31, 2002 and 2001 were as follows: accounts receivable of Ps. 4.8million and Ps. 12.7 million at December 31, 2002 and 2001, respectively,and accounts payable of Ps. 18.5 million and Ps. 47.8 million at December31, 2002 and 2001, respectively. In addition, in 2001, Multicanal boughtproperty owned by Grupo Clarín for a total of Ps. 1.1 million.

 

Additionally, the Company transferred all of its interests in DirecTVLatin America, LLC and certain contractual rights related thereto to RavenMedia Investments, LLC, a company organized under the laws of the state ofDelaware and wholly-owned by Grupo Clarín S.A., for US$ 150,000,000, recordinga gain of Ps. 322,375,462.

 

F-43

----

 

At December 31, 2001, the Company has a balance of Ps. 3.4 millionpayable on a loan from Grupo Clarín S.A., which has generated an interestcharge of Ps. 0.2 million.

 

At December 31, 2002, Gestión Compartida, a Grupo Clarín Company,invoiced to Multicanal the total amount of Ps. 5.4 million. Gestión Compartidais a Company created by Grupo Clarín in 2001, which provided treasury,accounting and logistic services to all of its affiliates.

 

*(i) Adoption of SFAS 142*

 

In June 2001, the FASB issued Statement of Financial AccountingStandards No. 142. This statement changes the accounting for goodwill andintangible assets.

 

Under SFAS 142, goodwill and indefinite-lived intangible assets are nolonger amortized but are reviewed annually, or more frequently if impairmentindicators arise, for impairment. Separable intangible assets that have finitelives will continue to be amortized over their useful lives, with no maximumlife. In addition, SFAS 142 changes the test for goodwill impairment.

 

The new impairment test for goodwill is a two step process. The firststep is a comparison of the fair value of the reporting unit with its carryingamount, including goodwill. If this step reflects impairment, then the losswould be measured as the excess of recorded goodwill over its implied fairvalue. Implied fair value is the excess of the fair value of the reporting unitover the fair value of all recognized and unrecognized assets and liabilities.The amortization provisions of SFAS 142 apply to goodwill and intangible assetsacquired after June 30, 2001. With respect to goodwill and intangible assetsacquired prior to July 1, 2001, companies were required to adopt SFAS 142 intheir fiscal year beginning after December 15, 2001.

 

The Company has evaluated whether goodwill was impaired at January 1,2002. As a consequence of that assessment, a non-cash after-tax chargeamounting to Ps. 183,476,812 hasbeen recorded for the impairment. This initial impairment charge is shown inthe quantitative reconciliation to US GAAP recorded as a cumulative effect of achange in accounting principle in the Company’s results for the year endedDecember 31, 2002. Effective January 1, 2002, in accordance with thispronouncement, the Company ceased the amortization of goodwill under US GAAP.

 

As required by SFAS No. 142 the results for the prior years have notbeen restated.  A reconciliation of netincome as if SFAS No. 142 had been adopted for the years ended December 31,2001 and 2000 is presented below without considering the effects of theimpairment charge:

 
|                                        |   | **Year ended  December 31,** | ** ** |
|---------------------------------------------|--------|------------------------------|------------|
|                                        |   | **2001**                     |       | **2000** | ** ** |
|                                        |   | **(unaudited)**              | ** ** |
| Net loss before extraordinary item          |   | (1,554,111,925               | )          | (385,400,848 | ) |
| Add back: Goodwill amortization             |   | 130,003,845                  |       | 132,028,492 |   |
| Adjusted net loss before extraordinary item |   | (1,424,108,080               | )          | (253,372,356 | ) |
| Adjusted net loss                           |   | (1,414,896,839               | )          | (253,372,356 | ) |
|                                        |   |                         |       |   |   |
| Loss per share before extraordinary item    |   | (3.88                        | )          | (0.69 | ) |
| Net loss per share                          |   | (3.86                        | )          | (0.69 | ) |

 

F-44

----

 

*(j)**      Goodwill*

 

The changes inthe carrying amount of goodwill for the year ended December 31, 2002, are asfollows:

 
|                                    |   | **Ps.**       |   |
|-----------------------------------------|--------|---------------|--------|
| Balance as of  January 1, 2002          |   | 1,586,603,865 |   |
| Effect of the  adoption of SFAS No. 142 |   | (183,476,812  | )      |
| Impairment  losses                 |   | (299,789,373  | )      |
| Balance as of  December 31, 2002        |   | 1,103,337,680 |   |

 

As a result of the Argentineeconomic crisis, operating profits and cash flows were lower than expected. Inthe year ended December 31, 2002 a goodwill impairment loss of Ps. 299,789,373 was recognized in the Argentinereporting unit. The fair value of that reporting unit was estimatedusing the expected present value of future cash flows.

 

*(k) Amortization of intangible assets*

*** ***
| **Estimated amortization expense** |   | **Ps.**   | ** ** |
|------------------------------------|--------|-----------|------------|
| For year ended December 31, 2003   |   | 1,307,773 |       |
| For year ended December 31, 2004   |   | 1,271,786 |       |
| For year ended December 31, 2005   |   | 1,271,786 |       |
| For year ended December 31, 2006   |   | 604,149   |       |
| For year ended December 31, 2007   |   | 604,149   |       |

*** ***

*(l) Interest rate on short-term borrowings*

*** ***
|                                |   | **December  31,** | ** ** |
|--------------------------------|--------|-------------------|------------|
|                                |   | **2002**          | ** ** | **2001** | ** ** | **2000** | ** ** |
| Weighted average interest rate |   | 8                 | %          | 11.4 | % | 11.8 | % |

*** ***

*(m) Corporate bonds*

** **

The amounts issued and outstanding ofCorporate bonds as of December 31, 2002 are as follows

 
|                                                  |   | **December  31, 2002** | ** ** |
|-------------------------------------------------------|--------|------------------------|------------|
|                                                  |   | **Issued**             |       | **Outstanding** | ** ** |
| US$125 million 9.25% Notes due 2002                   |   | 421,250,000            |       | 325,774,530 |   |
| US$125 million 10.50% Notes due 2007                  |   | 421,250,000            |       | 332,824,570 |   |
| US$150 million Series C 10.50% Notes due  2018        |   | 505,500,000            |       | 126,779,400 |   |
| US$175 million Series E Notes due 2009                |   | 589,750,000            |       | 440,802,740 |   |
| US$144 million Series J Floating Rate Notes  due 2003 |   | 485,280,000            |       | 485,280,000 |   |
|                                                  |   | 2,423,030,000          |       | 1,711,461,240 |   |

 

F-45

----

 

**NOTE 18 - IMPACT OF NEW ACCOUNTING STANDARDSNOT YET ADOPTED**

 

In June 2001, the FASB issued SFAS No. 143, “Accounting for AssetRetirement Obligations”, which addresses financial accounting and reporting forobligations associated with the retirement of tangible long-lived assets andthe associated retirement costs. The standard applies to legal obligationsassociated with the retirement of long-lived assets that result from theacquisition, construction, development or normal use of the asset. SFAS No. 143requires that the fair value of a liability for an asset retirement obligationbe recognized in the period in which it is incurred if a reasonable estimate offair value can be made. The fair value of the liability is added to thecarrying amount of the associated asset and this additional carrying amount isdepreciated over the life of the asset. The liability is accreted at the end ofeach period through charges to operating expense. If the obligation is settledfor other than the carrying amount of the liability, the Company will recognizea gain or loss on settlement. SFAS No. 143 is required to be adopted for thefiscal year beginning January 1, 2003. Management does not believe the adoption of SFAS 143 will have amaterial impact on Multicanal’s results of operations and financial position.

 

In April 2002, the FASB issued SFAS No. 145, “Rescission of SFAS Nos.4, 44, and 64, Amendment of SFAS 13, and Technical Corrections as of April2002.”  SFAS 145 rescinds SFAS No. 4, “ReportingGains and Losses from Extinguishment of Debt,” SFAS No. 44, “Accounting forIntangible Assets of Motor Carriers,” and SFAS 64, “Extinguishments of DebtMade to Satisfy Sinking-Fund Requirements.” As a result, gains and losses fromextinguishment of debt will no longer be classified as extraordinary itemsunless they meet the criteria of unusual or infrequent as described inAccounting Principles Boards Opinion 30,   “Reporting the Results of Operations - Reporting the Effects of Disposalof a Segment of a Business, and Extraordinary, Unusual and InfrequentlyOccurring Events and Transactions.”  Inaddition, SFAS 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate aninconsistency between the required accounting for sale-leaseback transactionsand the required accounting for certain lease modifications that have economiceffects that are similar to sale-leaseback transactions.  SFAS 145 also amends other existingauthoritative pronouncements to make various technical corrections, clarify meanings,or describe their applicability under changed conditions.  SFAS 145 is effective for fiscal yearsbeginning after May 15, 2002. Management does not believe the adoption of SFAS 145 will have amaterial impact on Multicanal’s results of operations and financial position.

 

In June 2002, the FASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities” (“SFAS 146”). The issuance of SFAS146 nullifies the former guidance provided by the Emerging Issues Task Force(“EITF”) Issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring)” (“EITF 94-3”).  SFAS 146 requires the recognition of a liability for costsassociated with exit or disposal activity when the liability is incurred,rather than on the date commitment to an exit or disposal plan.  SFAS 146 is effective for liabilities,related to exit or disposal activities, which are incurred after December 31,2002, while earlier application is encouraged. Management does not believe the adoption of SFAS 146 will have amaterial impact on Multicanal’s results of operations and financial position.

 

In November 2002, the FASB issued FIN No. 45, “Guarantor’s Accountingand Disclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” (“FIN 45”). FIN 45 prescribes that a guarantor isrequired to recognize, at the inception of a guarantee, a liability for thefair value of the obligation undertaken in issuing the guarantee. The initialrecognition and initial measurement provisions of FIN 45 are applicable on aprospective basis to guarantees issued or modified after December 31, 2002.Management is currently evaluating the impact that the adoption of FIN 45 willhave on the consolidated financial statements.

 

F-46

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**MULTICANAL S.A.**

** **

**Exhibit I**

 

**INFORMATION REQUIRED BY SECTION 64,SUB-SECTION b) OF LAW No. 19550**

for the years ended December 31, 2002, 2001and 2000 (Consolidated)

**(Expressed in Argentine pesos of December 31,2002 purchasing power)**

** **
| **Caption**                              |   | **Direct  operating  expenses** | ** ** | **General  and  administrative   expenses** | ** ** | **Selling  and marketing   expenses** |       |        |       |        |       |        | ** ** |
|------------------------------------------|--------|---------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Total at  December 31,**               |   |
| **2002**                                 |   | **2001**                        | ** ** | **2000**                                    |       |
|                                     |   |                            | ** ** |                                        | ** ** |                                       | ** ** |        | ** ** |        | ** ** |        | ** ** |
| Payroll and  social security             |   | 50,925,028                      |       | 11,799,295                                  |       | 23,190,500                                 |       | 85,914,823  |       | 147,262,357 |       | 163,629,560 |       |
| Employees’ dismissals               |   | 814,380                         |       | 283,918                                     |       | 2,484,134                                  |       | 3,582,432   |       | 2,191,235   |       | 5,058,418   |       |
| Taxes rates and contributions            |   | 11,278,106                      |       | 10,525,021                                  |       | 262,631                                    |       | 22,065,758  |       | 45,269,500  |       | 33,520,195  |       |
| Insurance                                |   | 37,668                          |       | 189,905                                     |       | —                                     |       | 227,573     |       | —      |       | —      |       |
| Programming rights                       |   | 188,532,169                     |       | —                                      |       | —                                     |       | 188,532,169 |       | 287,705,769 |       | 275,459,733 |       |
| Printing and distribution of magazines   |   | 15,289,822                      |       | —                                      |       | —                                     |       | 15,289,822  |       | 28,718,654  |       | 31,371,307  |       |
| Fees and compensation for services       |   | 790,503                         |       | 12,768,689                                  |       | 60,724                                     |       | 13,619,916  |       | 15,185,854  |       | 14,023,240  |       |
| Commissions                              |   | 4,507,710                       |       | 16,674,889                                  |       | 14,186                                     |       | 21,196,785  |       | 35,783,339  |       | 36,473,523  |       |
| Overhead                                 |   | 3,281,532                       |       | 769,338                                     |       | 59,705                                     |       | 4,110,575   |       | 3,665,695   |       | 6,554,274   |       |
| Personnel expenses                       |   | 2,723,849                       |       | 1,705,460                                   |       | 1,506,300                                  |       | 5,935,609   |       | 13,367,524  |       | 15,182,207  |       |
| Building expenses                        |   | 279,913                         |       | 6,652,617                                   |       | —                                     |       | 6,932,530   |       | 13,021,550  |       | 13,525,414  |       |
| Vehicles expenses                        |   | —                          |       | 3,127,562                                   |       | —                                     |       | 3,127,562   |       | 4,717,701   |       | 5,941,835   |       |
| Rentals                                  |   | 15,822,255                      |       | 2,455,099                                   |       | —                                     |       | 18,277,354  |       | 30,653,046  |       | 31,050,938  |       |
| Security and surveillance                |   | 58,482                          |       | 2,240,786                                   |       | 2,956                                      |       | 2,302,224   |       | 3,428,211   |       | 5,310,224   |       |
| Representation and travel  expenses |   | 78,789                          |       | 1,168,201                                   |       | —                                     |       | 1,246,990   |       | 2,292,295   |       | 2,770,583   |       |
| Office expenses                          |   | 168,468                         |       | 2,812,228                                   |       | 33,871                                     |       | 3,014,567   |       | 3,771,074   |       | 4,751,081   |       |
| Publicity and advertising                |   | —                          |       | —                                      |       | 10,908,099                                 |       | 10,908,099  |       | 11,014,072  |       | 25,211,359  |       |
| Sundry                                   |   | 15,581,106                      |       | 10,934,391                                  |       | —                                     |       | 26,515,497  |       | 45,042,455  |       | 43,728,477  |       |
| Total at December 31, 2002               |   | 310,169,780                     |       | 84,107,399                                  |       | 38,523,106                                 |       | 432,800,285 |       |        |       |        |       |
| Total at December 31, 2001               |   | 498,531,491                     |       | 135,151,173                                 |       | 59,407,667                                 |       |        |       | 693,090,331 |       |        |       |
| Total at December 31, 2000               |   | 492,302,981                     |       | 144,754,276                                 |       | 76,505,111                                 |       |        |       |        |       | 713,562,368 |       |

 

F-47

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