<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 December , 1999.
---------------------------------
Transtel S.A.
- --------------------------------------------------------------------------------
(Translation of Registrant's Name Into English)
Calle 15 #33-289, Autopista, Cali-Yumbo Km.2, Cali-Valle, Colombia
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- ------
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
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(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
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 seven telephone
systems, with an aggregate population of 3.1 million people, located in the
southwestern region of Colombia. As of December 31, 1999, such systems provided
service to an aggregate of approximately 286,206 subscribers and had an average
penetration of 25.39 lines per 100 people. Additionally the Company had as of
December 31, 1999 12,059 internet subscribers and 28,985 pay television
subscribers.
Throughout 1999 the Company exceeded the goals of its original expansion plan
which was designed to address in part the significant demand and growth for
telephone lines in each of its markets (the "Expansion Plan"). As of December
31, 1999 the Company, in conjunction with Siemens A.G. ("Siemens"), had
completed the installation of approximately 205,900 new lines, or approximately
124.5% of the new lines to be installed pursuant to the Expansion Plan, and had
upgraded all of the existing 56,800 lines.
Additionally, in 1999 the Company consolidated the operations of two
acquisitions that it made in 1998, adding 53,454 clients with telephone service
in TeleGirardot (ETG) and 28,985 subscribers for pay television with
Cablevision.
In 1999 the Company began the second phase of the expansion of Unitel in the
city of Cali, taking advantage of important synergies derived from the
acquisition of Cablevision. A large part of the existing fiber optic network of
Cablevision contributed to a telephone project using the Siemens "Fast Link"
technology.
In 1999 the Company continued the installation of telephone special services
including call waiting, conference calling and voice mail service. By year-end
1999, 201,243 special services were connected to customer lines. In addition,
Uniweb, Transtel's full service ISP, was launched, achieving 12,059 subscribers
by December 31, 1999. These services are available for all Transtel companies
and are specifically targeted to increase customer usage revenues.
By the end of 1999, the Company had taken another step toward convergence of
the technologies, products and services for telephone, internet and cable
television (in Cali) with the integration of the sales forces and the customer
service centers for these business units. The value of using the synergies of
three product lines to cross sell and create
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packaged services, stimulated sales while the integration of forces realized the
economies of having unified sales and customer service groups.
In the second quarter of 2000, the company will launch "fast Internet"
service using cable modems linked to the fiber optic network of Unitel and
Cablevision in the city of Cali. Marketing studies and a pilot program have
been completed and the company is positioned to be the first provider of high-
speed Internet in our serving area.
With the universal tendency of Internet providers to lead their market
strategy with "free" Internet service, all areas of the market will soon
understand the value of speed of transmission. This is why this company
considers that in 2000 a key factor in our marketing strategy is to be the
principle provider of services of high speed Internet.
Factors That Will Affect Future Results of Operations--Principal Sources of
Revenue and Expenses
The Company has formulated a business plan based on, among other assumptions,
the following ideas regarding penetration, call volume, usage patterns, capital
expenditures and churn, all of which could significantly affect its future
results of operations.
Penetration. In 1998, Colombia had an average penetration of approximately
15.5 lines per 100 people. At the time the Company initiated the development and
operation of telephone service in the municipality of Palmira, the municipality
had a penetration of approximately 4.9 lines per 100 people. The Company has
increased Palmira's subscriber base by 341% from 15,600 to 68,803 as of December
31, 1999, representing a penetration of approximately 21.6 lines per 100 people.
As of December 31, 1999, the Company's systems provided service to an aggregate
of 286,206 subscribers and had an average penetration of 25.3 lines per 100
people.
Call Volume/Usage. Charges for local and domestic long-distance service vary
with the price per minute and the number of minutes consumed on a monthly basis.
The charge per minute depends on the time of day, the day of the week and the
duration of calls. Telephone usage also depends on the number of lines in
service, the volume of minutes, the number of new lines to be installed and the
applicable tariffs. Telephone usage differs for residential, commercial and
rural subscribers.
According to the Superintendence of Public Services the telephone usage in
Colombia in terms of minutes was 133.9 billion minutes in 1999. Total usage for
1999 included 128.0 billion minutes of local calls, 5.3 billion minutes of
national long distance and 583 million minutes of international long distance.
The average annual consumption per subscriber in 1999 (including both
residential and business subscribers) was as follows: (i) 25,968 minutes (2,164
minutes per month) of local calls; (ii) 1,080 minutes (90 minutes per month) of
domestic long distance calls; and (iii) 168 minutes (14 minutes per month) of
international long distance calls. The Company believes that future usage in its
markets will exceed historical parameters as subscribers adjust to increased
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penetration, more reliable service and a broader range of product offerings such
as internet access and other value added services. Additionally, the projected
higher call completion rates will contribute to this goal.
Revenues. The Company's revenues are comprised of: (i) basic fixed charges;
(ii) local usage charges; (iii) access charges of national and international
long distance calls; (iv) the sale of equipment to subscribers; (v) charges for
value-added services; and (vi) connection fees. The Company bills for its
services as they are provided except for connection fees as discussed below.
Telephone rates in Colombia, excluding connection fees, are subject to
inflationary adjustments on a monthly basis in accordance with regulations from
the CRT. For 1999 and 1998, the Colombian Consumer Price Index increased 9.23%
and 16.7%, respectively, while basic telephone rates in constant pesos increased
approximately 34.7% and 23.4% and local usage rates increased approximately
28.7% and 40.0%, respectively. The Company collects its service fees from its
customers every month. The local operator bills and collects a fixed monthly
fee, local usage, long distance and cellular revenues from each customer. The
Company retains the interconnection revenues associated with any long distance
and cellular incoming or outgoing calls. The CRT sets tariffs for all operators
either in accordance with their historical costs or levels established by such
operator's competition. This law has greatly benefited the Company by allowing
management to set its tariffs in accordance with its competitors' higher
historical operating costs, rather than the Company's much lower cost of
operations. The CRT also permits operators to increase tariffs as often as
monthly in order to capture the effects of local inflation. The rebalancing of
local tariffs permitted by the CRT and implemented by the Company at the end of
1998 and the new increase in tariffs in 1999, based on inflationary rates, will
contribute to substantial future increases of average revenue per unit.
Tariffs. Tariffs and usage patterns differ significantly for the three major
categories of subscribers in Colombia: (i) residential, (ii)
commercial/industrial; and (iii) rural subscribers. In addition, Colombia
imposes a progressive tariff structure whereby higher income customers are
charged a higher tariff to subsidize lower income subscribers. Tariffs are based
on the economic stratum for which the subscriber qualifies. Rural customers are
usually charged the highest tariffs as an incentive to the telephone providers
to service such customers.
The following table sets tariff information as of December 31, 1999 for
residential and commercial customers of the Company.
<TABLE>
<CAPTION>
Service. Residential Tariff Commercial Tariff
- -------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Connection Fees............... Ps272,908 ($146) Ps369,998 ($197)
Basic Charges................. 7,001 ($3.74)/month 9,594 ($5.12)/month
Local Usage Charges........... 10.88 ($.006)/minute 14.44 ($.007)/minute
Long Distance Charges......... 45.75 ($.02)/minute 45.75 ($.02)/minute
</TABLE>
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Connection Fees. Tariffs with respect to installation or connection as of
December 31, 1999 ranged in each of the Operating Companies from Ps128,152-
Ps486,396 ($97-$260) for residential subscribers and Ps347,904-Ps486,396 ($186-
$260) for commercial subscribers. As of December 31, 1999 the top 25 telephone
operators in Colombia had an average residential connection fee of Ps276,347
($147) and a commercial connection fee of Ps359,153 ($192). The Company sets its
connection tariffs in each municipality based either on its predecessor's prices
or those of its competitor's.
Under Colombian GAAP, the Company recognizes income from connection fees when
full payment is received from the customer, or when the customer signs the
promissory note and makes the initial payment on the connection fee, and is
assigned a telephone number. These events may occur prior to the time that the
customer is connected to the network and becomes a subscriber. As of December
31, 1999, the Company has cumulatively recorded Ps 18.087 billion ($9.6 million)
connection fees income from 45,219 customers that did not yet have a dial tone
at that date. Connection fees are refundable only if the customer cancels its
service within six months of installation. Connection fee refunds have been
nominal.
Receivables from subscribers at December 31, 1997, 1998 and 1999 include
Ps7.988 billion, Ps40.157 billion and Ps56.006 billion, respectively, for
connection fees represented by promissory notes payable over up to 36 months at
37.2% annual interest. During 1999, the Company sold with no recourse promissory
notes from subscribers totaling Ps20.744 billion, at book value. The Company
continues to collect principal and interest from these subscribers and remits
such amounts to the financial institution although the Company is unable to
estimate the fair value of the servicing, it believes its cost of servicing
these accounts is nominal. The Company believes that a majority of all
receivables sold were related to subscribers which already had a dial tone;
although a dial tone prior to its purchase was not a requirement of the
financial institution.
Basic Charges. The Company's basic charges vary by municipality and are
negotiated based either on the predecessor telephone operator's or the existing
competitor's charges. For the year ended December 31, 1999, the Company's
average monthly basic fee for residential customers was Ps7,001 ($3.74) and for
commercial customers was Ps9,594 ($5.12) as compared to the national average for
the top 25 operators in Colombia which was Ps5,241 ($2.80) for residential
customers an for commercial customers Ps7,006 ($3.74). The following chart
illustrates the Company's residential and commercial basic monthly charges as of
December 31, 1999 for the Company's Operating Companies.
<TABLE>
<CAPTION>
TelePalmira TeleCartago Caucatel Bugatel Unitel TeleJamundi TeleGirardot
- -------------------- ---------------- --------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ps6,434 ($3.43) Ps11,898 ($6.35) Ps9,267 ($4.95) Ps10,012 ($5.34) Ps9,203 ($4.91) Ps9,203 ($4.91) Ps5,828 ($3.11)
</TABLE>
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Local Usage Charges. The Company collects a monthly local usage charge from
its customers. Local usage is based on the number of minutes generated by each
subscriber, valued at the price per minute existing at the time of billing. In
1999, the Company generated approximately 2,081 minutes per month per average
residential and commercial subscriber and had a monthly usage charge of Ps12.66
($.006) per minute.
Long Distance Charges. The Company collects long distance charges based on
the number and duration of calls. The Company retains the portion of such
revenues associated with access and remits the balance to the applicable long
distance service provider. Long distance access tariffs are set by the CRT and
are identical for all operators throughout Colombia. In 1999, the Company
generated approximately 130 minutes per month per average residential and
commercial subscriber and had a monthly average usage charge of Ps45 ($.024) per
minute. The use of the Company's local telephony network to provide a pathway
for incoming or outgoing calls by long distance operators generates an access
and usage charge per minute or fraction of completed call, which was set at Ps33
per minute or fraction of a minute as of March 1, 1997. This charge was
increased according to the Tariff Update Index so that the access charge
beginning December 1, 1997 was Ps36 per minute. Additionally, the long distance
operator pays the local operator a charge of Ps582.50 per month for each
customer's bill which includes long distance charges. This billing charge
relates to the billing and collecting activities for such month, as well as
customer relations carried out by the local operator on behalf of the long
distance operator. The new competitors in the long distance market which began
operating in 1999 will contribute to significantly increased demand for long
distance service as competition forces service providers to offer lower rates,
thereby generating higher revenues for the local telephone operators from
periodic increases in access tariffs and increasing usage.
Other Revenues. Other revenues consist of, among other things, the sale of
telephone equipment to subscribers, yellow pages and public telephones. In
addition, value-added services such as videoconference calling and internet
access are expected to generate a significant portion of the Company's revenues
in the future. The Company intends to offer competitive tariffs for the usage of
such value-added services. In addition, the Company expects to complement its
value-added services by increasing the number of lines of its existing
subscriber base that may need to have a separate line for a fax machine or the
Internet instead of sharing it with the main telephone line. The Company is
presently installing a fiber optic loop in Cali to serve the business community
which will enable it to provide them with systems for data transmission, video-
conference and other value added services.
Operating Costs. The Company anticipates that it will incur operating costs
from the following primary activities: (i) operations, (ii) general
administrative expenses and (iii) sales and marketing. In each such category,
the Company's primary cost of operation will consist of personnel. Substantially
all of the expenses incurred by the Company during its development period were
deferred as preoperating costs and consisted primarily of expenses associated
with due diligence, research and execution of the Company's acquisition strategy
and formation of the Company's corporate infrastructure.
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Such cumulative deferred costs (before accumulated amortization) were Ps8.4
billion, Ps10.2 billion and Ps12.9 billion at December 31, 1997, 1998 and 1999,
respectively.
Operating Expenses. Operating expenses consist of costs associated with
repairs and maintenance, network implementation and technology expenses, and
other operation costs. Initially, the cost of operation for the Company was
limited to those associated with the turn-key contracts that the Company has
with Siemens, which also contain a warranty component to cover repairs and
damage. The Company expects that its operating expenses will increase but at a
lower rate than its growth in subscribers due to the downsizing of the
operations and cost reduction due to modernization and becoming more efficient.
Beyond the installation and warranty period, operating expenses consist
predominantly of general maintenance and upkeep. For the year ended December 31,
1999, the Company incurred minimal maintenance expense per line due to the fact
that its networks are new and digital systems.
Administrative Expenses. Administrative expenses include information
technology expenses, finance and billing, management and miscellaneous costs.
Administrative expenses were expected to increase as the Expansion Plan was
executed due to the additional personnel the Company hired to oversee, supervise
and audit Siemens' construction of the networks for Palmira, Jamundi and Yumbo.
In the years ended December 31, 1997 and 1998, these additional workers caused
incremental administration costs of approximately Ps479 million and Ps647
million, respectively. These workers were temporary and the costs associated
with their employment decreased following completion of the networks. Downsizing
in Company systems, billing and accounting groups decreased administrative
expenses.
Sales and Marketing Expenses. Sales and marketing departmental expenses
relate to those expenses generated to advertise, promote, sell and launch the
Company's products and services and include cost to do studies and participate
in key events.
Sales expenses are expected to remain constant as the Company continues to
focus on building the subscriber and usage levels. Marketing expenses will be
used to: (i) trial and launch additional products like internet on cable, caller
identification, audiotexting; (ii) promote growth and usage of existing products
and services, and (iii) implement plans for revenue retention programs.
Nonoperating Income (Expenses), Net. Nonoperating income (expenses), consist
primarily of interest income, interest expense and net exchange losses. The
Indentures for Transtel's 12 1/2% Senior Notes due 2007 (the "Senior Notes") and
Transtel's 20.32% Senior Discount Notes due 2008 (the "Discount Notes") impose
certain restrictions on the Company's ability to incur additional indebtedness.
Interest expense on the Senior Notes and Discount Notes is $18.75 million
(Ps35.133 billion) annually excluding additional interest expenses on the
Discount Notes of approximately $3.0 million (Ps5.621 billion) annually. Since
a significant portion of the Company's indebtedness, including the Senior Notes,
the Discount Notes and a portion of the Vendor Financing, is denominated in
Dollars, net exchange losses will be incurred if the exchange rate of pesos to
the Dollar
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continues its recent devaluation. The Company's macroeconomic assumptions for
2000 regarding the peso/dollar exchange are that the peso will devalue less than
12% relative to the dollar.
Capital Expenditures. The Expansion Plan of the Company demanded
approximately $178.0 million (Ps333,531 billion). The Company has contracted
Siemens, pursuant to fixed price equipment and turn-key installation contracts,
for the execution of a significant portion of the Expansion Plan. Siemens has
been continuing in its contracted efforts to complete the construction and
installation of the Company's new, modern networks and substantially completed
the Expansion Plan as of December 31, 1999. Upon completion of the Expansion
Plan, the Company owns and operates fully digital internal plant facilities and
fiber optic primary networks in each of the regions which it serves.
Churn. Churn consists of both residential and business customers that change
premises, disconnect telephone service once established, switch to other service
providers, if and where available, or terminate the Company's services. In the
years ended December 31, 1995, 1996, 1997, 1998 and 1999, the Company as a whole
experienced an annual average churn rate of less than 0.00%, 0.09%, 0.04%,
0.44%, and 0.77% respectively. Palmira was the only operating telephone system
in 1995 and 1996. Likewise, Palmira was the primary contributor to the 1997 and
1998 churn. Management attributes the low churn rate to (i) the significant
unmet demand and the lack of quality telephone service providers that has
resulted in multi-year waiting lists, (ii) the significant investment
contributed by the customers, in the form of a connection fee, to initiate
service and (iii) the Company's ability to provide high quality telephone
services with an emphasis on customer service. Management believes that these
fundamentals exist in the markets in which it operates and expects the churn
rate to remain relatively low. The Company, as a whole, experienced an average
churn rate of 0.77% in the year ended December 31, 1999. While it takes a few
years to develop a historical pattern of churn, the Company expects its churn
rate to be approximately 0.90% for the year ending December 31, 2000.
Analysis of Historical Churn Rate
(since date of Company ownership)
TELEPALMIRA
<TABLE>
<CAPTION>
Average Churn Churn
----------- ------------ -----
Year Subscribers Subscribers Rate
- ------------------------------------------- ----------- ------------ -----
<S> <C> <C> <C>
1995......................................... 20,126 0 0.00%
1996......................................... 25,888 23 0.09%
1997......................................... 39,209 20 0.05%
1998......................................... 56,998 246 0.43%
1999......................................... 66,256 469 0.71%
</TABLE>
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TELECARTAGO
<TABLE>
<CAPTION>
Average Churn Churn
----------- ----------- -----
Year Subscribers Subscribers Rate
- ------------------------------------------------- ----------- ----------- -----
<S> <C> <C> <C>
1995............................................. -- -- --
1996............................................. -- -- --
1997............................................. 15,506 6 0.04%
1998............................................. 22,932 159 0.69%
1999............................................. 30,264 257 0.85%
CAUCATEL
<CAPTION>
Average Churn Churn
----------- ------------ ------
Year Subscribers Subscribers Rate
- --------------------------------------------------- ----------- ------------ ------
<S> <C> <C> <C>
1995............................................... -- -- --
1996............................................... -- -- --
1997............................................... 12,231 0 0.00%
1998............................................... 18,834 0 0.00%
1999............................................... 23,211 164 0.71%
TELEJAMUNDI
<CAPTION>
Average Churn Churn
----------- ----------- -----
Year Subscribers Subscribers Rate
- --------------------------------------------------- ----------- ----------- -----
<S> <C> <C> <C>
1995................................................ -- -- --
1996................................................ -- -- --
1997................................................ 2,729 0 0.00%
1998................................................ 6,952 20 0.29%
1999................................................ 11,866 101 0.85%
</TABLE>
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<TABLE>
<CAPTION>
UNITEL
Average Churn Churn
----------- ----------- -----
Year Subscribers Subscribers Rate
- --------------------------------------------------- ----------- ----------- -----
<S> <C> <C> <C>
1995................................................ -- -- --
1996................................................ -- -- --
1997................................................ 2,922 4 0.14%
1998................................................ 21,475 160 0.75%
1999................................................ 56,309 498 0.88%
</TABLE>
BUGATEL
<TABLE>
<CAPTION>
Average Churn Churn
----------- ------------ -----
Year Subscribers Subscribers Rate
- --------------------------------------------------- ----------- ------------ -----
<S> <C> <C> <C>
1995.............................................. -- -- --
1996.............................................. -- -- --
1997.............................................. 10,983 0 0.00%
1998.............................................. 14,182 109 0.77%
1999.............................................. 23,256 201 0.86%
</TABLE>
TELEGIRARDOT
<TABLE>
<CAPTION>
Average Churn Churn
----------- ----------- -----
Year Subscribers Subscribers Rate
- ---------------------------------------------------- ----------- ----------- -----
<S> <C> <C> <C>
1995............................................... -- -- --
1996............................................... -- -- --
1997............................................... -- -- --
1998............................................... 32,721 68 0.21%
1999............................................... 50,659 324 0.64%
</TABLE>
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CONSOLIDATED
<TABLE>
<CAPTION>
Average Churn Churn
----------- ------------ -----
Year Subscribers Subscribers Rate
- --------------------------------------------------- ----------- ------------ -----
<S> <C> <C> <C>
1995.............................................. 20,126 0 0.00%
1996.............................................. 25,888 23 0.09%
1997.............................................. 83,580 30 0.04%
1998.............................................. 174,094 762 0.44%
1999.............................................. 261,822 2,014 0.77%
</TABLE>
Annual 1997, 1998 and 1999
The following is a discussion of the consolidated financial condition as of
December 31, 1998 and 1999 and the results of operations of the Company for the
years ended December 31, 1997, 1998 and 1999. The discussion should be read in
conjunction with the Consolidated Annual Financial Statements of the Company and
the notes thereto included elsewhere herein. The Consolidated Annual Financial
Statements have been prepared in accordance with Colombian GAAP, which differs
in certain significant respects from U.S. GAAP. Note 31 to the Company's
Consolidated Annual Financial Statements provides a reconciliation to U.S. GAAP
of the Company's net income (loss) and shareholders' equity (deficit) as of and
for the years ended December 31, 1997, 1998 and 1999. Unless otherwise
indicated, the financial information has been presented in constant Pesos as of
December 31, 1999. Dollar amounts are translated from Pesos amounts at the
Representative Market Rate on December 31, 1999, which was 1,873.77 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.
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Results of Operations
The composition of the Company's revenues for each of the years discussed
herein is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------------------------------
1997 % 1998 % 1999 %
--------------- ---------- ---------------- ----------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands of constant Pesos of December 31, 1999
purchasing power, except percents data)
Connection fees.......... Ps 14,593,923 43.3% Ps 41,300,761 44.0% Ps 35,306,635 27.1%
Local usage charges...... 4,444,674 13.2 13,262,951 14.1 41,513,674 31.9
Basic charges............ 3,086,598 9.2 9,002,640 9.6 19,661,706 15.1
Long-distance charges.... 9,236,193 27.4 20,236,339 21.6 17,811,554 13.7
Other income............. 2,328,009 6.9 3,709,942 4.0 5,484,832 4.2
---------- ----- ---------- ----- ----------- -----
Total Telephone........ 33,689,397 100.0 87,512,633 93.2 119,778,401 92.0
Pay television services. 6,373,830 6.8 10,538,779 8.0
--------------- --------- -------------- ----- ----------- -----
Total Revenues......... Ps 33,689,397 100.0% Ps 93,886,463 100.0% Ps 130,317,180 100.0%
===== ===== =====
</TABLE>
The following table expresses certain financial data from the Company's
statement of income as a percentage of total revenues:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1997 1998 1999
----------- ---------- ------------
<S> <C> <C> <C>
Revenues................................................ 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Operating costs...................................... 25.0 20.9 15.0
Administrative expenses.............................. 32.8 23.7 35.2
Marketing expenses................................... 5.9 6.4 6.9
----- ----- -----
Total............................................. 63.7 51.0 57.1
----- ----- -----
Operating income........................................ 36.3 49.2 42.9
Nonoperating expenses................................... (25.6) (37.5) (41.1)
Net monetary inflation adjustment income................ 13.3 19.7 13.2
----- ----- -----
Income before income taxes and minority interest........ 24.0 31.2 15.0
Income tax expense...................................... (4.4) (6.1) (5.6)
----- ----- -----
Income before minority interest......................... 19.6 25.1 9.4
Minority interest....................................... (15.5) (11.7) (7.4)
----- ----- -----
Net income.............................................. 4.1% 13.4% 2.0%
===== ===== =====
EBITDA.................................................. 45.0% 68.7% 71.2%
===== ===== =====
</TABLE>
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The following is a discussion of the consolidated results of operations of the
Company for the year ended December 31, 1999, the year ended December 31, 1998
and the year ended December 31, 1997.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenues. The total revenues for the year ended December 31, 1999 ("Annual
1999") increased by Ps36,431 billion ($19.4 million), or 38.8%, to Ps130,317
billion ($69.5 million) from Ps93.886 billion ($50.1 million) in the year ended
December 31, 1998 ("Annual 1998"). The increase in revenues for Annual 1999
was mainly attributable to the increase in connection fee revenue associated
with the Company's continued growth of its subscriber base. The number of
subscribers increased from 235,311 at December 31, 1998 to 286,206 at December
31, 1999, excluding Cablevision. The number of new subscribers increased
primarily as a result of organic growth at the Operating Companies.
Connection fee revenue in Annual 1999 decreased by Ps5.994 billion ($3.2
million) from Ps41.301 billion ($22.0 million) in Annual 1998 to Ps35.307
billion ($18.8 million), as a result of a decreased in the tariffs of connection
fees during 1999. Pay television services increased by Ps4.165 million ($2.2
million) from Ps10,539 billion ($5.6 million) in annual 1999 compared to Ps6.374
($3.4 million) in 1998. Other operating revenues, including basic monthly
charges, local usage charges, long-distance charges and other fees for Annual
1999 increased by Ps38.260 billion ($20.4 million) from Ps46.212 billion ($24.6
million) in Annual 1998 to Ps84.472 billion ($45.1 million) in Annual 1999. The
increase in other operating revenues for Annual 1999 is attributed to the
increase in the number of subscribers and also in the higher usage associated
with that increase.
Costs and Expenses. Costs and expenses for Annual 1999 increased by Ps26.565
billion ($14.1 million), or 55%, to Ps74.463 billion ($39.7 million) from
Ps47.898 billion ($25.5 million) in Annual 1998. The increase is primarily
attributable to the increase in the operating costs and the administrative and
marketing expenses due to the increase in the number of subscribers and the
maintenance and expansion of the telephony infrastructure in the cities of
Palmira, Cartago, Yumbo, Jamundi, Buga, Popayan and Girardot. The total
operating costs and expenses related to the pay television services of
Cablevision were Ps8.450 billion ($4.5 million) in Annual 1999.
Operating costs for Annual 1999 decreased by Ps0.051billion ($0.02 million)
from Ps19.644 billion ($10.4 million) in Annual 1998 to Ps19.593 billion ($10.4
million), as a result of decreased the following accounts: amortization by
$0.674 billion ($0.3 million), cost of sales of telephones by Ps0.571 billion
($0.3 million) and benefits and other labor expenses by Ps0.301 billion ($0.16
million) and the following accounts increased: depreciation by Ps1.609 billion
($0.8 million), and decreased other operating costs by Ps0.114 billion ($0.06
million).
13
<PAGE>
Administrative expenses for Annual 1999 increased by Ps23.666 billion ($12.6
million) to Ps45.937 billion ($24.5 million) from Ps22.271 billion ($11.8
million) in Annual 1998. The increase was mainly attributable to the increases
in amortization by Ps5.506 billion ($2.9 million), provision for doubtful
accounts Ps8.458 billion ($4.5 million), Provision for write down of properties,
plant and equipment Ps7.226 billion ($3.8 million) salaries, benefits and other
labor payments of Ps0.551 billion ($0.2 million), fees, studies and
investigations Ps0.850 billion ($0.4 million) and other administrative expenses
by Ps1.075 billion ($0.5 million).
Marketing expenses for Annual 1999 increased by Ps2.950 billion ($1.5 million)
to Ps8.933 billion ($4.8million) from Ps5.983 billion ($3.2 million) in Annual
1998. The increase in marketing expenses was primarily attributable to the
higher commissions and benefits paid to the sales agents of Ps2.309 billion
($1.2 million) due to the increase in the lines sold. Additionally,
amortization increased by Ps0.189 billion ($0.1 million) because market research
and publicity costs of the new companies, which were recorded as deferred costs
in prior years, are now being amortized, depreciation increased by Ps0.149
billion ($0.07 million) and other marketing expenses by Ps0.303 ($0.2 million).
Operating Income. Operating income for Annual 1999 increased by Ps9.867
billion ($5.2 million) from Ps45.988 billion ($24.5 million) in Annual 1998 to
Ps55.855 billion ($29.8 million). The increase was mainly attributable to the
increase in revenues as a result of the larger number of subsidiaries in
operation and of subscribers, net of the increase in costs and expenses
described above. Cablevision incurred an operating loss of Ps0.027 billion
($0.001 million) in Annual 1999.
EBITDA. EBITDA is calculated in accordance with the Indenture for the Senior
Notes. EBITDA increased by Ps29.663 billion ($15.8 million) from Ps63.122
billion ($33.7 million) in Annual 1998 to Ps92.785 billion ($49.5 million) in
Annual 1999 as a result of the above factors.
Nonoperating Income (Expenses). Nonoperating income (expenses), net for
Annual 1998 and Annual 1999 consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1998 1999
---------------------------- -------------------------
<S> <C> <C>
(in thousands of constant Pesos of
December 31, 1999 purchasing power)
Financial Income:
Interest income....................................... Ps 18,905,216 Ps 12,792,607
Exchange gains........................................ 38,880,041 86,401,318
Other financial income................................ 484,497 760,081
----------- ------------
58,269,754 99,954,006
----------- ------------
Financial Expenses:
Interest expense....................................... (33,554,264) (33,802,100)
Bank commissions....................................... (1,144,030) (327,165)
Exchange losses........................................ (59,106,244) (116,762,212)
Bank expenses.......................................... (95,223) (68,039)
Other financial expenses............................... (723,750) (910,659)
----------- ------------
(94,623,511) (151,870,175)
----------- ------------
Other:
Donations.............................................. (353,723) (88,896)
Sales of scrap and extra parts......................... 111,584 176,993
Other, net............................................. 1,410,394 (1,719,809)
----------- ------------
1,168,255 ( 1,631,712)
----------- ------------
Ps (35,185,502) Ps (53,547,881)
=========================== =========================
</TABLE>
14
<PAGE>
Net nonoperating expenses increased from Ps35.186 billion ($18.7 million) for
Annual 1998 to Ps53.548 billion ($28.6 million) in Annual 1999. The increase was
mainly due to the higher interest expense on increased average borrowings of the
Company for 1999, including interest associated with the Senior Notes, net of an
increase in interest income, and an increase in net exchange losses and other
expenses. Interest expense increased from Ps33.554 billion ($17.9 million) in
Annual 1998 to Ps33.802 billion ($18.0 million) in Annual 1999. Net exchange
losses increased due to the U.S. dollar-denominated borrowings, consisting
primarily of the Senior Notes and the Discount Notes at December 31, 1999. Other
nonoperating Expense for Annual 1999 were Ps1.632 billion ($0.9 million)
compared to other nonoperating income of Ps1.168 billion ($0.6 million) in
Annual 1998.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income for Annual 1999 decreased by Ps1.271 billion ($0.7 million) to Ps17.213
billion ($9.2 million) from Ps18.484 billion ($9.8 million) in Annual 1998 as a
result of the impact of inflationary adjustments on the higher balance of
nonmonetary assets as well as on the income, expense and shareholders' equity
accounts.
Income Tax Expense. Income tax expense for Annual 1999 increased by Ps1.610
billion ($0.8 million) to Ps7.294 billion ($3.9 million) from Ps5.684 billion
($3.0 million) in Annual 1998 primarily because of the substantial increase in
taxable income in Annual 1999 compared to Annual 1998.
Minority Interest. Minority interest for Annual 1999 decreased by Ps1.338
billion ($0.7 million) to Ps9.630 billion ($5.1 million) from Ps10.968 billion
($5.8 million) for Annual 1998 because of the decreased net income of the
operating subsidiaries.
Net Income. Net income decreased by Ps10.040 billion ($5.3 million) from
Ps12.635 billion ($6.7 million) for Annual 1998 to Ps2.595 billion ($1.3
million) for Annual 1999 as a result of the factors discussed above.
15
<PAGE>
Year ended December 31, 1998 compared to the year ended December 31, 1997
The Annual 1998 financial statements reflect the Company's first complete year
of operation of Cablevision, and are therefore not directly comparable to the
1997 financial statements, which not included the operations of Cablevision.
Revenues. The total revenues for the year ended December 31, 1998 ("Annual
1998") increased by Ps60.197 billion ($32.1 million) or 178% to Ps93.886 billion
($50.1 million) from Ps33.689 billion ($17.9 million) for the year ended
December 31, 1997 ("Annual 1997"). The increase in revenue for Annual 1998 was
mainly attributable to the increase in connection fees associated with the
Company's continued growth of its subscriber base. The number of subscribers
increased from 125,003 at December 31, 1997 to 235,311 at December 31, 1998,
excluding Cablevision. The number of new subscribers increased primarily as a
result of (i) organic growth at the Operating Companies and (ii) the acquisition
of TeleGirardot which was consummated on December 31, 1997.
Connection fee revenue in Annual 1998 increased by Ps26.707 billion ($14.2
million) from Ps14.594 billion ($7.8 million) in Annual 1997 to Ps41.301 billion
($22.0 million) as a result of adding 110,308 subscribers during 1998. Pay
television services were Ps6.374 billion ($3.4million) in Annual 1998 compared
to nil in Annual 1997, because of the acquisition of Cablevision during 1998.
Other operating revenues, including basic monthly charges, local usage charges
long-distance charges and other fees for Annual 1997 increased by Ps27.117
billion ($14.5 million) from Ps19.095 billion ($10.2 million) in Annual 1997 to
Ps 46.212 billion ($24.6 million) in Annual 1998. The increase in other revenues
for Annual 1998 is attributed to the increase in the number of subscribers and
also the higher usage associated with that increase.
Costs and Expenses. Cost and expenses for Annual 1998 increased by Ps26.426
billion ($14.1 million), or 123%, to Ps47.898 billion ($25.5 million) from
Ps21.472 billion ($11.4 million) for Annual 1997. The increase is primarily
attributable to the increase in operating costs and the administrative and
marketing expenses due the increase in the number of subscribers and the
maintenance and expansion of the telephony infrastructure in the cities of
Palmira, Cartago, Yumbo, Jamundi, Buga, Popayan and Girardot. The total
operating cost and expenses related to the pay television services of
Cablevision were Ps7.865 billion (Ps4.1 million) in Annual 1998.
Operating costs for Annual 1998 increased by Ps11.226 billion ($5.9 million)
from Ps8.418 billion ($4.5 million) in Annual 1997 to Ps19.644 billion ($10.4
million), mainly as a result of increases in salary costs, benefits and other
labor expenses of Ps2.744 billion ($1.5 million), depreciation of Ps1.742
billion ($0.9 million); and services, maintenance and repairs of Ps0.398 billion
($0.2 million) due to the increased number of
16
<PAGE>
municipalities served and the acquisition of Cablevision during 1998. Cost of
sales of telephones increased by Ps0.470 billion ($0.2 million) due to the
increased number of subscribers. Amortization expense also increased by Ps0.812
billion ($0.4 million) to Ps1.708 billion ($0.9 million) in Annual 1998 from
Ps0.897 billion ($0.4 million) in Annual 1997 because during 1998 amortization
of deferred costs at all subsidiaries started. Other operating costs increased
substantially by Ps5.059 billion ($2.6 million) in Annual 1998 compared to
Annual 1997 mainly because of additional security and various others costs due
to the continuing expansion and growth of the Company. The acquisition of
Cablevision accounted for Ps5.448 billion ($2.9 million) of the total increase
in operating costs.
Administrative expenses for Annual 1998 increased by Ps11.205 billion ($5.9
million) to Ps22.271 billion ($11.9 million) from Ps11.066 billion ($5.9
million) in Annual 1997. The increase was mainly attributable to the increases
in salaries, benefits and other labor payments of Ps4.154 billion ($2.2
million); provision for doubtful accounts of Ps0.762 billion ($0.4 million);
provision for properties, plant and equipment of Ps0.976 billion ($0.4 million);
and amortization of Ps4.784 billion ($2.5 million) due to the increased number
of municipalities and subscribers served and the acquisition of Cablevision
during 1998. The acquisition of Cablevision accounted for Ps1.840 billion ($0.9
million) of the total increase in administrative expenses.
Marketing expenses for Annual 1998 increased by Ps3.995 billion ($2.1 million)
to Ps5.983 billion ($3.2 million) from Ps1.988 billion ($1.0 million) in Annual
1997. The increase in marketing expenses was primarily attributable to the
higher commissions and benefits paid to the sales agents of Ps1.881 billion
($1.0 million) due to the increase in the lines sold and the acquisition of
Cablevision during 1998. Additionally, publicity increased by Ps1.069 billion
($0.5 million) and amortization increased by Ps0.442 billion ($0.2 million)
because market research and publicity cost of the new companies, which were
recorded as deferred costs in prior years, are now being amortized. The
acquisition of Cablevision accounted for Ps0.578 billion ($0.3 million) of the
total increase in marketing expenses.
Operating Income. Operating income for Annual 1998 increased by Ps33.771
billion ($18.0 million) from Ps12.217 billion ($6.5 million) in Annual 1997 to
Ps45.988 billion ($24.5 million). The increase was mainly attributable to the
increase in revenues as a result of the larger number of subsidiaries in
operation and of subscribers, net of the increase in costs and expenses
described above. Cablevision incurred an operating loss of Ps0.920 billion
(Ps0.4 million) in Annual 1998.
Nonoperating Income (Expenses). Nonoperating income (expenses), net for
Annual 1997 and Annual 1998 consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1998
------------------- ----------------------
<S> <C> <C>
(in thousands of constant Pesos
of December 31, 1999
purchasing power)
Financial Income:
Interest income....................... Ps 7,160,397 Ps 18,905,216
Exchange gains........................ 3,837,969 38,880,041
Other financial income................ 200,665 484,497
----------- -----------
11,199,031 58,269,754
----------- -----------
Financial Expense:
Interest expense...................... (10,314,875) (33,554,264)
Bank commissions...................... (731,810) (1,144,030)
Exchange losses....................... (6,051,216) (59,106,244)
Bank expenses......................... (19,178) (95,223)
Other financial expenses.............. (341,638) (723,750)
----------- -----------
(17,458,717) (94,623,511)
----------- -----------
Other.................................... (2,362,039) 1,168,255
----------- -----------
Ps (8,621,725) Ps (35,185,502)
================== =====================
</TABLE>
17
<PAGE>
Net nonoperating expenses increased from Ps8.622 billion ($4.6 million) for
Annual 1997 to Ps35.186 billion ($18.7 million) in Annual 1998. The increase was
mainly due to the higher interest expense on increased average borrowings of the
Company for 1998, including interest associated with the Senior Notes, net of an
increase in interest income, and an increase in net exchange losses and other
expenses. Interest expense increased from Ps10.315 billion ($5.5 million) in
Annual 1997 to Ps33.554 billion ($17.9 million) in Annual 1998. An additional
Ps2.741 billion ($1.4 million) of interest cost was incurred on the Company's
investments in its subsidiaries and Expansion Plan projects and recorded as
deferred costs in Annual 1998 as compared to Ps11.498 billion ($6.1 million)
during Annual 1997. These deferred costs will be amortized when commercial
operations begin or projects are completed. The average borrowings increased
during Annual 1998 because the Senior Notes of $150 million (Ps281,066 billion),
which bore an average interest rate of 35,36% where outstanding all year in
Annual 1998. The significant increase in interest income resulted from the
temporary investment of a portion of the proceeds of the Senior Notes including
the Escrow Account. Similarly, net exchange losses increased due to the U.S.
dollar-denominated borrowing, consisting primarily of the Senior Notes at
December 31, 1998 being greatly in excess of the U.S. dollar investment during
1998. Other nonoperating income for Annual 1998 were Ps1.168 billion ($0.6
million) compared to other nonoperating expenses of Ps2.362 billion ($1.2
million) in Annual 1997.
Net Monetary Inflation Adjustment Income (Loss). Net monetary inflation
adjustment income for Annual 1998 increased by Ps14.005 billion ($7.4 million)
to Ps18.484 billion ($9.8 million) income from Ps4.479 billion ($2.3 million) in
Annual 1997 as a result of the impact of inflation adjustments on the higher
balance of nonmonetary assets as well as on the income, expense on shareholders'
equity accounts.
Income Tax Expense. Income tax expense for Annual 1998 increased by Ps4.207
billion ($2.2 million) to Ps5.684 billion ($3.0 million) from Ps1.477 billion
($0.7 million) in Annual 1997 primarily because of the substantial increase in
taxable income in
18
<PAGE>
Annual 1998 compared to Annual 1997. The effective tax rate is 18.3% in 1997 and
19.4% in 1998. See Note 18 of the Consolidated Annual Financial Statements.
Minority Interest. Minority interest for Annual 1998 increased by Ps5.750
billion ($3.0 million) to Ps10.968 billion ($5.8 million) from Ps5.218 million
($2.7 million) for Annual 1997 because of the increased net income of the
operating subsidiaries.
Net Income. Net income for Annual 1998 decreased by Ps11.255 billion ($6.0
million) from Ps1.380 billion ($0.7 million) for Annual 1997 to Ps12.635 billion
($6.7 million) for Annual 1998 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 Ps48.1 billion to acquire various
interests in each of its existing telephone systems. During 1998 the Company
spent Ps22.346 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 under the Expansion Plan. To date, the primary sources of capital have
consisted of equity contributions by the Company's shareholders, debt financing
from Colombian banks and local branches of other international financial
institutions, cash flow generated by the operating systems, certain Vendor
Financing in the form of capitalized leases, the Senior Notes and the Discount
Notes.
Net cash provided by operating activities during Annual 1999 was Ps8.730
billion ($4.7 million) as compared to net cash used by Ps17.470 billion ($9.3
million) for Annual 1998. The increase in cash provided by operations for Annual
1999 was primarily caused by an increase in amortization by Ps4.562 billion
($2.4 million), and the allowance for doubtful accounts by Ps8.457 billion ($4.5
million) and an increase in tax liabilities by Ps16.289 billion ($8.7 million)
as a result of an increase in the taxable income by Ps14.176 billion ($7.6
million) (See Note 18). Net cash used in investing activities during Annual 1999
was Ps29.294 billion ($15.6 million) as compared to Ps13.507 billion ($7.2
million) used in Annual 1998. The increase in cash used by investing activities
for Annual 1999 was mainly due to the increase in purchases of properties, plant
and equipment by Ps4.449 billion ($2.4 million). Net cash used by financing
activities during Annual 1999 was Ps1.515 billion ($0.8 million) as compared to
Ps14.457 billion ($7.7 million) in Annual 1998. Cash provided by financing
activities during Annual 1999 decreased by Ps15.973 billion ($8.5 million)
principally because of the repayments of debt by Ps19.675 billion ($10.5
million), and repayments of capital lease obligations by Ps9.074 billion ($4.8
million). As of December 31, 1999, the Company's borrowings were Ps12.433
billion ($6.6 million). 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
19
<PAGE>
Financial Statements. During Annual 1997, the shareholders of the Company
invested Ps 44.970 billion ($24.0 million) in the Company.
The Company's principal liquidity requirements will be for the Expansion Plan,
debt service (primarily on the Senior Notes), working capital and general
corporate purposes, including future acquisitions. The original Expansion Plan
was projected to require aggregate capital expenditures of approximately $178.2
million, of which approximately $7.7 million had been financed with local bank
borrowings, all of which have been repaid with proceeds of the Senior Notes
Offering, $1.5 million of cash flow from operations, $38.3 million of the
proceeds of the Senior Notes Offering, approximately $102.1 million of Vendor
Financing, the sale of investments of $8.5 million, and approximately $20.2
million of DIAN Financing. As of December 31, 1999, the Company completed the
build out of the Expansion Plan.
As a result of the Senior Notes offering, the Discount Notes offering, the
Vendor Financing, the DIAN Financing and the incurrence of certain other
indebtedness, the Company will be required to satisfy certain debt service
requirements. 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 December
31, 1999 and the date of this filing, the Company is in compliance with all such
financial covenants.
The Senior Notes are the exclusive obligation of the Company, which is a
holding Company with no business operations of its own. The operations of the
Company are conducted through the Operating Companies, which are separate and
distinct legal entities. Other than the obligation to repay the Intercompany
Notes to the Company, the Operating Companies have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Senior Notes or the
Certificates, to make any funds available to the Company to enable it to make
payments on the Senior Notes and consequently, to make the funds available to
the Trust to make payments on the Certificates, to make funds available in order
to make investments in the Operating Companies, to meet working capital needs or
other liabilities of the Company or for any other reason. In addition, the
Operating Companies are currently not wholly-owned subsidiaries of the Company
but instead are owned jointly by the Company and local municipalities. Any
dividends issued by the Operating Companies must be distributed pro rata to all
of their shareholders. As a result, the Company cannot be assured that it will
be able to generate significant cash through dividends or other distributions
from the Operating Companies in the foreseeable future and there can be no
assurance that the Company will be able to generate any significant cash flow
from the Operating Companies at any time in the future. Since the Company's
assets consist primarily of its ownership interests in the Operating Companies,
the Senior Notes (and therefore the Certificates) will be effectively
subordinated (other than as to claims that the Company can make under the
Intercompany
20
<PAGE>
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 December 31, 1999, the Company has lent $95.5 million (Ps178.869
billion) of the proceeds from the Senior Notes to six of its Operating Companies
as evidenced by Intercompany Notes. Balances loaned to each subsidiary as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------
(in thousands of constant Pesos of December 31,
1999 purchasing power and in Dollars)
<S> <C> <C>
Unitel.......................... Ps 56,195,035 $29,990,359
TeleJamundi..................... 40,766,628 21,756,474
TelePalmira..................... 42,702,950 22,789,857
TeleCartago..................... 18,428,968 9,835,235
Caucatel........................ 13,836,002 7,384,045
Bugatel......................... 6,939,518 3,703,506
------------- -----------
Ps178,869,101 $95,459,476
============= ===========
</TABLE>
The Intercompany Notes bear interest at 12 1/2%, are payable in U.S. dollars,
and are also due on November 1, 2007. The Intercompany Notes become due and
payable upon the acceleration of the Senior Notes issued by Transtel under the
Indenture.
Summarized financial information on a Colombian GAAP basis of each of the
Operating Companies that have issued an Intercompany Note to Transtel S.A. as of
and for the year ended December 31, 1999 are presented below. Other than
TelePalmira, which began its commercial operations in 1995, the other Operating
Companies listed below did not commence commercial operations until generally
mid-1997.
INCOME STATEMENT INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For the Year Ended December 31, 1999
(Amounts in thousands of constant Pesos of December 31, 1999 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------ ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues--subscribers... Ps31,221,475 Ps30,346,105 Ps3,072,066 Ps14,522,922 Ps13,328,387 Ps8,753,335
Operating income.............. 16,605,173 17,944,679 8,632 7,390,482 6,163,035 3,651,827
Net income.................... 5,151,498 16,063,458 (34,778) 4,714,975 4,907,048 3,073,283
</TABLE>
21
<PAGE>
CASH FLOW INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For the year ended December 31, 1999
(Amounts in thousands of constant pesos of December 31, 1999 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cash flow provided by operating
activities.................................... 2,516,034 (1,412,736) (2,695,518) 6,869,618 11,974,147 3,331,437
Cash flow used by investing
activities.................................... (23,416,988) (23,032,990) (15,663,544) (12,813,175) (14,071,136) (5,059,162)
Cash flow provided by financing
activities.................................... 19,211,652 20,341,318 15,682,240 5,113,530 2,172,660 2,574,987
</TABLE>
BALANCE SHEETS OF SUBSIDIARIES WITH INTERCOMPANY NOTES AT DECEMBER 31, 1999
(Amounts in thousands of constant Pesos of December 31, 1999 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
---------------- -------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Current assets.................... Ps 24,354,876 Ps24,448,399 Ps 5,369,034 Ps 7,057,687 Ps 8,804,884 Ps 4,750,874
Properties, plant and equipment... 85,454,152 80,916,317 45,103,524 50,277,643 22,865,698 36,940,163
Other noncurrent assets........... 33,027,575 33,791,135 9,772,337 9,352,828 9,008,212 5,403,631
------------- ------------ ------------ ------------- ------------- ------------
Total assets.................... Ps142,836,603 Ps143,155,851 Ps60,244,895 Ps66,688,158 Ps40,678,694 Ps47,094,668
============= ============= ============ ============= ============ ============
Current liabilities............... Ps 20,597,088 Ps 8,487,993 Ps 2,054,858 Ps5,986,287 Ps 3,223,617 Ps 1,811,309
Capital lease obligations......... 14,758,502 7,590,704 7,017,129 22,584 91,320 87,072
Intercompany Note to Transtel..... 42,702,950 56,195,035 40,766,628 18,428,968 6,939,518 13,836,002
Interest accrued on Intercompany
Notes............................ 1,397,941 1,839,623 1,334,553 603,298 227,125 452,941
Other Intercompany payables.......
Other noncurrent liabilities...... 912,103 25,559,904 1,182,102 19,737,891 5,063,609 3,163,588
------------- ------------- ------------ ------------ ------------ -----------
Total liabilities............... 80,368,584 99,673,259 52,355,270 44,779,028 15,545,239 19,350,912
Total shareholders' equity........ 62,468,019 43,482,592 7,889,625 21,909,130 25,133,455 27,743,756
------------- ------------- ------------ ------------ ------------ ------------
Total liabilities and
shareholder equity............ Ps142,836,603 Ps143,155,851 Ps60,244,895 Ps66,688,158 Ps40,678,694 Ps47,094,668
============= ============= ============= ============ ============ ============
</TABLE>
In addition to the Intercompany Notes, these six Operating Companies have
capital lease obligations and short-term bank borrowings totaling Ps9.091
billion ($4.8 million) and Ps6.156 billion ($3.3 million), respectively,
included in current liabilities at December 31, 1999. As indicated in the above
summarized balance sheet information, these six Operating Companies have total
long-term capital lease obligations of Ps37.220 billion ($19.9 million) at
December 31, 1999. As the subsidiaries install and accept the remaining Global
Leases, the IBM Arrangement and the related DIAN Financing, additional financial
obligations totaling Ps145.374 billion ($77.6 million) will be
22
<PAGE>
incurred. See Notes 12, 30, and 31(d)(vi) to the Consolidated Annual Financial
Statements.
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 payments in the future, it may, depending upon the
circumstances which then exist, seek additional equity or debt financing,
attempt to refinance its indebtedness or sell all or part of its business or
assets to raise funds to repay its indebtedness.
On December 31, 1998, the Company sold $15.0 million (Ps28.107 billion) of its
20.32% Senior Discount Notes due 2008 in a private placement. The Company used
the net proceeds of approximately $14.3 million (Ps26.795 billion) to pay for
capital expenditures and to provide working capital. 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 (Ps162.831 billion) and principal of $15.0 million (Ps28.107 billion)
will be due on August 13, 2008. 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.
The Company has lent $8.3 million (Ps15.542 billion) of the proceeds from the
Senior Discount Notes to four of its Operating Companies as evidenced by
Intercompany Notes. Balances loaned to each subsidiary as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------
(in thousands of constant Pesos of December 31,
1999 purchasing power and in Dollars)
<S> <C> <C>
Unitel............................. Ps 7,619,793 $4,066,557
ETG................................ 4,108,259 2,192,510
TeleCartago........................ 3,671,607 1,959,476
Caucatel........................... 142,478 76,038
------------ ----------
Ps15,542,137 $8,294,581
============ ==========
</TABLE>
23
<PAGE>
The Intercompany Notes bear interest at 20.22% per annum, are payable in U.S.
dollars, and are also due on August 13, 2008.
The Company expects to consider additional acquisitions that fit its strategic
plans. Although the Company has had discussions concerning such potential
acquisitions, to date, no agreements have been reached with regard to any
particular transaction. Any such acquisitions that the Company might consider
are likely to require additional equity and/or debt financing, which the Company
will seek to obtain as necessary. Management believes that, based on its current
operations and anticipated growth resulting from the Expansion Plan, cash flow
from the Expansion Plan Financing, cash flow from operations and other sources
of funds, including local borrowings, it will have adequate funds to complete
the Expansion Plan and to meet its future cash requirements.
Accounting for Inflation
As a Colombian Company, the Company maintains its financial records in Pesos.
Colombian GAAP requires that the financial statements of Colombian companies be
adjusted to account for inflation. The inflation rate for the year ended
December 31, 1999 was 9.23%. Financial statements are adjusted for the effects
of inflation on the basis of changes in the Colombian MCPI. This index is
applied on a one-month lagging basis to nonmonetary assets and liabilities,
shareholders' equity, revenues and expense 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 future inflation adjustments relating to inventories and revenues and
expenses. See Notes 2 and 28 to the Consolidated Annual Financial Statements.
Income Tax Matters
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for the Company was 35% for 1996, 1997, 1998 and 1999.
Under Colombian law, Transtel S.A. must pay a minimum tax which is presumed to
be not less than the greater of 5% of shareholders' equity for tax purposes at
the end of the immediately preceding year. 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
24
<PAGE>
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 Consolidated Annual 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 (deficit)
at and for the years ended December 31, 1997, 1998 and 1999, under Colombian
GAAP and after reflecting the material adjustments which arise when U.S. GAAP is
applied instead of Colombian GAAP, is shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1997 1998 1999
--------------------- ----------------- ------------------
<S> <C> <C> <C>
(in thousands of constant Pesos of
December 31, 1999 purchasing power)
Net Income (Loss)
Colombian GAAP...................... Ps 1,380,060 Ps12,634,682 Ps2,595,394
U.S. GAAP........................... (2,839,993) 7,656,761 (9,744,610)
Shareholders' Equity (Deficit)
Colombian GAAP...................... 67,268,157 83,636,703 88,381,589
U.S. GAAP........................... 36,267,830 43,924,592 34,179,982
EBITDA
Colombian GAAP...................... 15,174,113 63,122,177 92,784,911
U.S. GAAP........................... 14,560,041 62,835,450 43,115,365
</TABLE>
As more fully described and quantified in Note 31 to the Consolidated Annual
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 this new
policy, connection fee income less direct installation costs and direct selling
costs will be deferred and amortized into income over five years
25
<PAGE>
using the straight-line method. This change was made to reflect income in excess
of direct costs over an estimated service period.
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities", which is effective for fiscal years beginning after December 15,
1998, will have no significant effect on the Company's existing accounting under
U.S. GAAP since substantially all costs meeting the definition in SOP 98-5 are
already expensed for U.S. GAAP purposes. See Note 31(d) (v) to the Consolidated
Annual Financial Statements.
Recent Events
Macro Economics
The views of the economists are mixed for 2000. There was a general reduction
in the economy of 4.5% in 1999 but indications of recovery are being seen. The
optimistic view is that with lower interest rates and an increase in commodity
prices, the effects will be positive. The opposing view is that private sector
lending opportunities will be difficult to change given the banking situation
and the overshadowing effect of the country politics on economic change.
GDP growth forecast remains unchanged at 3% but the potential positive impact
of the current sharp reduction in interest rates could affect this. The
forecast for Consumer inflation, (9.2% in 1999), reflects a weak demand level
and is estimated to be cut by 11% to 13% in 2000. The World Bank is retaining a
3.5% budget deficit for 2000, (1999 was 6.3% of GDP), but budget risks are
expected to continue primarily because tax revenue growth will lag behind
economic growth. The Peso/dollar exchange rate is expected to remain stable.
The Colombian Government has committed to cut public spending, to drive
privatization, and to maintain foreign debt interest payments, all under the
terms of a signed agreement with the IMF in exchange for a three year extended
fund facility (EEF) of $2.8 billion US.
Company Outlook
The Company will continue with an aggressive growth plan of subscribers for
the year 2000 focussed primarily in the market in Cali and on traditional
telephone services plus the provision of cable television access and Internet
services, via both telephone and cable facilities. Additionally, we will
vigorously attack the medium and large business markets as well as the
residential high user market with value added services to increase the average
revenue per subscriber.
With the support of the resolution of the Commission of Telephone Regulation
(CRT), the Company will increase the tariffs this year by 20 points plus the
rate of inflation for 1999, which will increase the operational revenues to an
estimated level equal to the forecasted impacts of inflation and devaluation.
26
<PAGE>
Additionally the Company will continue to closely monitor efficiency and
productivity to realize significant reductions in costs. All of these actions
will result in the consistent growth of the EBITDA in 2000.
Y2K
All of the necessary reviews and adjustments were completed on time for the
conditioning of all the equipment and applications that could be have been
effected by the millennium change. Transtel received a certification from the
Ministry of Communications for "optimum efficiency in preparation for Y2K".
The millennium transition occurred without any shut down or customer
inconveniences.
Rural telephone service
The project for wireless rural telephone service, involving the building of
an infrastructure, central offices and radio base stations was completed with an
installed capacity of 12,600 and with 3,500 working services by December 1999,
which conforms to the project plan. With this project, the coverage of Transtel
companies offering this service was expanded to Bugatel, Telepalmira, ETG and
TeleCartago.
Quality Indicators
Call completion rates of 55% for outgoing long distance calls and 75% for
incoming long distance calls were achieved.
95% of customer claims were attended to before 24 hours. Preventative
maintenance activities reduced customer claims by an additional 30%. These
indicators position the Transtel telephone companies as the best in the nation
in customer response times.
Installation times for new lines averaged 5 days in 1999.
External Audit
In 1999 the Company contracted as the fiscal and external auditor, the firm
of Deloitte & Touche.
27
<PAGE>
TRANSTEL S.A.
ADDITIONAL SELECTED FINANCIAL INFORMATION
(Pesos of December 31, 1999 purchasing power and U.S. Dollars, unless otherwise
specified)
Three months ended December 31, 1999 and September 30, 1999
The following is a discussion of the consolidated financial condition as of
September 30, 1999 and for December 31, 1999. The discussion should be read in
conjunction with the unaudited Consolidated Interim Financial Statements of the
Company as of and for the three months ended December 31, 1999, and the notes
thereto included elsewhere herein. The unaudited Consolidated Interim Financial
Statements have been prepared in accordance with Colombian GAAP, which differs
in certain significant respects from U.S. GAAP. Unless otherwise indicated, the
financial information has been presented in constant Pesos as of December 31,
1999. Dollar amounts are translated from Pesos amounts at the Representative
Market Rate on December 31, 1999, which was 1.873.77 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 September
30, and December 31,1999:
<TABLE>
<CAPTION>
Three months ended,
--------------------------------------
September 30,1999 December 31,1999
------------------ ------------------
<S> <C> <C>
Basic Charge
Average Subscribers 262.055 277,120
Basic Charge Revenues (Ps000) 5,538,720 5,656,317
Average Basic charge per subscriber per month (Ps) 7,045 6,804
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
Local Usage
Local Usage Revenues (Ps000) 13,251,157 14,463,519
Local Usage Revenue per subscriber per month. (Ps) 16,855 17,397
Tariff per pulse (Ps) 37.1 38.6
Average pulses per subscriber per month. 450 451
Long Distance
Long Distance Revenues (Ps000) 4,293,347 4,020,397
Total Minutes (in thousands) 93,108 87,878
Minutes per Subscriber per month. 118 106
Access Charge Tariff per minute (Ps) 46,11 45,75
Cablevision
Average Subscribers 24,419 26,702
Operating Recurring Revenues (Ps000) (1) 1,403,882 1,456,755
Revenue per Subscriber per month (Ps) 19,164 18,185
</TABLE>
- ------------------
(1) Not included for this comparison are the extraordinary revenues obtained in
the second quarter of 1999 for leasing of the fiber optic network, and providing
special services of video conferencing.
Results of Operations
The composition of the Company's revenues for each of periods discussed herein
is as follows:
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------------
September 30, 1999 % December 30,1999 %
-------------------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C>
(in thousands of constant Pesos of December 31, 1999 purchasing power,
except percents data)
Connection fees..................... Ps 7,969,869 22.5% Ps 10,889,957 31.2%
Local usage charges................. 13,251,157 37.5 14,463,519 41.4
Basic charges....................... 5,538,720 15.7 5,656,317 16.2
Long distance charges............... 4,293,347 12.1 4,020,397 11.5
Other income........................ 2,903,493 8.2 (1,615,686) (4.6)
---------- ----- ---------- -----
Total telephone................... Ps 33,956,586 96.0 33,414,504 95.8
Pay television services (1)......... 1,403,882 4.0 1,456,755 4.2
---------- ----- ---------- -----
Total revenues.................... Ps 35,360,467 100.0% Ps 34,871,259 100.0%
========== ===== ========== =====
</TABLE>
29
<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
--------------------------------------------
September 30, 1999 December 31, 1999
---------------------- --------------------
<S> <C> <C>
Revenues.................................................... 100.0% 100.0%
------ -----
Costs and expenses:
Operating costs.......................................... (17.6) (13.4)
Administrative expenses.................................. (19.3) (74.0)
Marketing expenses....................................... (6.9) (7.9)
------ -----
Total................................................. (43.8) (95.3)
------ -----
Operating income............................................ 56.2 4.7
Nonoperating expenses....................................... (142.4) 92.5
Net monetary inflation adjustment income.................... 8.0 6.3
------ -----
Income before income taxes and minority interest............ (78.2) 103.4
Income tax expense.......................................... 10.3 (18.0)
------ -----
Income before minority interest............................. (67.9) 85.3
Minority interest........................................... (8.8) 6.5
------ -----
Net income.................................................. (76.7)% 91.8%
====== =====
</TABLE>
Revenues. The total revenues for the three months ended December 31, 1999
decreased by Ps0.489 billion, or 1.3%, to Ps34.871 billion from Ps35.360 billion
for the three months ended September 30, 1999. The decrease in revenues for the
last quarter of 1999 was mainly attributable to the decrease in long distance
charges by Ps1.186 billion.
Costs and Expenses. Costs and expenses for December 31,1999 increased by
Ps15.132 billion, or 98%, to Ps30.603 billion from Ps15.471 billion for the
three months ended September 30, 1999. The increase is primarily attributable to
the increase in the provision for doubtful accounts and provision for write down
of properties, plant and equipment and amortizations. The total operating costs
and expenses related to the pay television services of Cablevision were Ps1.359
billion in the last quarter of 1999.
Operating costs decreased by Ps1.899 billion from Ps6.219 billion in September
30, 1999 to Ps4.320 billion mainly as a result of decreases in salaries of
Ps0.832 billion, Fees, studies and investigations Ps1.258 billion, Rents of
space of Ps0.703 billion, Services, maintenance and repairs of Ps2.058 billion,
depreciation of Ps0.191 billion, and amortizations of Ps0.156 billion. Other
operating costs increased by Ps3.299 billion for the three months ended December
31, 1999 compared to September 30, 1999.
Administrative expenses for the last quarter of 1999 increased by Ps16.933
billion to Ps23.756 billion from Ps6.823 billion for the third quarter ended in
September 30, 1999. The increase was mainly attributed to the increase in
provision for doubtful accounts by Ps7.896 billion, provision write down of
properties, plant and equipment by Ps8.110 billion, and amortizations by Ps1.012
billion. Other administrative expenses decrease in Ps0.085 billion.
30
<PAGE>
Marketing and Sales expenses. For the three months ended December 31, 1999
increased by Ps0.097 billion to Ps2.527 billion from Ps2.430 billion in
September 30, 1999. The increase in marketing expenses was primarily
attributable to the increase in amortization by Ps0.922 billion, Other rent by
Ps0.117 billion and other marketing and sales expenses by Ps0.385 billion. The
following accounts decreased, salaries by Ps0.434 billion, Advertising Ps0.495
billion, services, maintenance and repairs in Ps0.398 billion.
Operating Income. Operating income for December 31, 1999 decreased by
Ps15.621 billion from Ps19.889 billion in September 30, 1999 to Ps4.268 billion.
The decrease was mainly attributable to the increase in administrative expenses
by Ps16.933 billion.
Non-operating Income (Expenses). Non-operating income (expenses), net for
September 30, 1999 and December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------
September 30, 1999 December 31, 1999
---------------------- ---------------------
<S> <C> <C>
(in thousands of constant Pesos of
December 31, 1999 purchasing power)
Financial Income:
Interest income....................................... Ps 4,806,603 Ps(6,737,290)
Exchange gains........................................ 16,380,180 39,891,841
Other financial income................................ 426,406 131,409
------------- ------------
21,613,189 33,285,960
------------- ------------
Financial Expenses:
Interest expense....................................... (14,821,347) 4,425,709
Bank commissions....................................... (29,793) (234,498)
Exchange losses........................................ (56,791,915) (10,411,516)
Bank expenses.......................................... 93,388 79,197
Other financial expenses............................... (205,463) (615,630)
------------- ------------
(71,755,130) (6,756,738)
------------- ------------
Other:
Donations.............................................. (88,896)
Sales of scrap and extra parts......................... (25,583) 162,659
Other, net............................................. (171,134) 319,098
------------- ------------
(196,717) 392,861
------------- -----------
Total Non-operating Income (Expenses)..................... Ps(50,338,658) Ps26,922,083
============= ============
- ---------------
</TABLE>
Net non-operating expenses decreased from Ps(50.339) billion for the three
months ended September 30, 1999 to Ps26,922 billion income for the three months
ended December 31, 1999. The increase was mainly due to the net exchange gain
occurred during the last quarter of 1999 associated with the Senior Notes, the
Discount Notes and other liabilities denominated in Dollars due to the
revaluation of 7.1% of the Colombian peso with respect to the Dollar in the last
quarter.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income decreased by Ps1.064 billion to Ps2.016 billion for the last quarter of
1999, from Ps3.080 billion in the third quarter of 1999 as a result of the
inflation decrease in the last quarter of 1999.
Income Tax Expense. Income tax expense for the last quarter of 1999
increased by Ps1.845 billion to Ps5.807 billion from Ps3.962 billion in the
third quarter of 1999.
31
<PAGE>
Minority Interest. Minority interest for the last quarter of 1999, decreased
by Ps1.705 billion to Ps2.077 billion from Ps3.778 billion for the third
quarter of 1999 because of capitalization of 29% in Telejamundi.
Net Income. Total income increased by Ps58.849 billion from Ps(29.376)
billion for the third quarter of 1999 to Ps 29.473 billion for the last quarter
of 1999, as a result of the increase in exchange gains.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Transtel S.A.
<TABLE>
<S> <C>
Reports of Independents Accountants....................................................................... F-2
Consolidated Balance Sheets at December 31, 1997, 1998 and 1999........................................... F-4
Consolidated Statements of Income for the Years Ended December 31, 1997, 1998 and 1999.................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1997,
1998 and 1999.......................................................................................... F-6
Consolidated Statements of Changes in Financial Position for the Years Ended December 31, 1997,
1998 and 1999.......................................................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999................ F-8
Notes to the Consolidated Financial Statements............................................................ F-9
</TABLE>
F-1
<PAGE>
TRANSTEL S.A.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Transtel S.A
We have audited the accompanying consolidated balance sheet of Transtel S.A,
and its subsidiaries as of December 31, 1999 and the related consolidated
statements of income, changes in shareholders' equity, changes in financial
position and cash flows for the year ended December 31, 1999 (all expressed in
constant Colombia pesos of December 31, 1999 purchasing power). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Colombia, which are substantially the same as those followed in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement and that they are prepared in accordance with
accounting principles generally accepted in Colombia. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Transtel
S.A. and its subsidiaries as of December 31, 1999 and the results of its
operations, changes in shareholders' equity, changes in financial position and
cash flows for the year ended December 31, 1999 in conformity with accounting
principles generally accepted in Colombia.
Accounting principles generally accepted in Colombia vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of consolidated shareholders' equity at December 31,1999 and the
determination of net income (loss) for the year then ended to the extent
summarized in Note 31.
Our audit also included the translations of Colombian pesos into U.S. dollar
amounts and, in our opinion, such translations have been made in conformity with
the basis stated in Note 2. Such U.S dollar amounts are presented solely for the
convenience of the readers.
/s/ DELOITTE & TOUCHE
Cali, Colombia, March 13,2000
F-2
<PAGE>
TRANSTEL S.A.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Transtel S.A.
We have audited the accompanying consolidated balance sheets of Transtel S.A.
and its subsidiaries as of December 31, 1997 and 1998 and the related
consolidated statements of income, of changes in shareholders' equity, of
changes in financial position and of cash flows for each of the two years in the
period ended December 31, 1998, all expressed in constant Colombian pesos of
December 31, 1999 purchasing power. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Colombia, which are substantially consistent with those in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Transtel S.A. and
its subsidiaries at December 31, 1997 and 1998, and the results of their
operations, the changes in their financial position and their cash flows for
each of the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles in Colombia.
Accounting principles generally accepted in Colombia, as described in Notes 2
and 3 to the financial statements, vary in certain significant respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of consolidated
net income expressed in constant Colombian pesos of December 31, 1999 purchasing
power for each of the two years in the period ended December 31, 1998, and the
determination of consolidated shareholders' equity also expressed in constant
Colombian pesos of December 31, 1999 purchasing power at December 31, 1997 and
1998 to the extent summarized in Note 31 to the consolidated financial
statements.
/s/ PRICE WATERHOUSE
Cali, Colombia
March 2, 1999, except for the remeasurement to December 31, 1999
constant Colombian pesos, which is as of March 13, 2000
F-3
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1998 1999 1999
---------------- ------------------ ----------------- ------------
(Thousands of Pesos of December 31, 1999 (Thousands
--Note 2) of Dollars,
unaudited
--Note 3)
<S> <C> <C> <C> <C>
ASSETS
Current
Cash......................................................... Ps 3,537,101 Ps 3,918,457 Ps 5,243,886 $ 2,799
Short-term and temporary investments (Note 4)................ 133,000,221 64,513,984 8,505,039 4,539
Accounts receivable, net (Note 5)............................ 20,676,945 32,936,817 75,754,809 40,429
Inventories (Note 6)......................................... 1,214,883 2,926,100 2,354,211 1,256
Prepaid expenses............................................. 656,023 865,856 383,413 205
----------- ----------- ----------- --------
Total current assets........................................ 159,085,173 105,161,214 92,241,358 49,228
Noncurrent
Accounts receivable (Note 5)................................. 17,716,805 46,354,448 52,528,661 28,034
Properties, plant and equipment, net (Note 7)................ 143,612,155 289,515,524 382,714,191 204,248
Deferred monetary correction................................. 2,997,495 4,358,574 4,575,998 2,442
Deferred costs (Note 8)...................................... 61,872,553 67,329,358 55,851,892 29,807
Long-term investments (Note 4)............................... 39,840,829 3,215,873 1,274,377 680
Other assets (Note 9)........................................ 2,741,365 5,423,805 11,723,506 6,257
Reappraisal of assets (Note 10).............................. 20,156,974 35,945,811 37,852,181 20,201
----------- ----------- ----------- --------
Total assets................................................ Ps 448,023,349 Ps 557,304,607 Ps 638,762,164 $340,897
=============== =============== ============== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt (Note 12).................................... Ps 644,342 Ps 14,886,276 Ps 12,821,144 $ 6,842
Current portion of other long-term debt (Note 12)............ 16,600,432 1,605,223 3,322,949 1,773
Current portion of capital lease obligations (Note 19)....... 267,192 4,505,914 9,387,072 5,010
Accounts payable (Note 13)................................... 19,971,368 33,154,217 47,246,095 25,214
Tax liabilities (Note 14).................................... 3,249,583 6,055,500 24,958,881 13,320
Labor liabilities (Note 15).................................. 541,948 1,059,968 1,162,036 620
Other liabilities (Note 16).................................. 8,767,086 4,064,528 3,186,393 1,701
Accrued pension obligations (Note 17)........................ 677,931. 590,484 934,937 499
----------- ----------- ----------- --------
Total current liabilities................................... 50,719,882 65,922,110 103,019,507 54,979
Long-term liabilities
12 1/2 % Senior Notes due 2007 (Note 12).................... 246,091,349 253,592,279 281,065,500 150,000
20.32% Senior Discount Notes due 2008 (Note 12).............. 25,359,228 34,103,946 18,201
Other long-term debt (Note 12)............................... 9,662,570
Capital lease obligations (Note 19).......................... 1,431,129 31,367,330 38,043,291 20,303
Deferred monetary correction................................. 5,683,500 5,273,018 5,746,629 3,067
Accrued pension obligations (Note 17)........................ 7,544,680 7,104,878 6,273,650 3,348
Other liabilities (Note 20).................................. 15,508,289 12,006,303 11,491,118 6,133
----------- ----------- ----------- --------
Total liabilities........................................... 326,978,829 410,287,716 479,743,641 256,031
----------- ----------- ----------- --------
Minority interest (Note 21)................................... 53,776,363 63,380,188 70,636,934 37,698
----------- ----------- ----------- --------
Commitments (Note 30)
Shareholders' equity (Note 22):
Common stock, Ps1 par value, 50 billion shares
authorized; 34,611,747,976
shares issued and outstanding (5,039,801,222 in 1997
and 34,611,748 in 1998)............................... 10,215,810 48,730,664 48,730,664 26,007
Premium on shares issued..................................... 38,514,854
Retained earnings............................................ 6,595,839 19,230,521 21,825,915 11,648
Surplus from reappraisal of assets (Note 10)................. 11,941,654 15,675,518 17,825,010 9,513
----------- ----------- ----------- --------
Total shareholders' equity.................................. 67,268,157 83,636,703 88,381,589 47,168
----------- ----------- ----------- --------
Total liabilities and shareholder's equity.................. Ps448,023,349 Ps 557,304,607 Ps 638,762,164 $340,897
================ ================== ================= ========
Memorandum accounts (Note 11)................................. Ps 373,498,093 Ps 265,270,024 Ps 335,755,232 $179,673
================ ================== ================= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1997 1998 1999 1999
----------------- ----------------- ----------------- --------------
(Thousands of Pesos of December 31, 1999-- (Thousands
Note 2) of Dollars,
unaudited
--Note 3)
<S> <C> <C> <C> <C>
Revenues (Note 23)........................... Ps 33,689,397 Ps 93,886,463 Ps 130,317,180 $ 69,548
Costs and expenses:
Operating costs (Note 24).................. 8,418,419 19,644,296 19,592,905 10,456
Administrative expenses (Note 25).......... 11,065,829 22,271,361 45,936,692 24,516
Marketing expenses (Note 26)............... 1,987,562 5,982,711 8,932,987 4,767
----------- ----------- ------------ --------
21,471,810 47,898,368 74,462,584 39,739
----------- ----------- ------------ --------
Operating income........................... 12,217,587 45,988,095 55,854,596 29,809
----------- ----------- ------------ --------
Nonoperating income (expenses)
Financial income (Note 27)................. 11,199,031 58,269,754 99,954,006 53,344
Financial expenses (Note 27)............... (17,458,717) (94,623,511) (151,870,175) (81,051)
Other (Note 27)............................ (2,362,039) 1,168,255 (1,631,712) (871)
----------- ----------- ------------ --------
(8,621,725) (35,185,502) (53,547,881) (28,578)
----------- ----------- ------------ --------
Net monetary inflation adjustment income
(Note 28)................................... 4,479,288 18,484,268 17,212,723 9,186
----------- ----------- ------------ --------
Income before income taxes and
Minority interest..................... 8,075,150 29,286,861 19,519,438 10,417
Income tax expense (Note 18)................. (1,476,731) (5,684,386) (7,293,848) (3,893)
----------- ----------- ------------ --------
Income before minority interest......... 6,598,419 23,602,475 12,225,590 6,524
Minority interest............................ (5,218,359) (10,967,793) (9,630,196) (5,139)
----------- ----------- ------------ --------
Net income.............................. Ps 1,380,060 Ps 12,634,682 Ps 2,595,394 $ 1,385
============== ============= ============= ========
Earnings per share (in single Pesos and
single Dollars per share) .................. Ps 0.31 Ps 2.02 Ps 0.07 $ -
============== ============= ============= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1997, 1998 and 1999
(Thousands of Pesos of December 31, 1999--Note 2, except shares)
<TABLE>
<CAPTION>
Common Shares
-------------
Outstanding
----------------------------
Surplus from Total
Number Premium on Retained Reappraisal Shareholders'
(Note 18) Amount shares issued Earnings of Assets Equity
------------ -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 4,000,000 Ps 8,108,105 Ps 5,215,779 Ps11,217,640 Ps24,541,524
Shares issued for cash
(Note 22)....................... 1,039,801 2,107,705 38,514,854 40,622,559
Net income......................... 1,380,060 1,380,060
Increase during the year........... 724,014 724,014
------------ ------------
Balance at December 31, 1997....... 5,039,801 10,215,810 38,514,854 6,595,839 11,941,654 67,268,157
Shares issued from
share premium (Note 22).......... 29,571,947 38,514,854 (38,514,854)
Net income......................... 12,634,682 12,634,682
Increase during the year........... 3,733,864 3,733,864
------------ ------------
Balance at December 31, 1998....... 34,611,748 48,730,664 0 19,230,521 15,675,518 83,636,703
Net income......................... 2,595,394 2,595,394
Increase during the year........... 2,149,492 2,149,492
-------------- ------------ ------------
Balance at December 31, 1999....... 34,611,748 Ps48,730,664 0 Ps 21,825,915 Ps17,825,010 Ps88,381,589
========== ============ ========== ============== ============ ============
</TABLE>
Retained earnings balances consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Legal reserve...................................................... Ps 521,579 Ps 659,586 Ps 1,644,672
Appropriated for future construction............................... 882,551 882,551 1,066,961
Appropriated for future acquisitions............................... 5,191,708 17,688,384 16,518,888
Unappropriated retained earning.................................... - - 2,595,394
----------- ------------ ------------
Ps6,595,838 Ps19,230,521 Ps21,825,915
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Revaluation of shareholders' equity
Consist of the following amounts included in:
Common stock .................................................... Ps4,251,467 Ps10,785,806 Ps14,118,916
Retained earnings: ............................................... 1,306,417 1,511,394 3,092,474
----------- ------------ ------------
Ps5,557,884 Ps12,297,200 Ps17,211,390
=========== ============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------
1997 1998 1999 1999
---------------- -------------- ------------- ------------
(Thousands of Pesos of December 31, 1999 (Thousands
--Note 2) of Dollars,
unaudited
--Note 3)
<S> <C> <C> <C> <C>
Sources of working capital:
Net income.................................................... Ps 1,380,060 Ps 12,634,682 Ps 2,595,394 $ 1,385
Items that do not utilize (provide) working capital:
Depreciation................................................ 670,010 2,801,467 5,114,736 2,730
Amortization................................................ 4,285,816 10,323,723 14,885,954 7,944
Deferred income taxes....................................... (4,658) (461,242) (3,435,146) (1,833)
Allowance for writedown of properties, plant and equipment.. 121,244 933,248 8,159,287 4,354
Allowance for doubtful accounts............................. 1,002,966 9,460,831 5,049
Accretion of interest on Senior Discount Note............... 5,997,938 3,201
Allowance for inventories................................... 321,209
Unrealized foreign exchange loss............................ 2,355,251 7,500,930 30,220,001 16,128
Gain on sale of properties, plant and equipment............. (4,826)
Minority interest........................................... 5,218,359 10,967,793 9,630,196 5,139
Net inflation adjustment from non-current balance sheet
account.................................................... (3,996,429) (16,715,699) (17,145,651) (9,150)
Deferred monetary correction, net........................... 811,491 (1,771,562) 343,526 184
------------ ------------- ------------- ----------
Working capital provided by operations......................... 10,841,144 27,532,689 65,827,066 35,131
------------ ------------- ------------- ----------
Financial resources generated otherwise:
Sales proceeds from properties, plant and equipment......... 188,474
Issuance of Senior Notes due 2007........................... 243,736,098 25,359,228
Issuance of Senior Discount Notes due 2008..................
Accrued pension obligations................................. 7,544,680 (439,802) (831,228) (444)
Increase (decrease) in other debt........................... (31,821,322) 9,662,570 (9,662,570) (5,157)
Capital lease obligations................................... 155,005 29,936,203 6,675,960 3,563
Increase in other liabilities............................... 15,415,333 3,998,943 (515,185) (275)
Investment by minority interest............................. 25,667,294 1,803,055 962
Shares issued for cash...................................... 40,622,557 (5,652,135) (3,016)
-------------- -------------- ------------ ---------
301,319,645 68,705,616 (8,182,103) (4,367)
-------------- -------------- ------------ ---------
Total financial resources generated.......................... 312,160,789 96,238,305 57,644,963 30,764
-------------- -------------- ------------ ---------
Financial resources utilized:
Purchases of properties, plant and equipment................. (117,282,630) (149,876,233) (107,606,231) (57,428)
Purchases of reappraisal of assets.......................... (11,344,018)
Increase in deferred costs................................... (47,955,270) (15,034,712) (3,544,954) (1,892)
Increase (Decrease) in long-term investments................. (39,660,429) 36,441,623 2,019,099 1,078
Increase in other assets..................................... (2,301,782) (2,622,612) (6,299,700) (3,362)
Noncurrent accounts receivable............................... (10,938,463) (29,640,609) (6,174,213) (3,295)
Dividends paid to minority interest.......................... (2,367,244)
Decrease in other liabilities................................
---------------- --------------- -------------- -----------
(218,138,574) (174,443,805) (121,605,999) (64,899)
--------------- --------------- ------------ ----------
Effect of revaluing to constant pesos......................... 10,433,117 16,901,451 23,404,614 12,491
--------------- --------------- -------------- ----------
Increase (decrease) in working capital..................... Ps104,455,332 Ps (61,304,049) Ps(40,556,422) $ (21,644)
=============== =============== ============== ==========
Changes in working capital components:
Cash ...................................................... Ps(13,942,179) Ps 381,356 1,325,429 707
Short-term and temporary investments.......................... 126,299,529 (68,486,237) (56,008,945) (29,891)
Accounts receivable ......................................... 12,881,409 12,259,872 52,278,823 27,900
Inventories ................................................. 838,191 2,032,424 (571,889) (305)
Prepaid expenses ............................................ 445,488 209,833 (482,443) (257)
Short-term debt............................................... 13,342,087 (14,241,935) 2,065,132 1,102
Current portion of other long-term debt....................... (7,965,859) 14,995,209 (1,717,726) (917)
Current portion of capital lease obligations.................. (184,388) (4,238,721) (4,881,158) (2,605)
Accounts payable ............................................ (15,528,385) (13,182,849) (14,091,878) (7,521)
Tax liabilities. ............................................ (2,186,387) (2,805,917) (18,903,380) (10,088)
Labor liabilities ........................................... (372,312) (518,019) (102,068) (54)
Accrued pension obligations ................................. (677,930) 87,446 (344,453) (184)
Other liabilities............................................. (8,493,932) 12,203,489 878,134 469
-------------- -------------- -------------- ----------
Increase (decrease) in working capital ...................... Ps104,455,332 Ps(61,304,049) Ps(40,556,422) $ (21,644)
============== ============== ============== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-7
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1997 1998 1999 1999
---------------- ----------------- --------------- ------------
(Thousands of Pesos of December 31, 1999-- (Thousands
Note 2) of Dollars,
unaudited
--Note 3)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ Ps 1,380,060 Ps 12,634,682 Ps 2,595,394 $ 1,385
Adjustments to reconcile net income with net cash
Provided by operations:
Depreciation............................................. 670,010 2,801,467 5,114,736 2,730
Amortization............................................. 4,285,816 10,323,723 14,885,954 7,944
Deferred income taxes .................................. (4,658) (461,242) (3,435,146) (1,833)
Allowance for write down of property, plant and equipment 121,244 933,248 8,159,287 4,354
Allowance for doubtful accounts........................... 1,002,966 9,460,831 5,049
Allowance for inventories................................. 321,207
Unrealized foreign exchanges loss........................ 2,355,251 7,500,930 30,220,001 16,128
Accretion of interest on Discount Senior Note............ 5,997,938 3,201
Gain on sales of properties, plant and equipment ....... (4,826)
Minority interest ...................................... 5,218,359 10,967,793 9,630,196 5,139
Net inflation adjustment from balance sheet accounts ... (4,058,724) (17,229,636) (17,145,651) (9,150)
Deferred monetary correction, net ...................... 588,055 (1,771,562) 343,526 183
Changes in operating assets and liabilities:
Accounts receivable .................................... (17,125,809) (32,615,460) (79,523,825) (42,441)
Inventories ............................................ (283,166) (566,403) 571,889 305
Prepaid expenses ....................................... (435,192) (145,572) 482,443 257
Deferred costs ......................................... (9,910,140) (13,275,656) (3,544,954) (1,892)
Other assets............................................. (306,850) (1,151,368) (6,299,701) (3,362)
Accounts payable ....................................... 5,491,510 13,182,849 14,091,878 7,521
Labor liabilities ...................................... 355,641 343,393 102,068 54
Tax liabilities ........................................ 1,510,099 2,614,795 18,903,380 10,091
Accrued pension obligations.............................. (531,725) (486,775) (260)
Other liabilities........................................ 9,292,990 12,343,860) (1,393,320) (744)
------------ ------------ ----------- --------
Net cash (used for) provided by operating activities .. (855,504) (17,470,257) 8,730,149 4,659
------------ ------------ ----------- --------
Cash flows from investing activities:
Purchases of properties, plant and equipment .............. (57,818,159) (80,723,285) (85,172,435) (45,455)
Advances on properties, plant and equipment ............... (11,430,015) (15,896,685) (2,150,035) (1,147)
Acquisition costs ......................................... (4,032,653)
Payment for purchase of Cablevision, net of cash acquired... (22,095,823)
Sales of properties, plant and equipment.................... 188,473
Purchases of investments .................................. (282,225,676) (156,839,138) (15,523,524) (8,285)
Proceeds from maturity of short-term investments .......... 113,322,534 256,953,758 73,551,568 39,254
Proceeds from sale of temporary investments ............... 3,467,203 4,905,069
------------ ------------ -------------- -----------
Net cash used by investing activities ................. (238,716,766) (13,507,631) (29,294,426) (15,634)
------------ ------------ ----------- --------
Cash flows from financing activities:
Senior Notes due 2007 ..................................... 243,736,098
Senior Discount Notes due 2008 ............................ 25,359,228
Issuance costs of Senior Notes and Senior Discount Notes .. (34,012,477) (1,117,631)
Bank overdrafts borrowings ................................ 21,024,391 5,499,086 6,097,360 3,254
Issuance of other debt...................................... 139,908,448 37,504,430 6,335,430 3,381
Bank overdrafts repayments ................................ (20,380,050) (11,234,650) (2,767,590) (1,477)
Repayments of other debt.................................... (185,400,700) (38,716,372) (19,675,177) (10,500)
Shares issued for cash .................................... 40,622,556
Dividends paid to minority interest ...................... (2,367,244) (5,652,135) (3,016)
Sale of customer accounts receivable ...................... 10,410,930 8,038,143 23,220,827 12,393
Repayments of capital lease obligations ................... (712,223) (8,507,197) (9,073,623) 4,842
------------ ------------ ----------- --------
Net cash provided by financing activities .............. 215,196,973 14,457,793 (1,514,908) ( 808)
------------ ------------ ----------- --------
Effect of revaluing to constant pesos ...................... 10,433,118 16,901,451 23,404,614 12,491
------------ ------------ ----------- --------
Net (decrease) increase in cash............................. (13,942,179) 381,356 1,325,429 708
Cash at beginning of year ................................. 17,479,280 3,537,101 3,918,457 2,091
------------ ------------ ----------- --------
Cash at end of year ........................................ Ps 3,537,101 Ps 3,918,457 Ps 5,243,886 $ 2,799
============= ============== ============ ========
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest ................................................. Ps 15,545,004 Ps 46,270,492 Ps 45,901,994 $ 24,497
============= ============== ============= ========
Income taxes ............................................. Ps 3,042,763 Ps 7,536,553 Ps 7,837,068 $ 4,183
============= =============== ============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Pesos of December 31, 1999--Note 2, unless otherwise specified)
Note 1--Reporting Entity
Transtel S.A. (hereafter, Transtel S.A. and its subsidiaries are referred
to as the "Company" or "Transtel") was created under Colombian law on August 23,
1993 for a term expiring on August 23, 2023; this term may be extended by an
amendment of the Company's bylaws. Transtel maintains its accounting records and
prepares its financial statements in Colombian pesos ("Pesos"). As more fully
explained in Note 2, the accompanying annual financial statements are restated
in constant Pesos of December 31, 1999 purchasing power.
The Company's business consists of the design, installation, operation and
ownership of fixed telephony networks in various areas of Colombia and,
commencing in 1998, the operating of pay television services in Cali.
To date, Transtel has grown primarily through the formation of subsidiaries
with municipalities as their minority shareholders. Transtel contributed cash
(except in the case of Caucatel where Transtel's contribution consisted of cash
and equipment) to each subsidiary in exchange for a majority ownership. In
exchange for a minority ownership position in the subsidiary, the relevant
municipality either (i) transferred its currently owned telecommunications
infrastructure along with its cooperation in various forms, including the
provision of its demographic information and the required civil works permits on
an expedited basis, or (ii) where such current infrastructure does not exist,
contributed nominal cash and demographic information and permits cooperation
only. Once the subsidiary structure is in place, Transtel then focuses on
expanding the subscriber base and either upgrading the current infrastructure or
building a new infrastructure, as the case may be.
As of December 31, 1999, Transtel has formed nine operating subsidiaries as
shown in the following chart:
<TABLE>
<CAPTION>
Date
Primary Date commercial Percent
area Incorporated operations owned by
Subsidiary 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 95.0
Empresa de Tel fonos de Palmira S.A., E.S.P......... Palmira and
("TelePalmira") .................................. Candelaria 5/31/95 9/1/95 60.0
Telefonos de Cartago S.A., E.S.P.
("TeleCartago") ................................. Cartago 1/3/97 4/1/97 65.0
Caucatel S.A., E.S.P. ("Caucatel").................. Popayan 4/30/97 5/1/97 51.0
Bugatel S.A., E.S.P. ("Bugatel").................... Buga 6/16/97 7/1/97 60.0
Empresa de Telecomunicaciones de Girardot S.A.
E.S.P. ("TeleGirardot")............................ Girardot 12/31/97 1/1/98 60.0
Suscripciones Auduovisuales S.A..................... Cali 1/31/98 100.0
Cablevision S.A..................................... Cali 1/31/98 100.0
</TABLE>
In addition to the above subsidiaries, Transtel formed TeleCauca S.A.
E.S.P. as a 94% 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.
Transtel S.A. was in the preoperating stage until September 1, 1995. As of
December 31 1999, Transtel S.A. had no significant operations or assets and
liabilities except for its investments in its subsidiaries, the issuance of the
Senior Notes due 2007 and the Discount Notes due 2008 and the investments of a
portion of the proceeds therefrom.
F-9
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
TeleJamundi and Unitel were formed by Transtel S.A. contributing cash of
Ps31,852 and Ps98,527, respectively, for a 70.0% and 80% interest, respectively.
In December 1997, Transtel purchased an additional approximately 15% ownership
investment in Unitel by exchanging Ps7,110,165 of its advances to Unitel for
Unitel shares. In December 1999, Transtel purchased an additional approximately
29.8% ownership investment in TeleJamundi by Ps4,709,446, corresponding to a
liability capitalization. The municipalities of Jamundi and Yumbo contributed
Ps13,650 and Ps24,633 in cash for their minority interests in TeleJamundi and
Unitel, respectively, as these municipalities did not own existing telephony
systems.
Telepalmira was formed on May 31, 1995 by Transtel S.A. contributing cash of
Ps17.520 billion for a 60% interest and the municipality of Palmira contributing
a portion of its telephony system with a fair value of Ps11.678 billion for a
40% minority interest. Concurrently, Telepalmira purchased the remaining assets
of Palmira's telephony system for Ps15,768 billion in cash.
During the year ended December 31, 1997, Transtel S.A. acquired the telephony
operations of the municipalities of Cartago, Popayan, Buga and Girardot. The
acquisitions were effected by Transtel S.A. forming subsidiaries with the
municipalities having a minority interest as follows:
<TABLE>
<CAPTION>
Transtel S.A. Municipality
--------------------------------------------- ---------------------------------------
Ownership Ownership
------------------- --------------
Investment Percentage Investment Percentage
----------------------- ------------------- ---------------------- --------------
<S> <C> <C> <C> <C>
TeleCartago .................. Ps 5,447,823(1) 65% Ps 2,933,442(3) 35%
Caucatel ..................... 9,928,896(2) 51 9,667,258(4) 49
Bugatel ...................... 7,962,083(1) 60 5,329,981(3) 40
TeleGirardot ................. 11,604,827(1) 60 7,736,611(4) 40
--------------- --------------
Ps 34,943,629 Ps 25,667,292
=============== =============
</TABLE>
(1) Cash invested by Transtel S.A.
(2) Cash of Ps2,038,971 and equipment with a cost of Ps7,889,925 were
contributed by Transtel S.A.
(3) Portions of the telephony systems of Cartago and Buga were contributed
to the subsidiaries and recorded at estimated fair value.
(4) The entire telephony system was contributed to the subsidiary and
recorded at the municipality's historical book value plus Transtel's portion
of the excess of fair value over that book value.
Upon formation, TeleCartago and Bugatel paid the municipalities of Cartago and
Buga Ps11,665,452 and Ps6,777,383, respectively, in cash for the portion of
their telephony systems not contributed in exchange for stock in the related
subsidiary. Transtel financed these acquisitions by borrowing Ps18,442,833 from
banks.
On December 31, 1997, TeleGirardot was formed by Transtel contributing
Ps11,604,827 in cash for its 60% interest and the municipality of Girardot
contributing the net assets of its wholly-owned telephone subsidiary, Empresa de
Telecomunicaciones de Girardot E.S.P. ("Girardot Telephone"), totaling
Ps7,736,611 for its 40% minority interest. Transtel used a portion of the
proceeds from the Senior Notes due 2007 (see Note 12) to finance its investment
in TeleGirardot. The transaction has been accounted for at the municipality's
historical book value plus Transtel's portion of the excess of fair value over
that book value since prior accounting records for Girardot telephone are
available.
F-10
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July and September 1998, the Company acquired 97% of Suscripciones
Audiovisuales S.A. and Cablevision S.A. (together "Cablevision") for
Ps14,763,318 and Ps 6,745,898 in cash, respectively. The Company acquired the
remaining 3% of both companies on December 15, 1998 for Ps 836,889 in cash.
These companies own and operate the only license for the operation of pay
television services in the city of Cali and its surrounding area. Transtel used
a portion of the proceeds from the Senior Notes to finance this purchase.
Because of the step acquisition of Cablevision, the consolidated income
statement for the year ended December 31, 1998 includes Cablevision's income
statement from January 1, 1998 with its preacquisition net loss reflected in
minority interest.
Except for TeleGirardot and Cablevision, separate financial information of the
operations prior to the acquisitions by the Company does not exist, thus, no pro
forma statement of income information is included herein for any of the above
acquisitions, except for TeleGirardot and Cablevision.
The following consolidated unaudited pro forma information of Transtel S.A. is
presented as if the acquisitions of Girardot Telephone and Cablevision had
occurred on January 1, 1997.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Revenues.................................................. Ps 45,366,542 Ps 93,886,463 Ps 130,317,180
Net income (loss) ....................................... (7,321,521) 10,086,927 2,595,394
Earnings (loss) per share (in single Pesos per share)..... (1.66) (1.61) 0.07
</TABLE>
The above pro forma presentation is not comparable since the 1996 information
only includes the Girardot Telephone acquisition. The net loss of Girardot
Telephone that is included in the above pro forma information for the year ended
December 31, 1997 includes a litigation loss of Ps2,790,194 and the related
income tax benefit of Ps195,272 (see Note 20). Additionally, connection fees
revenues decreased approximately Ps2,450,294 from 1996 to 1997 at Girardot
Telephone because of a lack of network capacity at Girardot Telephone during
1997.
Note 2--Basis of Financial Statement Presentation
Consolidation
Companies in Colombia must keep their accounting records and prepare their
financial statements in conformity with rules prescribed by the Government of
Colombia. These are considered by law to be accounting principles generally
accepted in Colombia ("Colombian GAAP"). Consolidated financial statements in
Colombia include the subsidiaries in which the Company owns, directly or
indirectly, more than 50% of the common stock. All of the Company's subsidiaries
are consolidated, eliminating intercompany accounts and transactions.
Inflation accounting
The consolidated financial statements, as required by law, have been adjusted
for the effects of inflation on the basis of changes in the official Colombian
middle-income consumer price index ("MCPI"). This index is applied, on a one-
month lagging basis, to nonmonetary assets and liabilities, shareholders' equity
(excluding the surplus from reappraisal of assets) and revenue and expense
accounts. Monetary balances have not been adjusted because they reflect the
purchasing power of the currency at the date of the balance sheet. The Company's
management considers that the application of the one-month lagging basis in the
inflation adjustments does not deviate materially from the calculation performed
on a current-month basis.
F-11
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The adjusted costs of the non-monetary assets may not exceed the net
realizable value of the assets.
The exposure to inflation is reflected in each non-monetary item of the
consolidated financial statements. The net gain or loss from exposure to
inflation is reflected as "Net monetary inflation adjustment income (loss)" in
the consolidated statements of income. The individual components of the
consolidated statements of income have been adjusted to reflect the effect of
inflation during the year. The net effect of inflation during the year on these
revenue and expense components is recorded as a portion of the "Net monetary
inflation adjustment income (loss)" account.
Accordingly, the "Net monetary inflation adjustment income (loss)" shown in
the income statement of the Company is the result of netting or offsetting the
following items:
A. A credit (or income entry) for inflation affecting non-monetary assets;
B. A charge (or expense entry) for inflation affecting non-monetary liabilities
and shareholders' equity; and
C. Charges and credits (for expense and income entries) representing inflation
adjustments made to expenses and revenues, respectively. Since monetary
inflation adjustments are offset in the net monetary inflation adjustment
account in the statement of income, the net effect on net income from the
expense and income inflation adjustments is zero. The inflation adjustments
to revenue and expenses are included in the individual revenue and expense
captions in the consolidated income statements.
Because expense and revenue inflation adjustments net to zero, the only impact
on the consolidated statement of income of the effects of inflation is
attributable to the restatement of non-monetary assets and liabilities and
shareholders' equity accounts.
The financial statements for 1997 and 1998 have been restated to constant
pesos of purchasing power of December 31, 1999. The constant pesos amounts have
been determined by applying an index derived from the MCPI to the nominal
amounts reflected in the statutory financial statements prepared under Colombian
GAAP. The indexes applied to the nominal financial statements data for 1997 and
1998 were, 1.2683 and 1.0963 , respectively. Some components of the
consolidated statements of cash flows, of changes in financial position and of
changes in shareholders' equity were restated using 1.0963 index.
On December 24, 1998, the Colombian Congress decreed a National Fiscal and
Accounting Change to apply after January 1, 1999. This regulation eliminated
future inflation adjustments relating to inventories and revenues and expenses.
Note 3--Summary of Significant Accounting Policies
The Company's significant accounting policies and procedures are described
below:
Investments
Investments in equity securities in which ownership is temporary are carried
at cost. Investments in U.S. Treasury Bills and interest-only strips held in the
Escrow Account are held-to-maturity investments and are carried at maturity
value with unearned interest recorded as a liability (amortized cost).
Investments in Ordinary Common Funds (fiduciary managed unit investments in debt
securities) are carried at cost, including reinvested interest income.
Investments in the Refinancing Account consist of money market funds and are
carried at cost.
F-12
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Properties, plant and equipment
Except for TeleGirardot, the amounts recorded for telecommunications equipment
and networks that were contributed to subsidiaries by municipalities and
minority interest are valued at estimated fair value of the equipment and
networks and are in proportion to the cash or fair value of assets contributed
to the subsidiaries by Transtel since the historical book value records of
these municipalities are non-existent or unreliable. Since reliable historical
book value amounts are available for Girardot Telephone, the Company recorded
the net assets obtained in that acquisition at the municipality's historical
book value plus Transtel's portion of the excess of fair value over that book
value was recorded as goodwill. Other purchases from municipalities are recorded
at amounts payable in cash. Subsequently, these assets are adjusted for
inflation.
Other properties, plant and equipment are recorded at historical cost adjusted
for the effects of inflation. Sales and retirements of these assets are removed
at their net inflation-adjusted cost, and differences between sale proceeds and
net inflation-adjusted cost were recorded as gains or losses, according to each
case.
Disbursements for additions to and substantial improvements of assets are
capitalized and adjusted for inflation. Interest costs incurred during the
construction period are capitalized. Maintenance and repair expenditures are
expensed as incurred.
Depreciation is calculated on the basis of the cost of assets, adjusted for
inflation, over their estimated useful lives as follows:
<TABLE>
<CAPTION>
Life in years
------------------
<S> <C>
Buildings.............................................. 20
Office equipment....................................... 10
Computer and communications equipment.................. 5
Telecommunication equipment............................ 20
External telephony networks . 20
Vehicles............................................... 5
</TABLE>
Allowance for doubtful accounts
The allowance for doubtful accounts is reviewed and updated at the end of each
year on the basis of evaluations of collectibility based on agings of customer
receivables and management's judgment. Uncollectible balances are periodically
charged against the allowance account.
Deferred costs
Items recorded as deferred costs include disbursements for software, leasehold
improvements, organization costs, preoperating expenses until Transtel S.A. and
each subsidiary commences commercial operations, costs of market and demand
studies and investigations, costs related to several acquisitions and Senior
Notes issuance costs. Acquisition costs represent payments made to certain
municipalities in connection with the acquisition of their telephony operations
to pay severance and pension costs of certain employees. In addition, the
Company has recorded as deferred costs interest on the financing of its
investments in and advances to its subsidiaries until their commercial
operations commence, interest on equipment under installation and interest and
exchange losses on the financing of its expansion plan projects from the date
that the proceeds are obtained until the projects are completed.
F-13
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These deferred costs are adjusted for inflation with a credit to "Deferred
monetary correction", a liability, and, concurrently, the inflation adjustment
of the part of shareholders' equity used to finance such costs is deferred by a
debit to an asset account "Deferred monetary correction". All deferred costs,
except Senior Notes issuance costs, and expenses arising from monetary
correction are amortized over five years on a straight-line basis from the
acquisition date, the studies and investigations and expansion plan projects
completion date, or the date when commercial operations begin, as the case may
be. The Senior Notes and Senior Discount Notes issuance costs are amortized on a
straight-line basis over the life of the bonds.
Goodwill
Goodwill represents Transtel's portion of the excess of the fair value over
the book value of the assets and liabilities acquired at the acquisition date of
Girardot Telephone. Negative goodwill represents the excess of the net book
value of Cablevision (including surplus from reappraisal of assets) over the
purchase price paid. Goodwill and negative goodwill are amortized over five
years on a straight-time basis from the acquisition dates.
Reappraisal of assets
Reappraisals of properties, plant and equipment, which increase shareholders'
equity are calculated as the excess of appraised values of properties, plant and
equipment (as periodically established by independent appraisers) over their net
adjusted book values. The initial reappraisal was recorded in 1996. Such
reappraisal amounts are not depreciated. A provision charged to income is
recorded when appraisals are lower than the net adjusted book value of
properties, plant and equipment.
Translation of foreign currency transactions and balances
Foreign currency transactions and balances are translated into Colombian pesos
at the representative market exchange rate. This representative rate for the
United States dollar in Colombian nominal pesos was, Ps1,293.58 , Ps1542.11 and
1873.77 per $1 at December 31, 1997, 1998 and 1999, respectively. Foreign
exchange differences are recognized as financial income or expense. Foreign
currency balances were borrowings from financial entities (Note 12), other
liabilities (Notes 16 and 20) and Senior Notes (Note 12) totaling $157,102.275
(Ps294,373,530) at December 31, 1997, $189,616.000 (Ps355,296,772) at December
31, 1998 and $157,787.000 (Ps295,656,907) at December 31, 1999, and certificates
of deposits and investments (Note 4) of $54,318.325 (Ps101,780,048) at December
31, 1997, $33,469.743 (Ps62,714,600) at December 31, 1998.
Labor liabilities
Labor liabilities are adjusted at the end of each accounting period by
reference to legal provisions and labor agreements in force.
F-14
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the Colombian Labor Code, the Company is subject to Law
100, which requires that the Company and its employees contribute monthly to a
pension fund or the Social Security Institute based on a percentage of salaries.
On December 31, 1997, the Company assumed the defined benefit pension liability
of Girardot Telephone for certain personnel of the municipality of Girardot that
are retired or became employees of the Company. The liability which was assumed
was recorded on the basis of actuarial studies and reflected all pension
liabilities earned by the Girardot Telephone employees through December 31,
1997. Subsequent adjustments in 1998 to the defined benefit pension liability
are based on an additional actuarial study.
Under Colombian labor regulations and Law 50, most Transtel employees other
than executives are entitled to receive one month's salary for each year of
service. The Company contributes these amounts within 30 days of its year-end to
a fund established by each employee.
Recognition of revenues, costs and expenses
Revenues for telephone and pay television services are recognized in the
period during which the services are provided. Revenues from settlement of
traffic for national and international long distance calls are recognized on a
net basis and are based on estimates of traffic volume and rates. Certain
telephone revenues subject to final settlement are not recorded until
realization is probable. 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. Actual connection with a
dial tone takes place within a day to approximately three months depending on
the customer's location in relation to the buildup of the system. Connection
fees for subscribers to pay cable television are recorded as income to the
extent of direct costs. The amounts in excess of direct costs, if any, are
deferred and amortized over the estimated average period of the subscription.
The Company has expensed all costs relating to programming. The Company
expects its prematurity period to end on December 31, 2000. Depreciation expense
of the cable plant, which is substantially finished, during the prematurity
period is calculated based on the normal expected depreciation times a ratio
that is the average subscribers in the year divided by the total expected
subscribers at the end of the prematurity period.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Subsequent resolution of some matters could differ from
those estimates.
Income tax
The tax provision includes tax resulting from timing differences of items
which enter into taxable income in periods which differ from those recorded for
financial statement purposes. The tax benefit or expense relating to such timing
differences is recorded in net deferred income tax asset or liability accounts.
F-15
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Memorandum accounts
Items recorded as memorandum accounts include guarantees, remaining payments
on lease agreements and assets given as collateral. Contingent responsibilities
mainly represent the amounts of promissory notes receivable from connection fees
sold during 1997 and 1998 to a financial institution with no recourse to be
collected on behalf of the financial institution. Memorandum accounts called
fiscal accounts are also recorded for differences between financial statement
and data for income tax purposes. Nonmonetary memorandum accounts are adjusted
for inflation, with a charge or credit to reciprocal memorandum accounts.
Commitments represent the amount of agreements/contracts entered into with
third parties.
Statement of cash flows
For purposes of reporting cash flows, cash and cash equivalents are defined as
cash and highly liquid debt instruments with an original maturity of three
months or less, except those investments in Ordinary Common Funds and the
Refinancing Account which the Company considers part of its investing
activities. The statements of cash flows are prepared substantially in
conformity with generally accepted accounting principles in the United States
("U.S. GAAP").
During 1997, the Company recorded non-cash transactions for properties, plant
and equipment and minority interest of Ps25,667,294, related to the acquisitions
of the telephony assets of municipalities. An additional Ps25,808,582 of
properties, plant and equipment and various other net liabilities were recorded
as part of the acquisition of Girardot Telephone in 1997 and Ps37,814,846 of
properties, plant and equipment and reappraisals were recorded as part of
acquisition of Cablevision in 1998. Additionally, the Company recorded non-cash
transactions for land, equipment, capital lease and other obligations of
Ps7,988,596, Ps42,682,121 and Ps12,592,702 in 1997, 1998 and 1999, respectively.
Earnings per share
Earnings per share are computed by dividing net income applicable to common
shares by the weighted average number of subscribed and paid shares outstanding
for each year presented. Transtel's weighted average number of shares used in
the computation of earnings per share was 4,433,250,509, 6,271,965,569 and
34,611,747,976 in 1997, 1998 and 1999.
Convenience translation to U.S. dollars (unaudited)
The U.S. dollar ("Dollar") amounts presented in the financial statements and
accompanying notes have been translated from the Peso figures solely for the
convenience of the reader, at the exchange rate of 1,873.77 Pesos per Dollar,
which approximates the exchange rate which existed at December 31, 1999. Such
translation should not be construed as representations that the Peso amounts
represent, or have been or could be, converted into Dollars at that or any other
rate.
F-16
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Investments
Short-term and temporary investments consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1997 1998 1999
---------------- ---------------- ---------------
<S> <C> <C> <C>
Certificates of deposits (includes $2,860,398 in 1997) Ps 55,031,607 Ps 8,573,349 Ps 8,104,367
Escrow Account ($18,750,000) ............................ 30,761,418 31,699,035
Refinancing Account (includes $14,610,878) .............. 25,140,630
Investments in Ordinary Common Funds ($15,560,088 in
1997 and $14,338,921 in 1998)....................... 22,066,566 24,241,600 400,672
----------- ------------- ------------
Ps 133,000,221 Ps 64,513,984 Ps 8,505,039
============== ============= ============
</TABLE>
Long-term investments consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Escrow Account ($17,877,489 ) .............................. Ps 30,761,418 Ps Ps -
Certificates of deposits due in 2001 ....................... 8,406,906 2,361,909 525
Other investments............................................ 672,505 853,964 1,273,852
------------- ------------ -------------
Ps 39,840,829 Ps 3,215,873 Ps 1,274,377
============= ============ =============
</TABLE>
On August 31, 1996, the Company received 100% of the shares of Coinversiones
S.C.S., formerly Gonzalo Caicedo Toro & Cia. S.C.S. "GCT & Cia.",
("Coinversiones") from Mr. Gonzalo Caicedo Toro, a shareholder of the Company,
for Ps3,467,203 in payment of the Company's net advances to him (see Notes 5 and
29). Coinversiones owns 6% of the Company and an interest in Colombina S.A., a
candy manufacturer in Colombia. The Company pledged the shares of Coinversiones
as collateral for certain of its borrowings. On July 21, 1997, the Company sold
the shares in Coinversiones to Mr. Caicedo for cash equal to the price paid by
the Company. Since the Company's ownership of Coinversiones was temporary, the
investment was recorded at cost as a temporary investment at December 31, 1996.
The Escrow Account is a trustee administered account containing U.S. Treasury
Bills and interest-only strips that secures the interest payments on the 12 1/2%
Senior Notes due 2007 for the years ending December 31, 1998 and 1999. The
Refinancing Account is also a trustee administered account that contains a
portion of the proceeds of the 12 1/2 % Senior Notes due 2007 that is required
to be used to retire other borrowings. The investments in the Refinancing
Account consist of money market funds. On January 9, 1998, the Company used
Ps9,843,655 of the Refinancing Account to pay the remaining other borrowings. In
July and September 1998 the trustee returned the remaining balance of the
Refinancing Account to Company for use in other corporate purposes.
Balances in the Escrow Account at December 31, 1998 partially secure the
Senior Notes due 2007.
Certificates of deposits earned interest at rates between 20% and 22% in 1997,
20% and 24% in 1998 and 18.6% and 22.7% in 1999.
The Ordinary Common Funds fund investments earned interest at an average rate
in 1997 and 1998 of 21% and 22% for Peso balances, respectively, and 6% and 5%
for foreign currency balances, respectively.
F-17
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Accounts Receivable, Net
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1998 1999
----------------- ---------------- -----------------
<S> <C> <C> <C>
Subscribers ...................................... Ps 20,639,994 Ps 56,608,233 Ps102,497,516
Advances to Siemens S.A. (see Note 30) ......... 6,627,184 2,978,043 6,751,730
Advances to IBM for equipment purchases ........ 1,188,362 333,594
Tax prepayments and other advances ............. 5,103,575 16,225,350 631,492
Employees ...................................... 38,045 33,700 29,316
Global Telecommunications Operations, Inc.,
A related party (see Note 30) ............... 3,640,838 1,785,262 971,453
Other receivables .............................. 2,930,767 3,864,382 29,184,772
----------- ----------- -----------
40,168,765 81,828,564 140,066,279
Less--Allowance for doubtful accounts .......... (1,775,015) (2,537,299) (11,782,809)
----------- ----------- -----------
38,393,750 79,291,265 128,283,470
----------- ----------- -----------
Less--Noncurrent portion-subscribers ........... (6,286,790) (30,457,763) (50,378,626)
Noncurrent advances to IBM, Siemens S.A
And Global Telecommunications
Operations, Inc and other.................. (11,430,015) (15,896,685) (2,150,035)
----------- ----------- -----------
(17,716,805) (46,354,448) (52,528,661)
----------- ----------- -----------
Ps 20,676,945 Ps 32,936,817 Ps 75,754,809
============= ============= ==============
</TABLE>
The activity in the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1997 1998 1999
---------------- --------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year ............................. Ps 16,102 Ps 1,775,015 Ps 2,537,299
Provision .............................................. 241,495 1,002,966 9,460,831
Balance from Girardot Telephone acquisition ............ 1,517,418
Effect of revaluing to constant pesos.................... (240,682) (215,321)
--------- --------
Balance at end of year .................................. Ps 1,775,015 Ps 2,537,299 Ps 11,782,809
============ ============ =============
</TABLE>
Receivables from subscribers at December 31, 1997, 1998 and 1999 include
Ps7,988,153, Ps40,157,397 and Ps51,561,130, respectively, for connection fees
represented by promissory notes payable over up to 36 months at 37.2% annual
interest. During 1997, the Company sold with recourse promissory notes from
subscribers totaling Ps10,410,930 (including Ps1,601,091 existing at December
31, 1996) to a financial institution at book value. On December 17, 1997, the
recourse provisions for all outstanding receivables previously sold to the
financial institution and on all future sales of receivables were removed.
During 1998, the Company sold with no recourse promissory notes from subscribers
totaling Ps 8,476,663 at book value. The Company continues to collect principal
and interest from these subscribers and remits such amounts to the financial
institution. Although the Company is unable to estimate the fair value of the
servicing, it believes its cost of servicing these accounts is nominal. The
allowance for doubtful accounts at December 31, 1997 was adequate to cover the
Company's recourse obligation. The uncollected balance of promissory notes sold
to the financial institution at December 31, 1998 is Ps8,464,951. Subsequent to
December 31, 1998, the Company sold with no recourse Ps1,454,553 of the December
31, 1998 balance from subscribers.
F-18
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1997 1998 1999
------------------ ----------------------- -----------------
<S> <C> <C> <C>
Materials ................................ Ps 356,472 Ps 1,738,143 Ps 1,731,808
Cables ................................... 602,723 1,010,461 522,276
Spare parts .............................. 214,297 418,138 389,538
Other .................................... 41,391 80,565 85,580
------------------ ----------------------- ----------------
1,214,883 3,247,307 2,729,202
Less--Allowance for writedown of ------------------ ----------------------- ----------------
inventories .......................... (321,207) (374,991)
------------------ ---------- ---------
Ps 1,214,883 Ps 2,926,100 Ps 2,354,211
================== ======================= ================
</TABLE>
Note 7--Properties, Plant and Equipment, Net
Properties, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1997 1998 1999
------------------- ------------------------ -----------------
<S> <C> <C> <C>
Land ......................................... Ps 4,937,719 Ps 6,688,531 Ps 6,898,864
Office and computer equipment ................ 2,610,376 4,171,662 31,024,920
Communications equipment ..................... 954,627 4,290,152 4,778,729
Telecommunications equipment ................. 47,946,189 97,351,018 94,395,906
External telephony networks .................. 45,424,589 125,214,439 113,228,422
Vehicles ..................................... 465,431 888,334 1,795,695
----------- ----------- -----------
145,126,825 297,003,916 402,823,409
Less--Accumulated depreciation ............... (1,393,426) (6,450,339) (11,697,668)
------------------ ----------------------- ----------------
Ps 143,733,399 Ps 290,553,577 391,125,741
Less--Allowance for writedown of............... ------------------ ----------------------- ----------------
properties, plant and equipment ............ (121,244) (1,038,053) (8,411,550)
------------------ ----------------------- ----------------
Ps 143,612,155 Ps 289,515,524 Ps 382,714,191
</TABLE>
Land and buildings at December 31, 1997, 1998 and 1999 include Ps1,849,800
Ps4,015,514 and Ps 2,960,318 capitalized under capital leases. Additionally,
office and computer equipment at December 31, 1997, 1998 and 1999 includes
Ps247,881, Ps4,700,881 and Ps6,235,022, respectively, capitalized under capital
leases (see Note 19).
Construction in progress at December 31, 1997,1998 and 1999 consists primarily
of external telephony networks (Ps20,503,856 ,Ps35,622,010 and Ps117,468,378),
telecommunications equipment (Ps7,191,241 Ps1,464,720,and Ps3,904,246) and
buildings (Ps8,020,947 Ps9,580,823 and Ps21,395,051), respectively. The December
31, 1997 and 1998 construction in progress--telecommunications equipment
primarily consists of Ps6,080,211 and Ps505,904 related to projects assumed in
TeleGirardot's acquisition, respectively. The December 31, 1998 construction in
progress--building includes Ps860,819 relating to TeleGirardot.
F-19
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Land and buildings at December 31, 1997, 1998 and 1999 include real estate
purchased by the Company in 1996 from Mr. Gonzalo Caicedo Toro, a shareholder,
for Ps2,122,620, Ps2,061,668 and Ps2,074,475, respectively (see Note 29).
Note 8--Deferred Costs
Deferred costs consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1998 1999
----------------- ----------------- ----------------
<S> <C> <C> <C>
Software ................................................ Ps 835,359 Ps 888,264 Ps 852,259
Leasehold improvements and other ........................ 734,330 765,751 780,011
Organization costs ...................................... 484,151 1,488,479 821,821
Preoperating expenses ................................... 3,890,574 5,078,297 6,944,350
Market and demand studies and
Investigations ........................................ 4,514,991 5,094,342 5,946,530
Interest costs of investments in and advances
To subsidiaries and on installation of
Equipment ............................................. 18,954,494 18,972,328 15,311,350
Interest costs of expansion plan projects ............... 2,183,961 5,516,416 5,031,849
Exchange loss costs of expansion plan
Projects .............................................. 303,117 4,801,201 5,227,290
Issuance costs of Senior Notes
And of Senior Discount Notes ......................... 31,525,398 35,909,889 39,776,525
Acquisition costs ....................................... 4,032,653 4,066,323 4,292,074
---------- ----------- -----------
67,459,028 82,581,290 84,984,059
Less--Accumulated amortization .......................... (5,586,475) (15,251,932) (29,132,167)
---------- ----------- -----------
Ps 61,872,553 Ps 67,329,358 Ps 55,851,892
============= ============= =============
</TABLE>
Note 9--Other Assets
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1998 1999
---------------- ----------------- ----------------
<S> <C> <C> <C>
Goodwill ................................................. Ps 1,994,935 Ps 2,030,910 Ps 1,507,328
Deferred income tax asset, net (see Note 18) ............. 4,658 465,900 4,238,127
Spectrum usage............................................ 503,150 434,926 3,045,388
Fiduciary Guarantee Trust................................. 0 1,162,546 3,268,646
Licenses.................................................. 0 1,741,513 4,862,248
Other..................................................... 280,692 617,081 1,163,274
--------- ---------- ----------
2,783,435 6,452,876 18,085,011
Less--Accumulated amortization ........................... (42,070) (1,029,071) (6,361,505)
--------- ---------- ----------
Ps 2,741,365 Ps 5,423,805 Ps 11,723,506
============ ============ =============
</TABLE>
The Fiduciary Guarantee Trust hold land and buildings which are pledged to
secure borrowings from financial entities of Ps810,069.
F-20
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Reappraisal of Assets
Reappraisal of certain assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Reappraisal of properties, plant and equipment ..... Ps 20,156,974 Ps 35,945,811 Ps 37,852,181
Less--Reappraisal related to minority interest .. (8,215,320) (8,926,275) (10,252,990)
Less--Reappraisal of assets from wholly-owned
company acquired (Cablevision) ................ (11,344,018) (9,774,181)
------------- --------------
Total reappraisal of assets recorded ............ Ps 11,941,654 Ps 15,675,518 Ps 17,825,010
In shareholders' equity......................... ================ ================ ===============
</TABLE>
The Ps9,774,181 is included in the negative goodwill recorded is Note 20
that is amortized to income over a five-year period.
Note 11--Memorandum Accounts
Memorandum accounts consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Debit fiscal (tax) accounts .............................. Ps 10,276,277 Ps 178,455 Ps 1,746,714
Credit fiscal (tax) accounts ............................. 9,562,990 34,091,586 31,097,602
Pledged income (see Note 12) ............................. 7,229,140
Remaining payments on operating lease agreements
(see Note 19) .......................................... 5,410,487 5,397,246 4,337,373
Commitments under the Global Lease agreements
(see Note 30) ......................................... 191,167,489 151,667,437 203,014,388
Assets given as collateral (Note 4)........................ 86,663,467 31,699,035 4,714,129
Commitments under contracts and agreements ............... 15,385,870 14,611,179 6,406,751
Commitments under IBM's lease agreements................... 5,538,974
(see Note 30) ......................................... 821,893 910,933
Commitments under contracts with Siemens
(see Note 30) ......................................... 29,038,779, 17,879,133
Commitments under contracts with DIAN
Financing........................................ 4,858,617 32,606,141
Promissory notes sold without recourse to be
Collected on behalf of a financial institution
(see Note 5) .......................................... 7,595,129 8,464,951 20,744,035
Other .................................................... 5,629,491 13,479,625 12,298,033
----------- ----------- -----------
Ps 373,498,093 Ps 265,270,024 Ps 335,755,232
================ ================ ================
</TABLE>
The assets given as collateral are summarized as following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1998 1999
---------------- ------------------ ---------------
<S> <C> <C> <C>
Escrow Account (see Note 4) ........................ Ps 61,522,837 Ps 31,699,035 Ps -
Feduciary Certificates ............................. 4,714,129
Refinancing Account (see Note 4) ................... 25,140,630
-------------- --------------
Ps 86,663,467 Ps 31,699,035 Ps 4,714,129
============== ==============
</TABLE>
F-21
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12--Debt
On October 28, 1997, the Company received the net proceeds from the sale of
$150 million (Ps246,091 billion) of its 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, and
other items, as follows:
<TABLE>
<CAPTION>
<S> <C>
Sale of 12 1/2% Senior Notes due 2007 ($150,000,000) ......................... Ps 246,091,349
Payment of existing debt. .................................................... (53,757,894)
Escrow Account for first two years interest payments ......................... (57,920,393)
Central Bank's withdrawal fee ................................................ (16,811,876)
Costs of issuance ............................................................ (13,578,720)
----------------
Cash available for the Company's expansion plan .............................. Ps 104,022,466
================
</TABLE>
The indenture of the 12 1/2% Senior Notes due 2007 imposes certain
limitations on the ability of the Company and its subsidiaries to, among other
things, incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, issue preferred stock, merge or
consolidate with any other person or sell, assign, transfer, lease, convey, or
otherwise dispose of all or substantially all of the assets of the Company and
its subsidiaries. Under the most restrictive of these covenants, the Company may
pay dividends of no more than Ps8,589,995 as of December 31, 1999.
Transtel S.A. is dependent upon the transfer of funds from its subsidiaries to
make the required interest and principal payments on the Senior Notes and the
Certificates. The subsidiaries have not guaranteed the payment of the Senior
Notes or the Certificates and have no obligations to remit dividends or other
distributions to Transtel S.A. for payment on the Senior Notes and the
Certificates.
On December 31, 1998, the Company sold $15.0 million (Ps28.1 billion) of its
20.32% Senior Discount Notes due 2008 in a private placement. The net proceeds
of approximately $14.3 million (Ps26.8 billion) will be used to acquire certain
minority interests in the Company's subsidiaries, to pay for capital
expenditures, to provide working capital and/or 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 (Ps162.8 billion) and principal of $15.0
million (Ps28.1 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. As of
March 13, 2000 the Company has not acquired any minority interests or provided
indebtedness to any subsidiary.
F-22
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1998 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Bank overdrafts ......................................... Ps 644,342 Ps 6,604,844 Ps 6,071,982
Borrowings from financial entities
Denominated in Pesos .............................. 5,952,886
Denominated in Dollars .......................... 7,600,523 796,276
Letters of credit .................................. 239,485
Other ............................................... 441,424
------------ -------------- -------------
Total short-term debt .............................. Ps 644,342 Ps 14,886,276 Ps 12,821,144
</TABLE>
The bank overdrafts and peso denominated borrowings from financial entities
bear interest at rates between 23% and 29% at December 31, 1999.
Other long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1997 1998 1999
----------------- ---------------- ----------------
<S> <C> <C> <C>
Borrowings from financial entities
Denominated in Dollars,
$5,822,528 in 1997 and $3,972,660 in 1998)............. Ps 9,843,655 Ps 6,716,239 Ps
Denominated in Pesos ................................... 6,756,777 4,551,554 3,322,949
----------- ----------- ---------
16,600,432 11,267,793 3,322,949
Less--Current portion....................................... (16,600,432) (1,605,223) (3,322,949)
----------- ----------- ----------
Total other long-term debt .......................... Ps Ps 9,662,570 Ps
============ ============= ==============
</TABLE>
The Ps9,843,655 borrowings were paid on January 9, 1998 from proceeds of the
12 1/2% Senior Notes due 2007, which were included in short-term and temporary
investments at December 31, 1997. The Ps6,756,777 borrowings were assumed in the
Girardot Telephone acquisition, were secured by a pledge of revenues of
Ps7,229,140 and were paid in January 1998 by the Company.
The Ps11,267,793 relates to borrowings by the Company for Cablevision
acquisition during 1998. The borrowings bear interest at 32% and was repayment
in 1999.
Note 13--Accounts Payable
Accounts payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Accrued interest expense ................................... Ps 5,461,011 Ps 6,443,915 Ps 5,855,531
Accrued costs and expenses of services ..................... 3,162,744 12,015,380 19,471,183
Empresa Nacional de Telecomunicaciones--long
distance ................................................. 3,787,658 2,715,778 2,969,620
Suppliers and trade current accounts ....................... 7,559,955 11,979,144 18,949,761
------------- ------------- -------------
Ps 19,971,368 Ps 33,154,217 Ps 47,246,095
============= ============= =============
</TABLE>
F-23
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14--Tax Liabilities
Tax liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Income tax withholdings .................................. Ps 279,965 Ps 348,969 Ps 557,262
Value-added tax payable.................................. 1,487,960 1,865,561 5,553,555
Income taxes payable ................................... 1,481,390 3,414,830 15,666,834
Other.................................................... 268 426,140 3,181,230
--------- --------- ----------
Ps 3,249,583 Ps 6,055,500 Ps 24,958,881
============= ============== ==============
</TABLE>
Note 15--Labor Liabilities
Labor liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Salaries payable Ps 105,666 Ps 6,811 Ps 5,865
Accrued severance compensation ......................... 218,900 507,731 582,548
Interest on severance compensation ..................... 51,528 70,291 64,941
Accrued vacation ....................................... 164,001 464,150 508,682
Other.................................................... 1,853 10,985 -
------- ------- --------
Ps 541,948 Ps 1,059,968 Ps 1,162,036
============ ============ =============
</TABLE>
Note 16--Other Current Liabilities
Other current liabilities consisted of:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel-Siemens Purchase
Agreement (see Notes 20 and 30) (in 1999 $425,710 $430,513, in
1998 and $276,008 in 1997)................................ Ps 466,623 Ps 727,831 Ps 797,674
Payable to Siemens S.A. for Turn-Key
Arrangement ($294,563).......................... 497,993
Payable to Siemens AG for other equipment (in 1999
$629,411 $1,031,891 in 1998 and $ 1,048,572
in 1997)........................................... 1,772,731 1,744,530 1,179,373
Payable to IBM ($411,477 in 1999 $26,852 in 1998 and
$73,946 in 1997).................................... 125,014 45,397 771,014
Spectrum usage fees payable to the
Colombian Ministry of Communications............ 503,150 - -
Unearned interest income ($914,915 in 1998
and $1,065,425 in 1997) ..................... 1,801,223 1,546,770
Deferred income-Girardot Telephone connection fees .. 2,450,635
Other................................................ 1,149,717 - 438,332
--------- --------- ---------
Ps 8,767,086 Ps 4,064,528 Ps 3,186,393
============= ============ ============
</TABLE>
The payable to Siemens AG for the Transtel-Siemens Purchase Agreement relates
to equipment acquired by Transtel S.A., which was contributed to Caucatel, after
progress payments of Ps912,668 ($487,076) had been made in 1997 (see Notes 20
and 30). The payable to Siemens S.A. at December 31, 1997 and 1998 is for the
TeleGirardot-Siemens Purchase Agreement (see Note 30). The liability to IBM
relates to equipment acquired directly by Caucatel.
F-24
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unearned interest represents the difference between the maturity value of the
Escrow Account (see Note 4) and the cost of the investments deposited with the
Escrow Account trustee less accumulated amortization. The balance of Ps
1,546,770 at December 31, 1998 will be earned in 1999. Deferred income-
connection fees represents the connection fees recorded by Girardot Telephone
(see Note 1) to conform to the Company's revenue recognition accounting policy
(see Note 2). During 1998, the Company determined that Ps932,184 of this
deferred income could not be recorded as income and reversed it against the
related subscriber receivables. The remaining Ps1,518,451 met the Company's
revenue recognition policy and was recorded as income in 1998.
Note 17--Accrued Pension Obligations
On December 31, 1997, the Company assumed the defined benefit pension
liability totaling Ps8,222,610, of Girardot Telephone for certain personnel of
the municipality of Girardot that are retired or became employees of the Company
and have subsequently retired. The liability which was assumed is recorded on
the basis of actuarial studies and reflects all pension liabilities earned by
the Girardot Telephone employees through December 31, 1997. Since the
acquisition occurred on December 31, 1997, there is no pension expense related
to this defined benefit plan included in the accompanying consolidated
statements of income during 1997. An additional actuarial study was obtained as
of December 31, 1999 and the liability at that date was based on that study.
Pension expense of Ps925,983 was accrued during 1999.
The following table sets forth the funded status of the defined benefit plan
at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ............................ Ps 7,695,362 Ps 7,,208,587
Nonvested benefit obligation .........................
---------------- ----------------
Accumulated benefit obligation ......................... Ps 7,695,362 Ps 7,208,587
---------------- ----------------
Projected benefit obligation ........................... Ps 7,695,362 Ps 7,208,587
Less: Plan assets at fair value ........................ -- --
---------------- ----------------
Unfunded projected benefit obligation .................. 7,695,362 7,208,587
Unrecognized net transition obligation ................. -- --
Unrecognized net gain (loss) ........................... -- --
---------------- ----------------
Net accrued pension cost recorded ...................... Ps 7,695,362 Ps 7,208,587
================ ================
</TABLE>
In Colombian, there in no legal requirement that pension obligations, other
than Social Security, be funded with payments to an outside fiduciary.
The following actuarial assumptions for the December 31, 1998 and 1999
calculations are net of the effects of inflation of approximately 25% in each
year:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1999
--------------------- ---------------------
<S> <C> <C>
Discount rate .......................................... 6.0% 4.87%
Future salary increases ................................ 0.0% 0.0%
Number of covered employees:
Active................................................ 0 0
Retired ............................................. 79 76
</TABLE>
F-25
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the Colombian Labor Code, the Company is subject to Law
100, which requires that the Company and its employees, other than those in
TeleGirardot's defined benefit plan, contribute monthly to a pension fund or the
Social Security Institute based on a percentage of salaries.
Note 18--Income Tax
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for Transtel S.A. was 35% for 1997, 1998 and 1999.
Under Colombian law, Transtel S.A. must pay a minimum tax of 35% based on
income 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; 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 exempt in 1995 and 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 or distributions
declared to Transtel S.A. will be taxable. Deferred income taxes of Ps3,347,046
and Ps9,193,817 and Ps10,000,000 on Transtel S.A.'s distributable portion of net
income earned by its subsidiaries through December 31, 1997, 1998 and 1999,
respectively, have been netted against the tax benefit of net operating loss
carryforwards of Transtel S.A. of Ps3,351,704 and Ps9,659,717, and Ps13,813,727
respectively.
The total income tax provision for the year ended December 31, 1997, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1997 1998 1999
---------------- ----------------- ---------------------
<S> <C> <C> <C>
Current ............................................ Ps 1,481,389 Ps 6,145,628 Ps11,107,575
Deferred tax benefit ............................... (4,658) (461,242) (3,813,727)
------------- ------------ ------------
Total ........................................... Ps 1,476,731 Ps 5,684,386 Ps 7,293,848
</TABLE>
The following is a calculation of current income tax expense for the years
ended December 31, 1997, 1998 and 1999:
F-26
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1997 1998 1999
----------------- ----------------- --------------------
<S> <C> <C> <C>
Income before taxes and minority interest ................ Ps 8,075,150 Ps 29,286,861 Ps 19,519,438
Non-deductible expenses .................................. 3,003,192 1,215,288 23,616,657
Non-taxable income......................................... (80,308) (385,892)
Dividends from subsidiaries................................ 3,118,351 3,477,981
Difference between adjustment for inflation for tax
purposes and for financial reporting purposes .......... 447,095 (241,154) (15,938)
Other...................................................... (570,453) (2,006,011)
----------- ----------- -----------
Adjusted income before taxes and
minority interest ................................... 11,445,129 32,423,001 44,592,127
Less--Exempt income ...................................... (7,212,589) (14,864,063) (12,856,198)
---------- ----------- -----------
Taxable income............................................. 4,232,540 17,558,938 31,735,929
---------- ----------- -----------
Statutory tax rate ....................................... 35% 35% 35%
---------- ----------- -----------
Current income tax expense ............................... Ps 1,481,389 Ps 6,145,628 Ps 11,107,575
</TABLE>
The percentage of exempt income to the adjusted income before taxes and
minority interest was, 63.0%, 45.8% and 30% for the years ended December 31,
1997, 1998 and 1999, respectively. These percentages vary from the statutory
exemptions for the operating subsidiaries discussed earlier (100% in 1996, 90%
in 1997 ,80% in 1998, and 70% in 1999) because the income of Transtel S.A.
(unconsolidated) is not exempt from income taxes; however, it is included in the
consolidated adjusted income before taxes and minority interest.
Transtel S.A. has tax loss carryforwards of Ps26,232,008 of which Ps2,703,592
expires in 2001, Ps5,562,203 in 2002 , Ps15,480,809 in 2003. Since consolidated
returns are not allowed, only Transtel S.A. may use these loss carryforwards.
The Company's income tax returns for 1997, 1998 and 1999 are subject to review
and acceptance by the tax authorities. The tax returns for the year ended
December 31, 1999 of each company will be filed between April and June 2000. The
Company's management and its legal advisors believe that no material tax
liabilities in excess of those recorded will arise as a result of any such
eventual reviews. The Company and its subsidiaries do not have any pending
claims from the tax authorities.
Note 19--Leases
Operating leases in effect at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
Number of months Remaining amounts
Class of asset Original term Remaining period Amount Purchase option Total
- ------------------------------- -------------- ---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Computer equipment............. 24 6 Ps 10,131 Ps 4,428 Ps 14,559
Computer equipment............. 36 4-11 16,698 9,049 25,747
Equipment for 11,000 lines..... 60 21 3,651,792 66,783 3,718,575
Office equipment...............
Vehicles....................... 36 2-17 222,582 341,560 564,142
Power station ................. 36 3 7,865 6,485 14,350
--------- ------- ---------
Total ......................... Ps 3,909,068 Ps 428,305 Ps 4,337,373
</TABLE>
- -
F-27
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Such operating lease amounts, including purchase options, are due as follows:
<TABLE>
<CAPTION>
Payable in the years Ending December 31,
- -----------------------------------------------------------
<S> <C>
2000 ................................................... Ps 678,601
2001 ................................................... 1,035,870
2002 ................................................... 2,622,902
------------
Ps 4,337,373
</TABLE>
Total rent expense was, Ps1,946,828, Ps819,072 and 1,299,446 in 1997, 1998 and
1999, respectively.
Capital leases
The Company, in the ordinary course of business, has entered into two capital
lease arrangements with variable interest rates for the purchase of land.
Interest rates applicable to these capital leases were FTD (fixed time deposit
rate) + 4% at December 31, 1999. During 1998, the Company recorded capital
leases with Global Telecommunications Operations, Inc. ("Global"), a related
party, and IBM for telephone equipment. The interest rates on these leases
ranged from 6.0% to 8.16%. See Note 30 for a description of the Global and IBM
leases. Future payments under the capital leases are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total minimum lease payments ............................. Ps 3,297,487 Ps 49,728,972 Ps 69,605,777
Less: Imputed interest ................................... (1,599,166) (13,855,728) (22,175,414)
-------------- ------------- --------------
Present values of minimum lease payments ................. 1,698,321 35,873,244 47,430,363
Less: Current portion .................................... (267,192) (4,505,914) (9,387,072)
-------------- ------------- --------------
Ps 1,431,129 Ps 31,367,330 Ps 38,043,291
</TABLE>
<TABLE>
<CAPTION>
Payable in the years ending December 31,
- -----------------------------------------------------------
<S> <C>
2000 ............................................... 16,263,396
2001 ............................................... 11,445,314
2002 ............................................... 10,197,091
2003 ............................................... 31,699,976
-------------
Total minimum lease payments ....................... Ps 69,605,777
=============
</TABLE>
See Note 30 for additional commitments for leases with Global as part of the
Company's expansion plan.
F-28
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 20--Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1998 1999
--------------- ---------------- ----------------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel--Siemens
Purchase Agreement (see Note 16)
($1,986,633 in 1999 and $2,118,914 in 1998)............... Ps 4,199,631 Ps 3,582,269 Ps 3,722,481
Payable to Siemens A.G. for other equipment
($2,290,299 in 1999 and $2,095,053 in 1998)
(see Note 16) .................................... 5,735,208 3,541,928 4,291,493
Payable to IBM (see Note 16) ($309,724 in 1999 and
$703,178 in 1998) ............................... 1,072,679 1,188,804 580,352
Unearned interest income ($887,853 in 1997)
(see Note 16) ................................... 1,501,018
Cable television fees paid in advance................... 619,176
Accrued litigation loss ................................. 2,790,194 2,411,860 2,200,000
Negative goodwill......................................... 335,436 275,374
Other..................................................... 209,559 326,830 421,418
------------ ------------ ------------
Ps15,508,289 Ps12,006,303 Ps11,491,118
============ ============ ============
</TABLE>
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 21--Minority Interest
Minority interest in the net assets of subsidiaries consisted of the
following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1998 1999
--------------- ---------------- ----------------
<S> <C> <C> <C>
Capital ...................................................... Ps 36,778,972 Ps 37,071,128 Ps 37,071,128
Retained earnings .......................................... 8,782,071 17,382,785 23,312,816
Surplus from reappraisal of assets........................... 8,215,320 8,926,275 10,252,990
------------- ------------- -------------
Ps 53,776,363 Ps 63,380,188 Ps 70,636,934
============= ============= =============
</TABLE>
Note 22--Shareholders' Equity
In July 1997, two of the existing shareholders subscribed to a total of
1,039,801,222 shares of the Company's common stock for a total of Ps40,622,559
(39 single Pesos per share). These shareholders paid Ps40,265,552 in July 1997
and the remaining unpaid balance of Ps357,007 was paid in October 1997. The
Company reduced a portion of its borrowings with the cash received.
On December 7, 1998 the Company issued 29,571,946,754 shares of common stock
to existing shareholders for no consideration. Such shares were equal to the
premium paid in nominal pesos on the 1997 sale divided by the par value of 1
single Peso per share.
F-29
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As indicated Note 12, the Company may pay dividends of no more than
Ps8,589,996 as of December 31, 1999.
Legal reserve
Pursuant to Colombian law, 10% of the net profit of the parent company and its
Colombian subsidiaries in each year must be appropriated with a credit to a
"reserve fund" until it is equivalent to at least 50% of the subscribed capital.
This legal reserve may not be reduced to less than the indicated percentage,
except to cover losses in excess of undistributed profits.
Appropriated for future construction and acquisitions
Reserves other than the legal reserve, appropriated directly out of retained
earnings, are freely distributable by the shareholders in general meeting
subject to the Company meeting the covenants in the indenture of the Senior
Notes.
Revaluation of Shareholders' equity
Shareholder's equity includes revaluation amounts which result from inflation
adjustments which may not be distributed to shareholders until the Company has
been liquidated or such value is capitalized, in conformity with Article 36-3 of
the Tax code, such amount was Ps17,211,390 at December 31, 1999.
Note 23--Revenues
Revenues consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1998 1999
----------------- ------------------ ----------------
<S> <C> <C> <C>
Connection fees ......................................... Ps 14,593,923 Ps 41,300,761 Ps 35,306,635
Local usage charges ..................................... 4,444,674 13,262,951 41,513,674
Basic charges ........................................... 3,086,598 9,002,640 19,661,706
Long distance charges ................................... 9,236,193 20,236,339 17,811,554
Telephone directory commissions ......................... 479,083 598,308 325,240
Pay television services................................... 6,373,830 10,538,779
Sales of telephones ..................................... 941,692 1,292,372 471,714
Other operating income .................................. 907,234 1,819,262 4,687,878
----------------- ------------------ ----------------
Ps 33,689,397 Ps 93,886,463 Ps130,317,180
================= ================== ================
</TABLE>
F-30
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 24--Operating Costs
Operating costs consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
--------------- ---------------- ------------------
<S> <C> <C> <C>
Salaries, benefits and other labor payments .............. Ps 2,971,359 Ps 5,141,683 Ps 4,840,341
Pensions expenses......................................... 189,517 762,746 765,024
Insurance................................................. 132,618 241,406 299,321
Fees, studies and investigations.......................... 146,837 330,358 196,483
Rentals of space.......................................... 276,061 214,250 267,390
Other rent................................................ 934,579 597,953 937,034
Taxes other than income................................... 230,184 96,582 87,419
Services, maintenance and repairs......................... 950,687 1,348,845 1,897,585
Depreciation.............................................. 439,881 2,181,727 3,790,745
Amortization.............................................. 896,316 1,708,293 1,034,511
Cost of sales of telephones............................... 554,475 1,024,884 453,937
Programming costs......................................... 2,735,231 2,297,312
Other..................................................... 695,905 3,260,338 2,225,803
------------ ------------- -------------
Ps 8,418,419 Ps 19,644,296 Ps 19,592,905
============ ============= =============
</TABLE>
Note 25--Administrative Expenses
Administrative expenses consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
--------------- ---------------- ------------------
<S> <C> <C> <C>
Salaries, benefits and other labor payments ............ Ps 1,839,284 Ps 5,710,976 Ps 6,261,940
Pensions expenses ...................................... 102,482 384,148 385,445
Insurance .............................................. 137,758 205,902 325,212
Fees, studies and investigations ....................... 1,194,480 1,214,470 2,064,045
Travel expenses ........................................ 233,914 168,416 148,643
Rentals of space ....................................... 300,929 435,621 264,920
Other rent ............................................. 400,925 199,955 256,423
Taxes other than income ................................ 868,309 954,241 996,129
Services, maintenance and repairs ...................... 1,175,330 754,241 839,534
Depreciation ........................................... 228,547 576,145 629,021
Amortization ........................................... 2,771,523 7,555,971 13,061,617
Air transportation ..................................... 622,942 583,462 223,843
Provision for doubtful accounts ........................ 241,495 1,002,966 9,460,831
Provision for writedown of properties, plant
and equipment ........................................ 121,244 933,248 8,159,287
Provision for writedown of inventories ................ 321,207 82,000
Other .................................................. 826,667 1,270,392 2,777,802
--------- --------- ----------
Ps 11,065,829 Ps 22,271,361 Ps 45,936,692
============= ============= =============
</TABLE>
F-31
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 26--Marketing Expenses
Marketing expenses consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
--------------- ---------------- ------------------
<S> <C> <C> <C>
Salaries, benefits and other labor payments.............. Ps 897,165 Ps 2,749,306 Ps 5,058,726
Pensions expenses........................................ 61,325 90,017 90,321
Publicity................................................ 39,370 1,108,185 1,009,657
Insurance................................................ 7,964 35,903 58,106
Travel expenses.......................................... 4,949 12,680 4,788
Rentals of space......................................... 25,584 131,585 69,451
Other rent............................................... 8,750 21,164 105,989
Services, maintenance and repairs........................ 163,288 276,135 358,155
Depreciation............................................. 1,583 43,595 192,710
Amortization............................................. 617,977 1,059,459 1,248,096
Other.................................................... 159,607 454,682 736,988
------------ ---------------- -------------
Ps 1,987,562 Ps 5,982,711 Ps 8,932,987
============ ================ =============
</TABLE>
Note 27--Nonoperating Income (Expenses)
Financial income consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1997 1998 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Interest........................................... Ps 7,160,397 Ps 18,905,216 Ps 12,792,607
Exchange gains..................................... 3,837,969 38,880,041 86,401,318
Other financial income............................. 200,665 484,497 760,081
--------------- -------------- ---------------
Ps 11,199,031 Ps 58,269,754 Ps 99,954,006
================ ============== ================
</TABLE>
Financial expenses consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Interest........................................... Ps (10,314,875) Ps (33,554,264) Ps (33,802,100)
Bank commissions................................... (731,810) (1,144,030) (327,165)
Exchange losses.................................... (6,051,216) (59,106,244) (116,762,212)
Bank expenses...................................... (19,178) (95,223) (68,039)
Other financial expenses........................... (341,638) (723,750) (910,659)
------------------ ------------------ ------------------
Ps (17,458,717) Ps (94,623,511) Ps (151,870,175)
================== ================== ==================
</TABLE>
F-32
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Other income (expenses) consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Donations .......................................... Ps (435,500) Ps (353,723) Ps (88,896)
Tax on foreign indebtedness ........................ (567,869)
Bonus to executive ................................. (543,530)
Sales of scrap and extra parts....................... 111,584 176,993
Other, net ......................................... (815,140) 1,410,394 (1,719,809)
-------- --------- ----------
Ps (2,362,039) Ps 1,168,255 Ps (1,631,712)
================== ================== ==================
</TABLE>
Under legislation in effect for April through June 1997, the Colombian
Government taxed new foreign currency borrowings at 6% of the amount borrowed.
The Company incurred costs of Ps567,869 related to this tax during 1997.
Note 28--Net Monetary Inflation Adjustment Income (Loss)
The net monetary inflation adjustment income (loss) consisted of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1997 1998 1999
----------------- ----------------- ----------------
<S> <C> <C> <C>
Inflation adjustment of:
Investments .......................................... Ps Ps 183,333 Ps 77,603
Inventories .......................................... 62,297 513,937
Properties, plant and equipment ...................... 6,994,068 20,342,945 20,947,610
Accumulated amortization ............................. (108,589) (238,925) (423,862)
Accumulated depreciation ............................. (150,111) (637,531) (718,960)
Deferred charges ..................................... 2,407,579 9,374,308 6,201,669
Deferred monetary correction--debit .................. (117,141) (165,025) (2,180,976)
Other assets ......................................... 284,938 521,070 776,563
Deferred monetary correction--credit ................. 112,625 471,760 269,861
Shareholders' equity ................................. (5,557,713) (13,136,235) (7,736,785)
---------- ----------- ----------
Subtotal .......................................... 4,058,722 17,229,637 17,212,723
Revenues ............................................. (1,706,023) (3,863,938)
Expenses ............................................. 1,444,536 4,716,673
Costs ................................................ 682,053 401,896
------------- ------------- -------------
Total ............................................. Ps 4,479,288 Ps 18,484,268 Ps 17,212,723
</TABLE>
F-33
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Note 29--Related Party Transactions
The Company has had significant transactions with Mr. Gonzalo Caicedo Toro, a
shareholder. The following table summarizes the significant transactions with
Mr. Caicedo:
<TABLE>
<CAPTION>
Balance due from (to) Mr. Caicedo
Year ended December 31,
---------------------------------------------------
1997 1998 1999
----------------- ---------------- ---------------
<S> <C> <C> <C>
Beginning of year ......................................... Ps (27,690) Ps - Ps -
Loans made ................................................ 14,735,824
Payments received:
Cash..................................................... (5,088,527)
Cash received from fiduciary rights to a
trust set up to manage the sale of certain
investments owned by Mr. Caicedo ...................... (8,181,051)
Debt assumed ....................................... (1,438,556)
---------------- --------------- ---------------
End of year (see Note 5) ........................... Ps - Ps - Ps -
================ ================ ===============
</TABLE>
The loans were not interest bearing and had no maturity dates.
See Note 30 for transactions with Global Telecommunications Operations Inc., a
related party.
Note 30--Commitments
Global-Siemens Arrangements
Global Telecommunications Operations, Inc. ("Global") is a British Virgin
Islands company owned by the same shareholders who own Transtel. Global was
formed in January 1995 for the exclusive purpose of acting as a financing
vehicle for the purchase of telecommunications equipment from Siemens AG
("Siemens"). As part of the Company's expansion plan, Global has entered into
four purchase agreements with Siemens for the provision of certain equipment
necessary for the Company's expansion plan. Global has entered or intends to
enter into a lease agreement with each subsidiary other than Caucatel for the
lease of such telecommunications equipment to each subsidiary on terms
substantially similar to the financing to Global from Siemens. Transtel
purchased equipment to be used by Caucatel directly from Siemens ($3.4 million
switches and $533,494 for installation) and contributed it to Caucatel as part
of its capital. Caucatel is the only subsidiary that does not lease its
equipment from Global. Under these leases, if the subsidiaries default under the
leases, Global has the right to take action against the assets leased thereunder
including repossession or sale of the equipment. Global has assigned to Siemens
the lease payments under each of the leases in the event of an event of default
under the purchase agreements occurs and is continuing. Upon commencement of the
leases' lease terms, the following leasing transactions with Global will be
accounted for as capital leases under Colombian GAAP since the Company expects
to exercise the purchase options:
F-34
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Global I Purchase Agreement. On May 2, 1996, Global entered into a purchase
agreement with Siemens (as amended on July 28, 1997, the "Global I Purchase
Agreement") to purchase certain landline telecommunications equipment to be used
for the development of each of TelePalmira's, TeleJamundi and Unitel's
respective wireline networks for an aggregate amount of approximately $19.3
million, of which 16% (approximately $3.1 million) was paid upon execution of
the Global I Purchase Agreement. The remaining 84% of the price of equipment
delivered and installed by Siemens under the Global I Purchase Agreement is
payable by Global in 24 semi-annual payments. Global's obligations under the
Global I Purchase Agreement are secured by a pledge of the Global I Leases (as
defined below). Siemens' obligations for delivery and installation were
completed on April 19, 1998.
Global I Leases. On August 1, 1996, Global entered into a lease agreement,
as amended on April 12, 1998, for TelePalmira (the "Global--TelePalmira I
Lease"). On April 19, 1998, Global entered into a lease agreement for
TeleJamundi (the "Global--TeleJamundi I Lease") and for Unitel (the "Global--
Unitel I Lease") (the Global--TelePalmira Lease, Global--TeleJamundi Lease and
Global-Unitel I Lease are collectively referred to as the "Global I Leases").
The lease term of each lease commenced on April 19, 1998.
Global-TelePalmira I Lease. Pursuant to the Global-TelePalmira Lease,
TelePalmira agreed to pay Global an aggregate amount of approximately $16.8
million to lease, for a 12-year term, certain switching and cable equipment
that Global purchased from Siemens under the Global I Purchase Agreement. The
Global-TelePalmira Lease includes an option to purchase the equipment for an
additional $285,000 at the end of the lease term.
Global-TeleJamundi I Lease. Pursuant to the Global-TeleJamundi Lease,
TeleJamundi agreed to pay Global an aggregate amount of approximately $5.9
million to lease, for a 12-year term, certain switching and cable equipment
that Global purchased from Siemens under the Global I Purchase Agreement. The
Global-TeleJamundi Lease includes an option to purchase the equipment for an
additional $104,000 at the end of the lease term.
Global-Unitel I Lease. Pursuant to the Global-Unitel I Lease, Unitel agreed
to pay Global an aggregate amount of approximately $4.4 million to lease, for
a 12-year term, certain switching and cable equipment that Global purchased
from Siemens under the Global I Purchase Agreement for its Wireline
applications. The Global-Unitel I Lease includes an option to purchase the
equipment for an additional $73,000 at the end of the lease term.
Global II Purchase Agreement. On May 30, 1997, Global entered into a
purchase agreement, as amended on July 28 and October 29, 1997 and April 1,
1998, with Siemens (the "Global II Purchase Agreement") to purchase certain
landline and wireless telecommunications equipment to be used for the
development of each of TeleCartago's, Bugatel's and Unitel Wireless' respective
networks for an aggregate amount of approximately $39.8 million, of which
approximately $4.5 million was paid upon execution of the Global II Purchase
Agreement. The remaining price of equipment delivered and installed by Siemens
under the Global II Purchase Agreement is payable by Global in 24 semi-annual
payments. Global's obligations to Siemens under the Global II Purchase Agreement
are secured by a pledge of the lease payments under the Global II Leases (as
defined below).
Global II Leases. On July 28, 1997, Global entered into a lease agreement
with Unitel (the "Global-Unitel II Lease"), TeleCartago (the "Global-TeleCartago
II Lease") and Bugatel (the "Global-Bugatel II Lease") for certain of the
equipment that is the subject of the Global II Purchase Agreement (the Global-
Unitel II Lease, the Global-TeleCartago II Lease, and the Global-Bugatel II
Lease are collectively referred to herein as, the "Global II Leases"). The lease
term of each lease will commence upon completion of Siemens' delivery and
installation obligations.
F-35
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Global-Unitel II Lease. Pursuant to the Global-Unitel II Lease, Unitel
agreed to pay Global an aggregate amount of approximately $25.4 million to
lease, for a 12-year term, certain wireless telecommunications equipment that
Global purchased from Siemens under the Global II Purchase Agreement. The
Global-Unitel II Lease includes an option to purchase the equipment for an
additional $525,000 at the end of the lease term. The Company expects to
increase the Global-Unitel II Lease to approximately $35.0 million to reflect
modifications to the lease. This project is in the testing process by Global
and the Company expects that it will be recorded as a capital lease in May,
2000.
Global-TeleCartago II Lease. Pursuant to the Global-TeleCartago II Lease,
TeleCartago agreed to pay Global an aggregate amount of approximately $9.5
million to lease, for a 12-year term, certain switching and cable equipment
that Global purchased from Siemens under the Global II Purchase Agreement.
The Global-TeleCartago II Lease includes an option to purchase the equipment
for an additional $55,800 at the end of the lease term. This project was
finished and recorded as a capital lease in March 1999.
Global-Bugatel II Lease. Pursuant to the Global-Bugatel II Lease, Bugatel
agreed to pay Global an aggregate amount of approximately $9.0 million to
lease, for a 12-year term, certain wireless telecommunications equipment that
Global purchased from Siemens under the Global II Purchase Agreement. The
Global-Bugatel II Lease includes an option to purchase the equipment for an
additional $53,700 at the end of the lease term. This project is in the
testing process and the Company expects that it will be recorded as a capital
lease in June 2000.
Global III Purchase Agreement. Global entered into a purchase agreement on
June 11, 1998 with Siemens (the "Global III Purchase Agreement") to purchase
certain landline and wireless telecommunications equipment to be used for the
development of each of TelePalmira's, Unitel's Wireless and TeleJamundi's
respective networks for an aggregate amount of approximately $12.9 million. The
price of equipment delivered and installed by Siemens under the Global III
Purchase Agreements is payable by Global in 24 semi-annual payments. Global's
obligations to Siemens under the Global III Purchase Agreement are secured by a
pledge of the lease payments under Global III leases (as defined below). The
total lease payments will be approximately $19.8 million plus purchase options
of approximately $129,000. The lease terms will commence in the first half of
2001.
Global III Leases. On September 1, 1998, Global entered into a lease agreement
with TelePalmira (the "Global-TelePalmira III Lease"), Unitel (the "Global-
Unitel III Lease") and TeleJamundi (the "Global-TeleJamundi III Lease") for
certain equipment that is subject to the Global III Purchase Agreement (the
Global-TelePalmira III Lease, the Global-Unitel III Lease, and the Global-
TeleJamundi III Lease are collectively referred to herein as, the "Global III
Leases"). The lease term of each lease will commence upon completion of Siemens'
delivery and installation obligations. The Company expects that this project
will be delivered and accepted in June, 2000.
Global-TelePalmira III Lease. Pursuant to the Global-TelePalmira III
Lease, TelePalmira agreed to pay Global an aggregate amount of approximately
$1.4 million to lease, for a 12-year term, certain Switching
telecommunications equipment that Global purchased from Siemens under the
Global III Purchase Agreement. The Global-TelePalmira III Lease includes an
option to purchase the equipment for an additional $9,332 at the end of the
lease term.
Global-Unitel III Lease. Pursuant to the Global-Unitel III Lease, Unitel
agreed to pay Global an aggregate amount of approximately $18.1 million to
lease, for a 12-year term, certain switching and emission telecommunications
equipment that Global purchased from Siemens under the Global III Purchase
Agreement. The Global-Unitel III Lease includes an option to purchase the
equipment for an additional $118,630 at the end of the lease term.
F-36
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Global-TeleJamundi III Lease. Pursuant to the Global-TeleJamundi III Lease,
TeleJamundi agreed to pay Global an aggregate amount of approximately
$127.000 to lease, for a 12-year term, certain switching and emission
telecommunications equipment that Global purchased from Siemens under the
Global III Purchase Agreement. The Global-TeleJamundi III Lease includes an
option to purchase the equipment for an additional $845 at the end of the
lease term.
Global IV Purchase Agreement. Global entered into a purchase agreement on
June 11 1998 with Siemens (the "Global IV Purchase Agreement") to purchase
certain landline and wireless telecommunications equipment to be used for the
development of each of TelePalmira's, Bugatel's, TeleGirardot's and
TeleCartago's respective networks for an aggregate amount of approximately $11.0
million. The price of equipment delivered and installed by Siemens under the
Global IV Purchase Agreements is payable by Global in 24 semi-annual payments.
Global's obligations to Siemens under the Global IV Purchase Agreements are
secured by a pledge of the lease payments under the Global IV leases (as defined
below).
Global IV Leases. On September 1, 1998, Global entered into a lease
agreement with TelePalmiara (the "Global-TelePalmira IV Lease"), Bugatel (the
"Global-Bugatel IV Lease") TeleGirardot (the "Global-TeleGirardot IV Lease")
and Telecartago (the "Global-Telecartago IV Lease") for certain of the
equipment that is subject to the Global III Purchase Agreement (the Global-
TelePalmira IV Lease, the Global- Bugatel IV Lease, and the Global--
TeleGirardot IV Lease and the Global - TeleCartago IV lease are collectively
referred to herein as, the "Global IV Leases"). The lease term of each lease
will commence upon completion of Siemens' delivery and installation obligations.
The Company expects that this project will be delivered and accepted in June
2000; at present it is in the testing process.
Global- TelePalmira IV Lease. Pursuant to the Global-TelePalmira IV Lease,
TelePalmira agreed to pay Global an aggregate amount of approximately $4.1
million to lease, for a 12-year term, certain switching and emission
telecommunications equipment that Global purchased from Siemens under the
Global IV Purchase Agreement. The Global-TelePalmira IV Lease includes an
option to purchase the equipment for an additional $26,589 at the end of the
lease term.
Global-Bugatel IV Lease. Pursuant to the Global-Bugatel IV Lease, Bugatel
agreed to pay Global an aggregate amount of approximately $4.3 million to
lease, for a 12-year term, certain switching and emission telecommunications
equipment that Global purchased from Siemens under the Global IV Purchase
Agreement. The Global-Bugatel IV Lease includes an option to purchase the
equipment for an additional $27,890 at the end of the lease term.
Global-TeleGirardot IV Lease. Pursuant to the Global-TeleGirardot IV Lease,
TeleGirardot agreed to pay Global an aggregate amount of approximately $4.3
million to lease, for a 12-year term, certain switching and emission
telecommunications equipment that Global purchased from Siemens under the
Global IV Purchase Agreement. The Global-TeleGirardot IV Lease includes an
option to purchase the equipment for an additional $27,846 at the end of the
lease term.
Global-TeleCartago IV Lease. Pursuant to the Global-TeleCartago IV Lease,
TeleCartago agreed to pay Global an aggregate amount of approximately $4.3
million to lease, for a 12-year term, certain switching and emission
telecommunications equipment that Global purchased from Siemens under the
Global IV Purchase Agreement. The Global-TeleCartago IV Lease includes an
option to purchase the equipment for an additional $27,850 at the end of the
lease term.
F-37
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transtel-Siemens Arrangement
On May 23, 1997, Transtel entered into a purchase agreement with Siemens (the
"Transtel-Siemens Purchase Agreement") for certain telecommunications equipment
to be used by Caucatel in the installation of approximately 23,000 lines for
approximately $3.3 million payable semiannually over a ten-year period at an
interest rate of LIBOR plus 1% (6.2% at December 31, 1998), commencing six
months after the completion of the Turn-Key Arrangements. The obligations of
Transtel under the Transtel-Siemens Purchase Agreement are secured by a
promissory note from Transtel. Siemens completed the installation of this
equipment in December 1997 and the payment obligation to Siemens was recorded as
a liability at December 31, 1997. As of December 31, 1999, the balance was
$2,412,343 (Ps4,520,176) (see Notes 16 and 20).
TeleGiradot-Siemens Arrangement
The Company has assumed Girardot Telephone's obligations under six purchase
agreements and executed one additional purchase agreement on July 2, 1978
totaling $4.5 million with Siemens (the "TeleGirardot-Siemens Purchase
Agreement") for certain telecommunications equipment now in use by TeleGirardot.
The contract amounts are generally payable over five-year periods at interest
rates of approximately 6.7% to 7.5%. Substantially all of the equipment was
installed at December 31,1997. The balances payable at December 31, 1997,1998
and 1999 are $4,440,951 (Ps 8,321,321), $3,126,944 (Ps5,859,174), and
$2,919,711 (Ps5,470,866) respectively, (see Notes 16 and 20).
IBM Arrangement
The Company has entered into an agreement with International Business
Machines Corp. ("IBM") whereby IBM has agreed to finance and to provide and
install all the Internet and voice mail related hardware and software for the
Company's telephone systems and the Company has agreed to pay IBM an aggregate
amount of $3.4 million for such equipment. On October 1 and October 28, 1997,
Unitel and Caucatel entered into 60 month leases with IBM for $2.8 million and
$532,008 respectively, for this equipment. The lease term of each lease
commenced in June 1998. The leases are capital leases under Colombian GAAP as
the Company expects to exercise the purchase options.
Construction Arrangements
On April 30, 1996, each of TelePalmira, Unitel (with respect to its wireline
applications) and TeleJamundi entered into turn-key arrangements (the "Turn-Key
Arrangements") with Siemens S.A., a Colombian corporation, to (i) install the
lines, switches and other equipment leased by each of these subsidiaries from
Global under the Global I Leases, (ii) put in operation such lines and
equipment, (iii) manage the "cut-over" to the new system lines, install air
conditioner equipment and train the personnel who will operate the switching
equipment, (iv) install a transmission signaling standard, (v) expand, replace
and install the outside plant, and (vi) complete expansion of the network. The
aggregate amount due to Siemens S.A. under these Turn-Key Arrangements is
approximately $8.3 million (Ps10.8 billion). Siemens S.A. has completed these
arrangements at December 31, 1998 and the unpaid balance at December 31, 1999
was $2,408,358 (Ps4,512,709).
For each of the Turn-Key Arrangements described in the paragraph above,
Siemens S.A. has provided the respective subsidiary with performance bonds
equivalent to (i) 10% of the amount of each Turn-Key Arrangement, (ii) 5% of the
services contracted under each Turn-Key Arrangement, (iii) 10% of the cost of
the outside plant civil works and (iv) up to $100,000 for personal or property
liability.
F-38
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 18, 1997, June 30, 1997 and March 10, 1998 each of Transtel (in place
of Bugatel, which was not yet formed), TeleCartago and Unitel (with respect to
its wireless applications) entered into Turn-Key Arrangements with Siemens S.A.
to (i) install the lines, switches and other equipment leased by Bugatel,
TeleCartago and Unitel from Global under the Global II Leases, (ii) put in
operation such lines and equipment, and (iii) expand, replace and install the
outside plant for Bugatel and TeleCartago. The aggregate amount due to Siemens
under these Turn-Key Arrangements is approximately $9.4 million. Siemens S.A.
has provided Transtel, TeleCartago, and Unitel with performance bonds
substantially similar to those provided to TelePalmira, Unitel and TeleJamundi.
As of December 31, 1997, Siemens S.A. had been paid Ps3,369,364 for completed
phases of the arrangement (see Note 7). Additionally, the Company had advanced
Ps1,507,592 to Siemens S.A. (see Note 5) at December 31, 1997. As of December
31, 1999, Siemens finished Telecartago's network expansion for which the
Company's debt was Ps1,977,545 ($1,055,383) and the Company had advanced
Ps6,751,730 ($3,603,286) (see Note 5) in order to conclude the agreements for
Bugatel and Unitel.
On May 23, 1997, Transtel entered into a Turn-Key Arrangement with Siemens
S.A. to (i) install the lines, switches and other equipment that Transtel agreed
to contribute to the capital of Caucatel as part of its capital contribution and
which the Company acquired from Siemens pursuant to the Transtel-Siemens
arrangements, and (ii) put in operation such lines and equipment. The aggregate
amount due to Siemens S.A. under this Turn-Key Arrangement is $533,494. This
equipment was installed at December 31, 1997 and the remaining liability to
Siemens S.A. was paid during 1998.
DIAN Financing
The Departamento de Impuestos y Aduanas Nacionales ("DIAN") allows for the
deferral of value-added taxes and duties related to the purchase of certain
imported telecommunications equipment by the Company through its operating
subsidiaries in its expansion plan. Based on the expected imported equipment to
be purchased under the expansion plan, the Company estimates that it will defer
approximately Ps37.9 billion ($20.2 million) of taxes and duties during the
expansion plan that will be paid over a five-year period commencing six months
from the date of incurrence (the "DIAN Financing"). The DIAN Financing does not
bear any interest. DIAN Financing consists of approximately Ps28.9 billion
($15.4 million) of value-added tax and Ps9.0 billion ($4.8 million) of duty.
Prior to December 24, 1998, the value-added tax, when paid, may be taken as a
credit against income taxes to the extent that income taxes are payable in a two
year period or is refundable if not used as a credit. On December 24, 1998 the
Colombian government issued Law 488 which reforms the tax rules as of January 1,
1999. Law 488, among other things, establishes that the value-added tax paid may
not be taken as a credit against income taxes commencing in 1999 but may be
treated as a deduction from taxable income or capitalized as a cost of the
respective asset. All DIAN financing other than Ps2.1 billion paid during 1998
will be subject to Law 488. No DIAN Financing amounts were due at December 31,
1997 as Siemens had not yet completed the delivery and installation of the
equipment to be leased under the Global Leases. As of December 31, 1998, the
DIAN Financing had been recorded as a memorandum account related to the Global I
Purchase Agreement of $4.2 million (Ps7.9 billion) of which had been paid $1.4
million (Ps2.6 billion). As of December 31, 1999 the Dian Financing recorded as
a memorandum account of $17.4 million (Ps32.6 billion) were related to the
Global Purchase Agreements I, II, III, IV, and V, of which had been paid $3.1
million (Ps5.8 billion).
F-39
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 31--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 restated U.S. GAAP balance sheets and statements of
income and a reconciliation to U.S. GAAP of net income and shareholders' equity
as of and for the years ended December 31, 1997, 1998 and 1999.
F-40
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
(Under U.S. GAAP)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1997 1998 1999 1999
-------------- ----------------- ---------------- ------------
(Thousands of Pesos of December 31, 1999) (Thousands
of Dollars
--unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current
Cash ............................................. Ps 3,537,101 Ps 3,918,457 Ps 5,243,886 $ 2,799
Short-term and temporary investments ............. 131,198,998 62,967,214 8,505,039 4,539
Accounts receivable, net ......................... 15,573,370 16,711,468 75,754,809 40,429
Advances to suppliers.............................. 3,953,400 11,737,805 2,150,035 1,147
Inventories ...................................... 1,214,883 2,926,100 2,354,211 1,256
Prepaid expenses ................................ 1,806,196 5,353,401 383,413 205
----------- ----------- ----------- ----------
Total current assets ........................... 157,283,948 103,614,445 94,391,393 50,375
Noncurrent
Accounts receivable .............................. 6,286,790 30,457,763 50,378,626 26,886
Properties, plant and equipment, net ............. 157,758,615 320,102,542 390,963,901 208,651
Deferred costs ................................... 36,358,725 37,887,105 32,627,492 17,413
Long-term investments ............................ 38,339,811 3,215,873 1,274,377 680
Income taxes ..................................... 6,035,152 9,381,680 16,964,310 9,054
Other assets ..................................... 2,741,365 4,324,230 10,679,997 5,700
------------- ------------- ------------- ----------
Total assets..................................... Ps404,804,406 Ps508,983,638 Ps 597,280,096 $ 318,768
============= ============= ============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt .................................. Ps 644,342 Ps 14,886,276 Ps 12,821,144 $ 6,842
Current portion of other long-term debt .......... 16,600,432 1,605,223 3,322,949 1,773
Current portion of capital lease obligation........ 1,435,470 5,271,897 9,718,050 5,186
Dian Financing..................................... 1,214,654 2,120,765 1,132
Accounts payable ................................. 19,971,368 33,154,217 47,647,364 25,429
Tax liabilities .................................. 3,249,583 6,055,501 24,958,881 13,320
Labor liabilities ................................ 541,948 1,059,968 1,162,036 620
Other liabilities ................................ 6,965,862 2,517,758 2,748,061 1,467
Accrued pension obligations ...................... 677,930 590,484 934,937 499
Deferred income .................................. 5,266,384 5,102,546 31,951,789 17,052
------------- ------------- ------------- ----------
Total current liabilities ...................... 55,353,319 71,458,524 137,385,976 73,320
Long-term liabilities
12 1/2 % Senior Notes due 2007 ................... 246,091,349 253,592,279 281,065,500 150,000
20.32% Senior Discount Notes due 2008.............. 25,359,228 34,103,946 18,201
Other long-term debt ............................. 9,662,570
Capital lease obligations ........................ 4,425,334 33,618,899 40,077,679 21,389
Dian Financing..................................... 3,643,963 4,509,853 2,407
Accrued pension obligations ...................... 7,544,680 7,104,878 6,273,650 3,348
Other liabilities ................................ 14,007,271 11,670,867 11,491,119 6,133
------------- ------------- ------------- ----------
Total liabilities .............................. 327,421,953 416,111,208 514,907,723 274,798
------------- ------------- ------------- ----------
Minority interest ................................. 41,114,623 48,947,838 48,192,391 25,720
------------- ------------- ------------- ----------
Shareholders' equity:
Common stock, Ps1 par value, 50 billion
shares authorized; 34,611,747,976 shares
issued and outstanding (5,039,801,222 in
1997 and 4,000,000,000 in 1996) .................. 48,730,664 48,730,664 48,730,664 26,007
Accumulated deficit. ............................. (12,462,834) (4,806,072) (14,550,682) (7,765)
------------- ------------- ------------- ----------
Total shareholders' equity. .................... 36,267,830 43,924,592 34,179,982 18,241
------------- ------------- ------------- ----------
Total liabilities and shareholder's equity....... Ps404,804,406 Ps508,983,638 Ps597,280,096 $ 318,758
============= ============= ============= ==========
</TABLE>
F-41
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(Under U.S. GAAP)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1997 1998 1999 1999
---------------- ----------------- ----------------- --------------
(Thousands of Pesos of December 31, 1999) (Thousands
of Dollars--
unaudited)
<S> <C> <C> <C> <C>
Revenues...................................... Ps 34,744,025 Ps 94,035,643 Ps103,218,630 $ 55,086
------------- ------------- ------------- ---------
Costs and expenses:
Operating costs ........................... 9,867,324 20,363,423 20,749,100 11,073
Administrative expenses ................... 14,746,682 23,044,423 48,774,840 26,030
Marketing expenses ........................ 2,551,067 6,146,980 9,421,728 5,028
----------- ------------- ------------- --------
27,165,073 49,554,826 78,945,668 42,131
----------- ------------- ------------- --------
Operating income (loss) ................ 7,578,952 44,480,817 24,272,962 12,955
----------- ------------- ------------- --------
Nonoperating income
Financial income............................ 11,199,032 58,269,754 99,954,006 53,344
Financial expenses ........................ (23,495,911) (101,260,251) (148,887,960) (79,459)
Other....................................... (1,789,180) 1,182,921 ( 1,620,713) (865)
----------- ------------- ------------- --------
(14,086,059) (41,807,576) (50,554,667) (26,980)
----------- ------------- ------------- --------
Net monetary inflation adjustment income .... 7,533,895 17,229,517 17,623,196 9,405
----------- ------------- ------------- --------
Income (loss) before income taxes and
minority interest ....................... 1,026,788 19,902,758 (8,658,509) (4,620)
Income tax benefit (expense) .............. 2,576,910 (2,337,858) 288,780 154
----------- ------------- ------------- --------
Income (loss) before minority interest .... 3,603,698 17,564,900 (8,369,729) (4,467)
Minority interest ......................... (6,443,691) (9,908,139) (1,374,881) (734)
-------------- -------------- -------------- --------
Net income ( loss) ........................ Ps (2,839,993) Ps 7,656,761 Ps (9,744,610) $ (5,201)
============== ============= ============== ========
Basic and diluted income (loss) per share
(in single Pesos and single Dollars per
share) .................................. Ps (0.15) Ps 0.22 Ps ( 0.28) $ -
============== ============= ============= =============
</TABLE>
F-42
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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
years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
---------------- --------------- ------------------
<S> <C> <C> <C>
Consolidated net income under Colombian GAAP ................... Ps 1,380,060 Ps12,634,682 Ps 2,595,393
(i) Deferred income taxes ................................. 4,053,642 3,346,528 7,582,628
(ii) Surplus from reappraisal of assets .................... - - -
(iii) Depreciation .......................................... (3,477,771) (5,230,333) (10,291,843)
(iv) Capitalized interest .................................. 1,277,482 1,616,793 3,185,478
(v) Deferred costs ........................................ (9,539,544) (3,928,421) 6,217,853
(vi) Capital leases ........................................ 1,324,157 (58,207) (122,207)
(vii) Revenue recognition ................................... 1,054,629 149,180 (27,098,550)
(viii) Reversal of deferred monetary correction .............. 2,312,684 (1,771,563) 256,187
(ix) Effect of the above differences
on minority interest ................................. (1,225,332) 1,059,653 8,255,315
(x) Distribution to shareholder.............................
(xi) Depreciation of Cablevision assets...................... 0 (161,551) (324,864)
------------- ------------ ---------------
Consolidated net income (loss) under U.S. GAAP................... Ps (2,839,993) Ps 7,656,761 Ps (9,744,610)
============= ============ ===============
</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 December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1998 1999
---------------- ----------------- -----------------
<S> <C> <C> <C>
Consolidated shareholders' equity under Colombian GAAP ...... Ps 67,268,157 Ps 83,636,703 Ps 88,381,589
(i) Deferred income taxes .............................. 6,035,153 9,381,682 16,964,310
(ii) Surplus from reappraisal of assets ................. (11,941,654) (15,675,518) (17,825,010)
(iii) Depreciation. ...................................... (4,671,010) (9,901,344) (20,193,187)
(iv) Capitalized interest. .............................. 1,606,614 3,223,407 6,408,885
(v) Deferred costs ..................................... (25,513,831) (29,442,253) (23,224,400)
(vi) Capital leases ..................................... 1,779,192 1,720,985 1,598,778
(vii) Revenue recognition ................................ (5,002,419) (4,853,239) (31,951,789)
(viii) Reversal of deferred monetary correction ........... 2,686,006 914,444 1,170,631
(ix) Effect of the above differences on
minority interest ................................ 4,446,422 5,506,076 13,761,391
(x) Distribution to shareholder ........................ (424,800) (424,800) (424,800)
(xi) Depreciation of Cablevision assets................... 0 (161,551) (486,416)
----------- ----------- -----------
Consolidated shareholders' equity (deficit) under U.S.
GAAP ....................................................... Ps 36,267,830 Ps 43,924,592 Ps 34,179,982
============= ============== ==============
</TABLE>
F-43
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Analysis of changes in shareholders' equity:
The following summarizes the changes in shareholders' equity (deficit) under
U.S. GAAP for the three years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Balance at beginning of period ..................... Ps (1,514,736) Ps 36,267,830 Ps 43,924,592
Shares issued ...................................... 40,622,559
Distribution to shareholder ........................
Net (loss) income .................................. (2,839,993) 7,656,762 (9,744,610)
---------- --------- ----------
Balance at end of period ........................... Ps 36,267,830 Ps 43,924,592 Ps 34,179,982
============== ============= =============
</TABLE>
The Company has no items of other comprehensive income.
(d) Summary of significant differences between Colombian and U.S. GAAP:
(i) Deferred income taxes
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, 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.
Total applicable income taxes (benefit) under U.S. GAAP are comprised of the
following components for 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1997 1998 1999
--------------- --------------- ------------
<S> <C> <C> <C>
Current income tax expense (see Note 18) ........ Ps 1,481,390 Ps 6,145,628 Ps 11,107,575
Deferred income tax benefit ..................... (4,058,300) (3,807,770) (11,396,355)
---------------- ----------------- -----------
Total benefit ................................... Ps (2,576,910) Ps 2,337,858 Ps (288,780)
================ ================== ============
</TABLE>
Temporary differences between the amounts reported in the financial statements
and the tax bases for assets and liabilities result in deferred taxes. Tax
losses in Colombian may be carried forward for five years; however, consolidated
tax returns and carrybacks are not allowed. The Company believes there are no
limitations which would preclude it from fully realizing the established
deferred tax asset. Deferred tax assets and liabilities at December 31, 1997,
1998 and 1999 are as follows:
F-44
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1997 1998 1999
------------------- -------------------- ------------------
<S> <C> <C> <C>
Deferred tax assets:
Depreciation.................................................... Ps 1,515,957 Ps 3,346,577 Ps 6,660,900
Preoperating expenses ......................................... 5,004,579 6,521,720 8,624,428
Depreciation of Cablevision assets.............................. 56,543 344,366
Revenue recognition............................................. 147,963 137,521 2,982,869
Capital leases ................................................ 85,350 107,639 117,078
Inflation adjustment............................................ 133,131 157,513
Tax benefit of net operating loss carryforwards ............... 3,351,704. 9,659,717 23,791,232
---------- ---------- ----------
Total ....................................................... 10,105,553 19,962,848 42,678,386
---------- ---------- ----------
Deferred tax liabilities:
Capitalized interest .......................................... 437,476 921,450 1,922,845
Undistributed earnings of subsidiaries ........................ 3,347,046 9,193,817 19,511,605
Inflation adjustment............................................ 281,220 0 0
---------- ---------- ----------
Total ....................................................... 4,065,742 10,115,267 21,434,450
---------- ---------- ----------
Net deferred tax assets recorded under U.S. GAAP ................ 6,039,811 9,847,581 21,243,936
Deferred tax asset recorded under Colombian GAAP ................ (4,659) (465,901) (4,279,626)
---------- ---------- ----------
Additional net deferred tax assets recorded
under U.S. GAAP ........................................... Ps 6,035,152 Ps 9,381,680 Ps 16,964,310
============= ============= =============
</TABLE>
A portion of the deferred tax assets can be realized through reversals of
existing taxable temporary differences; the remainder will be dependent on
future income, including dividends from the undistributed earnings of the
subsidiaries. Management believes that sufficient income will be earned in the
future to realize the remaining net deferred income tax assets.
Deferred tax benefit (expense) consisted of:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1997 1998 1999
----------------- -------------- --------------
<S> <C> <C> <C>
Depreciation ..................................................... Ps 1,217,219 Ps 1,830,620 Ps 3,314,323
Preoperating expenses ......................................... 3,661,711 1,517,140 2,102,708
Depreciation of Cablevision Assets.............................. 56,543 287,823
Tax benefit of net operating loss carryforwards ............... 3,351,704 6,308,014 14,131,515
Revenue recognition ........................................... (36,910) (10,442) 2,845,348
Capital leases ................................................ (56,579) 22,289 9,439
Capitalized interest .......................................... (363,759) (483,974) (1,001,395)
Inflation adjustment .......................................... (368,040) 414,352 24,382
Undistributed earnings of subsidiaries ........................ (3,347,046) (5,846,772) (10,317,788)
---------- ---------- -----------
Ps 4,058,300 Ps 3,807,770 Ps 11,396,355
============== ============= =============
</TABLE>
The factors involved in the differences between the amount of income
taxes computed at the statutory regular tax rate of 35.0% and the applicable
income taxes for the years ended December 31, 1997, 1998 and 1999 under U.S.
GAAP are as follows:
F-45
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1997 1998 1999
-------------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) at
statutory rate ...................... Ps 359,376 (35.00)% Ps 6,965,965 35.00% Ps (2,953,908) (35.0%)
Increase (decrease) resulting from
permanent differences:
Monetary correction ................ 677,112 0.60 (96,125) (0.48) 188,256 3
Exempt income of telephony
subsidiaries ...................... (3,221,954) (24.65) (3,858,055) (19.39) (3,621,452) (43)
Other, net ......................... (391,444) (2.05) (673,927) (3.39) 6,098,324 72
---------- ------- ---------- ------- ---------- -----
Tax (benefit) expense ................ Ps (2,576,910) (12.70)% Ps 2,337,858 (11.74)% Ps (288,780) 3%
=============== ======= ============ ======= ============ =====
</TABLE>
While the statutory income tax rate is 35%, as more fully explained in Note
18, the Company's operating subsidiaries were 100% exempt from income taxes in
1996, 90% in 1997 and 80% exempt in 1998 and Transtel S.A. and each subsidiary
must file separate income tax returns. Such exemptions decline through 2002.
Transtel S.A. (the parent company) is subject to the 35% income tax rate. The
consolidated effective tax rate varies significantly from the statutory rate
because of these factors.
(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.
For U.S. GAAP, the Company adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective January
1, 1996. In accordance with this standard, the Company periodically evaluates
the carrying value of long-lived assets to be held and used, including goodwill
and other intangible assets, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. No loss was recorded in 1996; however, an impairment loss of
Ps121,244 and Ps916,808, which were recorded under Colombian GAAP in 1997 and
1998, respectively, were also recorded under U.S. GAAP.
(iii) Depreciation
Since January 1, 1996, the Company uses the reverse sum of the years method of
depreciation for Colombian GAAP purposes. The Company used the straight-line
method in 1995 for Colombian GAAP purposes. The straight-line method of
depreciation is used for U.S. GAAP in 1997, 1998 and 1999. Additional
depreciation expense of Ps3,477,771, Ps5,230,333 and Ps10,291,845 is recorded
under U.S. GAAP in 1997, 1998 and 1999, respectively.
F-46
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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 the following adjustments to expenses are required:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ------------ -------------
Reduction in interest expense for amounts
capitalized as properties, plant and equipment... Ps1,336,094 Ps1,766,634 Ps3,396,973
Less--Additional depreciation expense on
interest amounts capitalized.................... (58,612) (149,841) (211,495)
----------- ------------- -----------
Ps1,277,482 Ps1,616,793 Ps3,185,478
=========== =========== ===========
</TABLE>
- -
(v) Deferred costs
For Colombian GAAP, the Company has deferred certain costs which are expensed
as incurred under U.S. GAAP. Under U.S. GAAP, the following costs, which are
deferred for Colombian GAAP, are expensed for U.S. GAAP:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1997 1998 1999
---------------- ---------------- ------------------
<S> <C> <C> <C>
Preoperating expenses........................................... Ps 175,367 Ps 1,621,715 Ps 946,357
Organization costs.............................................. 180,930 689,427 936,942
Market and demand studies and investigations.................... 753,919 104,930 93,859
Interest costs of investments in and advances to
subsidiaries and on installation of equipment.................. 9,313,958 1,506,914
Interest costs of expansion plan projects....................... 2,183,961 2,329,555
Exchange loss costs of expansion plan projects.................. 303,118 3,724,567 -
----------- ----------- -------------
Increase in expenses.......................................... 12,911,253 9,977,108 1,977,158
Less--Amortization recorded under Colombian GAAP................ (4,243,744) (9,665,457) (15,219,980)
Plus--Amortization required on items not expensed
under U.S. GAAP............................................... 872,035 3,616,770 7,024,969
------------- ----------- ------------
Net increase in expenses...................................... Ps 9,539,544 Ps 3,928,421 Ps (6,217,853)
============= ============ =============
</TABLE>
The remaining deferred costs under U.S. GAAP consist of the amounts in the
following table. The periods of amortization are the same under Colombian and
U.S. GAAP.
F-47
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Life in years December 31,
------------- ----------------------------------------------------------
1997 1998 1999
---------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Software ............................. 5 Ps 835,359 Ps 888,264 Ps 959,462
Leasehold improvements ............... 5 731,238 765,751 836,949
Acquisition costs .................... 5 4,032,653 4,066,323 4,422,311
Issuance costs of Senior Notes ....... 10 31,525,398 35,909,889 37,105,661
Organization costs ................... 5 281,184 920,755 991,955
---------- ---------- -----------
37,405,832 42,550,982 44,316,338
Accumulated amortization............... (1,047,107) (4,663,877) (11,688,846)
-------------- -------------- --------------
Deferred costs, net.................... Ps 36,358,725 Ps 37,887,105 Ps 32,627,492
============== ============== ==============
</TABLE>
(vi) Capital leases
All of the Company's operating leases for Colombian GAAP purposes, as
disclosed in Note 19, qualify as capital leases under U.S. GAAP. In addition to
the amounts shown under capital leases in Note 19, the following assets and
liabilities are recorded under U.S. GAAP; however, these U.S. GAAP amounts do
not include the Global Leases, the IBM Arrangement or the DIAN Financing
disclosed in Note 30, which will be recorded as liabilities under Colombian and
U.S. GAAP when the related equipment is delivered, installed and tested:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1998 1999
---------------- ----------------- -----------------
<S> <C> <C> <C>
Telephony networks ............................... Ps 4,615,071 Ps 4,614,132 Ps 4,590,878
Computer equipment ............................. 510,806 371,844 362,234
Transport fleet and equipment .................. 2,009,040 2,299,373 1,987,725
Generator ...................................... 208,670 92,637 91,688
---------- ---------- ----------
Total ....................................... 7,343,587 7,377,986 7,032,525
Less--Accumulated depreciation ................. (1,137,948) (2,390,142) (2,830,680)
---------- ---------- ----------
Ps 6,205,639 Ps 4,987,844 Ps 4,201,845
============ ============= =============
</TABLE>
The above amounts include cumulative net inflation adjustments of Ps1,484,150,
Ps1,920,793 and Ps2,306,877 at December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1998 1999
---------------- ----------------- -----------------
<S> <C> <C> <C>
Total minimum lease payments ..................... Ps 5,410,487 Ps 5,397,246 Ps 4,337,373
Less--Imputed interest ........................ (1,248,005) (2,379,695) (1,926,960)
---------- ---------- ----------
Present value of minimum lease payments ....... 4,162,482 3,017,551 2,410,413
Less--Current portion ......................... (1,168,276) (765,984) (678,601)
---------- ---------- ----------
Long-term portion ............................. Ps 2,994,206 Ps 2,251,567 Ps 1,731,812
============= ============= =============
Deferred income from sale leaseback ............ Ps 263,965 Ps 249,298 Ps 238,309
============= ============= =============
</TABLE>
During 1996, TelePalmira sold recently acquired new equipment for 11,000
telephone lines to Banco Industrial Colombiano Panama for Ps3,589,102 and leased
the equipment back under a capital lease for U.S. GAAP purposes for total
payments of Ps5,715,768. The gain on the sale of Ps293,291 is being amortized as
a reduction of lease expense over five years. The remaining payments of
Ps2,916,138 are included in the following table.
After the above U.S. GAAP adjustments, total minimum lease payments for all
capital leases under U.S. GAAP are as follows:
F-48
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1998 1999
------------------- ----------------- ----------------
<S> <C> <C> <C>
Total minimum lease payments ....................... Ps 8,707,974 Ps 55,126,219 Ps 73,943,150
Less--Imputed interest ............................. (2,847,170) (16,235,422) (24,147,421)
------------- -------------- --------------
Present value of minimum lease payments ............ 5,860,804 38,890,797 49,795,729
Less--Current portion .............................. (1,435,470) (5,271,898) (9,718,050)
------------- ------------- --------------
Long-term portion .................................. Ps 4,425,334 Ps 33,618,899 Ps 40,077,679
============= ============= ==============
</TABLE>
The total minimum lease payments at December 31, 1999 are as follows under
U.S. GAAP:
<TABLE>
<CAPTION>
Payable in years ending December 31,
------------------------------------
<S> <C>
2000 ......................................... 16,941,997
2001 ......................................... 12,481,184
2002 ......................................... 12,819,993
2003 ......................................... 31,699,976
--------------
Total minimum lease payments .................. Ps 73,943,150
==============
</TABLE>
The following income statement effects are recorded under U.S. GAAP for the
above capital leases:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1997 1998 1999
-------------------- ----------------- ----------------
<S> <C> <C> <C>
Increase in interest expense ............................. Ps 443,544 Ps 559,778 Ps 414,759
Increase in depreciation expense ......................... 550,634 1,228,247 856,795
Decrease in (amortization of) gain from
sale of properties, plant and equipment on
leaseback ................................................ (29,328) (14,665) (10,998)
Increase in inflation adjustment income on capital lease
obligations .............................................. (741,922) (516,814) (154,289)
----------- ------------- -------------
Total ................................................. 222,928 1,256,546 1,106,267
----------- ------------- -------------
Rent expense:
Decrease in rent expense recorded under Colombian
GAAP ................................................. (1,344,255) (1,198,339) (984,060)
Decrease in rent recorded as deferred costs under
Colombian GAAP and reversed for U.S. GAAP
purposes (see v) ....................................... (202,830) - -
---------- ---------- ---------
(1,547,085) (1,198,339) (984,060)
------------- -------------- --------------
Net decrease in expenses ................................ Ps (1,324,157) Ps 58,207 Ps 122,207
============= ============= ==============
</TABLE>
Under U.S. GAAP, there are no operating lease commitments at December 31, 1997
except short-term space rentals.
F-49
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If the equipment under Global Leases, the IBM Arrangement and the related DIAN
Financing of the value-added tax and duty described in Note 30 had been
installed and accepted (and thus the lease terms commenced) at December 31,
1999, the following additional lease and tax obligations on an unaudited pro
forma U.S. GAAP basis would have been outstanding:
<TABLE>
<CAPTION>
IBM DIAN
Global Leases Arrangement Financing Total
------------------ ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Total minimum lease or tax and
duty payments ........................ Ps 168,098,509 Ps 910,933 Ps 25,084,159 Ps 194,093,601
Less--Imputed interest ............ (48,651,951) (66,893) (48,718,844)
----------- -------- ---------- -----------
Present value of minimum lease
Payments ......................... 119,446,558 844,040 25,084,159 145,374,757
Less--Current portion ............. (31,056,105) (126,606) (3,511,782) (34,694,493)
----------- -------- ---------- -----------
Long--term portion ................ Ps 88,390,453 Ps 717,434 Ps 21,572,377 Ps 110,680,264
=========== ======== ========== ===========
</TABLE>
The additional total minimum lease or tax and duty payments would have been as
follows under U.S. GAAP (unaudited):
<TABLE>
<CAPTION>
Payable in year ending December 31,
- -----------------------------------
<S> <C>
2000 ............................... Ps 22,408,181
2001 ............................... 21,702,146
2002 ............................... 23,120,992
2003 ............................... 19,768,715
Thereafter ......................... 107,093,568
---------------
Ps 194,093,602
===============
</TABLE>
Additionally, the Company is negotiating other Global Leases with total
minimum lease payments of approximately Ps20.6 billion to complete its expansion
plan. Such leases would be capital leases under U.S. GAAP; however, they are
excluded from the above pro forma presentation since no commitment has yet been
incurred by the Company or Global.
(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,
revenues from these connection fees are recorded at the date of actual
installation with a dial tone.
F-50
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues under U.S. GAAP consist of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
--------------- ------------------ ----------------
<S> <C> <C> <C>
Connection fees.......................................... Ps 15,648,551 Ps 41,449,941 Ps 8,208,085
Local usage charges...................................... 4,444,674 13,262,951 41,513,674
Basic charges............................................ 3,086,598 9,002,640 19,661,706
Long distance charges.................................... 9,236,193 20,236,339 16,980,117
Telephone directory commissions.......................... 479,083 598,308 325,240
Pay television services.................................. 6,373,830 10,538,779
Sales of telephones...................................... 941,692 1,292,372 471,714
Other operating income................................... 907,234 1,819,262 5,519,315
------------- ------------- --------------
Ps 34,744,025 Ps 94,035,643 Ps 103,218,630
============= ============= ==============
</TABLE>
Effective with the first quarter of fiscal 1999, the Company changed
prospectively 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 this new policy, connection fee income
less direct installation costs and direct selling costs are 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.
(viii) Deferred monetary correction
The deferred monetary correction asset and liability are reversed for U.S.
GAAP purposes. The effects of the these reversal on shareholders' equity and
pretax income are as following:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Reversal of deferred monetary correction recorded as:
Liabilities............................................... Ps 5,683,500 Ps 5,273,018 Ps 5,746,629
Assets.................................................... (2,997,494) (4,358,574) (4,575,998)
---------- ---------- ----------
Increase in shareholders' equity........................... 2,686,006 914,444 1,170,631
Less: Prior year effect on shareholders' equity............ (373,322) (2,686,006) (914,444)
------------- ------------- --------------
Increase (decrease) in pretax income....................... Ps 2,312,684 Ps (1,771,562) Ps 256,187
============= ============= ==============
</TABLE>
(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.
F-51
<PAGE>
TRANSTEL S.A.
NOTES TO 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 are 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.
Under Colombian GAAP, the consolidated balance sheet at December 31, 1999
includes "Reappraisal of assets" of Ps9,774,181 and "Negative goodwill" of
Ps275,374 related to the Cablevision acquisition during 1998. Under U.S. GAAP,
the net of those amounts (Ps9,498,807) is allocated as follows and depreciated.
<TABLE>
<CAPTION>
<S> <C>
Land.......................................................... Ps 116,221
Building................................................... 664,119
Office and computer equipment.............................. 27,672
Telecommunications equipment............................... 2,047,699
External telephony networks................................ 8,212,935
------------
11,068,646
Accumulated depreciation................................... (486,416)
------------
Net........................................................ Ps10,582,230
============
</TABLE>
(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
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Land.......................................................... Ps 232,510
Building................................................... 930,036
-----------
1,162,546
Accumulated depreciation................................... (119,037)
-----------
Net........................................................ Ps1,043,509
===========
</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.
(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.
F-52
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 were 18,710,645,555, 34,611,747,976 and 34,611,747,976 during
1997, 1998 and 1999, respectively. These shares for 1997 and 1998 are different
than Colombian GAAP since the capitalization in 1998 of premium on shares issued
in July 1997 is treated as a stock split under U.S. GAAP as of the date in which
the share premium was received by the Company in 1997.
Basic and diluted income (loss) per share under U.S. GAAP are the same and
were (0.15) single Pesos, 0.22 single Pesos and (0.28)single Pesos in 1997, 1998
and 1999, respectively.
(e) Additional disclosures required by U.S. GAAP
Concentration of credit risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of accounts receivable resulting from
customer financing plans and sold to financial institutions. Concentration of
credit risk with respect to such receivables is limited to a large number of
customers comprising the Company's customer base; however, the Company's
customers are concentrated in Colombia and the ability of the customers to pay
amounts due depends, in part, upon the general condition of the Colombian
economy. Generally, the Company does not require collateral or other security to
support receivables.
Investments
Investments under U.S. GAAP are presented in the balance sheet as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999
---------- ---------
<S> <C> <C>
Short-term and temporary investments................................ Ps 62,967,214 Ps 8,505,039
Long-term investments .............................................. 3,215,873 1,274,377
-------------- ------------
Ps 66,183,087 Ps 9,779,416
============== ============
</TABLE>
The investments consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999
---------- ---------
<S> <C> <C>
Certificates of deposits ........................................... Ps 10,935,258 Ps 8,104,892
Escrow Account ................................................... 30,152,266
Refinancing Account ..............................................
Investments in Ordinary Common Funds ............................. 24,241,599 400,672
Other ............................................................ 853,964 1,273,852
------------- -------------
Ps 66,183,087 Ps 9,779,416
============= =============
</TABLE>
The Escrow Account investments are the only investments meeting the criteria
of SFAS No. 115. These investments consist of U.S. Treasury Bills and interest
only strips that secure, and mature at the same dates as, the first four
interest payments on the 12 1/2% Senior Notes due 2007. Under SFAS No. 115, the
Escrow Account investments are classified as held-to-maturity and are recorded
at amortized cost. All other investments are carried at cost, which approximates
market values.
The carrying amount, gross unrealized gains and approximate fair value of the
Escrow Account investments at December 31, 1997 and 1998 are as follows:
F-53
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1999
------------ -----------
<S> <C> <C>
Carrying value (amortized cost).................................. Ps30,152,266 Ps -
Gross unrealized gains........................................... 1,021,834 Ps -
------------ -----------
Approximate fair value........................................... Ps31,174,100 Ps -
============ ===========
</TABLE>
Fair value of financial instruments
Cash, short-term and temporary investments and long-term investments except
the Escrow Account, current accounts receivable (except advances to IBM, Siemens
and Global) and accounts payable: The carrying amounts approximate fair value
because of the short maturity of these instruments or, in the case of temporary
investments, the subsequent sales price.
Noncurrent receivables from customers: The carrying amounts approximate fair
value because of the market rates of interest charged by the Company.
Escrow Account: Based on quoted market values, these investments have a fair
value of Ps31.2 billion at December 31, 1998.
12 1/2 % Senior Notes due 2007: The Senior Notes, which were issued on
October 28, 1997, had a fair value of Ps159.505 billion at December 31, 1999
based on quoted market values.
20.32% Senior Discount Notes due 2008: The Senior Discount Notes, which were
issued on December 31, 1998, had a fair value equal to the carrying amount based
on the issue date.
Other long and short-term debt: Substantially all of the Company's other
long- and short-term debt is variable rate borrowings; thus, the carrying
amounts of the Company's borrowings under these credit agreements approximate
their fair value.
Capital lease obligations: The Company's capital lease obligations contain
variable interest rates and approximate fair value.
F-54
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other current and noncurrent liabilities
Other current liabilities under U.S. GAAP consisted of:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1998 1999
-------------- --------------- ---------------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel-Siemens Purchase
Agreement ........................................................ Ps 466,623 Ps 727,831 Ps 797,674
Payable to Siemens S.A. for Turn-Key Arrangement ............... 497,993
Payable to Siemens AG for other equipment....................... 1,772,731 1,744,530 1,179,373
Payable to IBM.................................................. 125,014 45,397 771,014
Spectrum usage fees payable to the Colombian Ministry of
Communications................................................ 503,150
Deferred income-Girardot Telephone connection fees ............ 2,450,635
Other........................................................... 1,149,716 - -
------------ ------------ ------------
Ps 6,965,862 Ps 2,517,758 Ps 2,748,061
============ ============ ============
</TABLE>
Other noncurrent liabilities under U.S. GAAP consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel-Siemens Purchase
Agreement .................................................. Ps 4,199,631 Ps 3,582,269 Ps 3,722,481
Payable to Siemens A.G. for other equipment................. 5,735,208 3,541,928 4,291,493
Payable to IBM ............................................. 1,072,679 1,188,804 580,352
Accrued litigation loss .................................... 2,790,194 2,411,860 2,200,000
Cable television fees paid in advance....................... 619,176
Other ...................................................... 209,559 326,830 696,793
--------- --------- ---------
Ps 14,007,271 Ps 11,670,867 Ps 11,491,119
============= ============= =============
</TABLE>
Recent accounting pronouncements
SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits", revises disclosures about pension plans; however, it does not change
the measurement or recognition of those plans. SFAS No. 132 will require
additional information on changes in the benefit obligation and fair value of
plan assets. This statement is effective for year ending December 31, 1998.
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, will require the Company to change its accounting under U.S. GAAP for
organization costs. In 1999, all future organization costs will be expensed as
incurred and the balance of organization costs of Ps920,756 at December 31, 1998
will be expensed as a change in accounting.
F-55
<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: May 1, 2000 By: /s/ Guillermo O. Lopez
-----------------------------
Name: Guillermo O. Lopez
Title: President
