<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 30, 1999.
------------
Transtel S.A.
-----------------------------------------------------------------------------
(Translation of Registrant's Name Into English)
Calle 15 #33-289, Autopista, Cali-Yumbo Km.2, Cali-Valle, Colombia
-----------------------------------------------------------------------------
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F______
-
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes____ No X
-
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____.)
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
1998 1999 1999
--------- -------- -----------
(Thousands
(Thousand of Pesos of September 30, of Dollars)
1999)
<S> <C> <C> <C>
ASSETS
Current
Cash..................................................................... Ps 6,319,588 Ps 10,535,093 $ 5,222
Short-term and temporary investments..................................... 46,060,420 26,530,899 13,152
Accounts receivable, net................................................. 28,748,691 81,296,982 40,300
Inventories.............................................................. 3,553,701 2,734,704 1,356
Prepaid expenses......................................................... 741,551 624,177 310
-------------- --------------- --------
Total current assets.................................................... 85,423,951 121,721,855 60,340
Noncurrent
Accounts receivable...................................................... 41,414,087 41,967,151 20,804
Properties, plant and equipment, net..................................... 274,651,352 352,016,264 174,501
Deferred monetary correction............................................. 4,072,968 5,097,135 2,527
Deferred costs........................................................... 53,696,188 61,873,610 30,672
Long-term investments.................................................... 19,560,985 3,047,241 1,511
Other assets............................................................. 7,333,326 12,850,775 6,370
Reappraisal of assets.................................................... 32,062,447 36,130,012 17,910
-------------- --------------- ---------
Total assets............................................................ Ps 518,215,304 Ps 634,704,043 $314,635
============== =============== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt.......................................................... Ps 10,935,800 Ps 14,817,509 $ 7,345
Current portion of other long-term debt.................................. 1,052,420 3,752,429 1,860
Current portion of capital lease obligations............................. 3,022,179 7,899,419 3,916
Accounts payable......................................................... 36,520,074 48,474,684 24,030
Tax liabilities.......................................................... 4,848,752 12,200,065 6,048
Labor liabilities........................................................ 874,240 205,461 102
Other liabilities........................................................ 9,221,065 12,572,682 6,232
Accrued pension obligations.............................................. 584,991 634,892 315
-------------- --------------- --------
Total current liabilities............................................... 67,059,521 100,557,141 49,848
Long-term liabilities
12 1/2 % Senior Notes due 2007........................................... 255,457,584 302,590,500 150,000
20.32% Senior Discount Notes due 2008.................................... - 34,983,012 17,342
Other long-term debt..................................................... 10,286,435 457,660 227
Capital lease obligations................................................ 25,236,379 42,226,131 20,932
Deferred monetary correction............................................. 9,394,351 6,315,607 3,131
Accrued pension obligations.............................................. 7,360,246 6,981,505 3,461
Other liabilities........................................................ 12,144,987 12,360,102 6,127
-------------- --------------- --------
Total liabilities....................................................... 386,939,504 506,471,658 251,068
-------------- --------------- --------
Minority interest......................................................... 57,863,401 72,567,789 35,973
-------------- --------------- --------
Commitments
Shareholders' equity:
Common stock, Ps1 per value, 50 billion shares
Authorized: 34,611,747,976 shares issued
and outstanding (5,039,801,222 in 1998)................................. 48,232,823 48,232,823 23,910
Retained earnings........................................................ 13,225,286 (7,568,536) (3,752)
Surplus from reappraisal of assets....................................... 11,954,290 15,000,309 7,436
-------------- --------------- --------
Total shareholders' equity.............................................. 73,412,399 55,664,596 27,594
-------------- --------------- --------
Total liabilities and shareholder's equity.............................. Ps 518,215,304 Ps 634,704,043 $314,635
============== =============== ========
Memorandum accounts....................................................... Ps 194,036,352 Ps 342,960,240 $170,012
============== =============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
For the Nine Months Ended September 30, Ended September 30,
------------------------------------------------- --------------------------------
1998 1999 1999 1999 1999
------------- -------------- ------------- ------------------- ------------
(Thousands of Pesos
(Thousands of of September 30, (Thousands of
(Thousands of Pesos of September Dollars-- 1999 purchasing Dollars--
30, 1999 purchasing power) Unaudited) power) Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................................... Ps 61,297,796 Ps 94,470,828 $ 46,831 Ps 34,999,218 $ 17,350
------------- -------------- ------------- ------------------- ------------
Costs and expenses:
Operating costs....................... 14,478,149 15,117,076 7,494 6,155,128 3,051
Administrative expenses............... 14,093,426 21,953,653 10,883 6,753,261 3,348
Marketing expenses.................... 4,077,488 6,340,837 3,143 2,404,985 1,192
------------- -------------- ------------- ------------------- ------------
32,649,063 43,411,566 21,520 15,313,374 7,591
------------- -------------- ------------- ------------------- ------------
Operating income...................... 28,648,733 51,059,262 25,311 19,685,844 9,759
------------- -------------- ------------- ------------------- ------------
Non operating income (expenses)
Financial income...................... 34,092,610 65,986,953 32,711 21,392,385 10,605
Financial expenses.................... (67,816,548) (143,630,932) (71,201) (71,022,067) (35,207)
Other................................. 1,430,104 (2,003,889) (993) (194,708) (97)
------------- -------------- ------------- ------------------- ------------
(32,293,834) (79,647,868) (39,483) (49,824,390) (24,699)
------------- -------------- ------------- ------------------- ------------
Net monetary inflation adjustment income.... 17,394,192 15,041,308 7,456 2,809,203 1,393
------------- -------------- ------------- ------------------- ------------
Income (loss) before income taxes
And minority interest............. 13,749,091 (13,547,298) (6,716) (27,329,342) (13,547)
Income tax (expense) benefit................ (929,728) (1,471,998) (730) 3,614,498 1,792
------------- -------------- ------------- ------------------- ------------
Income (loss) before
minority interest.............. 12,819,363 (15,019,296) (7,446) (23,714,844) (11,755)
Minority interest........................... (6,120,593) (11,583,299) (5,742) (3,081,014) (1,527)
------------- -------------- ------------- ------------------- ------------
Net income (loss).............. Ps 6,698,770 Ps (26,602,595) $(13,188) Ps (26,795,858) $(13,282)
============= ============== ============= =================== ============
Earnings per share (in single Pesos and
Single Dollars per share)............... Ps 1.32 Ps (0.77) $ - $ (0.77) $ -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Nine months Ended September 30, 1998 and 1999
(Thousands of Pesos of September 30, 1999, except shares)
<TABLE>
<CAPTION>
Common Shares Outstanding
-------------------------
Surplus from Total
Number Retained Reappraisal Shareholders'
(Thousands) Amount Earnings of Assets Equity
----------- ------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997....... 5,039,801 Ps 48,232,823 Ps 6,528,454 Ps 11,819,656 Ps 66,580,933
Net income......................... 6,698,770 6,698,770
Movement during the period......... 132,696 132,626
---------- ------------- ------------- ------------- ---------------
Balance at September 30, 1998...... 5,039,801 48,232,823 13,227,224 11,952,352 73,412,399
========== ============= ============= ============= ===============
Balance at December 31, 1998....... 34,611,748 Ps 48,232,823 Ps 19,034,058 Ps 15,515,374 Ps 82,782,255
Net income......................... (26,602,594) (26,602,594)
Movement during the period......... (515,065) (515,065)
---------- ------------- ------------- ------------- ---------------
Balance at September 30, 1999 34,611,748 Ps 48,232,823 Ps (7,568,536) Ps 15,000,309 Ps 55,664,596
========== ============= ============= ============= ===============
</TABLE>
Retained earnings balances consist of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1998 1999
-------------- -------------
<S> <C> <C>
Legal reserve................................................ Ps 516,250 Ps 652,847
Appropriated for future construction......................... 873,535 873,535
Appropriated for future acquisitions......................... 5,138,669 17,507,676
Unappropriated retained earning.............................. 6,698,770 (26,602,594)
------------- -------------
Ps 13,227,224 Ps (7,568,536)
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1998 1999 1999
--------------- ------------------ -------------
(Thousands
of
(Thousands of Pesos of September 30, 1999 Dollars--
purchasing power) Unaudited)
<S> <C> <C> <C>
Sources of working capital:
Net income (loss)................................... Ps 6,698,770 Ps (26,602,595) $ (13,187)
Items that do not utilize (provide)
Working capital:
Depreciation...................................... 1,921,650 3,279,585 1,626
Amortization...................................... 5,903,299 11,202,979 5,554
Deferred income taxes............................. 3,001,139 (927,488) (460)
Allowance for writedown of properties,
plant and equipment.............................. 103,076 (68,592) (34)
Accretion of Interest on
Senior Discount Note............................. 849,885 4,323,838 2,143
Allowance for doubtful accounts................... 206,731 1,360,757 674
Minority interest................................. 6,120,593 11,583,299 5,742
Net inflation adjustment from non-current
balance sheet accounts........................... (16,669,304) (15,041,307) (7,456)
Deferred monetary correction, net................. (2,662,895) 510,025 253
--------------- ------------------ -------------
Working capital provided by operations............. 5,472,944 (10,379,499) (5,145)
--------------- ------------------ -------------
Financial resources generated otherwise:
Accrued Pension obligations....................... (957,023) (50,788) (25)
Increase (decrease) in other debt................. 10,286,435 (9,106,195) (4,514)
Capital lease obligations......................... 23,819,913 11,179,253 5,542
Increase in other liabilities..................... 2,472,030 476,458 236
Investment by minority interest................... 4,821,132 (1,748,194) (867)
--------------- ------------------ -------------
40,442,487 750,534 372
--------------- ------------------ -------------
Total financial resources generated............ 45,915,431 (9,628,965) (4,774)
--------------- ------------------ -------------
Financial resources utilized:
Purchases of properties, plant and
equipment........................................ (140,698,503) (76,181,371) (37,765)
Decrease in deferred costs........................ 1,220,531
Decrease in long-term investments................. 19,163,908 200,836 100
Decrease in other assets..........................
Increase in deferred costs........................ (5,694,457) (2,823)
Increase in other assets.......................... (6,062,508) (6,577,857) (3,261)
Decrease in accounts receivable................... (27,456,229) 3,913,732 1,940
--------------- ------------------ -------------
(153,832,801) (84,339,117) (41,809)
--------------- ------------------ -------------
Effect of revaluing to constant pesos.............. 21,332,454 77,655,323 38,495
--------------- ------------------ -------------
Increase (decrease) in working capital......... Ps (86,584,916) Ps (16,312,759) $ (8,087)
=============== ================== =============
Changes in working capital components:
Cash................................................ Ps 2,818,724 Ps 6,656,668 $ 3,300
Short-term and temporary investments................ (85,577,214) (37,323,998) (18,502)
Accounts receivable................................. 4,912,874 50,057,410 24,814
Inventories......................................... 2,351,264 (161,503) (80)
Prepaid expenses.................................... 92,250 (232,833) (115)
Short-term debt..................................... 6,132,302 (83,314) (41)
Short-term and current portion of
Other long-term debt............................... (1,052,421) (2,163,605) (1,073)
Current portion of capital lease obligations........ (2,757,724) (3,439,539) (1,705)
Accounts payable.................................... (11,076,862) (11,871,754) (5,885)
Tax liabilities..................................... (1,632,461) (6,206,428) (3,077)
Labor liabilities................................... (337,843) 843,678 418
Current Portion Pension obligations................ 85,994 (50,440) (25)
Other liabilities................................... (543,798) (12,337,101) (6,116)
--------------- ------------------ -------------
Increase (decrease) in working capital.......... Ps (86,584,915) Ps (16,312,759) $ (8,087)
=============== ================== =============
<CAPTION>
For the Three Months Ended
September 30,
1999 1999
------------- ------------
(Thousands of Pesos of (Thousands
September 30, of
1999 purchasing power) Dollars--
Unaudited)
<S> <C> <C>
Sources of working capital:
Net income (loss)................................... Ps (26,795,857) $ (13,283)
Items that do not utilize (provide)
Working capital:
Depreciation...................................... 1,009,661 501
Amortization...................................... 4,998,810 2,478
Deferred income taxes.............................
Allowance for writedown of properties,
plant and equipment.............................. (108,402) (54)
Accretion of Interest on
Senior Discount Note............................. 1,667,676 827
Allowance for doubtful accounts................... 188,310 93
Minority interest................................. 3,081,014 1,527
Net inflation adjustment from non-current
balance sheet accounts........................... (2,809,202) (1,393)
Deferred monetary correction, net................. 1,238,631 614
--------------- ------------
Working capital provided by operations............. (17,529,359) (8,690)
--------------- ------------
Financial resources generated otherwise:
Accrued Pension obligations....................... (3,780) (2)
Increase (decrease) in other debt................. (6,062,485) (3,005)
Capital lease obligations......................... (1,509,704) (748)
Increase in other liabilities..................... 599,064 297
Investment by minority interest................... 2,247,461 1,114
--------------- ------------
(4,729,444) (2,344)
--------------- ------------
Total financial resources generated............ (22,258,803) 11,034)
--------------- ------------
Financial resources utilized:
Purchases of properties, plant and
equipment........................................ (15,490,618) (7,679)
Decrease in deferred costs........................
Decrease in long-term investments................. 78,752 39
Decrease in other assets..........................
Increase in deferred costs........................ (947,128) (470)
Increase in other assets.......................... (7,777,004) (3,855)
Decrease in accounts receivable................... 1,280,181 635
--------------- ------------
(22,855,817) (11,330)
--------------- ------------
Effect of revaluing to constant pesos.............. 45,782,140 22,695
--------------- ------------
Increase (decrease) in working capital......... Ps 667,520 $ 331
=============== ============
Changes in working capital components:
Cash................................................ Ps (887,140) $ (440)
Short-term and temporary investments................ 2,667,860 1,323
Accounts receivable................................. 20,456,170 10,141
Inventories......................................... 96,659 48
Prepaid expenses.................................... (125,864) (62)
Short-term debt..................................... (2,534,396) (1,256)
Short-term and current portion of
Other long-term debt............................... (2,026,040) (1,004)
Current portion of capital lease obligations........ 1,861,727 923
Accounts payable.................................... (6,713,153) (3,328)
Tax liabilities..................................... 2,446,596 1,213
Labor liabilities................................... 108,283 54
Current Portion Pension obligations................ (3,741) (2)
Other liabilities................................... (14,679,441) (7,277)
--------------- ------------
Increase (decrease) in working capital.......... Ps 667,520 $ 331
=============== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
For the Nine Months Ended September 30, Ended September 30,
1998 1999 1999 1999 1999
--------------- --------------- --------- --------------- ----------
(Thousands of
(Thousands Pesos of (Thousands
Thousands of Pesos of September 30, of September 30, of
1999 Dollars-- 1999 Dollars--
purchasing power) Unaudited) purchasing power) Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income for the period...................... Ps 6,698,770 Ps (26,602,595) $ (13,187) Ps (26,795,857) $ (13,283)
Adjustments to reconcile net income with net
cash provided by operations:
Depreciation................................ 1,921,650 3,279,585 1,626 1,009,661 501
Amortization................................ 5,903,299 11,202,979 5,554 4,998,810 2,478
Deferred income taxes....................... 3,001,139 (927,488) (461)
Allowance for property plant and equipment.. 103,076 (68,592) (34) (108,403) (54)
Allowance for doubtful accounts............. 206,732 1,360,757 675 188,310 93
Accretion of Interest on Discount Senior
Notes...................................... 849,885 4,323,838 2,143 1,667,676 827
Minority interest........................... 6,120,593 11,583,299 5,742 3,081,014 1,527
Net inflation adjustment from balance
Sheet accounts............................. (17,101,241) (15,041,307) (7,456) (2,809,202) (1,393)
Deferred monetary correction, net........... (2,662,895) 510,025 253 1,238,631 614
Changes in operating assets and liabilities:
Accounts receivable......................... (15,655,092) (46,143,678) (22,874) (19,175,988) (9,506)
Inventories................................. (2,351,264) 161,503 80 (96,659) (48)
Prepaid expenses............................ (92,251) 232,833 115 125,864 62
Deferred costs.............................. 1,220,532 (5,694,457) (2,823) (947,129) (470)
Other assets................................ (11,279,172) (6,577,857) (3,261) (7,777,004) (3,855)
Accounts payable............................ 11,076,862 11,871,754 5,885 6,713,153 3,328
Labor liabilities........................... 337,843 (843,678) (418) (108,283) (54)
Tax liabilities............................. 1,632,461 6,206,428 3,077 (2,446,596) (1,213)
Accrued pension obligations................. (1,043,017) (348) (38)
Other liabilities........................... 9,674,953 12,813,559 6,353 15,278,504 7,574
--------------- --------------- --------- --------------- ----------
Net cash (used for) provided by
operating activities.................... (1,437,137) (38,353,440) (19,013) 25,963,536) (12,871)
--------------- --------------- --------- --------------- ----------
Cash flows from investing activities:
Purchases of properties, plant and equipment... (100,044,291) (34,864,624) (17,283) (6,639,689) (3,291)
Advances on properties plant and equipment..... (16,714,012) (43,064,941) (21,348) (30,051,206) (14,897)
Purchases of investments....................... (83,346,193) (3,534,227) (1,752)
Proceeds from sale/maturity of
short-term investments........................ 188,275,778 60,006,501 29,746 16,358,333 8,109
--------------- --------------- --------- --------------- ----------
Net cash (used for) provided by
investing activities.................... (11,828,718) (21,457,291 (10,637) (20,332,562) (10,079)
--------------- --------------- --------- --------------- ----------
Cash flows from financing activities:
Issuance of other debt........................ 19,278,124 (27,088,125) (13,428) (3,026,148) (1,500)
Repayments of debt............................ (14,071,570) 20,228,848 10,028 1,524,100 756
Dividend paid to minority interest 2,194,720 1,088
Repayments of capital lease obligations....... (10,454,429) (4,328,648) (2,146) (1,335,774) (662)
--------------- --------------- --------- --------------- ----------
Net cash provided by (used for)
financing activities.................... (5,247,875) (11,187,925) (5,546) (643,102) (319)
--------------- --------------- --------- --------------- ----------
Effect of revaluing to constant pesos........... 21,332,453 77,655,324 38,495 45,782,140 22,695
--------------- --------------- --------- --------------- ----------
Net (decrease) increase in cash............... 2,818,724 6,656,668 3,300 (1,157,060) (574)
Cash at beginning of period................... 3,500,864 3,878,425 1,922 12,503,443 6,198
--------------- --------------- --------- --------------- ----------
Cash at end of period......................... Ps 6,319,588 Ps 10,535,093 $ 5,222 Ps 11,346,383 $ 5,625
=============== =============== ========= =============== ==========
Supplemental disclosure of cash flows inform:
Cash paid during the period for:
Interest.................................... Ps 5,424,198 Ps 5,767,951 $ 2,859 Ps 2,908,265 $ 1,442
=============== =============== ========= =============== ==========
Income taxes................................ Ps 2,771,179 Ps 4,091,481 $ 2,028 Ps 587,352 $ 291
=============== =============== ========= =============== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of constant Pesos of September 30, 1999 purchasing power, unless
otherwise specified)
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The interim consolidated financial statements as of and for the nine months
ended September 30, 1998 and 1999 are unaudited and have been prepared in
accordance with accounting principles generally accepted in Colombia. In the
opinion of management, such interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the results for the interim periods. The results of
operations for the nine months ended September 30, 1999 are not necessarily an
indication of the results to be expected for the full year. The financial
information has been presented in constant Colombian Pesos of September 30, 1999
purchasing power. U.S. Dollar amounts are translated from Peso amounts at the
Representative Market Rate on September 30, 1999, which was 2,017.27 Pesos to
one Dollar. No representation is made that the Peso or Dollar amounts could have
been or could be converted into Dollars or Pesos, as the case may be, at any
particular rate or at all.
These interim consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements as of and for
the three years ended December 31, 1998, 1997 and 1996 and the notes thereto.
See Note 6 for a description of the significant differences between Colombian
and U.S. GAAP.
In accordance with Colombian GAAP, reappraisals of properties, plant and
equipment are required and recorded in offsetting accounts which are shown under
the asset caption "Reappraisal of assets" and the shareholders' equity caption
"Surplus from reappraisal of assets". Those reappraisals should be calculated
based on appraisals made by specialists at least every three years; however,
unless otherwise considered inappropriate, the appraisals are updated in the
intervening years using specific indices or the official Colombian middle-income
consumer price index applied on a one-month's lagging basis. The last date of
appraisals by specialists was December 1998.
NOTE 2--OPERATING SUBSIDIARIES
As of September 30, 1999, Transtel has formed nine operating subsidiaries
as shown in the following chart:
<TABLE>
<CAPTION>
Date
Date commercial Percent
Primary incorporated operations Owned by
Subsidiary area served by Transtel began Transtel
-------------------------------------------------- ------------ ----------- ----- --------
<S> <C> <C> <C> <C>
Empresa de Telefonos de Jamundi S.A.,E.S.P.
("TeleJamundi")................................... Jamundi 9/29/93 6/1/97 70%
Unitel S.A. E.S.P. ("Unitel")....................... Yumbo 3/11/94 6/1/97 95
Empresa de Telefonos de Palmira S.A., E.S.P. Palmira and
("TelePalmira")................................... Candelaria 5/31/95 9/1/95 60
Telefonos de Cartago S.A., E.S.P.
("TeleCartago")................................... Cartago 1/3/97 4/1/97 65
Caucatel S.A., E.S.P. ("Caucatel").................. Popayan 4/30/97 5/1/97 51
Bugatel S.A., E.S.P. ("Bugatel").................... Buga 6/16/97 7/1/97 60
Empresa de Telecomunicaciones de Girardot S.A.,
E.S.P. ("TeleGirardot")........................... Girardot 12/31/97 1/1/98 60
Suscripciones Audiovisuales E.U.. Cali 1/31/98 100
Cablevision E.U.................................... Cali 1/31/98 100
</TABLE>
-6-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to the above subsidiaries, Transtel formed Telequilichao S.A.
E.S.P. as a 98% owned subsidiary on December 27, 1996, Invercable S.A. as a 100%
owned subsidiary on July 27, 1998 and Unicable S.A. as a 100% owned subsidiary
on July 27, 1998; however, they have had no operations to date.
In July and September, 1998 the Company acquired 97% of Suscripciones
Audiovisuales S.A. and Cablevision S.A. (together "Cablevision") for Ps
14,613,286 and Ps 6,677,342 in cash, respectively. The Company acquired the
remaining 3% of both companies on December 15, 1998 for Ps 787,737 in cash.
Cablevision owns and operates the only license for the operation of pay
television services in the city of Cali and its surrounding area. Transtel used
a portion of the proceeds from the Senior Notes to finance this purchase.
NOTE 3--EARNINGS PER SHARE
Earnings per share are computed dividing net income applicable to common
shares by the weighted average number of subscribed and paid shares outstanding
for the three months ended September 30, 1998 and 1999, respectively. Transtel's
weighted average number of shares used in the computation of earnings per share
was 34,611,747,976 in 1998 and 1999.
NOTE 4--DEBTS
On October 28, 1997, the Company received the net proceeds from the sale of
$150 million (Ps 302.5 billion) of 12 1/2% Senior Notes due 2007. These Senior
Notes were sold to a pass through trust which issued certificates
("Certificates") representing pro rata interests in the Senior Notes to
qualified institutional buyers in the United States of America or non-U.S.
persons outside the United States. Interest payments on the Senior Notes are due
on May 1 and November 1, commencing May 1, 1998. A portion of the net proceeds
of the 12 1/2% Senior Notes due 2007 was used to pay all existing short and
long-term debt existing at October 28, 1997, costs of issuance, a Central Bank
fee and the Escrow Account.
On December 31, 1998, the Company sold $15 million (Ps 30.3 billion) of its
20.32% Senior Discount Notes due 2008 in a private placement. The net proceeds
of approximately $14.3 million (Ps 28.8 billion) were to pay for capital
expenditures, to provide working capital and/or to fund future acquisitions.
Interest at 0.10% will be payable in cash each year through August 13, 2008.
Interest at 20.22% will accrue over the term of the Senior Discount Notes, and
the accrued interest of $86.9 million (Ps 175.300 billion) and principal of $15
million (Ps 30.259 billion) will be due on August 13, 2008. The Senior Discount
Notes are unsecured senior obligations of the Company and will be fully and
unconditionally guaranteed on a senior, unsecured basis by each subsidiary of
the Company in which the Company acquires 100% of the minority interest or
provides indebtedness with the proceeds of the Senior Discount Notes. If such a
guarantee is issued by a subsidiary, it must also be issued to the holders of
the Senior Notes and Certificates. As of November 30, 1999 the Company has not
acquired any minority interests or provided indebtedness to any subsidiary.
The indentures of the 12 1/2% Senior Notes due 2007 and Senior Discount
Notes due 2008 impose certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, issue preferred
stock, merge or consolidate with any other person or sell, assign, transfer,
lease, convey, or otherwise dispose of all or substantially all of the assets of
the Company and its subsidiaries. Under the most restrictive of these covenants,
the Company may pay dividends of no more than Ps 6,507,745 as of September 30,
1999.
-7-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transtel S.A. is dependent upon transfer of funds from its subsidiaries to
make the required interest and principal payments on the Senior Notes and the
Certificates and the Senior Discount Notes. The subsidiaries have not
guaranteed the payment of the Senior Notes and have no obligations to remit
dividends on other distributions to Transtel S.A. for payment on the Senior
Notes and the Certificates and the Senior Discount Notes.
NOTE 5--OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities as of September 30, 1998 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Payable to Siemens AG for Transtel Siemens Purchase
Agreement....................................................... Ps 3,843,446 Ps 4,293,817 (1)
Payable to Siemens AG for TeleGirardot Siemens Purchase
Agreement....................................................... 3,571,621 3,787,423 (2)
Payable to IBM....................................................... 987,405 754,872 (3)
Unearned interest income............................................. 1,093,214 148,352
Cable television fees paid advances.................................. 495,769
Accrued litigation loss............................................. 2,407,680 2,200,000
Deferred Income Taxes................................................
Negative goodwill.................................................... 275,374
Other................................................................ 241,621 404,495
------------- ------------
Ps 12,144,987 Ps12,360,102
============= ============
</TABLE>
(1) Excludes Ps 858,763 which is included in other current liabilities.
(2) Excludes Ps 1,951,097 which is included in other current liabilities.
(3) Excludes Ps 699,985 which is included in other current liabilities.
Girardot Telephone was sued by TeleTequendama E.S.P., a local telephone
operator competitor, for Ps 2,200,000 (nominal Pesos) on September 4, 1997 for
unfair competition in TeleTequendama's zone of operations. Although the
resolution and trial of this lawsuit will not occur during 1999, the Company and
Girardot Telephone agreed that Girardot Telephone would record, concurrently
with the acquisition of Girardot Telephone by the Company on December 31, 1997,
Ps 2,200,000 (nominal Pesos) as an estimate of the liability that is probable as
a result of the litigation.
NOTE 6--DIFFERENCES BETWEEN COLOMBIAN GAAP AND U.S. GAAP
The Company's financial statements are prepared in accordance with
Colombian GAAP. Because these principles differ in certain significant respects
from U.S. GAAP, this note presents a reconciliation to U.S. GAAP of net income
and shareholders' equity as of and for the three month periods ended September
30, 1998 and 1999. A Registration Statement on Form F-4 was filed with the
Securities and Exchange Commission and was declared effective on May 17, 1999 by
the Commission.
(a) Reconciliation of net income:
The following summarizes the principal differences between accounting
practices under Colombian and U.S. GAAP and their effects on net income for the
three months periods ended September 30, 1998 and 1999:
-8-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1998 1999
------------- ----------------
<S> <C> <C>
Consolidated net income under Colombian GAAP.................................. Ps 6,698,770 Ps (26,602,595)
(i) Deferred income taxes.......................................... 3,291,702 4,102,750
(ii) Surplus from reappraisal of assets............................. - -
(iii) Depreciation................................................... (4,319,997) (7,411,166)
(iv) Capitalized interest........................................... 1,251,886 2,629,263
(v) Deferred costs................................................. (5,800,819) 1,512,616
(vi) Capital leases................................................. 94,897 (78,719)
(vii) Revenue recognition............................................ (14,642,847) (17,429,496)
(viii) Reversal of deferred monetary correction....................... 2,662,895 313,371
(ix) Effect of the above differences on minority interest........... 2,245,460 6,368,921
(x) Distribution to shareholder.................................... - -
(xi) Depreciation of Cablevision assets............................. (321,463)
(xii) Inflation adjustment on inventories............................ 193,130
------------- ---------------
Consolidated net income (loss) under U.S. GAAP................................ Ps (8,518,053) Ps (36,723,388)
============= ===============
</TABLE>
(b) Reconciliation of shareholders' equity:
The following summarizes the principal differences between accounting
practices under Colombian GAAP and U.S. GAAP and their effects on shareholders'
equity at September 30, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------------- -------------
<S> <C> <C>
Consolidated shareholders' equity under Colombian GAAP......................... Ps 73,412,399 Ps 55,664,596
(i) Deferred income taxes........................................... 9,265,025 13,388,587
(ii) Surplus from reappraisal of assets.............................. (11,953,945) (15,000,309)
(iii) Depreciation.................................................... (8,943,151) (17,211,356)
(iv) Capitalized interest............................................ 2,842,041 5,819,739
(v) Deferred costs.................................................. (31,053,259) (27,628,849)
(vi) Capital leases.................................................. 1,855,861 1,624,684
(vii) Revenue recognition............................................. (19,594,017) (22,233,153)
(viii) Reversal of deferred monetary correction........................ 5,321,383 1,218,472
(ix) Effect of the above differences on minority interest............ 6,650,837 11,818,746
(x) Distribution to shareholder..................................... (420,348) (420,460)
(xi) Depreciation of Cablevision assets.............................. - (481,363)
(xii) Inflation adjustment on inventories............................. 193,129
-------------- -------------
Consolidated shareholders' equity under U.S. GAAP.............................. Ps 27,382,826 Ps 6,752,462
============== =============
</TABLE>
(c) Analysis of changes in shareholders' equity:
The following summarizes the changes in shareholders' equity under U.S. GAAP
for the nine months periods ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------------- ---------------
<S> <C> <C>
Balance at beginning of period.......... Ps 35,900,879 Ps 43,475,850
Net (loss) income....................... (8,518,053) (36,723,388)
-------------- ---------------
Balance at end of period................ Ps 27,382,826 Ps 6,752,462
============== ===============
</TABLE>
The Company has no items of other comprehensive income.
-9-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Summary of significant differences between Colombian and U.S. GAAP
disclosures
(i) Deferred Income taxes
Under Colombian GAAP, income taxes for interim financial statements are
calculated as if those financial statements were annual financial statements.
Under Colombian GAAP, deferred income taxes are generally recognized for timing
differences in a manner similar to Accounting Principles Board Opinion No. 11.
Under U.S. GAAP, income taxes for interim financial statements are
calculated using the estimated effective tax rate for the year. Under U.S. GAAP
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" requires that deferred tax assets or liabilities be recorded for
the tax effects of temporary differences between the financial and tax bases for
assets and liabilities. A valuation allowance is provided for deferred tax
assets when it is considered more likely than not that they will not be
realized.
(ii) Surplus from reappraisal of assets
In accordance with Colombian GAAP, reappraisals of properties, plant and
equipment and long-term investments are made periodically and recorded in
offsetting accounts which are shown under the asset caption "Reappraisal of
assets" and the shareholders' equity caption "Surplus from reappraisals of
assets." Under U.S. GAAP, reappraisals of assets are not permitted.
(iii) Depreciation
The Company uses the reverse sum of the year's method of depreciation for
Colombian GAAP purposes. The straight-line method is used for U.S. GAAP.
(iv) Capitalized interest
Under Colombian GAAP, the Company does not capitalize certain interest
costs on projects during construction which is required under U.S. GAAP. Under
U.S. GAAP, adjustments to expenses are required for interest capitalized net of
additional depreciation on interest amounts capitalized.
(v) Deferred costs
Subsidiaries of the Company have deferred certain expenses which are
expensed as incurred under U.S. GAAP. Under U.S. GAAP, an adjustment is required
for the expensing of amounts net of any amortization taken.
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" which is effective for fiscal years beginning after December 15,
1998, required the Company to change its accounting under U.S. GAAP for
organization costs. In 1999, all organization costs are expensed as incurred for
U.S. GAAP and the balance of organization costs of Ps 987,534 at December 31,
1998 was expensed as a change in accounting. For U.S. GAAP, the cumulative
effect of this change of Ps 987,534 is not presented as a separate cumulative
effect of an accounting change in the U.S. GAAP income statement for the nine
months ended September 30, 1999 as the change is expected to be immaterial to
the results of operations for the full year 1999.
(vi) Capital leases
Certain of the Company's operating leases for Colombian GAAP purposes
qualify as capital leases under U.S. GAAP. In addition to the amounts shown as
capital leases in the balance sheet, the following assets and liabilities are
recorded under U.S. GAAP:
-10-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1998 1999
------------- --------------
<S> <C> <C>
External telephony networks.......................................... Ps 4,535,561 Ps 4,590,878
Computer equipment................................................... 991,989 368,032
Transport fleet and equipment........................................ 2,387,512 2,069,852
Generator............................................................ 327,232 91,688
------------- -------------
Total........................................................... 8,242,295 7,120,450
Less--Accumulated depreciation....................................... (2,228,241) (2,825,082)
------------- -------------
Ps 6,014,054 Ps 4,295,368
============= =============
</TABLE>
The above amounts include cumulative net inflation adjustments of Ps 1,860,877
and Ps 1,995,515 at September 30, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
1998 1999
-------------- -------------
<S> <C> <C>
Total minimum lease payments........................................ Ps 6,917,898 Ps 4,559,946
Less --Imputed interest............................................. (3,010,078) (2,086,676)
-------------- -------------
Present value of minimum lease payments............................. 3,907,820 2,473,270
Less--Current portion............................................... (1,202,532) (505,290)
-------------- -------------
Long-term portion................................................... 2,705,288 1,967,980
============== =============
Deferred income from sale lease back................................ Ps 250,374 Ps 235,874
============== =============
</TABLE>
The additional total minimum lease payments as follows under U.S. GAAP:
Payable in twelve months
- ------------------------
ended September 30,
-------------------
2000........................................ Ps 801,099
2001........................................ 1,082,639
2002......................................... 2,676,208
-------------
Total minimum lease payments..................... Ps 4,559,946
=============
The following income statement effects are recorded under U.S. GAAP for the
above capital leases:
<TABLE>
<CAPTION>
1998 1999
-------------- -----------
<S> <C> <C>
Increase in interest expense........................................ Ps 567,265 Ps 311,624
Increase in depreciation expense.................................... 984,554 650,104
Amortization of gain from sale of
Properties, plant and equipment on leaseback...................... (10,886) (7,189)
Increase in inflation adjustment income on capital
lease obligations....................................... (551,815) (204,885)
-------------- -----------
Total............................................................ 989,118 749,654
-------------- -----------
Rent expense
Decrease in rent expense recorded under Colombian
GAAP....................................................... (854,362) (670,935)
Decrease in rent recorded as deferred costs under
Colombian GAAP and reversed for U.S. GAAP
Purposes .................................................. (229,652)
-------------- -----------
Net decrease in expenses............................................ Ps (94,897) Ps 78,719
============== ===========
</TABLE>
Under U.S. GAAP, there are no operating lease commitments at September 30,
1999.
If the equipment under Global Leases, the IBM Arrangement and the related DIAN
Financing of the value-added tax and duty had been installed and accepted (and
thus the lease terms commenced) at September 30, 1999, the following additional
lease and tax obligations on a pro forma U.S. GAAP basis would have been
outstanding:
-11-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
IBM DIAN
Global Leases Arrangement Financing Total
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Total minimum lease or tax and
Duty payments.................................... Ps 148,427,980 Ps 980,696 Ps 24,949,595 Ps 174,358,272
Less--Imputed interest.............................. (45,858,731) (42,507) 0 (45,901,238)
--------------- ------------- -------------- ---------------
Present Value of minimum lease payments............. 102,569,249 938,189 24,949,596 128,457,034
Less--Current portion............................... (17,436,772) (107,100) (4,989,919) (22,533,791)
--------------- ------------- -------------- ----------------
Long--term portion.................................. Ps 85,132,477 Ps 831,089 Ps 19,959,676 Ps 105,923,243
=============== ============= ============== ================
</TABLE>
The additional total minimum lease or tax and duty payments would have been as
follows under U.S. GAAP:
Payable in twelve months ending September 30,
- ---------------------------------------------
2000................................. Ps 19,603,999
2001................................. 18,688,930
2002................................. 17,773,863
2003................................. 16,858,797
Thereafter........................... 101,432,683
--------------
Ps 174,358,272
==============
(vii) Revenue recognition
Under Colombian GAAP, revenues for connection fees for telephone lines are
recognized upon payment in cash or the execution of a promissory note (with a
10% down payment) by the customer and the Company's assignment of a telephone
number which is transferable to others by the customer.
Under U.S. GAAP the Company changed prospectively as of January 1, 1999 its
method of accounting for connection fee income from an "installation date basis"
which historically has been consistent with industry practice, to a "deferred
basis". Under the former policy, connection fees were recognized as income at
the date of installation with a dial tone. Under the new policy, connection fee
income less direct installation costs and direct selling costs is deferred and
amortized into income over five years using the straight line method. This
change was made to reflect income in excess of direct costs over an estimated
service period. This change does not have a cumulative effect.
(viii) Deferred monetary correction
The deferred monetary correction asset and liability are reversed for U.S.
GAAP purposes.
(ix) Minority interest
The minority interests' share of the differences between Colombian GAAP and
U.S. GAAP are presented separately.
(x) Distribution to shareholder
Transtel purchased land and buildings from a major shareholder at an
appraised value in August 1996. For U.S. GAAP, the difference between the amount
paid and the shareholder's historical basis is treated as a distribution to the
shareholder.
-12-
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(xi) Depreciation of Cablevision Assets
Under Colombian GAAP, goodwill or negative goodwill in an acquisition
accounted for as a purchase is determined as the purchase price paid in excess
of the acquiree's net worth, including reappraisal of assets. The assets of the
acquiree are recorded at book value adjusted for inflation and the amount of
asset reappraisals is shown as a separate caption in the balance sheet and not
depreciated. Such goodwill or negative goodwill is amortized over five years.
Under U.S. GAAP, goodwill is the excess of the purchase price paid over the
fair value of the assets and liabilities acquired. The assets and liabilities
are recorded at fair value and assets are depreciated over their useful lives.
The Company amortizes goodwill over five years for U.S. GAAP.
(xii) Inflation adjustment on inventories
Under Colombian GAAP, effective January 1, 1999 a decree issued by the
Colombian Congress eliminated the inflation adjustment relating to inventories.
Under U.S. GAAP, an adjustment is required for the inflation effects on
inventories so that a comprehensive basis of accounting for inflation is
maintained.
(xiii) Fiduciary Guarantee Trust and other reclassifications
Under Colombian GAAP, fiduciary guarantee trusts are formed to secure debts by
transferring the title of fixed assets to the trust. The net book value of the
trust is recorded as other assets and is amortized in the same way in which the
related fixed assets would be depreciated. Under U.S. GAAP, the fixed assets
used to form the fiduciary guarantee trust remain in natural fixed assets
classifications and are depreciated.
The amounts reclassified as fixed assets for U.S. GAAP purposes from the
fiduciary guarantee trust are as follows at September 30, 1998 and 1999.
<TABLE>
<CAPTION>
1998 1999
---------- ------------
<S> <C> <C>
Land.................................... Ps 182,120 Ps 230,135
Building................................ 728,480 920,535
---------- ------------
910,600 1,150,670
Accumulated depreciation................ (99,608)
---------- ------------
Net..................................... Ps 910,600 Ps 1,051,062
========== ============
</TABLE>
Certain other reclassifications have been made to the Colombian GAAP balance
sheet to conform to the U.S. GAAP presentation, primarily the reclassification
of certain receivables to advances to suppliers, prepaid expenses and noncurrent
other assets.
In addition, because of the decree issued by the Colombian Congress effective
January 1, 1999 inflation adjustments are no longer applied to the various
revenue and expense accounts. While this change has no effect on net income for
Colombian or U.S. GAAP, for U.S. GAAP each item of revenue and expense for the
Nine months ended September 30, 1999 should be multiplied by the average
inflation factor of 1.0425 and "Net monetary inflation adjustment" income
decreased by the net effect.
(xiv) Earnings per share
Under Colombian GAAP, earnings per share are computed by dividing net income
(loss) applicable to common shares by the weighted average number of common
shares outstanding for each period presented.
-13-
<PAGE>
Under U.S. GAAP, earnings per share are calculated on the basis of the
weighted average number of common shares outstanding, adjusted for stock
dividends issued by the Company which are considered outstanding since the
beginning of the earliest period presented. For U.S. GAAP, the weighted average
number of shares was 34,611,747,976 during the nine-month periods ended
September 30, 1998 and 1999. These shares are different than Colombian GAAP
since the capitalization in December 1998 of premium on shares issued in July
1997 is treated as a stock issued under U.S. GAAP as of January 1, 1998.
Basic and diluted income (loss) per share under U.S. GAAP are the same and
were (1.69) and (1.06) single Pesos for the nine months ended September 30, 1998
and 1999, respectively.
-14-
<PAGE>
TRANSTEL S.A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Pesos of September 30, 1999 purchasing power and U.S. Dollars, unless otherwise
specified)
General
Transtel S.A. ("Transtel" or the "Company") is the largest private
telephone Company in Colombia, providing telephone service to both business and
residential subscribers. The Company currently owns and operates telephone
systems serving ten cities, with an aggregate population of 3.1 million people,
located in the southwestern region of Colombia. As of September 30, 1999, such
systems provided service to an aggregate of approximately 268,033 subscribers
and had an average penetration of 24.8 lines per 100 people.
Throughout the nine months ended September 30, 1999 the Company has been
adding subscribers in each of its markets surpassing the original target of the
"Expansion Plan". Management has substantially increased the number of lines
installed from 56,800 at the date of acquisition of each of the systems to more
than the 222,200 lines (the amount projected under the Expansion Plan to be
installed by the completion of such plan), excluding activities of TeleGirardot,
which was formed on December 31, 1997, following the implementation of the
Expansion Plan. As of September 30, 1999, the Company, in conjunction with
Siemens, had completed the installation of approximately 187,755 new lines, or
approximately 113% of the new lines to be installed pursuant to the Expansion
Plan, and had upgraded all of the existing 56,800 lines.
As of September 30, 1999 the Company had 27,680 cable TV subscribers,
9,844 Internet subscribers, 20,402 voice mail customers and 189,778 subscribers
of special services.
The Company generates most of its revenues by providing telephone services
to its commercial and residential subscribers. The Company's sources of revenue
from telephone services consist of: (i) basic fixed charges based either on the
predecessor telephone operator or the existing competitive tariff structure,
(ii) local usage charges based on the number of minutes used per month; (iii)
access charges for national and international long distance tariffs collected
for providing such services to and from the Company's networks generated from
incoming and outgoing calls; (iv) the sale of equipment to subscribers; (v)
value-added services such as video conference calling and voice mail; and (vi)
connection fees from each new subscriber connected to the Company's network. In
addition, the Company expects to generate additional revenues from its
subscribers' growing use of the Internet. The Company's subscribers, who elect
Internet service, will pay a monthly service fee and related usage charges. All
of the Operating Companies were able to provide Internet access as of
September 1, 1998.
The Company expects that connection fees will continue to comprise a
significant portion of the Company's near-term revenues as a result of the
expected growth in the Company's subscriber base. Various local institutions are
available to finance subscribers' connection fees. Typically, Transtel installs
a line thereby generating a connection fee receivable, which it may subsequently
sell to local financial institutions on a non-discounted basis. The Company
believes that as subscribers are added to the network and existing demand is
satisfied, the composition of revenues will shift towards usage derived revenue,
including local, national and long distance usage charges. In addition, the
Company expects that value-added services will also comprise a more significant
portion of future revenues driven by Internet access, data transmission and
other special telephone services.
The Company has increased local tariffs significantly throughout the nine
months ending September 30, 1999 in accordance with the policy of the "Comision
Nacional de Telecomunicaciones" ("The Telecommunications Regulatory Commission"
or "CRT") to allow tariffs to rise to international levels.
-15-
<PAGE>
Management thinks that this increase helped to compensate for devaluation of the
Colombian peso with respect to the dollar in the same period.
Nine months ended September 30, 1998 and 1999
The following is a discussion of the consolidated financial condition as of
September 30, 1998 and 1999 and the results of operations of the Company for the
nine months ended September 30, 1998 and 1999. The discussion should be read in
conjunction with the unaudited Consolidated Interim Financial Statements of the
Company as of and for the nine months ended September 30, 1998 and 1999, and the
notes thereto included elsewhere herein. The unaudited Consolidated Interim
Financial Statements have been prepared in accordance with Colombian GAAP, which
differs in certain significant respects from U.S. GAAP. Note 6 to the Company's
unaudited Consolidated Interim Financial Statements provides a reconciliation to
U.S. GAAP of the Company's net income (loss) and shareholders' equity as of and
for the ended September 30, 1998 and 1999. Unless otherwise indicated, the
financial information has been presented in constant Pesos as of September 30,
1999. Dollar amounts are translated from Pesos amounts at the Representative
Market Rate on September 30, 1999, which was 2,017.27 Pesos to one Dollar. No
representation is made that the Peso or Dollar amounts shown herein could have
been or could be converted into Dollars or Pesos, as the case may be, at any
particular rate or at all.
Expansion Plan
The following table provides information regarding the Operating Companies:
<TABLE>
<CAPTION>
Unitel
TelePalmira TeleCartago Caucatel TeleJamundi Wireline Bugatel TeleGirardot
----------- ----------- -------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Municipality served Palmira Cartago Popayan Jamundi Yumbo Buga Girardot
Population 318,000 125,900 76,600 59,100 72,000 337,400 161,000/(1)/
Commencement date of
Company's operations Sep-95 Apr-97 May-97 Jun-97 Jun-97 Jul-97 Dec-97
Number of subscribers at New New
commencement date 15,600 13,800 10,800 System System 10,700 23,500
Number of subscribers as
of December 31, 1998 63,352 27,430 22,113 10,390 7,457 20,304 49,270
Total subscribers added
for the nine months
ended September 30, 1999 3,649 3,572 1,325 1,964 1,844 3,508 1,728
Total subscribers as of
September 30, 1999 67,001 31,002 23,438 12,354 9,301 23,812 50,998
Penetration/(2)/ 21.1 29.4 30.6 26.3 18.8 14.9 35.1
<CAPTION>
Unitel
Wireless Total
--------- ------
<S> <C> <C>
Municipality served Cali N/A
Population 1,908,600 3,058,600
Commencement date of
Company's operations Jan-98 N/A
Number of subscribers at New
commencement date System 74,400
Number of subscribers as
of December 31, 1998 34,995 235,311
Total subscribers added
for the nine months
ended September 30, 1999 5,132 32,722
Total subscribers as of
September 30, 1999 50,127 268,033
Penetration/(2)/ 25.9 24.8
</TABLE>
(1) Includes the neighboring cities of Flandes and Rieautre.
(2) Penetration represents the number of installed lines per 100 people. In
Cartago, Jamundi, Buga, Yumbo, Cali and Girardot, penetration includes the
installed lines of municipal competitors of approximately 6,000 lines,
3,200 lines, 26,500 lines, 4,200 lines, 445,000 lines and 5,500 lines as
per the Company's estimates, respectively.
-16-
<PAGE>
Results of Operations
The composition of the Company's revenues for each of periods discussed
herein is as follows:
<TABLE>
<CAPTION>
Nine months ended
----------------------------------------------------------------
1998 % 1999 %
-------------- ------- -------------- -------
(In thousands of constant Pesos of September 30, 1999 purchasing
power, except percents data)
<S> <C> <C> <C> <C>
Connection fees................... Ps 28,825,854 47.0% Ps 24,167,233 25.6%
Local usage charges............... 9,058,349 14.8 26,773,806 28.3
Basic charges..................... 5,383,354 8.8 13,862,307 14.7
Long distance charges............. 12,316,378 20.1 14,240,817 15.1
Other income...................... 1,549,670 2.5 6,437,425 6.8
-------------- ------- -------------- -------
Total telephone................. Ps 57,133,605 93.2 85,481,588 90.5
Pay television services........... 4,164,191 6.8 8,989,240 9.5
-------------- ------- -------------- -------
Total revenues.................. Ps 61,297,796 100.0% Ps 94,470,828 100.0%
============== ======= ============== =======
</TABLE>
The following table expresses certain financial data from the Company's
statement of income as a percentage of total revenues:
<TABLE>
<CAPTION>
Nine months ended
-------------------------
1998 1999
----------- ----------
<S> <C> <C>
Revenues..................................................... 100.0% 100.0%
----------- ----------
Costs and expenses:
Operating costs........................................... (23.6) (16.0)
Administrative expenses................................... (23.0) (23.2)
Marketing expenses........................................ (6.7) (6.7)
----------- ----------
Total.................................................. 53.3 45.9
----------- ----------
Operating income............................................. 46.7 54.1
Non operating expenses....................................... (52.7) (84.3)
Net monetary inflation adjustment income..................... 28.4 15.9
----------- ----------
Income before income taxes and minority interest............. 22.4 (14.3)
Income tax expense........................................... (1.5) (1.6)
----------- ----------
Income before minority interest.............................. 20.9 (15.9)
Minority interest............................................ (10.0) (12.3)
----------- ----------
Net income................................................... 10.9% (28.2)%
=========== ==========
</TABLE>
Revenues. The total revenues for the nine months ended September 30, 1999
("Interim 1999") increased by Ps 33.173 billion, or 54.11%, to Ps 94.471 billion
from Ps 61.298 billion in the nine months ended September 30, 1998 ("Interim
1998"). The increase in revenues for the 1999 was mainly attributable to the
increase in tariffs and local usage associated with the Company's continued
growth of its subscriber base. The number of subscribers increased from 195,338
at September 30, 1998 to 268,033 at September 30, 1999, or 37.2% excluding
Cablevision. The number of new subscribers increased primarily as a result of
standard growth at the Operating Companies.
Connection fee revenue in Interim 1999 decreased by Ps 4.659 billion from
Ps 28.826 billion in Interim 1998 to Ps 24.167 billion as a result of fewer
lines sold in 1999. All subsidiaries telephone companies achieved their
objectives of lines sold, with exception of Unitel, because this Company is
continuing to develop expansion project in Cali. Additionally, the tariffs for
connection fees were not increased over 1998 levels, with exception of Unitel.
Other operating telephony revenues, including basic monthly charges, local usage
charges, long distance charges and other fees for Interim 1999 increased by Ps
33.007 billion from Ps 28.307 billion in Interim 1998 to Ps 61.314 billion in
Interim 1999. The increase in other operating revenues for Interim 1999 is
attributed to the increase in the number of subscribers and also in the higher
usage associated with that increase, because of the tariff increases implemented
in 1999, and the growth of subscribers of value added services like internet.
Pay television services revenues were Ps 8.989 billion in Interim 1999, compared
to Ps 4.164 billion in the same period of 1998, as a result of increases in the
number of subscribers and from extraordinary revenues for special services
offered in the first semester of 1999.
-17-
<PAGE>
Costs and Expenses. Costs and expenses for Interim 1999 increased by Ps
10.763 billion, or 32.9%, to Ps 43.412 billion from Ps 32.649 billion in
Interim 1998. The increase is primarily attributable to the increase in the
operating costs and the administrative and marketing expenses due to the
increase in the number of subscribers and the maintenance and expansion of the
telephony infrastructure in the cities of Palmira, Cartago, Yumbo, Jamundi,
Buga, Popayan and Girardot. The total operating costs and expenses related to
the pay television services of Cablevision were Ps 6.100 billion in Interim
1999. Additionally, the total costs and expenses with respect to the revenues
decreased significantly, from 53.3% to 46%, between September 1998 and September
1999, as a result of significant effort by the Company's administration to
rebuild the operating infrastructure at the end of the building stage of the
system and telephone network. The main focuses like the downsizing of the labor
force and the centralization of the supervisory operations were the primary
contributing factors for the success of this exercise.
Operating costs increased a 4.4%, and in absolute values by Ps 0.639
billion from Ps 14.478 billion in Interim 1998 to Ps 15.117 billion mainly as a
result of increases in depreciation of Ps 1.210 billion, services, maintenance
and repairs of Ps 1.254 billion, fees and studies of Ps 0.388 billion,
additionally, amortization decreased in Ps 0.596 and others in Ps 1.607, due to
the increased number of municipalities served and the acquisition of Cablevision
during 1998. In addition the operating cost as a percentage of the total
revenues, decreased from 23.6% to 16% between September 1998 and September 1999
as a result of items identified above. The acquisition of Cablevision accounted
for Ps 4.361 billion of the total increase in operating costs.
Administrative expenses for Interim 1999 increased by Ps 7.861 billion to
Ps 21.954 billion from Ps 14.093 billion in Interim 1998. The increase was
mainly attributable to the increases in salaries, benefits and other labor
payments of Ps 0.536 billion; amortization of Ps 3.883 billion, provision for
doubtful accounts of Ps 0.827 billion, fees and studies of Ps 1.601 billion,
depreciation of Ps 0.89 billion, security, maintenance and repairs of Ps 0.104
billion and other of Ps 0.821 billion due to the increased number of
municipalities and subscribers served and the acquisition of Cablevision during
1998. The acquisition of Cablevision accounted for Ps 1.091 billion of the total
increase in administrative expenses.
Marketing and sales expenses for Interim 1999 increased by Ps 2.264 billion
to Ps 6.341 billion from Ps 4.077 billion in Interim 1998. The increase in
marketing expenses was primarily attributable to the higher commissions and
benefits paid to the sales agents of Ps 2.132 billion due to the sales of new
telephone lines, sales of services of pay television and other services like
internet, voice mail and special services. Additionally, advertising publicity
increased by Ps 0.714 billion because market research and advertising costs of
the new companies, which were recorded as deferred costs in prior years, are now
being amortized. Additionally amortization decreased by Ps 0.565 billion and
others by Ps 0.017 billion. The acquisition of Cablevision accounted for Ps
0.648 billion of the total increase in marketing expenses.
Operating Income. Operating income for Interim 1999 increased by Ps 22.410
billion from Ps 28.649 billion in Interim 1998 to Ps 51.059 billion. The
increase was mainly attributable to the increase in revenues as a result of the
larger number of subscribers and increased usage, net of the increase in costs
and expenses described above. The acquisition of Cablevision contributing an
operating income of Ps 2.889 billion for Interim 1999.
-18-
<PAGE>
Non-operating Income (Expenses). Non-operating income (expenses), net for
Interim 1998 and Interim 1999 consisted of the following:
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
(In thousands of constant Pesos of
September 30, 1999 purchasing power)
Financial Income:
Interest income.................................... Ps 11,545,920 Ps 19,330,376
Exchange gains..................................... 21,792,787 46,034,328
Other financial income............................. 753,903 622,249
-------------- --------------
34,092,610 65,986,953
-------------- --------------
Financial Expenses:
Interest expense................................... (20,487,168) (37,837,267)
Bank commissions................................... (1,088,928) (91,720)
Exchange losses.................................... (45,500,774) (105,264,198)
Bank expenses...................................... (280,166) (145,732)
Other financial expenses........................... (459,512) (292,015)
-------------- --------------
(67,816,548) (143,630,932)
-------------- --------------
Other:
Sales of scrap and extra parts..................... 14,188
Other, net......................................... 1,430,104 (2,018,077)
-------------- --------------
1,430,104 (2,003,889)
-------------- --------------
Total Non-operating Income (Expenses)................. Ps (32,293,834) Ps (79,647,868)
============== ==============
</TABLE>
Net non-operating expenses increased from Ps 32.294 billion for Interim
1998 to Ps 79.648 billion in Interim 1999. The increase was mainly due to the
net exchange loss occurred during Interim 1999 associated with the Senior Notes,
the Discount Notes and other liabilities denominated in Dollars due to the
devaluation of 30.81% of the Colombian peso with respect to the Dollar. Interest
expense increased from Ps 20.487 billion in Interim 1998 to Ps 37.837 billion in
Interim 1999 due to the higher indebtedness levels.
Net Monetary Inflation Adjustment Income. Net monetary inflation
adjustment income in Interim 1999 decreased by Ps 2.353 billion to Ps 15.041
billion from Ps 17.394 billion in Interim 1998 as a result of the inflation
decrease in 1999.
Income Tax Expense. Income tax expense for Interim 1999 increased by Ps
542 billion to Ps 1.472 billion from Ps 930 billion in Interim 1998 primarily
because of the substantial increase in taxable income in Interim 1999 compared
to Interim 1998.
Minority Interest. Minority interest for Interim 1999 increased by Ps
5.462 billion to Ps 11.583 billion from Ps 6.121 billion for Interim 1998
because of the increased net income of the operating subsidiaries.
Net Income. Total income decreased by Ps 33.302 billion from Ps 6.699
billion for Interim 1998 to (Ps 26.603) billion for Interim 1999 as a result of
the factors discussed above. The net gain for Cablevision for Interim 1999 was
Ps 1.711 billion.
Liquidity and Capital Resources
The fixed landline telephone business is a capital-intensive business,
which requires substantial investment to acquire and upgrade the telephone
networks in each of the Company's markets. In addition, the Company has required
significant capital for personnel hiring and training, systems infrastructure
development, sales and marketing programs and the initial build-out under the
Expansion Plan. To date, the primary sources of capital have consisted of equity
contributions by the Company's shareholders, debt financing from Colombian banks
and local branches of other international financial institutions, cash flow
generated by the operating systems, certain Vendor Financing in the form of
capitalized leases, the Senior Notes and the Discount Notes.
-19-
<PAGE>
Net cash used by operating activities during Interim 1999 was Ps (38.353)
billion as compared used to Ps (1.437) billion for Interim 1998. The increase in
cash used by operations for Interim 1999 was primarily caused by a decrease in
net income, partially offset by an increase in accounts receivable and deferred
charges. Net cash used in investing activities during Interim 1999 was Ps
(21.457) billion as compared to Ps (11.829) billion used in Interim 1998. Cash
used in investing activities in Interim 1999 continues to relate to the
construction of new network systems and the upgrade of existing network systems.
Net cash provided by financing activities during Interim 1999 was Ps (11.188)
billion as compared to Ps (5.248) billion used in Interim 1998. As of September
30, 1999, the Company's borrowings were Ps 356.601 billion, consisting primarily
of the Senior Notes of Ps 302.590 billion, the Discount Notes of Ps 34.983
billion and lease obligations of Ps 50.126, which are capitalized.
Substantially all of the borrowings at September 30, 1999 are denominated in
Dollars. The Company also has other obligations under leases, some of which
are not capitalized in accordance with Colombian GAAP, but are required to be
capitalized under U.S. GAAP. See Notes 19, 30 and 31 to the Consolidated Annual
Financial Statements and Notes 4 and 6 to the unaudited Consolidated Interim
Financial Statements.
The Company's principal liquidity requirements will be for the Expansion
Plan, debt service (primarily on the Senior Notes), working capital and general
corporate purposes, including future acquisitions. The Expansion Plan was
projected to require aggregate capital expenditures of approximately $178.2
million, of which approximately $7.7 million had been financed with local bank
borrowings, all of which have been repaid with proceeds of the Senior Notes
Offering, and $1.5 million of cash flow from operations. The Company completed
the build-out of the Expansion Plan on December 31, 1998 and financed the
remainder of the Expansion Plan with (i) approximately $38.3 million of the
proceeds of the Senior Notes Offering; (ii) approximately $102.1 million of
Vendor Financing; (iii) the sale of investments of $8.5 million; and (iv)
approximately $20.2 million of DIAN Financing. As of September 30, 1999, the
Company had incurred approximately $174.5 million of capital expenditures
relating to the Expansion Plan.
As a result of the Senior Notes Offering, the Discount Notes, the Vendor
Financing, the DIAN Financing and the incurrence of certain other indebtedness,
the Company will be required to satisfy certain debt service requirements.
Following the disbursements in May and November 1998 and 1999 of all the
proceeds in the Escrow Account, a substantial portion of the Company's cash flow
will be utilized to service the Senior Notes, the Vendor Financing and the DIAN
Financing. The Senior Notes will require semi-annual interest payments of
approximately $9.4 million and the Vendor Financing will require semi-annual
interest and principal payments of approximately $7.2 million. In addition, the
DIAN Financing will require semi-annual principal payments of approximately $2.0
million. The cash interest due on the Discount Notes will not exceed $44,000 in
any year through 2008; however, the principal of $15.0 million plus accrued
interest of $86.9 million will be due on August 13, 2008. The Company is
required to meet various financial covenants under the Indenture. As of
September 30, 1999, the Company is in compliance with all such financial
covenants.
The Senior Notes are the exclusive obligation of the Company, which is a
holding company with no business operations of its own. The operations of the
Company are conducted through the Operating Companies, which are separate and
distinct legal entities. Other than the obligation to repay the Intercompany
Notes to the Company, the Operating Companies have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Senior Notes or the
Certificates, to make any funds available to the Company to enable it to make
payments on the Senior Notes and consequently, to make the funds available to
the Trust to make payments on the Certificates, to make funds available in order
to make investments in the Operating Companies, to meet working capital needs or
other liabilities of the Company or for any other reason. In addition, the
Operating Companies are currently not wholly owned subsidiaries of the Company
but instead are owned jointly by the Company and local municipalities. Any
dividends issued by the Operating Companies must be distributed pro rata to all
of their shareholders. As a result, the Company cannot be assured that it will
be able to generate significant cash through dividends or other distributions
from the Operating Companies in the foreseeable future and there can be no
assurance that the Company will be able to generate any significant cash flow
from the Operating Companies at any time in the future. Since the Company's
assets consist primarily of its ownership interests in the Operating Companies,
the Senior Notes (and therefore the Certificates) will be effectively
subordinated (other than as to claims that the Company can make under the
Intercompany Notes) to all existing and future debt and other liabilities
(including trade
-20-
<PAGE>
payables) of the Operating Companies, and the Company's right to receive the
assets of the Operating Companies upon their liquidation or reorganization will
be subject to the claims of such Operating Companies' creditors (including trade
creditors).
Annual interest payments on the Senior Notes by the Company will be
approximately $18.8 million, plus any additional interest as required, through
November 1, 2007. The principal amount of the Senior Notes is due on November 1,
2007. As of September 30, 1999, the Company has lent $95.4 million (Ps192.567
billion) of the proceeds from the Senior Notes to nine of its Operating
Companies as evidenced by Intercompany Notes which were executed as of December
31, 1998. Balances loaned to each subsidiary as of September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------------
(In thousands of constant Pesos of
September 30,
1999 purchasing power and in Dollars)
<S> <C> <C>
Unitel................... Ps 60,497,927 $ 29,990
TeleJamundi.............. 43,888,533 21,756
TelePalmira.............. 45,973,382 22,790
TeleCartago.............. 19,840,254 9,835
Caucatel................. 14,895,522 7,384
Bugatel.................. 7,470,959 3,704
-------------- --------
Ps 192,566,577 $ 95,459
============== ========
</TABLE>
The Intercompany Notes bear interest at 12 1/2%, are payable in U.S.
dollars, and are also due on November 1, 2007. The Intercompany Notes become due
and payable upon the acceleration of the Senior Notes issued by Transtel S.A.
under the Indenture.
Summarized financial information on a Colombian GAAP basis of each of the
Operating Companies that has issued an Intercompany Note to Transtel S.A. as of
and for the Nine month ended September 30, 1999 are presented below.
INCOME STATEMENT INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For the Nine Month Ended September 30, 1999
(Amounts in thousands of constant Pesos of September 30, 1999 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues--subscribers........... Ps 24,688,963 Ps 17,116,954 Ps 2,148,996 Ps 10,985,375 Ps 10,683,067 Ps 6,284,698
Operating income (loss)............... 17,803,941 8,847,398 (139,617) 7,780,299 7,874,660 3,595,593
Net income............................ 4,368,764 7,290,331 (706,327) 5,471,099 7,612,005 3,538,451
</TABLE>
CASH FLOW INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For The Nine Month Ended September 30, 1999
(Amounts in thousands of constant pesos of September 30, 1999 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------- -------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flow (used) provided by operating
activities............................. Ps (6,535,193) Ps (26,113,214) Ps(30,019,364) Ps (689,224) Ps 10,710,279 Ps 3,652,083
Cash flow used (provided) by investing
activities............................. 7,634,440 (9,136,084) 3,318,421 (6,822,840) (8,342,893) (6,191,146)
Cash flow provided (used) by financing
activities............................. 949,267 36,757,553 27,172,860 8,052,950 (2,318,076) 3,320,533
</TABLE>
-21-
<PAGE>
BALANCE SHEETS OF SUBSIDIARIES WITH INTERCOMPANY NOTES AT SEPTEMBER 30, 1999
(Amounts in thousands of constant Pesos of September 30, 1999 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
-------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current assets...................... Ps 34,943,191 Ps 33,248,318 Ps 17,188,040 Ps 8,965,832 Ps 12,516,904 Ps 6,851,010
Receivable from Transtel for share
of Escrow Account................... 7,766,397 15,276,903 1,330,008 5,174,820 7,006,774 1,854,637
Properties, plant and equipment..... 69,044,768 54,085,753 34,174,272 42,064,538 13,842,391 34,514,659
Other noncurrent assets............. 34,614,016 26,449,283 8,772,075 9,673,835 9,604,256 5,733,793
-------------- -------------- ------------- -------------- -------------- -------------
Total assets.................... Ps 146,368,372 Ps 129,060,257 Ps 61,464,395 Ps 65,879,025 Ps 42,970,325 Ps 48,954,099
============== ============== ============= ============== ============== =============
Current liabilities................. Ps 14,592,211 Ps 19,178,046 Ps 2,379,130 Ps 9,763,191 Ps 6,724,580 Ps 3,205,778
Capital lease obligations........... 16,696,924 7,824,243 7,791,112 8,966,814 130,537 568,801
Intercompany Note to Transtel....... 45,973,295 60,497,927 43,888,533 19,840,254 7,470,959 14,895,612
Interest accrued on Intercompany
Notes............................. 5,389,402 6,669,368 3,287,322 2,468,320 457,367 1,493,009
Other intercompany payables......... 0 0 1,175,576 1,110,109 0 0
Other noncurrent liabilities........ 2,300,917 850,699 1,186,511 997,490 458,413 885,208
-------------- -------------- ------------- -------------- -------------- -------------
Total liabilities............... 84,952,749 95,020,283 59,708,184 43,146,178 15,241,856 21,048,408
Total shareholders' equity.......... 61,415,623 34,039,974 1,756,211 22,732,847 27,728,469 27,905,691
-------------- -------------- ------------- -------------- -------------- -------------
Total liabilities and
shareholders' Equity................ Ps 146,368,372 Ps 129,060,257 Ps 61,464,395 Ps 65,879,025 Ps 42,970,325 Ps 48,954,099
============== ============== ============= ============== ============== =============
</TABLE>
Connection fees revenue for the nine months ended September 30, 1999 were
Ps 5.044 billion, Ps 5.301 billion, Ps 0.647 billion, Ps 3.019 billion, Ps 4.588
billion and Ps 0.496 billion at TelePalmira, Unitel, TeleJamundi, TeleCartago,
Bugatel and Caucatel, respectively.
In addition to the Intercompany Notes, these nine Operating Companies have
capital lease obligations and short-term bank borrowings totaling Ps 7.754
billion and Ps 8.031 billion, respectively, included in current liabilities at
September 30, 1999. As indicated in the above summarized balance sheet
information, these nine Operating Companies have total long-term capital lease
obligations of Ps 41.978 billion at September 30, 1999. As the subsidiaries
install and accept the remaining Global Leases, the IBM Arrangement and the
related DIAN Financing, additional financial obligations totaling Ps 128.457
billion will be incurred.
The Escrow Account is recorded as an asset by Transtel S.A. and is pledged
to partially secure the Senior Notes. Each of the Nine Operating Companies that
have issued Intercompany Notes has an intercompany receivable from Transtel S.A.
for that subsidiary's allocated portion of the Escrow Account since the Escrow
Account will be used to pay the first four interest payments (through November
1, 1999). As Transtel makes interest payments from the Escrow Account, the
accrued interest due to Transtel S.A. under the Intercompany Notes will be
offset against these intercompany receivables.
Although the interest payments on the Senior Notes for the first four
payments (through November 1, 1999) will be paid from the Escrow Account, which
was funded with a portion of the proceeds of the Senior Notes, the ability of
the Company to make payments of interest after November 1, 1999 and of the
$150.0 million principal balance due on November 1, 2007 will be largely
dependent upon the future performance of the Operating Companies and their
ability to pay the interest and principal due under the Intercompany Notes. Many
factors, some of which will be beyond the Company's and the Operating Companies'
control (such as prevailing economic conditions), may affect their performance.
There can be no assurance that the Operating Companies will be able to generate
sufficient cash flow to cover required interest and principal payments when due
on the Intercompany Notes or that the Company will be able to generate
sufficient cash flow for it to be able to make its principal and interest
payments in the future. Although no cash was required for interest payments to
Transtel S.A. by the nine Operating Companies from October 28, 1997 (closing
date of the Senior Notes) through September 30, 1999 because of the Escrow
Account, these Nine Operating Companies have not yet been able to generate
sufficient cash flow from operations through September 30, 1999 to make such
interest payments had they been due in cash. If the Company is unable to make
principal and interest
-22-
<PAGE>
payments in the future, it may, depending upon the circumstances which then
exist, seek additional equity or debt financing, attempt to refinance its
indebtedness or sell all or part of its business or assets to raise funds to
repay its indebtedness.
On December 31, 1998, the Company sold $15 million (Ps 30.259 billion) of its
20.32% Senior Discount Notes due 2008 in a private placement. Interest at 0.10%
will be payable in cash each year through August 13, 2008. Interest at 20.22%
per annum will accrue over the term of the notes, and the total accrued interest
of $86.9 million (Ps 175.301 billion) and principal of $15.0 million (Ps 30.259
billion) will be due on August 13, 2008. The balance of the discount notes,
including interest accreted but unpaid, is $17.3 million (Ps 34.983 billion) at
September 30, 1999. The Discount Notes are unsecured senior obligations of the
Company and will be fully and unconditionally guaranteed on a senior, unsecured
basis by each Operating Company in which the Company acquires 100% of the
minority interest or provides indebtedness with the proceeds of the Discount
Notes. No guarantees have been required of nor has any indebtedness been
provided to any Operating Company as of September 10, 1999.
The Company expects to consider additional acquisitions that fit its strategic
plans. Although the Company has had discussions concerning such potential
acquisitions, to date, no agreements have been reached with regard to any
particular transaction. Any such acquisitions that the Company might consider
are likely to require additional equity and/or debt financing, which the Company
will seek to obtain as necessary. Management believes that, based on its current
operations and anticipated growth resulting from the Expansion Plan, cash flow
from the Expansion Plan financing, cash flow from operations and other sources
of funds, including local borrowings, it will have adequate funds to complete
the Expansion Plan and to meet its future cash requirements.
Accounting for Inflation
As a Colombian company, the Company maintains its financial records in Pesos.
Colombian GAAP requires that the financial statements of Colombian companies be
adjusted to account for inflation. The inflation rate for the nine months ended
September 30, 1999 was 8.51%. Financial statements are adjusted for the effects
of inflation on the basis of changes in the Colombian MCPI. Commencing January
1, 1999, this index is applied on a one-month lagging basis to non-monetary
assets (except inventory) and liabilities and shareholders' equity accounts.
Monetary balances are not adjusted because they reflect the purchasing power of
the currency on the date of the balance sheet. Foreign currency balances are not
adjusted because they are translated into Pesos at the exchange rate in effect
on the same date. The resulting net gain or loss from exposure to inflation is
reflected as "Net monetary inflation adjustment income (loss)" in the income
statement for each period in question. On December 24, 1998, the Colombian
Congress decreed a National Fiscal Change to apply after January 1, 1999. This
regulation eliminated inflation adjustments relating to inventories and revenues
and expenses.
Income Tax Matters
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for the Company was 35% for 1996, 1997 and 1998 and
for the nine months ended September 30, 1999. Under Colombian law, Transtel S.A.
must pay a minimum tax which is presumed to be not less than the greater of 5%
of shareholders' equity for tax purposes at the end of the immediately preceding
year or 1.5% of gross assets for tax purposes at the end of the immediate
preceding year. Adjustments to income to account for inflation are taken into
account for income tax purposes; however, operating companies such as Transtel's
subsidiaries are not subject to such a minimum income tax.
In accordance with Law 142 of 1994 and Law 223 of 1995, entities which render
basic residential telephony services and which are mixed capital companies
(i.e., companies with both public and private capital, such as the Company's
subsidiaries) are partially exempt from the payment of income taxes for a term
of seven years from 1996 with respect to profits which are retained for upgrade,
expansion or replacement of telephone systems. These companies are exempt from
taxes on 100% of income related to basic telephony
-23-
<PAGE>
services for 1996; thereafter the exemption reduces by 10 percentage points each
taxable year through 2000 and then reduces by 20 percentage points in 2001 and
2002. After 2002, there is no exemption.
In July 1997, Law 383 of 1997 established that dividends declared from
companies similar to Transtel's subsidiaries and paid to government entities are
not taxable. As there is not a similar exclusion for private investors such as
Transtel S.A., the Company expects that future dividends paid to Transtel S.A.
by the Operating Companies will be taxable.
Reconciliation to U.S. GAAP
The unaudited Consolidated Interim Financial Statements are prepared in
accordance with Colombian GAAP, which differ from U.S. GAAP in certain
significant respects. A comparison of the Company's net income (loss) and
shareholders' equity at and for the nine months ended September 30, 1998 and
1999, under Colombian GAAP and after reflecting the material adjustments which
arise when U.S. GAAP is applied instead of Colombian GAAP, is shown below:
<TABLE>
<CAPTION>
Nine months ended,
------------------------------------------
1998 1999
----------------- -----------------------
(In thousands of constant Pesos of
September 30, 1999 purchasing power)
<S> <C> <C>
Net Income (Loss)
Colombian GAAP........................... Ps 6,698,770 Ps (26,602,595)
U.S. GAAP................................ (8,518,053) (36,723,388)
Shareholders' Equity
Colombian GAAP........................... 73,412,399 55,664,596
U.S. GAAP................................ 27,382,826 6,752,462
</TABLE>
As more fully described and quantified in Note 6 to the unaudited Consolidated
Interim Financial Statements, the major differences between Colombian GAAP and
U.S. GAAP in each period relate to: income taxes, revaluation of assets,
depreciation expense, capitalized interest, deferred charges, capital leases,
revenue recognition, reversal of monetary correction and purchase of properties
from a shareholder.
Effective with the first quarter of fiscal 1999, the Company changed
prospectively its method of accounting for connection fee income for U.S. GAAP
purposes from an "installation date basis" which historically has been
consistent with industry practice, to a "deferred basis". Under the new policy,
connection fee income less direct installation costs and direct selling costs is
deferred and amortized into income over five years using the straight-line
method. This change was made to reflect income in excess of direct costs over an
estimated service period.
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities", which is effective for fiscal years beginning after December 15,
1998, required the Company to change its accounting under U.S. GAAP for
organization costs. In 1999, all organization costs are expensed as incurred for
U.S. GAAP and the balance of organization costs of Ps 987,534 at December 31,
1998 was expensed as a change in accounting during the nine months ended
September 30, 1999. For U.S. GAAP, the cumulative effect of this change of Ps
987,534 is not presented as a separate cumulative effect of an accounting change
in the U.S. GAAP income statement for the nine months ended September 30, 1999
as the change is expected to be immaterial to the results of operation for the
full year 1999.
Recent Events
Y2K.
In accordance with the guidelines set out by the National Department of
Planning, several coordinator offices were established to study the potential
impact of Y2K. The Advisory Committee Year 2000 - Telecommunications was
created to assist all telecommunications companies.
-24-
<PAGE>
Bi-monthly meetings were held to monitor the preparation. All phases of the
plan were in line with the methodologies adopted by the International Union of
Telecommunications covering such areas as campaigns to raise public awareness,
inventory, impact analysis, strategies, introduction test and contingency plans.
In Transtel, a risk matrix was built and an inventory of all technology
components, both existing and those included in current project and contracts,
was completed. Five areas of focus were established:
1. Update of the central office to release
2. Change in the invoicing system
3. Update of the financial systems
4. Replacement of equipment
5. Acquisition of new equipment
The Company has completed the review in each of the above areas, testing began
in July 1999. The tests conducted were:
. Level 1: Testing of components
. Level 2: Tests between components of the same supplier with supplier
supervision
. Level 3: Tests between components of different suppliers
. Level 4: Inter-operational testing between all the operators of cellular,
long distance, trouncing, and basic telephony.
This final phase of testing was completed August 29, 1999 under the
supervision of Ministry of Communications and representatives from all vendors
(Siemens, Ericsson, NEC, Alcatel, etc). The Unitel central office was used for
testing and all testing was "live" as opposed to simulated.
As a result of the successful testing, Transtel was recognized by the
Ministry of Communications and Unitel was named as the Regional Coordinator for
the Y2K project and Regional Contingency Plans. Several contingency plans have
been adopted since and the committee is working on the final stages of
finalizing these plans.
Tariffs
On September 13, 1999 the "Comision Nacional de Telecomunicaciones" ("The
Telecommunications Regulatory Commission" or "CRT") introduced Resolution No.
172 that established the tariff methodology for fixed local basic telephone
service in Colombia and this allows the telephone companies to increase the
tariffs by 20 points over inflation. All Transtel's subsidiaries increase Basic
Charge tariffs in 43.82% and Local Usage Charge in 38.70% during the first nine
months of 1999.
Macroeconomics
In 1999, the Colombian economy suffered the worst crisis of the last 70
years, as a result the GPD decreased significantly, unemployment reached levels
of 24% and the devaluation of the Colombian peso compared to the U.S. dollar was
30.81% during the first nine months of the year. However in the last quarter of
1999, there is evidence of the economy recovering with positive indicators of
industrial production and the stabilization of the peso in relation the U.S.
dollar as a result of the negotiations of the Colombian government with the IMF
that guarantees the implementation of devices necessary to maintain the
stability of the Balance of Payments in next years. For this reason the
devaluation rates seen in 1999 will not be seen in the next years.
-25-
<PAGE>
TRANSTEL S.A.
ADDITIONAL SELECTED FINANCIAL INFORMATION
(Pesos of September 30, 1999 purchasing power and U.S. Dollars, unless otherwise
specified)
Three months ended June 30, 1999 and September 30, 1999
The following is a discussion of the consolidated financial condition as of
June 30, 1999 and for September 30, 1999. The discussion should be read in
conjunction with the unaudited Consolidated Interim Financial Statements of the
Company as of and for the three months ended September 30, 1999, and the notes
thereto included elsewhere herein. The unaudited Consolidated Interim Financial
Statements have been prepared in accordance with Colombian GAAP, which differs
in certain significant respects from U.S. GAAP. Unless otherwise indicated, the
financial information has been presented in constant Pesos as of September 30,
1999. Dollar amounts are translated from Pesos amounts at the Representative
Market Rate on September 30, 1999, which was 2,017.27 Pesos to one Dollar. No
representation is made that the Peso or Dollar amounts shown herein could have
been or could be converted into Dollars or Pesos, as the case may be, at any
particular rate or at all.
The following table provides comparative information from the most important
operating statistics of the subsidiaries for the three months ended June 30, and
September 30, 1999:
<TABLE>
<CAPTION>
Three months ended,
----------------------------------------
June 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Basic Charge
Average Subscribers 253,611 262,055
Basic Charge Revenues (Ps000) 3,954,333 5,482,135
Average Basic charge per subscriber per month (Ps) 5,197 6,973
Local Usage
Local Usage Revenues (Ps000) 7,610,297 13,115,781
Local Usage Revenue per subscriber per month. (Ps) 10,003 16,683
Tariff per pulse (Ps) 29 37
Average pulses per subscriber per month. 345 450
Long Distance
Long Distance Revenues (Ps000) 3,650,145 4,249,485
Total Minutes (in thousands) 85,524 93,108
Minutes per Subscriber per month. 112.00 118.00
Access Charge Tariff per minute (Ps) 42.68 45.64
Cablevision
Average Subscribers 23,389 24,419
Operating Recurring Revenues (Ps000) /(1)/ 1,389,745 1,389,540
Revenue per Subscriber per month (Ps) 19,806 18,968
</TABLE>
_______________________
/(1)/ Not included for this comparison are the extraordinary revenues obtained
in the second quarter of 1999 for leasing of the fiber optic network, and
providing special services of video conferencing.
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<PAGE>
Results of Operations
The composition of the Company's revenues for each of periods discussed herein
is as follows:
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------------
June 30, 1999 % September 30, 1999 %
-------------------- ---------------- ------------------ ------------
(in thousands of constant Pesos of September 30, 1999 purchasing
power, except percents data)
<S> <C> <C> <C> <C>
Connection fees...................... Ps 5,701,546 24.0% Ps 7,888,447 22.5%
Local usage charges.................. 7,610,297 32.1 13,115,781 37.5
Basic charges........................ 3,954,333 16.7 5,482,135 15.7
Long distance charges................ 3,650,145 15.4 4,249,485 12.1
Other income......................... 1,408,233 5.9 2,873,830 8.2
--------- ----- ---------- -----
Total telephone.................... Ps 22,324,554 94.1 33,609,679 96.0
Pay television services (1).......... 1,389,745 5.9 1,389,540 4.0
--------------- ----- ---------- -----
Total revenues..................... Ps 23,714,299 100.0% Ps 34,999,218 100,0%
=============== ===== ============= =====
</TABLE>
The following table expresses certain financial data from the Company's
statement of income as a percentage of total revenues:
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------
June 30, 1999 September 30, 1999
---------------------- --------------------
<S> <C> <C>
Revenues...................................................... 100.0% 100.0%
------ ------
Costs and expenses:
Operating costs............................................ (10.3) (17.6)
Administrative expenses.................................... (28.6) (19.3)
Marketing expenses......................................... (6.9) (6.9)
------ ------
Total................................................... (45.8) (43.8)
------ ------
Operating income.............................................. 54.2 56.2
Nonoperating expenses......................................... (94.8) (142.4)
Net monetary inflation adjustment income...................... 17.4 8.0
------ ------
Income before income taxes and minority interest.............. (23.2) (78.2)
Income tax expense............................................ 4.7 10.3
------ ------
Income before minority interest............................... (18.5) (67.9)
Minority interest............................................. (6.1) (8.8)
------ ------
Net income.................................................... (24.6)% (76.7)%
====== ======
</TABLE>
Revenues. The total revenues for the three months ended September 30, 1999
increased by Ps 6.285 billion, or 21.9%, to Ps 34.999 billion from Ps 23.714 (1)
billion for the three months ended June 30, 1999. The increase in revenues for
the third quarter of 1999 was mainly attributable to the increase in local usage
and basic charges because of the increase of 27.6% in tariff per impulse, and
36.01% in basic monthly charges as well in the connection fee revenue associated
with the Company's continued growth of its subscriber base.
However, one of the most important factors to explain the growth of the
revenues in the third quarter of 1999, is the increase of other revenues from
value added services, like internet, voice mail and special services which in
the third quarter were 6.8% of the total revenues in the second quarter. This
is an important trend in the future growth of the Company.
______________________
/(1)/ Not included for this comparison are the extraordinary revenues obtained
in the second quarter of 1999 for leasing of the fiber optic network, and
providing special services of video conferencing.
Costs and Expenses. Costs and expenses for September 30,1999 increased by Ps
2.161 billion, or 16%, to Ps 15.313 billion from Ps 13.152 billion for the three
months ended June 30, 1999. The increase is primarily attributable to the
increase in the operating costs and the administrative and marketing expenses
due
-27-
<PAGE>
to the increase in the number of subscribers and the maintenance and expansion
of the telephony infrastructure in the cities of Palmira, Cartago, Yumbo,
Jamundi, Buga, Popayan and Girardot. The total operating costs and expenses
related to the pay television services of Cablevision were Ps 3.134 billion in
the third quarter of 1999.
Operating costs increased by Ps 3.194 billion from Ps 2.961 billion in June
30, 1999 to Ps 6.155 billion mainly as a result of increases in depreciation of
Ps 0.446 billion, services, maintenance and repairs of Ps 0.741 billion. Other
operating costs increased by Ps 2.007 billion for the three months ended
September 30, 1999 compared to June 30, 1999 due principally to the
reclasification of certain items that at June 30, 1999 had been listed under
administrative expenses but because of recent changes by "The Superintendency of
Public Services" ("Superintendencia de Servicios Publicos") are now listed under
operating costs.
Administrative expenses for the third quarter of 1999 decreased by Ps 1.457
billion to Ps 6.753 billion from Ps 8.210 billion for the second quarter ended
in June 30, 1999. The decrease was mainly attribuited to the reclasification of
the expenses as mentioned above. In addition, salaries decreased by Ps 0.511
billion, amortization decreased by Ps 0.370 billion, fees and studies of Ps
0.252 billion, depreciation of Ps 0.045 billion, security, maintenance and
repairs of Ps 0.133 billion and other of Ps 0.146 billion.
Marketing and Sales expenses. For the three months ended September 30, 1999
increased by Ps 0.424 billion to Ps 2.405 billion from Ps 1.981 billion in June
30, 1999. The increase in marketing expenses was primarily attributable to the
higher advertising increased by Ps 0.329 billion because market research and
advertising costs, which were recorded as deferred costs in prior years, are now
being amortized and others by Ps 0.095 billion.
Operating Income. Operating income for September 30, 1999 increased by Ps
4.124 billion from Ps 15.562 billion in June 30, 1999 to Ps 19.686 billion. The
increase was mainly attributable to the increase in revenues as a result of the
larger number of subscribers and increased usage, net of the increase in costs
and expenses described above.
Non-operating Income (Expenses). Non-operating income (expenses), net for
June 30, 1999 and September 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------
June 30, 1999 September 30, 1999
---------------------- ---------------------
(in thousands of constant Pesos of
September 30, 1999 purchasing power)
<S> <C> <C>
Financial Income:
Interest income......................... Ps 9,343,559 Ps 4,757,498
Exchange gains.......................... 13,437,142 16,212,837
Other financial income.................. (170,413) 422,050
--------------------- --------------------
22,610,288 21,392,385
--------------------- --------------------
Financial Expenses:
Interest expense........................ (12,213,884) (14,669,929)
Bank commissions........................ (37,103) (29,489)
Exchange losses......................... (35,562,992) (56,211,718)
Bank expenses........................... (165,356) 92,434
Other financial expenses................ (30,181) (203,364)
--------------------- --------------------
(48,009,516) (71,022,067)
--------------------- --------------------
Other:
Sales of scrap and extra parts.......... 39,134 (25,322)
Other, net.............................. (1,849,584) (169,386)
--------------------- --------------------
(1,810,450) (194,708)
--------------------- --------------------
Total Non-operating Income (Expenses)...... Ps (27,209,679) Ps (49,824,390)
===================== ====================
</TABLE>
Net non-operating expenses increased from Ps 27.210 billion for the three
months ended June 30, 1999 to Ps 49.824 billion for the three months ended
September 30, 1999. The increase was mainly due to the net exchange loss
occurred during Interim 1999 associated with the Senior Notes, the Discount
Notes and other liabilities denominated in Dollars due to the devaluation of
18.49% of the Colombian peso with respect to the Dollar in the third quarter.
Interest expense increased from Ps 12.214 billion in the second quarter of 1999
to Ps 14.670 billion in third quarter of 1999 due to the higher indebtedness
levels.
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<PAGE>
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income decreased by Ps 2.176 billion to Ps 2.809 billion for the third quarter
of 1999, from Ps 4.985 billion in the second quarter of 1999 as a result of the
inflation decrease in the third quarter of 1999.
Income Tax Expense. Income tax expense for the third quarter of 1999
increased by Ps 2.264 billion to Ps 3.614 billion from Ps 1.350 billion in the
second quarter of 1999.
Minority Interest. Minority interest for the third quarter of 1999, increased
by Ps 1.320 billion to Ps 3.081 billion from Ps 1.760 billion for the second
quarter of 1999 because of the increased net income of the operating
subsidiaries.
Net Income. Total income decreased by Ps 19.723 billion from Ps (7.073)
billion for the second quarter of 1999 to Ps (26.796) billion for the third
quarter of 1999, as a result of the factors discussed above.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Transtel S.A.
--------------------------------
(Registrant)
Date: December 9, 1999 By: /s/ Jorge Martinez
-----------------------------
Name: Jorge Martinez
Title: Financial Vice President
