<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 March , 2000.
-------------------------
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.--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Pesos of March 31, 2000 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 March 31, 2000, such
systems provided service to an aggregate of approximately 280,749 subscribers
and had an average penetration of 25,2 lines per 100 people. Additionally the
Company had 13,246 internet subscribers and 22,081 pay television subscribers as
of March 31, 2000.
During the first quarter of fiscal year 2000, the Company gained 7,012
telephone customers, However the Company also cancelled service to 12,623
customers as permitted by Law 142 of 1994 which regulates public services and
allows these actions to be taken in response to customer payment delinquency
extending beyond six months. The Company believes that this level of churn is
unusually high and reflects a normal respite following an extended period of
rapid growth and the deteriorated condition of the Colombian economy. While the
Company expects churn to decline with improvement in the economy and the more
stable growth of its systems, it will continue to enforce provisions of Law 142
as needed with respect to delinquent accounts. The Company's 280,749 subscriber
base as of March 31, 2000 reflect the net result of these activities.
In cable as in telephony, Transtel, acting trough its operating subsidiaries,
strives to be the highest quality provider of media and telecommunications
services in Colombian. To this end, the Company recently terminated the offering
of microwave or "UHF" service by its Cablevision subsidiary. This service was a
legacy product inherited with the Company's acquisition of Cablevision and is
not in keeping with the Company's high quality product platform. The termination
of this service resulted in the cancellation of service to 8,195 former UHF
subscribers. The loss of these subscribers was offset, in part, with the
addition of 1,291 new pay-tv service subscribers during this first quarter of
fiscal year 2000.
The Company generates revenues by providing telephone services to its
commercial and residential subscribers. The Company's sources of revenue 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 Internet
service, video conference calling and voice mail; and (vi) connection fees from
each new subscriber connected to the Company's network.
With the maturation of its network and the reduced pace of expansion, the
Company has expected usage derived revenues to generate an increasing share of
overall revenues. The last reported quarters have supported this trend. The last
quarter have also evidenced the increasing importance of local services revenues
(those from basic charges an local usage). In the three months ended March 31,
2000, these revenues accounted for approximately 67% of revenue. Aside from the
decline in connection fee revenue, this fact reflects the importance of tariff
increases and the Company's call completion efficiency. The trend seen in the
last quarterly reports continues as revenues for local telephone services,
(basic and local usage charge), are becoming more and more important in total
revenue contribution to the company. This type of revenue
1
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generation is not dependent on third party operations (long distance and
cellular). Also the growth of local services emphasizes the importance of the
tariffs increases applied.
Three months ended March 31, 1999 and 2000
The following is a discussion of the consolidated financial condition as of
March 31, 1999 and 2000 and the results of operations of the Company for the
quarters ended March 31, 1999 and 2000. 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 March 31, 1999 and 2000, 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 quarters ended March 31, 1999 and 2000. Unless otherwise indicated, the
financial information has been presented in constant Pesos as of March 31, 2000.
Dollar amounts are translated from Pesos amounts at the Representative Market
Rate on March 31, 2000, which was 1,951.56 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.
Telephony Subscriber
The following table provides information regarding the Operating Companies:
<TABLE>
<CAPTION>
TelePalmira TeleCartago Caucatel TeleJamundi Unitel Bugatel TeleGirardot Unitel Total
----------- ----------- -------- ----------- ------ ------- ------------ ------ -----
Wireline Wireless
--------- --------
Municipality served Palmira Cartago Popayan Jamundi Yumbo Buga Girardot Cali N/A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Population 318,000 125,900 76,600 59,100 72,000 337,400 161,000/(1)/ 1,908,600 3,058,600
Commencement date of
Company's operations Sep-95 Apr-97 May-97 Jun-97 Jun-97 Jul-97 Dec-97 Jan-98 N/A
Number of subscribers at New New New
commencement date 15,600 13,800 10,800 System System 10,700 23,500 System 74,400
Number of subscribers as
of December 31, 1999 68,803 32,844 23,721 12,737 9,784 26,931 53,454 57,932 286,206
Total subscribers as of
March 31, 2000 68,138 32,816 23,687 12,700 9,756 26,904 49,799 56,949 280,749
Penetration/(2)/ 21.4 30.8 30.9 28.2 20.0 16.4 35.2 26.3 25.2
</TABLE>
(1) Includes the neighboring cities of Flandes and Ricaurte.
(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,
4,000 lines, 28,700 lines, 4,700 lines, 445,000 lines and 7,000 lines as
per the Company's estimates, respectively.
2
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Pay-TV and Internet Subscribers
<TABLE>
<CAPTION>
TelePalmira TeleCartago Caucatel TeleJamundi Unitel Bugatel TeleGirardot Unitel Total
----------- ----------- -------- ----------- -------- -------- ------------ ------ -----
Wireline Wireless
-------- --------
Municipality served Palmira Cartago Popayan Jamundi Yumbo Buga Girardot Cali N/A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Population 318,000 125,900 76,600 59,100 72,000 337,400 161,000/(1)/1,908,600 3,058,600
Internet Subscribers
--------------------
Number of subscribers as
of March 31, 2000 2,386 717 478 - 2,874 463 - 6,328 13,246
Internet Penetration 0.8 0.6 0.6 - 4.0 0.1 - 0.3 0.4
Pay-TV Subscribers
------------------
Number of Homes Passed NA NA NA NA NA NA NA 40,000 40,000
Number of Subscribers as NA NA NA NA NA NA NA 22,081(1) 22,081
of March 31, 2000
</TABLE>
(1) As of March 31, 2000 the Company had migrated most of its pay-tv subscribers
to its cable system and no longer offers UHF services.
Results of Operations
The composition of the Company's revenues for each of the quarters discussed
herein is as follows:
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------
1999 % 2000 %
---------- --------------- ---------- -------------
(in thousands of constant Pesos of March 31, 2000 purchasing power,
except percents data)
<S> <C> <C> <C> <C>
Connection fees........................ Ps 11,059,972 35.9% Ps 1,645,944 5.6%
Local usage charges.................... 6,279,842 20.4 13,625,225 46.0
Basic charges.......................... 4,612,001 15.0 6,178,039 20.9
Long distance charges.................. 6,628,249 21.5 4,294,622 14.5
Other income........................... 2,251,243 7.2 2,612,100 8.8
-------------- ----- --------------- ----
Total telephone................... Ps 30,831,307 96.2 28,355,930 95.8
Pay television services................ 1,207,283 3.8 1,228,549 4.2
-------------- ----- ---------------- ----
Total revenues.................... Ps 32,038,590 100.0% Ps 29,584,479 100%
============== ===== ================ ====
</TABLE>
3
<PAGE>
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
-----------------------
1999 2000
----- -----
<S> <C> <C>
Revenues................................................ 100.0% 100.0%
----- -----
Costs and expenses:
Operating costs...................................... 19.6 21.8
Administrative expenses.............................. 22.7 19.2
Marketing expenses................................... 6.4 6.6
----- ------
Total............................................. 48.7 47.6
----- ------
Operating income........................................ 51.3 52.4
Nonoperating expenses................................... (7.7) (79.4)
Net monetary inflation adjustment income................ 23.6 34.5
----- ------
Income before income taxes and minority interest........ 67.2 7.5
----- ------
Income tax expense...................................... (21.2) (2.1)
----- ------
Income before minority interest......................... 46.0 5.4
Minority interest....................................... (22.1) (11.7)
----- ------
Net income.............................................. 23.9% ( 6.3)%
===== ======
</TABLE>
Revenues. The total revenues for the three months ended March 31, 2000
("Interim 2000") decreased by Ps2.455 billion, or 8%, to Ps29.584 billion from
Ps32.039 billion in the three months ended March 31, 1999 ("Interim 1999").
Connection fee revenue in Interim 2000 decreased by Ps9.414 billion from
Ps11.060 billion in Interim 1999 to Ps1.646 billion as a result of all
subsidiary companies, except Unitel, having met their objectives for new lines.
Pay television services were Ps1.229 billion in Interim 2000 compared to Ps1.207
in Interim 1999. Other operating revenues, including basic monthly charges,
local usage charges, long distance charges and other fees for Interim 1999
increased by Ps6.939 billion from Ps19.771 billion in Interim 1999 to Ps26.710
billion in Interim 2000. The increase in other operating revenues for Interim
2000 is attributed to the increase in the number of subscribers, the increase in
tariffs in 1999 and also in the higher usage.
Costs and Expenses. Costs and expenses for Interim 2000 decreased by Ps1.516
billion, or 10%, to Ps14.061 billion from Ps15.577 billion in Interim 1999. This
decrease is specifically attributable to lower operating and administrative
costs due to the centralization and downsizing and also to the decrease of sales
expenses.
Operating costs for Interim 2000 increased by Ps0.167 billion from Ps6.277
billion in Interim 1999 to Ps6.444 billion mainly as a result of increases in
amortization of Ps0.062 billion, and depreciation of Ps0.105 billion.
Administrative expenses for Interim 2000 decreased by Ps1.599 billion to
Ps5.665 billion from Ps7.264 billion in Interim 1999. The decrease was mainly
attributable to the decrease in salaries, benefits and other labor payments of
Ps0.912 billion; amortization of Ps0.246 billion and other of Ps0.441.
Marketing expenses for Interim 2000 decreased by Ps0.083 billion to Ps1.952
billion from Ps2.035 billion in Interim 1999.The decrease in marketing expenses
was primarily attributable to the decrease in salaries, benefits and other labor
payments of Ps0.514.
Operating Income. Operating income for Interim 2000 decreased by Ps0.939
billion from Ps16.462 billion in Interim 1999 to Ps15.523 billion. The decrease
was mainly attributable to the decrease in revenues as a result of the fewer
number of lines sold in 2000 as compared to 1999, during the same period.
4
<PAGE>
Nonoperating Income (Expenses). Nonoperating income (expenses), net for
Interim 1999 and Interim 2000 consisted of the following:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1999 2000
----------- -----------
(in thousands of constant Pesos of
March 31, 2000 purchasing power)
<S> <C> <C>
Financial Income:
Interest income............................... Ps 5,402,142 Ps 7,305,753
Exchange gains................................ 17,085,640 13,862,985
Other financial income........................ 391,264 4,866
----------- -----------
22,879,046 21,173,604
----------- -----------
Financial Expenses:
Interest expense.............................. (11,389,690) (19,879,558)
Bank commissions.............................. (26,036) (70,976)
Exchange losses............................... (13,819,659) (24,274,142)
Bank expenses................................. (74,860) (85,040)
Other financial expenses...................... (61,152)
----------- -----------
(25,371,397) (44,709,716)
----------- -----------
Other:
Other, net.................................... 19,599 56,142
----------- -----------
19,599 56,142
----------- -----------
Ps (2,472,752) Ps (23,479,970)
============== ===============
</TABLE>
Net nonoperating expenses increased from Ps2.473 billion for Interim 1999
to Ps23.480 billion in Interim 2000. The increase was mainly due to the net
exchange loss which occurred during Interim 2000 in connection with the Senior
Notes, the Discount Notes and other liabilities denominated in Dollars due to
the devaluation of the Colombian peso with respect to the Dollar. Interest
expense increased from Ps11.390 billion in Interim 1999 to Ps19.880 billion in
Interim 2000 as a result of higher implied indebtedness levels generated by the
peso's devaluation.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income in Interim 2000 increased by Ps2.631 billion to Ps10.197 billion from
Ps7.566 billion in Interim 1999 as a result of the impact of inflationary
adjustments on the higher balance of nonmonetary assets as compared to
shareholders' equity accounts.
Income Tax Expense. Income tax expense for Interim 2000 decreased by
Ps6.142 billion to Ps0.637 billion from Ps6.779 billion in Interim 1999
primarily because of the substantial decrease in taxable income in Interim 2000
compared to Interim 1999.
Minority Interest. Minority interest for Interim 2000 decreased by Ps3.615
billion to Ps3.453 billion from Ps7.068 billion for Interim 1999 because of the
decrease in the net income of the operating subsidiaries.
Net Income. Net income decreased by Ps9.558 billion from Ps7.709 billion
for Interim 1999 to loss Ps(1.849) billion for Interim 2000 as a result of the
factors discussed above.
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. From inception through December 31, 1997, the
Company expended an aggregate of approximately Ps52.1 billion to acquire various
interests in each of its existing telephone systems. During the year ended
December 31, 1998, the Company spent Ps 22.108 billion to acquire Cablevision.
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 of its systems. 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.
5
<PAGE>
Net cash provided by operating activities during Interim 2000 was Ps14.456
billion as compared to Ps14.797 billion for Interim 1999. The decrease in cash
provided by operations for Interim 2000 was primarily caused by a decrease in
net income. Net cash used in investing activities during Interim 2000 was
Ps26.900 billion as compared to Ps11.023 billion used in Interim 1999. Cash used
in investing activities in Interim 2000 continues to relate to the construction
of new network systems in the city of Cali. In addition, cash used in investing
activities in Interim 1999 included the net maturity of short-term and long-term
investments of Ps27.121 billion. Net cash used by financing activities during
Interim 2000 was Ps1,401 billion as compared to Ps4.672 billion provided in
Interim 1999. The Company also has 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 continued
development of its systems, debt service (primarily on the Senior Notes),
working capital and general corporate purposes, including future acquisitions.
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 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 March
31, 2000 and June 14, 2000, the Company is in compliance with all such financial
covenants.
The Senior Notes are the most importance obligations 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 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 March 31, 2000, the Company has lent $95.5 million (Ps186.374
billion) of the proceeds from the Senior Notes to six of its Operating Companies
as evidenced by Intercompany Notes which were executed as of December 31, 1998.
Balances loaned to each subsidiary as of March 31,2000 are as follows:
6
<PAGE>
As of March 31, 2000
-------------------------------------------
(in thousands of constant Pesos of March 31,
2000 purchasing power and in Dollars)
Unitel........................ Ps 58,527,985 $29,990,359
TeleJamundi................... 42,459,064 21,756,474
TelePalmira................... 44,475,773 22,789,857
TeleCartago................... 19,194,051 9,835,235
Caucatel...................... 14,410,407 7,384,045
Bugatel....................... 7,227,614 3,703,506
-------------- -----------
Ps 186,294,895 $95,459,476
=============== ===========
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 quarter ended March 31, 2000 are presented below.
INCOME STATEMENT INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For the Quarter Ended March 31, 2000
(Amounts in thousands of constant Pesos of March 31, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------ ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues--subscribers .............. Ps 6,957,700 Ps 7,467,351 Ps 869,898 Ps 3,719,316 Ps 2,878,227 Ps 2,612,093
Operating income (loss)................... 4,036,206 5,349,898 232,243 2,657,276 1,991,837 1,715,806
Net income ............................... 963,945 4,917,511 583,824 2,279,676 1,120,219 1,688,007
</TABLE>
CASH FLOW INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For The Quarter Ended March 31, 2000
(Amounts in thousands of constant pesos of March 31, 2000 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 (4,796,821) Ps 3,615,493 Ps(39,911) Ps 338,874 Ps 9,397,289 Ps 1,306,073
Cash flow used by investing
activities............................ 1,052,564 (10,848,553) (3,426,551) (2,370,397) (7,773,602) (2,412,924
Cash flow provided (used) by financing
activities............................. 2,085,890 6,452,930 1,722,747 917,794 (1,657,223) 447,069
</TABLE>
7
<PAGE>
BALANCE SHEETS OF SUBSIDIARIES WITH INTERCOMPANY NOTES AT MARCH 31, 2000
(Amounts in thousands of constant Pesos of March 31, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
-------------- -------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Current assets................... Ps 18,495,883 Ps 34,150,128 Ps 5,824,042 Ps 7,570,076 Ps 5,968,700 Ps 4,819,295
Properties, plant and equipment.. 89,567,305 93,790,097 49,797,605 54,177,207 42,207,624 39,390,515
Other noncurrent assets.......... 39,919,163 33,568,783 9,446,557 10,238,366 9,573,267 5,549,007
-------------- -------------- -------------- -------------- -------------- ---------------
Total assets................... Ps 147,982,351 Ps 161,509,008 Ps 65,068,204 Ps 71,985,649 Ps 57,749,591 Ps 49,758,817
============== ============== ============== ============== ============== ===============
Current liabilities.............. Ps 16,295,360 Ps 27,279,871 Ps 1,307,630 Ps 9,981,478 Ps 12,965,745 Ps 4,228,744
Capital lease obligations........ 18,820,026 10,165,906 8,803,875 9,462,734 11,653,130 777,295
Intercompany Note to Transtel.... 43,557,019 58,527,985 44,245,999 25,686,921 6,454,088 14,072,444
Other noncurrent liabilities..... 3,152,865 18,218,178 1,880,372 1,323,511 844,708 1,216,864
-------------- -------------- -------------- -------------- -------------- ---------------
Total liabilities.............. 81,825,270 114,191,940 56,237,576 46,454,644 31,917,671 20,295,347
Total shareholders' equity....... 66,157,081 47,317,068 8,830,628 25,531,005 25,831,920 29,463,470
-------------- -------------- -------------- -------------- -------------- ---------------
Total liabilities and
shareholders' equity.......... Ps 147,982,351 Ps 161,509,008 Ps 65,068,204 Ps 71,985,649 Ps 57,749,591 Ps 49,758,817
============== ============== ============== ============== ============== ===============
</TABLE>
In addition to the Intercompany Notes, these six Operating Companies have
capital lease obligations and short-term bank borrowings totaling Ps8.223
billion and Ps8.363 billion, respectively, included in current liabilities at
March 31, 2000. As indicated in the above summarized balance sheet information,
these six Operating Companies have total long-term capital lease obligations of
Ps51.459 billion at March 31, 2000. As the subsidiaries install and accept the
remaining Global Leases, the IBM Arrangement and the related DIAN Financing,
additional financial obligations totaling Ps 151.410 billion will be incurred.
As interest payment of $9,375,000 on the Company's 121/2 % Senior Notes due
2007 was due on May 1, 2000 under the Indenture. A partial payment of $5,950,000
was made by the Company on May 1, 2000. The remainder of the interest payment,
$3,425,000, was not made on a timely basis but was made within the cure period.
The delay in payment was the result of the failure of a financial institution,
which purchases the Company's receivables related to connection fees, to repay
amounts owed to the Company by May 1, 2000. Had the financial institution paid
the amounts due on a timely basis, the Company would have had sufficient funds
to make its May 1, 2000 interest payment. The Company no longer sells its
receivables to such financial institution. The Company paid the remaining
$3,425,000 bay May 30, 2000 (within the 30 day cure period) from cash flows it
received from the normal business operations of its Operating Companies.
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. If the Company is unable to
make principal and interest payment 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 or part of its business or assets
to raise to repay its indebtedness.
On December 31, 1998, the Company sold $15.0 million (Ps29.273 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 (Ps169.591 billion) and principal of $15.0 million
(Ps29.273 billion) will be due on August 13, 2008. The balance of the discount
notes, including interest accreted but unpaid, is $19.1 million (Ps 37.275
billion) at March 31, 2000. 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 June 14, 1999.
8
<PAGE>
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, cash flow from operations and
other sources of funds, including local borrowings, it will have adequate funds
to complete its planned system development and meet 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
quarter ended March 31, 2000 was 4.04%. Financial statements are adjusted for
the effects of inflation on the basis of changes in the Colombian MCPI.
Commencing January 1, 2000, this index is applied on a one-month lagging basis
to nonmonetary 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 1997, 1998 and 1999 and
for the three months ended March 31, 2000. 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. 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 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 quarter ended March 31, 1999 and 2000, under
Colombian GAAP and after reflecting the material adjustments which arise when
U.S. GAAP is applied instead of Colombian GAAP, is shown below:
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended,
------------------------------------------
1999 2000
---------- ----------
<S> <C> <C>
(in thousands of constant Pesos of March 31,
2000 purchasing power)
Net Income (Loss)
Colombian GAAP........................ Ps 7,708,522 Ps (1,849,531)
U.S. GAAP............................. 2,526,832 1,161,584
Shareholders' Equity
Colombian GAAP........................ 93,421,198 89,425,197
U.S. GAAP............................. 48,225,809 36,722,837
</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.
Churn
As of March 31, 2000 the churn rate increased to 4.4% as a result of 12,623
subscribers being disconnected for payment delinquency extending beyond six
months. The Company feels that this increase in churn is a normal event which
follows an extended period of rapid growth. The Company also believes that this
increase reflects, in part, the overall deterioration in economic conditions in
Colombia. Nonetheless, the Company expects that its subscriber base will
stabilize and that its remaining subscribers will provide the Company with a
more solid base from which to continue the development of its service platform.
The Company also believes that telephony is a basic utility service which most
of its subscribers will wish to maintain over an extended period. Disconnected
subscriber face new connection fees in order to re-connect to the service.
Recent Events
Macroeconomics
The newest economic figures reflect a slow recovery in the economy of the
country. GDP has increased 0.8% from the fourth quarter 1999, cutting the
annual reduction to 4.45%. Industry growth was at 9.1% in the first quarter
2000 and the government estimates GDP growth of 2.6% for the same period.
However, urban unemployment is at a record 20.2% at the end of March 2000.
The confidence of businessmen is lower due to the political difficulties
between the executive and the congressmen. The Central Bank is having
difficulties continuing its successful 1999 process of reducing interest rates.
Countering this, is the notable increase in exports that will create a surplus
in the foreign exchange balance of $1.6 billion U.S.
The devaluation of the Colombian peso against the dollar was 4.15% in the
first three months in 2000. The expectation is for more stability in the
valuation for the remainder of the year.
10
<PAGE>
Tariffs
As expected the Comision de Regulacion de Telecomunicaciones (CRT)
authorized an increase in the tariffs of 20 points over the established annual
inflation index. On the basis of this the company set an increase in tariffs of
approximately 30% annually, which will be applied gradually over the period
between April and September.
11
<PAGE>
TRANSTEL S.A.
ADDITIONAL SELECTED FINANCIAL INFORMATION
(Pesos of March 31, 2000 purchasing power and U.S. Dollars, unless otherwise
specified)
Three months ended December 31, 1999 and March 31, 2000
The following is a discussion of the consolidated financial condition as of
December 31, 1999 and for March 31, 2000. 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 March 31, 2000, 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 March 31, 2000.
Dollar amounts are translated from Pesos amounts at the Representative Market
Rate on March 31, 2000, which was 1.951.56 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 December 31,
1999 and March 31, 2000:
<TABLE>
<CAPTION>
Three months ended,
----------------------------------------
December 31, 1999 March 31, 2000
------------------- ----------------
<S> <C> <C>
Basic Charge
Average subscribers 277,120 283,401
Basic charge revenues (Ps000) 5,884,832 6,178,039
Average basic charge per subscriber per month (Ps) 7,079 7,267
Local Usage
Local usage revenues (Ps000) 15,047,845 13,625,225
Local usage revenue per subscriber per month. (Ps) 18,100 16,026
Tariff per pulse (Ps) 40,16 41.02
Average pulses per subscriber per month. 451 391
Long Distance
Long distance revenues (Ps000) 4,182,821 4,294,622
Total minutes (in thousands) 87,878 89,541
Minutes per subscriber per month. 106 105
Access charge tariff per minute (Ps) 45.75 47.51
Cablevision
Average subscribers 26,702 25,533
Operating recurring revenues (Ps000) 1,515,608 1,228,549
Revenue per subscriber per month (Ps) 18,920 16,039
</TABLE>
12
<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
-------------------------------------------------------------------------
December 31,1999 % March. 31,2000 %
--------------------- ---------------- ------------------ ------------
(in thousands of constant Pesos of March 31, 2000 purchasing power,
except percents data)
<S> <C> <C> <C> <C>
Connection fees ....................... Ps 11,329,911 31.2% Ps 1,645,944 5.6
Local usage charges ................... 15,047,845 41.5 13,625,225 46.0
Basic charges ......................... 5,884,832 16.2 6,178,039 20.9
Long distance charges ................. 4,182,821 11.5 4,294,622 14.5
Other income .......................... (1,680,960) (4.6) 2,612,100 8.8
-------------- ----- ------------ -----
Total telephone ..................... Ps 34,764,450 95.8 28,355,930 95.8
Pay television services (1)............ 1,515,608 4.2 1,228,549 4.2
-------------- ----- ------------- -----
Total revenues ...................... Ps 36,280,058 100.0% Ps 29,584,479 100.0
============== ===== ============= =====
</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
--------------------------------------------
December 31, 1999 March 31, 2000
---------------------- --------------------
<S> <C> <C>
Revenues.................................................... 100.0% 100.0%
------ -----
Costs and expenses:
Operating costs ......................................... (17.6) (21.8)
Administrative expenses ................................. (19.3) (19.2)
Marketing expenses ...................................... (6.9) (6.6)
------ -----
Total ................................................ (43.8) (47.6)
------ -----
Operating income ........................................... 56.2 52.4
Nonoperating expenses ...................................... (142.4) (79.4)
Net monetary inflation adjustment income ................... 8.0 34.5
------ -----
Income before income taxes and minority interest ........... (78.2) 7.5
Income tax expense ......................................... 10.3 (2.1)
------ -----
Income before minority interest ............................ (67.9) 5.4
Minority interest .......................................... (8.8) (11.7)
------ -----
Net income ................................................. (76.7)% (6.3)%
====== =====
</TABLE>
Revenues. Total revenues for the three months ended March 31, 2000 decreased
by Ps 6.696 billion, or 18.5%, to Ps29.584 billion from Ps 36.280 billion for
the three months ended December 31, 1999. The decrease in revenues in the first
quarter of 2000 was mainly attributable to the decrease in connection fees
because of all subsidiary companies, except Unitel, having met their objectives
for new lines. Also local usage charges revenues decreased as a result of the
decrease in usage.
Costs and Expenses. Costs and expenses for March 31, 2000 decreased by
Ps17.778 billion, or 55.8%, to Ps14.061 billion from Ps31.839 billion for the
three months ended December 31, 1999. The decrease is primarily attributable to
the decrease in the administrative expenses due to the higher allowance for
doubtful accounts made in the last quarter of 1999.
Operating costs increased by Ps1.950 billion from Ps4.495 billion in December
31, 1999 to Ps6.444 billion mainly as a result of increases in depreciation of
Ps 0.118 billion, services, maintenance and repairs of Ps 1.072 billion and
amortizations of Ps1.218 billion.
Administrative expenses. For the first quarter of 2000 decreased by Ps19.050
billion to Ps5.665 billion from Ps24.716 billion for the last quarter ended in
December 31, 1999. The decrease was mainly attributed to the decrease in
allowance for doubtful accounts by $8.413 billion, amortization by Ps1.889
billion, salaries by
13
<PAGE>
Ps0.875 billion, insurance by Ps0.113 billion and allowance for property, plant
and equipment by $8.197 billion.
Marketing and Sales expenses. For the three months ended March 31, 2000
decreased by Ps0.677 billion to Ps1.952 billion from Ps2.629 billion in December
31, 1999. The decrease in marketing expenses was primarily attributable to the
decreased in salaries by Ps0.355 billion, amortization by Ps0.712 billion,
insurance by Ps0.012 billion.
Operating Income. Operating income for March 31, 2000 increased by Ps11.083
billion from Ps4.440 billion in December 31, 1999 to Ps15.523 billion. The
increase was mainly attributable to the decrease in administrative expenses.
Non-operating Income (Expenses). Non-operating income (expenses), net for
December 31, 1999 and March 31, 2000 consisted of the following:
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------
December 31, 1999 March 31, 2000
----------------------- ---------------------
(in thousands of constant Pesos of
March 31, 2000 purchasing power)
<S> <C> <C>
Financial Income:
Interest income....................................... Ps (7,009,477) Ps 7,305,753
Exchange gains........................................ 41,503,471 13,862,985
Other financial income................................ 136,718 4,866
-------------- ---------------
34,630,713 21,173,604
-------------- ---------------
Financial Expenses:
Interest expense...................................... 4,604,508 (19,879,558)
Bank commissions...................................... (243,972) (470,976)
Exchange losses....................................... (10,832,141) (24,274,142)
Bank expenses......................................... 82,397 (85,040)
Other financial expenses.............................. (640,501)
-------------- ---------------
(7,029,710) (44,709,716)
-------------- ---------------
Other:
Donations............................................ (92,487)
Sales of scrap and extra parts........................ 169,230
Other, net............................................ 331,990 56,142
-------------- ---------------
408,733 56,142
-------------- ---------------
Total Non-operating Income (Expenses).................... Ps 28,009,735 Ps (23,479,970)
============== ===============
</TABLE>
Net non-operating Income (Expenses). Net non-operating Income (Expenses)
decreased from Ps28.010 billion for the three months ended December 31, 1999 to
(Ps23.480) billion for the three months ended March 31, 2000. The decrease was
mainly due to the net exchange loss occurred during Interim 2000 associated with
the Senior Notes, the Discount Notes and other liabilities denominated in
Dollars due to the devaluation of 4.15% of the Colombian peso with respect to
the Dollar in the first quarter of 2000.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income increased by Ps8.100 billion to Ps10.197 billion for the first quarter of
2000, from Ps2.097 billion in the last quarter of 1999 as a result of the
inflation increase.
Income Tax Expense. Income tax expense for the first quarter of 2000 decreased
by Ps5.405 billion to Ps0.637 billion from Ps6.042 billion in the last quarter
of 1999.
Minority Interest. Minority interest for the first quarter of 2000, decreased
by Ps5.610 billion to Ps(3.453) billion from Ps2.157 billion for the last
quarter of 1999 because of the decrease in the net income of the operating
subsidiaries.
Net Income. Total income decreased by Ps32.512 billion from Ps30.663 billion
for the last quarter of 1999 to Ps (1.850) billion for the first quarter of
2000, as a result of the factors discussed above.
14
<PAGE>
TRANSTEL S.A
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
----------- ----------- --------
(Thousands
(Thousand of pesos of March 31, of Dollars)
2000)
ASSETS
<S> <C> <C> <C>
Current
Cash................................................................. Ps 13,352,079 Ps 5,682,936 $ 2,912
Short-term and temporary investments................................. 42,595,441 2,872,431 1,472
Accounts receivable, net............................................. 52,072,845 86,854,128 44,505
Inventories.......................................................... 2,633,282 1,988,025 1,019
Prepaid expenses..................................................... 621,500 441,075 226
-------------- --------------- --------
Total current assets................................................ 111,275,147 97,838,595 50,134
Noncurrent
Accounts receivable.................................................. 53,778,193 54,971,645 28,168
Properties, plant and equipment, net................................. 322,842,185 434,063,955 222,419
Deferred monetary correction......................................... 3,724,523 6,077,942 3,114
Deferred costs....................................................... 68,801,259 53,537,857 27,433
Long-term investments................................................ 3,181,655 7,238,295 3,709
Other assets......................................................... 5,060,709 13,999,932 7,174
Reappraisal of assets................................................ 37,130,087 39,709,742 20,348
-------------- --------------- --------
Total assets........................................................ Ps 605,793,758 Ps 707,437,963 $362,499
============== =============== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................................................... Ps 26,284,953 Ps 14,733,370 $ 7,550
Current portion of other long-term debt.............................. 1,730,199 3,322,949 1,703
Current portion of capital lease obligations......................... 6,670,638 8,434,506 4,322
Accounts payable..................................................... 42,084,250 77,268,178 39,593
Tax liabilities...................................................... 12,274,468 24,103,813 12,351
Labor liabilities.................................................... 619,809 433,905 222
Other liabilities.................................................... 3,307,091 3,421,087 1,753
Accrued pension obligations.......................................... 678,060 1,205,105 618
-------------- --------------- --------
Total current liabilities.......................................... 93,649,468 132,922,913 68,112
Long-term liabilities
12 1/2 % Senior Notes due 2007...................................... 249,491,121 292,734,000 150,000
20.32% Senior Discount Notes due 2008................................ 26,199,918 37,240,925 19,083
Other long-term debt................................................. 7,791,049 54,966 28
Capital lease obligations............................................ 36,080,877 51,596,664 26,439
Deferred monetary correction......................................... 7,848,401 9,698,523 4,970
Accrued pension obligations.......................................... 6,934,430 6,273,650 3,215
Other liabilities.................................................... 13,925,805 12,066,458 6,181
-------------- --------------- --------
Total liabilities................................................... 441,921,069 542,588,099 278,028
-------------- --------------- --------
Minority interest.................................................... 70,451,491 75,424,667 38,648
-------------- --------------- --------
Commitments
Shareholders' equity:
Common stock, Ps1 par value, 50 billion shares
authorized; 34,611,747,976 shares issued
and outstanding (5,039,801,222 in 1998)............................. 50,699,200 50,699,383 25,979
Retained earnings.................................................... 27,715,884 20,858,151 10,688
Surplus from reappraisal of assets................................... 15,006,114 17,867,663 9,156
-------------- --------------- --------
Total shareholders' equity.......................................... 93,421,198 89,425,197 45,823
-------------- --------------- --------
Total liabilities and shareholder's equity.......................... Ps 605,793,758 Ps 707,437,963 $362,499
============== =============== ========
Memorandum accounts................................................... Ps 275,967,754 Ps 323,502,613 $253,171
============== =============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 2000 2000
------------- --------------- -----------
(Thousands
(Thousands of pesos of March 31, 2000) of Dollars)
<S> <C> <C> <C>
Revenues........................................ Ps 32,038,590 Ps 29,584,479 $ 15,159
------------- --------------- -----------
Costs and expenses:
Operating costs............................... 6,277,309 6,444,234 3,302
Administrative expenses....................... 7,264,313 5,665,464 2,903
Marketing expenses............................ 2,034,902 1,951,655 1,000
------------- --------------- -----------
15,576,524 14,061,353 7,205
------------- --------------- -----------
Operating income.............................. 16,462,066 15,523,126 7,954
------------- --------------- -----------
Nonoperating income (expenses)
Financial income.............................. 22,879,046 21,173,604 10,849
Financial expenses............................ (25,371,397) (44,709,716) (22,910)
Other......................................... 19,599 56,142 29
------------- --------------- -----------
(2,472,752) (23,479,970) (12,032)
------------- --------------- -----------
Net monetary inflation adjustment income........ 7,566,323 10,197,154 5,225
------------- --------------- -----------
Income before income taxes and
minority interest........................ 21,555,637 2,240,310 1,147
Income tax expense.............................. (6,779,177) (636,820) (326)
------------- --------------- -----------
Income before minority interest............ 14,776,460 1,603,490 821
Minority interest............................... (7,067,938) (3,453,021) (1,769)
------------- --------------- -----------
Net income................................. Ps 7,708,522 Ps (1,849,531) $ (948)
------------- --------------- -----------
Earnings per share (in single Pesos and
------------- --------------- -----------
single Dollars per share)...................... Ps 0.22 Ps - 0.05 $ - 0.0002
============= =============== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Three months Ended March 31, 1999 and 2000
(Thousands of Pesos of March 31, 2000, except shares)
<TABLE>
<CAPTION>
Common Shares Outstanding
------------------------
Number Amount Retained Surplus from Total
------ ------ Earnings Reappraisal Shareholders'
(Thousands) -------------- of Assets Equity
---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... 34,611,748 Ps 50,699,200 Ps 20,007,361 Ps 16,308,750 Ps 87,015,311
Net income......................... 7,708,522 7,708,522
Movement during the period......... (1,302,636) (1,302,636)
---------- ------------- -------------- --------------- ----------------
Balance at March 31, 1999.......... 34,611748 50,699,200 27,715,883 15,006,114 93,421,197
========== ============= ============== =============== ================
Balance at December 31, 1999....... 34,611,748 Ps 50,699,383 Ps 22,707,682 Ps 18,545,140 Ps 91,952,205
Net income......................... (1,849,531) (1,849,531)
Movement during the period......... (677,476) (677,476)
---------- ------------- -------------- --------------- ----------------
Balance at March 31, 2000.......... 34,611,748 Ps 50,699,383 Ps 20,858,151 Ps 17,867,664 Ps 89,425,198
========== ============= ============== =============== ================
</TABLE>
Retained earnings balances consist of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------------
1999 2000
-------------- -------------
<S> <C> <C>
Legal reserve........................................ Ps 686,230 Ps 1,142,932
Appropriated for future construction................. 918,202 5,028,507
Appropriated for future acquisitions................. 5,257,853 16,536,243
Unappropriated retained earning...................... 20,853,599 (1,849,531)
--------------- -------------
Ps 27,715,884 Ps 20,858,151
=============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 2000 2000
------------- -------------- --------
(Thousands of Pesos of March 31, 2000 (Thousands
of Dollars)
<S> <C> <C> <C>
Sources of working capital:
Net income............................................................. Ps 7,708,522 Ps (1,849,531) $ (948)
Items that do not utilize (provide) working capital:
Depreciation........................................................ 1,115,571 1,385,236 710
Amortization........................................................ 3,058,847 5,162,353 2,645
Deferred income taxes............................................... 3,426,087
Allowance for writedown of properties, plant and equipment.......... 240,063 124
Allowance for doubtful accounts..................................... 401,309
Accretion of interest on Senior Discount Notes...................... 1,250,784 1,730,861 887
Minority interest................................................... 7,067,938 3,453,021 1,769
Net inflation adjustment from non-current balance sheet accounts.... (7,353,669) (10,200,877) (5,227)
Deferred monetary correction, net................................... (3,192,916) (1,722,588) (883)
-------------- -------------- --------
Working capital provided by operations.................................. 13,482,473 (1,801,462) (923)
-------------- -------------- --------
Financial resources generated otherwise:
Senior Notes and Discount Notes..................................... 341,772 175
Accrued pension obligations......................................... (457,458) (253,455) (130)
Increase (decrease) in other debt................................... (2,261,852) 54,965 29
Capital lease obligations........................................... 3,446,423 12,016,424 6,157
Increase in other liabilities....................................... (1,991,594) 111,099 57
Investment by minority interest..................................... (2,182,708) (331,136) (170)
-------------- -------------- --------
(3,447,189) 11,939,669 6,118
-------------- -------------- --------
Total financial resources generated............................ 10,035,284 10,138,207 5,195
-------------- -------------- --------
Financial resources utilized:
Purchases of properties, plant and equipment........................ (28,385,509) (39,380,141) (20,179)
Increase in deferred costs.......................................... (1,915,063) (733) (0)
Decrease in long-term investments................................... 214,339 (5,912,433) (3,030)
Decrease in other assets............................................ 1,775,422 (1,802,796) (924)
Noncurrent accounts receivable...................................... (5,551,199) (320,826) (164)
-------------- -------------- --------
(33,862,010) (47,416,930) (24,297)
-------------- -------------- --------
Effect of revaluing to constant pesos.................................. 1,029,497 13,407,991 6,870
-------------- -------------- --------
Increase (decrease) in working capital......................... Ps (22,797,229) Ps (23,870,732) $(12,232)
============== ============== ========
Changes in working capital components:
Cash................................................................... Ps 9,275,331 227,197 116
Short-term and temporary investments................................... (24,524,665) (5,976,212) (3,062)
Accounts receivable.................................................... 18,206,813 8,038,825 4,119
Inventories............................................................ (411,022) (461,296) (236)
Prepaid expenses....................................................... (279,333) 42,172 21
Short-term debt........................................................ (10,797,328) (1,394,252) (714)
Current portion of other long-term debt................................ (60,130) 134,247 69
Current portion of capital lease obligations........................... (1,982,702) 1,331,804 682
Accounts payable....................................................... (7,590,728) (28,113,341) (14,406)
Tax liabilities........................................................ (5,974,347) 1,863,407 955
Labor liabilities...................................................... 482,977 775,077 397
Accrued pension obligations............................................ (63,723) (232,397) (119)
Other liabilities...................................................... 921,628 (105,963) (54)
-------------- -------------- --------
Increase (decrease) in working capital................................. Ps (22,797,229) Ps (23,870,732) $(12,232)
============== ============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 2000 2000
----------- ----------- --------
(Thousands of Pesos of March 31, 2000) (Thousands
of Dollars)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.............................................................. Ps 7,708,522 Ps (1,849,531) $ (948)
Adjustments to reconcile net income with net cash
Provided by operations:
Depreciation......................................................... 1,115,571 1,385,236 710
Amortization......................................................... 3,058,847 5,162,353 2,645
Deferred income taxes................................................ 3,426,087
Allowance for writedown of property, plant and equipment............. 240,063 123
Allowance for doubtful accounts...................................... 401,309
Accretion of interest on Senior Discount Notes....................... 1,250,784 1,730,861 887
Minority interest.................................................... 7,067,938 3,784,157 1,939
Net inflation adjustment from balance sheet accounts................. (7,353,669) (10,200,877) (5,227)
Deferred monetary correction, net.................................... (3,192,916) (1,722,588) (883)
Changes in operating assets and liabilities:
Accounts receivable.................................................. (9,011,669 (8,359,651) (4,284)
Inventories.......................................................... 411,022 461,296 236
Prepaid expenses..................................................... 279,333 (42,172) (22)
Deferred costs....................................................... (1,915,063) (733) (0.)
Other assets......................................................... 1,775,421 (1,802,796) (924)
Accounts payable..................................................... 7,590,728 28,113,341 14,406
Labor liabilities.................................................... (482,977) (775,077) (397)
Tax liabilities...................................................... 5,974,347 (1,863,407) (955)
Accrued pension obligations.......................................... (393,735) (21,059) (11)
Other liabilities.................................................... (2,913,222) 217,062 113
----------- ----------- --------
Net cash (used for) provided by operating activities................ 14,796,658 14,456,478 7,408
----------- ----------- --------
Cash flows from investing activities:
Purchases of properties, plant and equipment............................ (21,015,964) (26,300,056) (13,476)
Advances on properties, plant and equipment............................. (14,746,344) (535,740) (275)
Purchases of investments................................................ (2,382,727) (2,469,233) (1,265)
Proceeds from sale of temporary investments.............................. 2,405,454 1,232
Proceeds from maturity of short-term investments........................ 27,121,731
----------- -------------- --------
Net cash used by investing activities............................... (11,023,304) (26,899,575) (13,784)
----------- ----------- --------
Cash flows from financing activities:
Short term debt......................................................... 13,024,518 994,876 510
Repayments of other debt................................................ (4,428,912)
Dividends paid to minority interest..................................... (2,357,802)
Repayments of capital lease obligations................................. (1,565,287) (2,395,465) (1,227)
----------- ----------- --------
Net cash provided by financing activities........................... 4,672,517 (1,400,589) (718)
----------- ----------- --------
Effect of revaluing to constant pesos.................................... 1,029,497 14,070,883 7,210
----------- ----------- --------
Net (decrease) increase in cash......................................... 9,475,368 227,197 116
Cash at beginning of period............................................. 3,876,710 5,455,739 2,796
----------- ----------- --------
Cash at end of period................................................... Ps 13,352,078 Ps 5,682,936 $ 2,912
================ =============== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest............................................................... Ps 1,518,712 Ps 156,898 $ 80
=============== =============== ========
Income taxes........................................................... Ps 609,938 Ps 377,814 $ 194
============== =============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Pesos of March 31, 2000 purchasing power, unless otherwise
specified)
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The interim consolidated financial statements as of and for the three
months ended March 31, 1999 and 2000 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 three months ended March 31, 2000 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 March 31, 2000
purchasing power. U.S. Dollar amounts are translated from Peso amounts at the
Representative Market Rate on March 31, 2000, which was 1,951.56 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, 1999, 1998 and 1997 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 March 31, 2000, 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 99.8%
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 S.A........................ Cali 1/31/98 100
Cablevision S.A. ....................................... Cali 1/31/98 100
</TABLE>
20
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to the above subsidiaries, Transtel formed TeleCauca 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
Ps15,359,701 and Ps7,018,406 in cash, respectively. The Company acquired the
remaining 3% of both companies on December 15, 1998 for Ps827,973 in cash.
Cablevision owns and operates the 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 March 31, 1999 and 2000, respectively. Transtel's
weighted average number of shares used in the computation of earnings per share
was 34,611,747,976 in 1999 and 34,611,747,976 in 2000.
NOTE 4--DEBT
On October 28, 1997, the Company received the net proceeds from the sale of
$150 million (Ps292.7 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 $15.0 million (Ps29.3 billion) of
its 20.32% Senior Discount Notes due 2008 in a private placement. The net
proceeds of approximately $14.3 million (Ps27.9 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 (Ps169.6 billion) and
principal of $15.0 million (Ps29.3 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 June 14, 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.
21
<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 March 31, 1999 and 2000 consisted of the
following:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Payable to Siemens AG for Transtel Siemens Purchase
Agreement....................................................... Ps 3,544,103 Ps 3,877,020 (1)
Payable to Siemens AG for TeleGirardot Siemens Purchase
Agreement....................................................... 3,504,192 4,469,657 (2)
Payable to IBM....................................................... 1,176,138 698,658 (3)
Unearned interest income............................................. 8,855
Cable television fees paid advances.................................. 667,293
Accrued litigation loss.............................................. 2,386,164 2,200,000
Negative goodwill.................................................... 315,269 173,833
Other................................................................ 2,323,791 647,290
------------- -------------
Ps 13,925,805 Ps 12,066,458
============= =============
</TABLE>
(1) Excludes Ps 424,365 which is included in other current liabilities.
(2) Excludes Ps 1,607,461 which is included in other current liabilities.
(3) Excludes Ps 35,130 which is included in other current liabilities.
Girardot Telephone was sued by TeleTequendama E.S.P., a local telephone
operator competitor, for Ps2,200,000 (nominal Pesos) on June 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,
Ps2,200,000 (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 March 31, 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 month periods ended March 31, 1999 and 2000:
22
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Consolidated net income under Colombian GAAP Ps 7,708,522 Ps (1,849,531)
(i) Deferred income taxes............................ 1,457,327 518,090
(ii) Surplus from reappraisal of assets............... - -
(iii) Depreciation..................................... (2,802,423) (2,632,241)
(iv) Capitalized interest............................. 136,751 1,366,356
(v) Deferred costs................................... (1,720,087) 2,090,669
(vi) Capital leases................................... 32,175 (283,384)
(vii) Revenue recognition.............................. (8,361,638) (201,183)
(viii) Reversal of deferred monetary correction......... 3,172,495 2,402,657
(ix) Effect of the above differences on minority
interest......................................... 2,922,902 (95,905)
(x) Distribution to shareholder...................... - -
(xi) Depreciation of Cablevision assets............... (168,570) (153,944)
(xii) Inflation adjustment on inventories.............. 149,378 0
-------------- -------------
Consolidated net income (loss) under U.S. GAAP.................. Ps 2,526,832 Ps 1,161,584
============== =============
</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 March 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Consolidated shareholders' equity under Colombian GAAP........ Ps 93,421,197 Ps 89,425,198
(i) Deferred income taxes.......................... 11,217,993 18,167,758
(ii) Surplus from reappraisal of assets............. (15,006,114) (17,867,664)
(iii) Depreciation................................... (13,103,744) (23,641,233)
(iv) Capitalized interest........................... 3,490,371 8,034,160
(v) Deferred costs................................. (32,351,696) (22,071,997)
(vi) Capital leases................................. 1,822,681 1,379,985
(vii) Revenue recognition............................ (13,410,929) (33,443,824)
(viii) Reversal of deferred monetary correction....... 4,123,878 3,620,581
(ix) Effect of the above differences on minority
interest....................................... 8,651,403 14,221,846
(x) Distribution to shareholder.................... (441,960) (441,962)
(xi) Depreciation of Cablevision assets............. (336,649) (660,011)
(xii) Inflation adjustment on inventories............ 149,378 0
-------------- -------------
Consolidated shareholders' equity under U.S. GAAP Ps 48,225,809 Ps 36,722,837
============== =============
</TABLE>
(c) Analysis of changes in shareholders' equity:
The following summarizes the changes in shareholders' equity under U.S. GAAP
for the three month periods ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Balance at beginning of period...................................... Ps 45,698,978 Ps 35,560,853
Net (loss) income................................................... 2,526,831 1,161,984
-------------- ---------------
Balance at end of period............................................ Ps 48,225,809 Ps 36,722,837
============== ===============
</TABLE>
The Company has no items of other comprehensive income.
23
<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 2000, all organization costs are expensed as incurred for
U.S. GAAP and the balance of organization costs of Ps882,841 at December 31,
1998 was expensed as a change in accounting. For U.S. GAAP, the cumulative
effect of this change of Ps 882,841 is not presented as a separate cumulative
effect of an accounting change in the U.S. GAAP income statement for the three
months ended March 31, 2000 as the change is expected to be immaterial to the
results of operations for the full year 2000.
(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:
24
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 2000
------------- --------------
<S> <C> <C>
External telephony networks............................................. Ps 4,759,316 Ps 4,590,878
Computer equipment...................................................... 386,875 362,233
Transport fleet and equipment........................................... 2,424,928 1,987,725
Generator............................................................... 96,383 91,688
------------- --------------
Total................................................................ 7,667,502 7,032,524
Less--Accumulated depreciation.......................................... (2,708,643) (2,912,197)
------------- --------------
Ps 4,958,859 Ps 4,120,327
============= ==============
</TABLE>
The above amounts include cumulative net inflation adjustments of Ps 1,676,715
and Ps1,909,488 at March 31, 1999 and 2000, respectively.
<TABLE>
<S> <C> <C>
Total minimum lease payments........................................ Ps 5,144,150 Ps 3,284,191
Less-Imputed interest............................................... (2,263,536) (1,047,097)
-------------- ---------------
Present value of minimum lease payments............................. 2,880,614 2,237,094
Less--Current portion............................................... (675,336) (1,557,210)
-------------- ---------------
Long-term portion................................................... 2,205,278 679,884
============== ===============
Deferred income from sale lease back................................ Ps 255,564 Ps 231,253
============== ===============
</TABLE>
The additional total minimum lease payments as follows under U.S. GAAP:
<TABLE>
<CAPTION>
Payable in twelve months
------------------------
ended March 31,
--------------
<S> <C>
2000............................................................. Ps 1,557,210
2001............................................................. 1,648,435
2002............................................................. 78,546
--------------
Total minimum lease payments........................................ Ps 3,284,191
==============
</TABLE>
The following income statement effects are recorded under U.S. GAAP for the
above capital leases:
<TABLE>
<CAPTION>
1999 2000
-------------- --------------
<S> <C> <C>
Increase in interest expense........................................ Ps 173,213 Ps 442,997
Increase in depreciation expense.................................... 418,061 174,043
Amortization of gain from sale of
Properties, plant and equipment on leaseback...................... (3,813) (3,479)
Increase in inflation adjustment income on capital
lease obligations......................................... (307,785) 40,557
------------ ------------
Total............................................................ 279,676 654,118
------------ ------------
Rent expense
Decrease in rent expense recorded under Colombian
GAAP....................................................... (311,851) (370,734)
Decrease in rent recorded as deferred costs under
Colombian GAAP and reversed for U.S. GAAP Purposes......... ------------ ------------
Net decrease in expenses............................................ Ps (32,175) Ps 283,384
============ ============
</TABLE>
Under U.S. GAAP, there are no operating lease commitments at March 31, 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 March 31, 2000, the following additional
lease and tax obligations on a pro forma U.S. GAAP basis would have been
outstanding:
25
<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 175,077,158 Ps 948,751 Ps 26,125,534 Ps 202,151,443
Less--Imputed interest........... (50,671,748) (69,671) - (50,741,419)
--------------- ------------- -------------- ---------------
Present value of minimum lease
Payments....................... 124,405,410 879,080 26,125,534 151,410,024
Less--Current portion............ (31,056,105) (126,606) (3,511,782) (34,694,493)
--------------- ------------- -------------- ---------------
Long--term portion............... Ps 93,349,305 Ps 752,474 Ps 22,613,752 Ps 116,715,531
=============== ============= ============== ===============
</TABLE>
The additional total minimum lease or tax and duty payments would have been as
follows under U.S. GAAP:
<TABLE>
<CAPTION>
Payable in twelve months ending March 31,
------------------------------------------
<S> <C>
2001............................. Ps 22,408,181
2002............................. 21,702,146
2003............................. 23,120,992
2004............................. 19,768,715
Thereafter....................... 115,151,409
---------------
Ps 202,151,443
===============
</TABLE>
(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 building from a major shareholder at 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.
26
<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) 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 March 31, 2000 (none at March 31,
1999):
<TABLE>
<CAPTION>
<S> <C>
Land..................................................... Ps 220,654
Building................................................. 882,614
------------
1,103,268
Accumulated depreciation................................. (34,678)
------------
Net...................................................... Ps 1,068,590
============
</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
three months ended March 31, 2000 should be multiplied by the average inflation
factor of 1.0258 and "Net monetary inflation adjustment" income decreased by the
net effect.
(xiii) 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.
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 three month periods ended March
31, 1999 and 2000. 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 (0.14) single Pesos and 0.03 single Pesos for the three months ended March
31, 1999 and 2000, respectively.
27
<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: June 23, 2000 By: /s/ Guillermo O. Lopez
---------------------------
Name: Guillermo O. Lopez
Title: President
28
