<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 June , 2000.
-------------
Transtel S.A.
-------------------------------------------------------------------------------
(Translation of Registrant's Name Into English)
Calle 15 #33-289, Autopista, Cali-Yumbo Km.2, Cali-Valle, Colombia
-------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F ____
---
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes ____ No X
---
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-_______.)
<PAGE>
TRANSTEL S.A.--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Pesos of June 30, 2000 purchasing power and U.S. Dollars, unless otherwise
specified)
General
Transtel S.A. ("Transtel" or the "Company") is the largest private telephone
company in Colombia, providing telephone service to both business and
residential subscribers. The Company currently owns and operates telephone
systems serving ten cities, with an aggregate population of 3.1 million people,
located in the southwestern region of Colombia. As of June 30, 2000, such
systems provided service to an aggregate of approximately 287,217 subscribers
and had an average penetration of 28.7 lines per 100 people.
Over the six months ended June 30, 2000 the Company has successfully
rationalized and improved its subscriber base by discontinuing service to
delinquent accounts while continuing to add new high quality subscribers.
Despite this Company imposed churn, the Company's growth has continued apace and
has now more than replenished previously terminated subscribers. The Company has
also continued to grow its other businesses and as of June 30, 2000 had 23,839
cable TV subscribers, 13,732 Internet subscribers, 10,017 voice mail customers
and 201,243 subscribers of special services.
The Company generates revenues by providing telephone services to its
commercial and residential subscribers. The Company's sources of revenue consist
of: (i) basic fixed charges based either on the predecessor telephone operator
or the existing competitive tariff structure, (ii) local usage charges based on
the number of minutes used per month; (iii) access charges for national and
international long distance tariffs collected for providing such services to and
from the Company's networks generated from incoming and outgoing calls; (iv) the
sale of equipment to subscribers; (v) value-added services such as video
conference calling and voice mail; and (vi) connection fees from each new
subscriber connected to the Company's network. In addition, the Company expects
to generate additional revenues from its subscribers' growing use of the
Internet. The Company's subscribers, who elect Internet service, will pay a
monthly service fee and related usage charges.
The Company's revenues trend for the last six months shows a different
composition resulting that usage derived revenues are an increasing share of
overall revenues. The last two quarters have also evidenced the increasing
importance of local services revenues (those from basic charges an local usage).
In the six months ended June 30, 2000, these revenues accounted for
approximately 77% of revenue compared to the 43%. Aside from the decline in
connection fee revenue, this fact reflects the importance of tariff increases
and the Company's call completion efficiency. The trend seen in the last
quarterly reports continues as revenues for local telephone services, (basic and
local usage charge), are becoming more and more important in total revenue
contribution to the company. This type of revenue generation is not dependent on
third party operations (long distance and cellular). Also the growth of local
services emphasizes the importance of the tariffs increases applied.
Six months ended June 30, 1999 and 2000
The following is a discussion of the consolidated financial condition as of June
30, 1999 and 2000 and the results of operations of the Company for the ended
June 30, 1999 and 2000. The discussion should be read in conjunction with the
unaudited Consolidated Interim Financial Statements of the Company as of and for
the six months ended June 30, 1999 and 2000, and the notes thereto included
elsewhere herein. The unaudited Consolidated Interim Financial Statements have
been prepared in accordance with Colombian GAAP, which differs in certain
significant respects from U.S. GAAP. Note 6 to the Company's unaudited
Consolidated Interim Financial Statements provides a reconciliation to U.S. GAAP
of the Company's net income (loss) and shareholders' equity as of and for the
ended June 30, 1999 and 2000. Unless otherwise indicated, the financial
2
<PAGE>
information has been presented in constant Pesos as of June 30, 2000. Dollar
amounts are translated from Pesos amounts at the Representative Market Rate on
June 30, 2000, which was 2,139.11 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.
Subscriber Growth
The following table provides information regarding the Operating Companies:
<TABLE>
<CAPTION>
TelePalmira TeleCartago Caucatel TeleJamundi Unitel Bugatel TeleGirardot Unitel Total
----------- ----------- -------- ----------- ---------- ------- ------------ --------- --------
Wireline Wireless
---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipality served Palmira Cartago Popayan Jamundi Yumbo Buga Girardot Cali N/A
Population 318,000 125,900 76,600 59,100 72,000 337,400 161,000/(1)/ 1,908,600 3,058,600
Commencement date of
Company's operations Sep-95 Apr-97 May-97 Jun-97 Jun-97 Jul-97 Dec-97 Jan-98 N/A
Number of subscribers at New New New
commencement date 15,600 13,800 10,800 System System 10,700 23,500 System 74,400
Number of subscribers as
of December 31, 1999 68,803 32,844 23,721 12,737 9,784 26,931 53,454 57,932 286,206
Number of subscribers as
of March 31, 2000 68,138 32,816 23,687 12,700 9,756 26,904 49,799 56,949 280,749
Total subscribers as of
June 30, 2000 69,208 33,310 23,862 13,275 10,125 27,558 50,174 59,705 287,217
Penetration/(2)/ 21.8 33.6 31.2 36.4 23.4 17.1 38.1 30.6 28.7
</TABLE>
(1) Includes the neighboring cities of Flandes and Ricaurte.
(2) Penetration represents the number of installed lines per 100 people. In
Cartago, Jamundi, Buga, Yumbo, Cali and Girardot, penetration includes the
installed lines of municipal competitors of approximately 8,952 lines,
8,250 lines, 30,005 lines, 6,705 lines, 524,690 lines and 11,225 lines as
per the Company's estimates, respectively.
Pay-TV and Internet Subscribers
<TABLE>
<CAPTION>
TelePalmira TeleCartago Caucatel TeleJamundi Unitel Bugatel TeleGirardot Unitel Total
----------- ----------- -------- ----------- -------- ------- ------------ --------- ---------
Wireline Wireless
-------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipality served Palmira Cartago Popayan Jamundi Yumbo Buga Girardot Cali N/A
Population 318,000 125,900 76,600 59,100 72,000 337,400 161,000/(1)/ 1,908,600 3,058,600
Internet Subscribers
--------------------
Number of subscribers as 2,472 742 494 - 2,980 481 - 645 13,732
Of June 30, 2000
Internet Penetration 0.78 0.59 0.64 - 4.14 0.14 - 0.03 0.45
Number of Homes Passed NA NA NA NA NA NA NA 40,000 40,000
Number of subscribers as
of June 30, 2000 NA NA NA NA NA NA NA 23,839 23,839
</TABLE>
3
<PAGE>
Results of Operations
The composition of the Company's revenues for each of periods discussed here
in is as follows:
<TABLE>
<CAPTION>
Six months ended
------------------------------------------------------------
1999 % 2000 %
----------- ------------ ------------ -----------
(in thousands of constant Pesos of June 30, 2000 purchasing
power, except percents data)
<S> <C> <C> <C> <C>
Connection fees.................... Ps 17,657,001 27.4% Ps 3,169,955 5.2%
Local usage charges................ 14,814,358 23.0 29,535,295 48.0
Basic charges...................... 9,089,664 14.1 12,745,954 20.7
Long distance charges.............. 10,837,230 16.8 8,743,267 14.2
Other income....................... 3,865,300 5.9 4,821,058 7.8
------------- ----- ------------ -----
Total telephone............... Ps 56,263,553 87.2 59,015,529 95.9
Pay television services............ 8,243,116 12.8 2,493,356 4.1
------------- ----- ------------ -----
Total revenues............... Ps 64,506,669 100.0% Ps61,508,885 100.0%
============= ===== ============ =====
</TABLE>
The following table expresses certain financial data from the Company's
statement of income as a percentage of total revenues:
<TABLE>
<CAPTION>
Six months ended
-----------------------
1999 2000
---- ----
<S> <C> <C>
Revenues................................................. 100.0% 100.0%
----- -----
Costs and expenses:
Operating costs..................................... (15.1) (17.4)
Administrative expenses............................. (25.6) (23.4)
Marketing expenses.................................. (6.6) (5.7)
----- -----
Total.......................................... 47.3 46.5
----- -----
Operating income......................................... 52.7 53.5
Nonoperating expenses.................................... (50.1) (77.6)
Net monetary inflation adjustment income................. 20.6 26.0
----- -----
Income before income taxes and minority interest......... 23.2 1.9
Income tax expense....................................... (8.6) (1.1)
----- -----
Income before minority interest.......................... 14.6 0.8
Minority interest........................................ (14.3) (9.6)
----- -----
Net income............................................... 0.3% (8.8)%
===== =====
</TABLE>
Revenues. The total revenues for the six months ended June 30, 2000
("Interim 2000") decreased by Ps 2.998 billion, or -5%, to Ps 61.509 billion
from Ps 64.507 billion in the six months ended June 30, 1999 ("Interim 1999").
The decrease in revenues for the 2000 was mainly attributable to the decrease in
connection fee revenue, pay television services, and long distance charges. The
number of subscribers increased from 256,078 at June 30, 1999 to 287,217 at June
30, 2000, or 12% excluding Cablevision. The number of new subscribers increased
primarily as a result of organic growth of the Operating Companies.
Connection fee revenue in Interim 2000 decreased by Ps 14.487 billion from
Ps 17.657 billion in Interim 1999 to Ps 3.170 billion as a result of 21.649
lines sold during Interim 2000 compared to 47.988 new lines sold in Interim
1999. Pay television services were Ps 2.493 billion in Interim 2000 compared to
Ps8.243 billion in Interim 1999. This decrease in Pay Television revenues is due
to no charges from the usage of the network for videoconferencing and other
special services were accounted in Interim 2000.
Long distance charges decreased by Ps 2.094 billion from Ps 10.837 billion in
Interim 1999 to Ps 8.743 billion in Interim 2000 as a result of additional
revenues in Interim 1999 due to the reconciliation of additional access charges
corresponding to previous periods.
However, local revenues, including basic monthly charges, local usage charges,
and other fees for Interim 2000 increased by Ps 19.333 billion from Ps 27.769
billion in Interim 1999 to Ps 47.102 billion in Interim 2000.
4
<PAGE>
The increase in local revenues for Interim 1999 is attributed to the increase in
the number of subscribers, in the higher usage associated with that increase and
also in the higher local tariffs. Local revenues that accounted for 43% of total
revenues in interim 1999 increased to 77% of total revenues in interim 2000.
Costs and Expenses. Costs and expenses for Interim 2000 decreased by Ps 1.829
billion, or -6%, to Ps 28.649 billion from Ps 30.478 billion in Interim 1999.
Operating costs increased by Ps 0.988 billion from Ps 9.721 billion in Interim
1999 to Ps 10.708 billion mainly as a result of increases in depreciation of Ps
0.496 billion and amortizations of Ps 0.952 billion.
Administrative expenses for Interim 2000 decreased by Ps 2.070 billion to Ps
14.418 billion from Ps 16.488 billion in Interim 1999. The decrease was mainly
attributable to the decreases in salaries, benefits and other labor payments of
Ps 1.585 billion, and provision for doubtful accounts of Ps 1.272 billion.
Marketing expenses for Interim 2000 decreased by Ps 0.747 billion to Ps 3.522
billion from Ps 4.269 billion in Interim 1999. The decrease in marketing
expenses was primarily attributable to the decrease in salaries, benefits and
other labor payments of Ps 1.347 billion.
Operating Income. Operating income for Interim 2000 decreased by Ps 1.170
billion from Ps 34.030 billion in Interim 1999 to Ps 32.860 billion. The
decrease was mainly attributable to the decrease in revenues as a result of the
decrease in connection fees.
Non-operating Income (Expenses). Non-operating income (expenses), net for
Interim 1999 and Interim 2000 consisted of the following:
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------------
1999 2000
----------- -----------
(in thousands of constant Pesos of
June 30, 2000 purchasing power)
<S> <C> <C>
Financial Income:
Interest income............................. Ps 15,806,665 Ps 19,094,668
Exchange gains.............................. 32,346,275 28,132,831
Other financial income...................... 217,150 132,739
--------------- -------------
48,370,090 47,360,238
--------------- -------------
Financial Expenses:
Interest expense............................ (25,128,759) (38,124,726)
Bank commissions............................ (67,499) (64,131)
Exchange losses............................. (53,205,421) (60,001,013)
Bank expenses............................... (258,330) (428,583)
Other financial expenses.................... (96,157) (69,287)
--------------- -------------
(78,756,166) (98,687,740)
--------------- -------------
Other:
Sales of scrap and extra parts.............. 42,855 49,351
Other, net.................................. (2,005,210) 3,527,410
--------------- -------------
(1,962,355) 3,576,761
--------------- -------------
Total Non-operating Income (Expenses) Ps (32,348,431) Ps(47,750,741)
=============== =============
</TABLE>
Net non-operating expenses increased from Ps32.348 billion for Interim 1999 to
Ps 47.750 billion in Interim 2000. The increase was mainly due to the net
exchange loss occurred during Interim 2000 associated with the Senior Notes, the
Discount Notes and other liabilities denominated in Dollars due to the
devaluation of 14.16% of the Colombian peso with respect to the Dollar. Interest
expense increased from Ps 25.129 billion in Interim 1999 to Ps 38.125 billion in
Interim 2000 due to the higher indebtedness levels.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income in Interim 2000 increased by Ps 2.716 billion to Ps 15.983 billion from
Ps 13.267 billion in Interim 1999.
5
<PAGE>
Income Tax Expense. Income tax expense for Interim 2000 decreased by Ps 4.827
billion to Ps 0.690 billion from Ps 5.517 billion in Interim 1999 primarily
because of tax loss carry forward benefits recorded for Transtel S.A. during
2000.
Minority Interest. Minority interest for Interim 2000 decreased by Ps 3.287
billion to Ps 5.935 billion from Ps 9.222 billion for Interim 1999 because of
the decreased net income of the operating subsidiaries.
Net Income. Total income decreased by Ps (5.742) billion from Ps 0.210 billion
for Interim 1999 to Ps (5.532) billion for Interim 2000 as a result of the
factors discussed above.
Liquidity and Capital Resources
Net cash used by operating activities during Interim 2000 was Ps 3.277 billion
as compared provided to Ps 13.439 billion for Interim 1999. The decrease in cash
used from operations for Interim 1999 was primarily caused by a decrease in net
income and was partially offset by an increase in accounts receivable and
deferred charges. Net cash used in investing activities during Interim 2000 was
Ps 67.685 billion as compared to Ps 1.220 billion provided in Interim 1999. Cash
used in investing activities in Interim 2000 continues to relate to the
construction of new network systems and the upgrade of existing network systems.
In addition, cash used in investing activities in Interim 2000 includes the net
maturity of short-term and long-term investments of Ps 5.409 billion. Net cash
provided by financing activities during Interim 2000 was Ps 46.313 billion as
compared to Ps 11.438 billion used in Interim 1999. As of June 30, 2000, the
Company's borrowings were Ps 424.109 billion, consisting primarily of the Senior
Notes of Ps 320.866 billion and the Discount Notes of Ps 42.853 billion.
Substantially all of the borrowings at June 30, 2000 are denominated in Dollars.
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.
The Company's principal liquidity requirements are to finance the
construction, development and expansion of its networks , debt service
(primarily on the Senior Notes), working capital and general corporate purposes,
including future acquisitions. The Company's initial expansion and upgrade
project (the "Expansion")was projected to require aggregate capital expenditures
of approximately $178.2 million, of which approximately $7.7 million had been
financed with local bank borrowings, all of which have been repaid with proceeds
of the Senior Notes Offering, and $1.5 million of cash flow from operations. The
Company completed the Expansion on December 31, 1998 and financed the remainder
of the Expansion with (i) approximately $38.3 million of the proceeds of the
Senior Notes Offering; (ii) approximately $102.1 million of Vendor Financing;
(iii) the sale of investments of $8.5 million; and (iv) approximately $20.2
million of DIAN Financing.
As a result of the Senior Notes Offering, the Discount Notes, the Vendor
Financing, the DIAN Financing and the incurrence of certain other indebtedness,
the Company will be required to satisfy certain debt service requirements.
Following the disbursements in May and November 1998 and 1999 of all the
proceeds in the Escrow Account, a substantial portion of the Company's cash flow
is utilized to service the Senior Notes, the Vendor Financing and the DIAN
Financing. The Senior Notes will require semi-annual interest payments of
approximately $9.4 million and the Vendor Financing will require semi-annual
interest and principal payments of approximately $7.2 million. In addition, the
DIAN Financing will require semi-annual principal payments of approximately $2.0
million. The cash interest due on the Discount Notes will not exceed $44,000 in
any year through 2008; however, the principal of $15.0 million plus accrued
interest of $86.9 million will be due on August 13, 2008. The Company is
required to meet various financial covenants under the Indenture. As of June 30,
2000 and September 10, 1999, the Company is in compliance with all such
financial covenants.
The Senior Notes are the exclusive obligation of the Company, which is a
holding company with no business operations of its own. The operations of the
Company are conducted through the Operating Companies, which are separate and
distinct legal entities. Other than the obligation to repay the Intercompany
Notes to the Company, the Operating Companies have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Senior Notes or the
Certificates, to make any funds available to the Company to enable it to make
payments on the Senior Notes and consequently, to make the funds available to
the Trust to make payments on the Certificates, to make funds available in order
to make investments in the Operating
6
<PAGE>
Companies, to meet working capital needs or other liabilities of the Company or
for any other reason. In addition, the Operating Companies are currently not
wholly-owned subsidiaries of the Company, but instead are owned jointly by the
Company and local municipalities. Any dividends issued by the Operating
Companies must be distributed pro rata to all of their shareholders. As a
result, the Company cannot be assured that it will be able to generate
significant cash through dividends or other distributions from the Operating
Companies in the foreseeable future and there can be no assurance that the
Company will be able to generate any significant cash flow from the Operating
Companies at any time in the future. Since the Company's assets consist
primarily of its ownership interests in the Operating Companies, the Senior
Notes (and therefore the Certificates) will be effectively subordinated (other
than as to claims that the Company can make under the Intercompany Notes) to all
existing and future debt and other liabilities (including trade payables) of the
Operating Companies, and the Company's right to receive the assets of the
Operating Companies upon their liquidation or reorganization will be subject to
the claims of such Operating Companies' creditors (including trade creditors).
Annual interest payments on the Senior Notes by the Company will be
approximately $18.8 million, plus any additional interest as required, through
November 1, 2007. The principal amount of the Senior Notes is due on November 1,
2007. As of June 30, 2000, the Company has lent $95.5 million (Ps 204.198
billion) of the proceeds from the Senior Notes to six of its Operating Companies
as evidenced by Intercompany Notes which were executed as of December 31, 1998.
Balances loaned to each subsidiary as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
As of June 30, 2000
-------------------------------------------
(in thousands of constant Pesos of June 30,
2000 purchasing power and in Dollars)
<S> <C> <C>
Unitel........................ Ps 64,152,677 $29,990,359
TeleJamundi................... 46,539,491 21,756,474
TelePalmira................... 48,750,011 22,789,857
TeleCartago................... 21,038,650 9,835,235
Caucatel...................... 15,795,285 7,384,045
Bugatel....................... 7,922,207 3,703,506
-------------- -----------
Ps 204,198,321 $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 S.A. under
the Indenture.
Summarized financial information on a Colombian GAAP basis of each of the
Operating Companies that has issued an Intercompany Note to Transtel S.A. as of
and for the six month ended June 30, 2000 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 Six Month Ended June 30, 2000
(Amounts in thousands of constant Pesos of June 30, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------- ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues--subscribers........... Ps15,151,920 Ps 15,503,872 Ps 1,766,228 Ps 7,849,283 Ps 6,000,242 Ps 5,119,645
Operating income (loss)............... 9,467,457 10,834,139 468,565 5,883,917 4,059,496 3,293,322
Net income............................ (1,580,251) 9,817,021 591,312 5,601,661 2,013,001 3,355,352
</TABLE>
7
<PAGE>
CASH FLOW INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For The Six Month Ended June 30, 2000
(Amounts in thousands of constant pesos of June 30, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
-------------- -------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flow (used) provided by operating
activities............................ Ps (9,259,027) Ps 11,615,783 Ps (466,477) Ps 758,739 Ps 8,594,607 Ps 2,279,717
Cash flow used by investing
activities............................ (656,644) (24,912,610) (10,288,886) (5,685,604) (9,291,218) (4,916,161)
Cash flow provided (used) by financing
activities............................ 6,857,465 10,377,916 7,642,679 2,344,393 705,911 1,558,481
</TABLE>
BALANCE SHEETS OF SUBSIDIARIES WITH INTERCOMPANY NOTES AT JUNE 30, 2000
(Amounts in thousands of constant Pesos of June 30, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets...................... Ps 20,442,358 Ps 38,372,570 Ps 6,330,008 Ps 9,414,750 Ps 7,575,489 Ps 5,864,262
Properties, plant and equipment..... 93,363,808 109,739,556 57,786,893 59,311,789 44,901,468 42,814,596
Other noncurrent assets............. 40,439,036 33,651,059 9,342,921 9,744,935 9,901,911 5,499,787
------------- ------------- ------------ ------------ ------------ ------------
Total assets................. Ps154,245,202 Ps181,763,185 Ps73,459,822 Ps78,471,474 Ps62,378,868 Ps54,178,645
============= ============= ============ ============ ============ ============
Current liabilities Ps 22,923,354 Ps 32,573,600 Ps 3,785,562 Ps12,963,238 Ps14,932,197 Ps 5,657,299
Capital lease obligations 16,537,831 8,659,710 7,210,037 8,875,070 10,952,607 564,183
Intercompany Note to Transtel 44,894,477 82,235,474 50,862,013 25,917,039 7,378,469 14,331,411
Other noncurrent liabilities 3,846,593 4,467,458 2,460,604 1,492,465 1,349,358 1,447,242
------------- ------------- ------------ ------------ ------------ ------------
Total liabilities 88,202,255 127,936,242 64,318,216 49,247,812 34,612,631 22,000,135
Total shareholders' equity 66,042,947 53,826,943 9,141,606 29,223,662 27,766,237 32,178,510
------------- ------------- ------------ ------------ ------------ ------------
Total liabilities and shareholders'
Equity......................... Ps154,245,202 Ps181,763,185 Ps73,459,822 Ps78,471,474 Ps62,378,868 Ps54,178,645
============= ============= ============ ============ ============ ============
</TABLE>
Connection fees revenue for the six months ended June 30, 2000 were Ps0.497
billion, Ps1.949 billion, Ps0.024 billion, Ps0.096 billion, Ps0.195 billion and
Ps(0.266) billion at TelePalmira, Unitel, TeleJamundi, TeleCartago, Bugatel and
Caucatel, respectively.
In addition to the Intercompany Notes, these six Operating Companies have
capital lease obligations and short-term bank borrowings totaling Ps12.542
billion and Ps18.633 billion, respectively, included in current liabilities at
June 30, 2000. As indicated in the above summarized balance sheet information,
these six Operating Companies have total long-term capital lease obligations of
Ps52.799 billion at June 30, 2000. As these subsidiaries install and accept the
remaining Global Leases, the IBM Arrangement and the related DIAN Financing,
additional financial obligations totaling Ps 110.292 billion will be incurred.
Although the interest payments on the Senior Notes for the first four
payments (through November 1, 1999) was paid from the Escrow Account, which was
funded with a portion of the proceeds of the Senior Notes, the ability of the
Company to make payments of interest after November 1, 1999 and of the $150.0
million principal balance due on November 1, 2007 will be largely dependent upon
the future performance of the Operating Companies and their ability to pay the
interest and principal due under the Intercompany Notes. Many factors, some of
which will be beyond the Company's and the Operating Companies' control (such as
prevailing economic conditions) may affect their performance. There can be no
assurance that the Operating Companies will be able to generate sufficient cash
flow to cover required interest and principal payments when due on the
Intercompany Notes or that the Company will be able to generate sufficient cash
flow for it to be able to make its principal and interest payments in the
future. Although cash and interest from the Escrow Account has been sufficient
service these intercompany obligations through June 30, 2000 , these six
Operating Companies have not yet (through June 30, 2000) been able to generate
sufficient cash flow from operations to make such interest payments had they
been due in cash. 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.
8
<PAGE>
On December 31, 1998, the Company sold $15.0 million (Ps32.087 billion) of its
20.32% Senior Discount Notes due 2008 in a private placement. Interest at 0.10%
will be payable in cash each year through August 13, 2008. Interest at 20.22%
per annum will accrue over the term of the notes, and the total accrued interest
of $86.9 million (Ps185.889 billion) and principal of $15.0 million (Ps25.982
billion) will be due on August 13, 2008. The balance of the discount notes,
including interest accreted but unpaid, is $16.5 million (Ps 35.295 billion) at
June 30, 2000. The Discount Notes are unsecured senior obligations of the
Company and will be fully and unconditionally guaranteed on a senior, unsecured
basis by each Operating Company in which the Company acquires 100% of the
minority interest or provides indebtedness with the proceeds of the Discount
Notes. As of June 30, 2000, no guarantees have been required from nor has any
indebtedness [related to the Senior Notes] been provided to any Operating
Company.
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 it will have adequate funds 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 six months ended
June 30, 2000 was 6.25%. Financial statements are adjusted for the effects of
inflation on the basis of changes in the Colombian MCPI. Commencing January 1,
2000, this index is applied on a one-month lagging basis to nonmonetary assets
(except inventory) and liabilities and shareholders' equity accounts. Monetary
balances are not adjusted because they reflect the purchasing power of the
currency on the date of the balance sheet. Foreign currency balances are not
adjusted because they are translated into Pesos at the exchange rate in effect
on the same date. The resulting net gain or loss from exposure to inflation is
reflected as "Net monetary inflation adjustment income (loss)" in the income
statement for each period in question. On December 24,1998, the Colombian
Congress decreed a National Fiscal Change to apply after January 1, 1999. This
regulation eliminated inflation adjustments relating to inventories and revenues
and expenses.
Income Tax Matters
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for the Company was 35% for 1996, 1997, 1998 and 1999
and for the six months ended June 30, 2000. Under Colombian law, Transtel S.A.
must pay a minimum tax which is presumed to be not less than the greater of 5%
of shareholders' equity for tax purposes at the end of the immediately preceding
year or 1.5% of gross assets for tax purposes at the end of the immediate
preceding year. Adjustments to income to account for inflation are taken into
account for income tax purposes; however, operating companies such as Transtel's
subsidiaries are not subject to such a minimum income tax.
In accordance with Law 142 of 1994 and Law 223 of 1995, entities which render
basic residential telephony services and which are mixed capital companies
(i.e., companies with both public and private capital, such as the Company's
subsidiaries) are partially exempt from the payment of income taxes for a term
of seven years from 1996 with respect to profits which are retained for upgrade,
expansion or replacement of telephone systems. These companies are exempt from
taxes on 100% of income related to basic telephony 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
9
<PAGE>
investors such as Transtel S.A., the Company expects that future dividends paid
to Transtel S.A. by the Operating Companies will be taxable.
Reconciliation to U.S. GAAP
The unaudited Consolidated Interim Financial Statements are prepared in
accordance with Colombian GAAP, which differ from U.S. GAAP in certain
significant respects. A comparison of the Company's net income (loss) and
shareholders' equity at and for the semester ended June 30, 1999 and 2000, under
Colombian GAAP and after reflecting the material adjustments which arise when
U.S. GAAP is applied instead of Colombian GAAP, is shown below:
Six months ended,
---------------------------------------------
1999 2000
-------- --------
(in thousands of constant Pesos of June 30,
2000 purchasing power)
Net Income (Loss)
Colombian GAAP............... Ps 209,628 Ps (5,532,189)
U.S. GAAP.................... (8,579,041) (988,750)
Shareholders' Equity
Colombian GAAP............... 89,038,655 91,303,357
U.S. GAAP.................... 38,578,400 35,706,878
As more fully described and quantified in Note 6 to the unaudited
Consolidated Interim Financial Statements, the major differences between
Colombian GAAP and U.S. GAAP in each period relate to:- income taxes,
revaluation of assets, depreciation expense, capitalized interest, deferred
charges, capital leases, revenue recognition, reversal of monetary correction
and purchase of properties from a shareholder.
Recent Events
Macroeconomics
During the second quarter of 2000, the Colombian economy continued to
demonstrate its tendency towards a slow recovery. The government estimates
industry and GDP growth of 7.2% and 3.6%, respectively in the first quarter
2000. Exports have shown a steady upward tendency increasing 20.85% from last
year thereby creating a foreign exchange surplus of US$1.0 billion. However,
urban unemployment is at a record 20.4% (p) at the end of June 2000.
Although the economy seems to be emerging from its crisis, events provoked by
the guerrilla war and other political difficulties have undermined the
confidence of business.
The devaluation of the Colombian peso against the dollar was 5.31% in the second
quarter of 2000. The devaluation for the period from January to June was 14.2%.
The expectation is for a stabilization of the exchange rate over the remainder
of the year.
10
<PAGE>
Tariffs
As expected, the Comision de Regulacion de Telecomunicaciones (CRT) authorized a
20 point increase in tariffs over the established annual inflation index. On the
basis of this authorization the Company set in motion a gradual tariff increase
of approximately 30% on an annual basis, which is being applied enacted from
April to September.
Company Outlook
Furthermore the Colombian economy is showing a slow recovery, the activity of
the telecommunications sector in Colombia has increased, especially demonstrated
by the interest of foreign investors in some telecommunications companies in
Colombia. It is worth mentioning the acquisition of the wireless companies
Celumovil and Cocelco by Bell South and also the interest that Telefonica de
Espana and Telecom from Italy have shown in the acquisition of ETB (Bogota's
Telecommunications company) which is expected to be concluded at the beginning
of September. Additionally, other international operators have also shown some
interest in the acquisition of the second wireless company in Colombia.
Transtel is continuing with the execution of the Unitel expansion plan phase II
in the city of Cali which includes Fiber Optic Rings using Fast Link tecnology
supplied by Siemens. The company expects to have the project finished at the end
of the present year ending with a capacity of 85,000 lines. The market in the
city of Cali has respond well not just because of Unitel's good quality of
service but because of all the problems that the incumbent company has had due
to its financial and administrative crisis.
In addition to the above, the company has greatly improved its collecting
process of accounts receivables through the implementation of modern and
effective processes.
11
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
-------------- -------------- --------
(Thousands
(Thousand of pesos of June 30, 1999) of Dollars)
<S> <C> <C> <C>
ASSETS
Current
Cash.................................................................. Ps 12,389,346 Ps 5,498,798 $ 2,571
Short-term and temporary investments.................................. 25,884,515 285,684 134
Accounts receivable, net.............................................. 66,196,633 101,224,971 47,321
Inventories........................................................... 2,861,442 1,854,674 866
Prepaid expenses...................................................... 813,558 2,426,164 1,134
-------------- -------------- --------
Total current assets............................................... 108,145,494 111,290,291 52,026
Noncurrent
Accounts receivable................................................... 46,909,620 53,928,308 25,211
Properties, plant and equipment, net.................................. 368,632,592 477,605,817 223,273
Deferred monetary correction.......................................... 5,633,088 7,364,294 3,443
Deferred costs........................................................ 69,905,464 53,081,539 24,815
Long-term investments................................................. 3,374,232 7,130,507 3,333
Other assets.......................................................... 6,579,748 13,587,175 6,352
Reappraisal of assets................................................. 38,545,143 40,395,116 18,884
-------------- -------------- --------
Total assets....................................................... Ps 647,725,381 Ps 764,383,047 $357,337
============== ============== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt....................................................... Ps 13,323,307 Ps 18,632,798 $ 8,711
Current portion of other long-term debt............................... 1,872,580 3,888,811 1,818
Current portion of capital lease obligations.......................... 10,587,636 12,542,044 5,863
Accounts payable...................................................... 41,189,712 73,121,148 34,183
Tax liabilities....................................................... 15,886,803 20,631,194 9,645
Labor liabilities..................................................... 340,326 2,689,555 1,257
Other liabilities..................................................... 1,823,027 2,444,240 1,143
Accrued pension obligations........................................... 684,597 1,243,186 581
-------------- -------------- --------
Total current liabilities.......................................... 85,707,988 135,192,976 63,201
Long-term liabilities
12 1/2% Senior Notes due 2007......................................... 284,517,170 320,866,500 150,000
20.32% Senior Discount Notes due 2008................................. 31,223,853 42,853,461 20,033
Other long-term debt.................................................. 7,072,334 7,512,562 3,512
Capital lease obligations............................................. 47,439,212 52,876,110 24,719
Deferred monetary correction.......................................... 7,357,306 13,030,465 6,092
Accrued pension obligations........................................... 7,576,809 6,471,898 3,026
Other liabilities..................................................... 12,756,980 14,217,760 6,645
-------------- -------------- --------
Total liabilities.................................................. 483,651,652 593,021,732 277,228
-------------- -------------- --------
Minority interest....................................................... 75,035,075 80,057,958 37,426
-------------- -------------- --------
Commitments
Shareholders' equity:
Common stock, Ps1 par value, 50 billion shares
authorized; 34,611,747,976 shares issued
and outstanding (5,039,801,222 in 1998)............................ 52,317,241 52,317,241 24,457
Retained earnings..................................................... 20,855,511 17,900,113 8,368
Surplus from reappraisal of assets.................................... 15,865,902 21,086,003 9,858
-------------- -------------- --------
Total shareholders' equity......................................... 89,038,654 91,303,357 42,683
-------------- -------------- --------
Total liabilities and shareholder's equity......................... Ps 647,725,381 Ps 764,383,047 $357,337
============== ============== ========
Memorandum accounts..................................................... Ps 184,464,719 Ps 323,376,804 $151,174
============== ============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, For the Three Months Ended
June 30,
------------------------------------------------- ----------------------------------
1999 2000 2000 2000 2000
---- ---- ---- ---- ----
(Thousands of Pesos of June 30, (Thousands of (Thousands of (Thousands of
2000 purchasing power) Dollars-- Pesos of June 30, Dollars --
Unaudited) 2000 purchasing Unaudited
power)
<S> <C> <C> <C> <C> <C>
Revenues................................... Ps 64,506,669 Ps 61,508,885 $ 28,754 Ps 30,980,661 $ 14,483
-------------- -------------- --------- -------------- ---------
Costs and expenses:
Operating costs.......................... 9,720,204 10,708,416 5,006 4,058,611 1,897
Administrative expenses.................. 16,487,668 14,418,040 6,740 8,571,848 4,007
Marketing expenses....................... 4,269,167 3,522,086 1,646 1,508,173 706
-------------- -------------- --------- -------------- ---------
30,477,039 28,648,542 13,392 14,138,632 6,610
-------------- -------------- --------- -------------- ---------
Operating income...................... 34,029,630 32,860,343 15,362 16,842,029 7,873
-------------- -------------- --------- -------------- ---------
Non operating income (expenses)
Financial income......................... 48,370,090 47,360,238 22,140 25,511,196 11,926
Financial expenses....................... (78,756,166) (98,687,740) (46,135) (52,551,784) (24,567)
Other.................................... (1,962,355) 3,576,761 1,672 3,518,828 1,645
-------------- -------------- --------- -------------- ---------
(32,348,431) (47,750,741) (22,323) (23,521,760) (10,996)
-------------- -------------- --------- -------------- ---------
Net monetary inflation adjustment income... 13,268,005 15,983,180 7,472 5,460,737 2,553
-------------- -------------- --------- -------------- ---------
Income (loss) before income taxes
and minority interest.................. 14,949,204 1,092,782 511 (1,218,994) (570)
Income tax (expense) benefit............... (5,517,258) (689,765) (323) (32,630) (15)
-------------- -------------- --------- -------------- ---------
Income (loss) before minority
interest.......................... 9,431,946 403,017 188 (1,251,624) (585)
Minority interest.......................... (9,222,318) (5,935,206) (2,774) (2,372,034) (1,109)
-------------- -------------- --------- -------------- ---------
Net income (loss).................... Ps 209,628 Ps (5,532,189) $ (2,586) Ps (3,623,658) $ (1,694)
============== ============== ========= ============== =========
Earnings per share (in single Pesos and
Single Dollars per share)................ Ps 0.01 Ps -0.16 $ - $ -0.10 $ -
============== ============== ========= ============== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Six months Ended June 30, 1999 and 2000
(Thousands of Pesos of June 30, 2000, except shares)
<TABLE>
<CAPTION>
Common Shares Outstanding
----------------------------
Number Amount Retained Surplus from Total
----------- -------------
Earnings Reappraisal Shareholders'
--------------
(Thousands) of Assets Equity
-------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998.......... 34,611,748 Ps 52,318,388 Ps 20,646,340 Ps 16,829,605 Ps 89,794,333
Net income............................ 209,628 209,628
Movement during the period............ (965,307) (965,307)
---------- ------------- -------------- -------------- --------------
Balance at June 30, 1999.............. 34,611,748 52,318,388 20,855,968 15,864,298 89,038,654
========== ============= ============== ============== ==============
Balance at December 31, 1999.......... 34,611,748 Ps 52,317,241 Ps 23,432,302 Ps 19,136,931 Ps 94,886,474
Net income............................ (5,532,189) (5,532,189)
Movement during the period............ 1,949,072 1,949,072
---------- ------------- -------------- -------------- --------------
Balance at June 30, 2000.............. 34,611,748 Ps 52,317,241 Ps 17,900,113 Ps 21,086,003 Ps 91,303,357
========== ============= ============== ============== ==============
</TABLE>
Retained earnings balances consist of the following:
June 30,
------------------------------
1999 2000
------------- -------------
Legal reserve................................. Ps 708,146 Ps 1,142,932
Appropriated for future construction.......... 947,528 5,753,127
Appropriated for future acquisitions.......... 5,425,774 16,536,243
Unappropriated retained earning............... 13,774,520 (5,532,189)
------------- -------------
Ps 20,855,968 Ps 17,900,113
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, For the Three Months
Ended June 30,
------------------------------------------------ ------------------------
1999 2000 2000 2000 2000
---- ---- ---- ---- ----
(Thousands of
(Thousands of Pesos of June 30, 2000 (Thousands Pesos of (Thousands
purchasing power) of June 30, 2000 of
Dollars-- purchasing Dollars
Unaudited) power) Unaudited)
<S> <C> <C> <C> <C> <C>
Sources of working capital:
Net income (loss)................................... Ps 209,628 Ps (5,532,189) $ (2,586) Ps (3,623,658) $ (1,694)
Items that do not utilize (provide)
Working capital:
Depreciation................................... 2,462,103 2,604,851 1,218 1,175,426 549
Amortization................................... 6,729,430 6,773,904 3,167 1,446,872 676
Deferred income taxes.......................... (1,006,012) 0 0 0 0
Allowance for writedown of properties,
plant and equipment............................ 43,181 479,529 224 231,808 108
Accretion of Interest on Senior Discount Note.. 2,881,041 6,239,465 2,917 4,453,389 2,082
Allowance for doubtful accounts................ 1,271,711 0 0 0 0
Minority interest.............................. 9,222,116 5,935,206 2,774 3,372,705 1,577
Net inflation adjustment from non-current
balance sheet accounts......................... (13,267,714) (15,983,181) (7,472) (5,456,896) (2,550)
Deferred monetary correction, net.............. (790,294) (3,098,615) (1,449) (1,321,076) (618)
------------- ------------- -------- ------------- --------
Working capital provided by operations........... 7,755,190 (2,581,030) (1,207) 278,570 130
------------- ------------- -------- ------------- --------
Financial resources generated otherwise:
Senior notes AND discount notes................ 19,114,579 8,936 18,761,905 8,771
Accrued Pension obligations.................... (50,988) 263,493 123 361 0
Increase (decrease) in other debt.............. (3,301,401) 7,512,562 3,512 7,455,844 3,486
Capital lease obligations...................... 13,763,246 12,032,833 5,625 (366,915) (172)
Increase in other liabilities.................. (132,986) 1,880,896 879 1,766,253 826
Investment by minority interest................ (4,333,941) (1,713,062) (800) (1,371,362) (641)
------------- ------------- -------- ------------- --------
5,943,930 39,091,301 18,275 26,246,086 12,270
------------- ------------- -------- ------------- --------
Total financial resources generated........ 13,699,120 36,510,271 17,068 26,524,656 12,400
------------- ------------- -------- ------------- --------
Financial resources utilized:
Purchases of properties, plant and
Equipment..................................... (65,829,028) (70,767,806) (33,083) (30,131,438) (14,086)
Increase in accounts receivable................ 2,466,462 1,153 2,466,462 1,153
Increase in deferred charges................... (5,053) (2) (4,297) (2)
Decrease in long-term investments.............. 132,419 (5,240,089) (2,450) 860,951 402
Decrease in other assets....................... 1,300,670 1,518,149 710 859,357 402
Increase in deferred costs..................... (5,149,252) 0 0 0 0
Increase in other assets
Noncurrent accounts receivable................. 331,060 155
Decrease in accounts receivable................ 2,856,516 0 0 0 0
------------- ------------- -------- ------------- --------
(66,688,675) (72,028,337) (33,672) (25,617,905) (11,976)
------------- ------------- -------- ------------- --------
Effect of revaluing to constant pesos............ 34,571,671 25,229,407 11,794 7,451,556 3,483
------------- ------------- -------- ------------- --------
Increase (decrease) in working capital..... Ps(18,417,884) Ps(10,288,659) $ (4,810) Ps 8,358,307 $ 3,907
============= ============= ======== ============= ========
Changes in working capital components:
Cash................................................ Ps 8,182,491 Ps (131,038) $ (61) Ps (365,483) $ (171)
Short-term and temporary investments................ (43,377,698) (8,845,326) (4,135) (2,678,473) (1,252)
Accounts receivable................................. 32,107,376 19,894,608 9,300 11,599,345 5,423
Inventories......................................... (280,019) (672,807) (315) (196,796) (92)
Prepaid expenses.................................... (116,025) 2,014,532 942 1,971,015 921
Short-term debt..................................... 2,658,599 (4,868,018) (2,276) 3,429,289 1,603
Short-term and current portion of
Other long-term debt................................ (149,212) (321,293) (150) 459,822 215
Current portion of capital lease obligations........ (5,750,087) (2,464,084) (1,152) 3,838,372 1,794
Accounts payable.................................... (5,595,344) (22,397,740) (10,471) (6,612,416) (3,091)
Tax liabilities..................................... (9,385,617) 6,164,661 2,882 (4,241,811) (1,983)
Labor liabilities ................................. 797,656 (1,441,993) (674) 2,241,795 1,048
Current Portion Pension obligations................. (50,654) (239,438) (112) (372)
Other liabilities................................... 2,540,650 3,019,277 1,412 (1,085,980) (508)
------------- ------------- -------- ------------- --------
Increase (decrease) in working capital..... Ps(18,417,884) Ps(10,288,659) $ (4,810) Ps 8,358,307 $ 3,907
============= ============= ======== ============= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, For the Three Months
Ended June 30,
---------------------------------------------------------------------------------
1999 2000 2000 2000 2000
---- ---- ---- ---- ----
(Thousands of Pesos of June 30, 2000 (Thousands (Thousands of (Thousands 30,
purchasing power) of Pesos of June
Dollars-- 30, Dollars--
Unaudited) 2000 purchasing Unaudited)
power
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income for the period......................... Ps 209,628 Ps (5,532,189) $ (2,586) Ps (3,623,658) $ (1,694)
Adjustments to reconcile net income with net cash
Provided by operations:
Depreciation................................... 2,462,103 2,604,851 1,218 1,175,426 549
Amortization................................... 6,729,430 6,773,904 3,167 1,446,872 676
Deferred income taxes.......................... (1,006,012) 0 0 0 0
Allowance for property plant and equipment..... 43,181 479,529 224 231,808 108
Allowance for doubtful accounts................ 1,271,711 0 0 0 0
Accretion of Interest on discount Senior notes. 2,881,041 6,239,465 2,917 4,453,389 2,082
Minority interest.............................. 9,222,116 5,935,206 2,775 2,030,335 949
Net inflation adjustment from balance
Sheet Accounts................................. (13,267,714) (15,983,181) (7,472) (5,456,896) (2,551)
Deferred monetary correction, net.............. (790,292) (3,098,615) (1,449) (1,321,076) (618)
Changes in operating assets and liabilities:
Accounts receivable............................ (29,250,862) (17,428,146) (8,147) (8,801,822) (4,115)
Inventories.................................... 280,019 672,807 315 196,796 92
Prepaid expenses............................... 116,025 (2,014,532) (942) (1,971,015) (921)
Deferred costs................................. (5,149,252) (5,053) (2) (4,297) (2)
Other assets................................... 1,300,671 1,518,148 710 859,355 402
Accounts payable............................... 5,595,344 22,397,740 10,471 (6,612,416) (3,091)
Labor liabilities.............................. (797,656) 1,441,993 674 2,241,795 1,048
Tax liabilities................................ 9,385,617 (6,164,661) (2,882) (4,241,811) (1,983)
Accrued pension obligations.................... (334) 24,055 11 45,786 21
Other liabilities.............................. (2,673,636) (1,138,380) (534) 680,402 320
------------- ------------- --------- -------------- ---------
Net cash (used for) provided by
operating activities..................... (13,438,872) (3,277,059) (1,532) (18,671,027) (8,728)
------------- ------------- --------- -------------- ---------
Cash flows from investing activities:
Purchases of properties, plant and equipment...... (30,614,550) (70,584,954) (32,997) (43,445,926) (20,310)
Advances on properties plant and equipmen......... (14,115,520) (182,852) (85) 369,978 173
Purchases of investments.......................... (3,833,446) (2,325,672) (1,087) 222,330 104
Proceeds from sale of temporary investments....... (2,482,189) (1,160)
Proceeds from sale/maturity of
short-term investments........................... 47,343,563 5,408,662 2,527 5,408,662 2,528
------------- ------------- --------- -------------- ---------
Net cash (used for) provided by
investing activities..................... (1,219,953) (67,684,816) (31,642) (39,927,145) (18,665)
------------- ------------- --------- -------------- ---------
Cash flows from financing activities:
Senior Notes...................................... 19,114,579 8,936 19,114,579 8,936
Issuance of other debt............................ (26,099,141) 20,537,080 9,601 14,850,225 6,942
Repayments of debt................................ 20,288,353 (7,835,207) (3,663) (3,174,965) (1,484)
Dividend paid to minority interest................ (2,380,532) 0 0 0 0
Repayments of capital lease obligations........... (3,246,261) 14,496,916 6,777 16,968,797 7,932
------------- ------------- --------- -------------- ---------
Net cash provided by (used for)
financing activities..................... (11,437,581) 46,313,368 21,651 47,758,636 22,326
------------- ------------- --------- -------------- ---------
Effect of revaluing to constant pesos............... 34,571,670 24,517,469 11,462 10,474,112 4,896
------------- ------------- --------- -------------- ---------
Net (decrease) increase in cash................... 8,475,264 (131,038) (61) (365,424) (171)
Cash at beginning of period ...................... 3,914,082 5,629,836 2,632 5,864,222 2,742
------------- ------------- --------- -------------- ---------
Cash at end of period............................. Ps 12,389,346 Ps 5,498,798 $ 2,571 Ps 5,498,798 $ 2,571
============= ============== --------- -------------- ---------
Supplemental disclosure of cash flows inform:
Cash paid during the period for:
Interest....................................... Ps 2,885,976 Ps 20,439,592 $ 9,555 Ps 19,886,305 $ 9,297
============= ============= ========== ============= =========
Income taxes................................... Ps 3,613,000 Ps 7,769,099 $ 3,632 Ps 5,676,195 $ 2,654
============= ============= ========== ============= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
16
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Pesos of June 30, 2000 purchasing power, unless otherwise
specified)
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The interim consolidated financial statements as of and for the six months
ended June 30, 1999 and 2000 are unaudited and have been prepared in accordance
with accounting principles generally accepted in Colombia. In the opinion of
management, such interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the results for the interim periods. The results of operations
for the six months ended June 30, 2000 are not necessarily an indication of the
results to be expected for the full year. The financial information has been
presented in constant Colombian Pesos of June 30, 2000 purchasing power. U.S.
Dollar amounts are translated from Peso amounts at the Representative Market
Rate on June 30, 2000, which was 2,139.11 Pesos to one Dollar. No representation
is made that the Peso or Dollar amounts could have been or could be converted
into Dollars or Pesos, as the case may be, at any particular rate or at all.
These interim consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements as of and for
the three years ended December 31, 1999, 1998, 1997 and 1996 and the notes
thereto. See Note 6 for a description of the significant differences between
Colombian and U.S. GAAP.
In accordance with Colombian GAAP, reappraisals of properties, plant and
equipment are required and recorded in offsetting accounts which are shown under
the asset caption "Reappraisal of assets" and the shareholders' equity caption
"Surplus from reappraisal of assets". Those reappraisals should be calculated
based on appraisals made by specialists at least every three years; however,
unless otherwise considered inappropriate, the appraisals are updated in the
intervening years using specific indices or the official Colombian middle-income
consumer price index applied on a one-month's lagging basis.
NOTE 2--OPERATING SUBSIDIARIES
As of June 30, 2000, Transtel has formed nine operating subsidiaries as
shown in the following chart:
<TABLE>
<CAPTION>
Date
Date commercial Percent
Primary Incorporated operations Owned by
Subsidiary Area served by Transtel began Transtel
--------------------------------------------------- ----------- ----------- ----- --------
<S> <C> <C> <C> <C>
Empresa de Telefonos de Jamundi S.A., E.S.P.
("TeleJamundi").................................. Jamundi 9/29/93 6/1/97 99.8%
Unitel S.A. E.S.P. ("Unitel")...................... Yumbo 3/11/94 6/1/97 95
Empresa de Telefonos de Palmira S.A., E.S.P. Palmira and
(''TelePalmira'')................................ Candelaria 5/31/95 9/1/95 60
Telefonos de Cartago S.A., E.S.P.
("TeleCartago").................................. Cartago 1/3/97 4/1/97 65
Caucatel S.A., E.S.P. ("Caucatel")................. Popayan 4/30/97 5/1/97 51
Bugatel S.A., E.S.P. ("Bugatel")................... Buga 6/16/97 7/1/97 60
Empresa de Telecomunicaciones de Girardot S.A.,
E.S.P. ("TeleGirardot").......................... Girardot 12/31/97 1/1/98 60
Suscripciones Audiovisuales E.U................... Cali 1/31/98 100
Cablevision E.U.................................... Cali 1/31/98 100
</TABLE>
17
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to the above subsidiaries, Transtel formed Telequilichao S.A.
E.S.P. as a 98% owned subsidiary on December 27, 1996, Invercable S.A. as a 100%
owned subsidiary on July 27, 1998 and Unicable S.A. as a 100% owned subsidiary
on July 27, 1998; however, they have had no operations to date.
In July and September, 1998 the Company acquired 97% of Suscripciones
Audiovisuales S.A. and Cablevision S.A. (together "Cablevision") for
Ps15,849,675 and Ps 7,242,293 in cash, respectively. The Company acquired the
remaining 3% of both companies on December 15, 1998 for Ps 854,385 in cash.
Cablevision owns and operates the only license for the operation of pay
television services in the city of Cali and its surrounding area. Transtel used
a portion of the proceeds from the Senior Notes to finance this purchase.
NOTE 3--EARNINGS PER SHARE
Earnings per share are computed dividing net income applicable to common
shares by the weighted average number of subscribed and paid shares outstanding
for the three months ended June 30, 1999 and 2000, respectively. Transtel's
weighted average number of shares used in the computation of earnings per share
was 34,611,747,976 in 1999 and 34,611,747,976 in 2000.
NOTE 4--DEBTS
On October 28, 1997, the Company received the net proceeds from the sale of
$150 million (Ps320.9 billion) of 12 1/2% Senior Notes due 2007. These Senior
Notes were sold to a pass through trust which issued certificates
("Certificates") representing pro rata interests in the Senior Notes to
qualified institutional buyers in the United States of America or non-U.S.
persons outside the United States. Interest payments on the Senior Notes are due
on May 1 and November 1, commencing May 1, 1998. A portion of the net proceeds
of the 12 1/2% Senior Notes due 2007 was used to pay all existing short and
long-term debt existing at October 28, 1997, costs of issuance, a Central Bank
fee and the Escrow Account.
On December 31, 1998, the Company sold $15.0 million (Ps32.1 billion) of
its 20.32% Senior Discount Notes due 2008 in a private placement. The net
proceeds of approximately $14.3 million (Ps30.6 billion) were to pay for capital
expenditures, to provide working capital and/or to fund future acquisitions.
Interest at 0.10% will be payable in cash each year through August 13, 2008.
Interest at 20.22% will accrue over the term of the Senior Discount Notes, and
the accrued interest of $86.9 million (Ps185.9 billion) and principal of $15.0
million (Ps32.1 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. If such a
guarantee is issued by a subsidiary, it must also be issued to the holders of
the Senior Notes and Certificates. As of August 30, 1999 the Company has not
acquired any minority interests or provided indebtedness to any subsidiary.
The indentures of the 12 1/2% Senior Notes due 2007 and Senior Discount
Notes due 2008 impose certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, issue preferred
stock, merge or consolidate with any other person or sell, assign, transfer,
lease, convey, or otherwise dispose of all or substantially all of the assets of
the Company and its subsidiaries. Under the most restrictive of these covenants,
the Company may pay dividends of no more than Ps6,445,865 as of June 30, 2000.
18
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transtel S.A. is dependent upon transfer of funds from its subsidiaries to
make the required interest and principal payments on the Senior Notes and the
Certificates and the Senior Discount Notes. The subsidiaries have not
guaranteed the payment of the Senior Notes and have no obligations to remit
dividends on other distributions to Transtel S.A. for payment on the Senior
Notes and the Certificates and the Senior Discount Notes.
NOTE 5--OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities as of June 30, 1999 and 2000 consisted of the
following:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Payable to Siemens AG for Transtel Siemens Purchase
Agreement...................................................... Ps 4,028,235 Ps 4,249,612 (1)
Payable to Siemens AG for TeleGirardot Siemens Purchase
Agreement...................................................... 3,264,395 4,249,612 (2)
Payable to IBM................................................... 794,150 873,791 (3)
Unearned interest income......................................... 189,025 0
Cable television fees paid advances.............................. 595,390 0
Accrued litigation loss......................................... 2,409,167 2,200,000
Deferred Income Taxes............................................
Negative goodwill................................................ 301,555 0
Other............................................................ 1,175,063 2,644,745
------------- -------------
Ps 12,756,980 Ps 14,217,760
============= =============
</TABLE>
(1) Excludes Ps 607,088 which is included in other current liabilities.
(2) Excludes Ps 607,088 which is included in other current liabilities.
(3) Excludes Ps 668,938 which is included in other current liabilities.
Girardot Telephone was sued by TeleTequendama E.S.P., a local telephone
operator competitor, for Ps2,200,000 (nominal Pesos) on June 4, 1997 for unfair
competition in TeleTequendama's zone of operations. Although the resolution and
trial of this lawsuit will not occur during 1999, the Company and Girardot
Telephone agreed that Girardot Telephone would record Ps2,200,000 (nominal
Pesos), concurrent with the acquisition of Girardot Telephone by the Company on
December 31, 1997, as an estimate of the liability that is probable as a result
of the litigation.
NOTE 6--DIFFERENCES BETWEEN COLOMBIAN GAAP AND U.S. GAAP
The Company's financial statements are prepared in accordance with
Colombian GAAP. Because these principles differ in certain significant respects
from U.S. GAAP, this note presents a reconciliation to U.S. GAAP of net income
and shareholders' equity as of and for the three month periods ended June 30,
1999 and 2000. A Registration Statement on Form F-4 was filed with the
Securities and Exchange Commission and was declared effective on May 17, 1999 by
the Commission.
(a) Reconciliation of net income:
The following summarizes the principal differences between accounting
practices under Colombian and U.S. GAAP and their effects on net income for the
three month periods ended June 30, 1999 and 2000:
19
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Consolidated net income under Colombian GAAP Ps 209,628 Ps (5,532,189)
(i) Deferred income taxes.................................. 2,852,603 267,219
(ii) Surplus from reappraisal of assets..................... - -
(iii) Depreciation........................................... (5,438,069) (5,452,097)
(iv) Capitalized interest................................... 765,325 3,677,925
(v) Deferred costs......................................... (187,134) 2,262,970
(vi) Capital leases......................................... (60,976) (429,725)
(vii) Revenue recognition.................................... (11,707,656) 247,133
(viii) Reversal of deferred monetary correction............... 742,471 4,409,382
(ix) Effect of the above differences on minority interest... 4,409,758 (121,397)
(x) Distribution to shareholder............................ - -
(xi) Depreciation of Cablevision assets..................... (348,601) (317,971)
(xii) Inflation adjustment on inventories.................... 183,610 -
-------------- -------------
Consolidated net income (loss) under U.S. GAAP Ps ( 8,579,041) Ps (988,750)
============== =============
</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 June 30, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Consolidated shareholders' equity under Colombian GAAP............... Ps 89,038,655 Ps 91,303,357
(i) Deferred income taxes.................................. 12,924,776 16,298,795
(ii) Surplus from reappraisal of assets..................... (15,865,902) (19,394,069)
(iii) Depreciation........................................... (16,068,149) (27,131,503)
(iv) Capitalized interest................................... 4,225,974 10,558,504
(v) Deferred costs......................................... (31,796,336) (22,670,746)
(vi) Capital leases......................................... 1,786,672 1,286,724
(vii) Revenue recognition.................................... (16,918,093) (34,056,308)
(viii) Reversal of deferred monetary correction............... 1,724,218 6,155,544
(ix) Effect of the above differences on minority interest... 10,321,082 14,652,832
(x) Distribution to shareholder............................ (456,065) (456,065)
(xi) Depreciation of Cablevision assets..................... (522,042) (840,187)
(xii) Inflation adjustment on inventories.................... 183,610 -
-------------- -------------
Consolidated shareholders' equity under U.S. GAAP Ps 38,578,400 Ps 35,706,878
============== =============
</TABLE>
(c) Analysis of changes in shareholders' equity:
The following summarizes the changes in shareholders' equity under U.S.
GAAP for the six month periods ended June 30, 1999 and 1999:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Balance at beginning of period.................................. Ps 47,157,442 Ps 36,695,628
Net (loss) income............................................... (8,579,042) (988,750)
-------------- -------------
Balance at end of period........................................ Ps 38,578,400 Ps 35,706,878
============== =============
</TABLE>
The Company has no items of other comprehensive income.
20
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Summary of significant differences between Colombian and U.S. GAAP
disclosures
(i) Deferred Income taxes
Under Colombian GAAP, income taxes for interim financial statements are
calculated as if those financial statements were annual financial statements.
Under Colombian GAAP, deferred income taxes are generally recognized for timing
differences in a manner similar to Accounting Principles Board Opinion No. 11.
Under U.S. GAAP, income taxes for interim financial statements are
calculated using the estimated effective tax rate for the year. Under U.S. GAAP
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" requires that deferred tax assets or liabilities be recorded for
the tax effects of temporary differences between the financial and tax bases for
assets and liabilities. A valuation allowance is provided for deferred tax
assets when it is considered more likely than not that they will not be
realized.
(ii) Surplus from reappraisal of assets
In accordance with Colombian GAAP, reappraisals of properties, plant and
equipment and long-term investments are made periodically and recorded in
offsetting accounts which are shown under the asset caption "Reappraisal of
assets" and the shareholders' equity caption "Surplus from reappraisals of
assets." Under U.S. GAAP, reappraisals of assets are not permitted.
(iii) Depreciation
The Company uses the reverse sum of the year's method of depreciation for
Colombian GAAP purposes. The straight-line method is used for U.S. GAAP.
(iv) Capitalized interest
Under Colombian GAAP, the Company does not capitalize certain interest
costs on projects during construction which is required under U.S. GAAP. Under
U.S. GAAP, adjustments to expenses are required for interest capitalized net of
additional depreciation on interest amounts capitalized.
(v) Deferred costs
Subsidiaries of the Company have deferred certain expenses which are
expensed as incurred under U.S. GAAP. Under U.S. GAAP, an adjustment is required
for the expensing of amounts net of any amortization taken.
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities", which is effective for fiscal years beginning after December 15,
1998, required the Company to change its accounting under U.S. GAAP for
organization costs.
(vi) Capital leases
Certain of the Company's operating leases for Colombian GAAP purposes
qualify as capital leases under U.S. GAAP. In addition to the amounts shown as
capital leases in the balance sheet, the following assets and liabilities are
recorded under U.S. GAAP:
21
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
External telephony networks....................................... Ps 5,027,360 Ps 4,992,759
Computer equipment................................................ 399,220 339,757
Transport fleet and equipment..................................... 2,245,252 1,910,011
Generator......................................................... 99,458 94,387
------------- --------------
Total......................................................... 7,771,290 7,336,914
Less--Accumulated depreciation.................................... (2,948,311) (3,612,305)
------------- --------------
Ps 4,822,979 Ps 3,724,609
============= ==============
</TABLE>
The above amounts include cumulative net inflation adjustments of.Ps
2,037,846 and Ps 1,885,887 at June 30, 1999 and 1999, respectively.
<TABLE>
<S> <C> <C>
Total minimum lease payments...................................... Ps 5,128,390 Ps 3,351,539
Less-Imputed interest............................................. (2,351,869) (1,130,467)
------------- --------------
Present value of minimum lease payments........................... 2,776,521 2,221,072
Less--Current portion............................................. (567,357) (1,552,626)
------------- --------------
Long-term portion................................................. 2,209,164 668,446
============= ==============
Deferred income from sale lease back.............................. Ps 259,784 Ps 248,668
============= ==============
</TABLE>
The additional total minimum lease payments as follows under U.S.GAAP:
<TABLE>
<CAPTION>
Payable in twelve months
------------------------
ended June 30,
--------------
<S> <C>
2000........................................................... Ps 1,552,626
2001........................................................... 1,716,917
2002........................................................... 81,996
-------------
Total minimum lease payments...................................... Ps 3,351,539
=============
</TABLE>
The following income statement effects are recorded under U.S. GAAP for the
above capital leases:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Increase in interest expense...................................... Ps 294,408 Ps 713,431
Increase in depreciation expense.................................. 587,622 369,808
Amortization of gain from sale of
Properties, plant and equipment on leaseback..................... (7,872) (7,181)
Increase in inflation adjustment income on capital
lease obligations................................................ (225,196) 77,251
------------- --------------
Total........................................................ 648,962 1,153,309
------------- --------------
Rent expense
Decrease in rent expense recorded under Colombian
GAAP.......................................................... (587,986) (723,584)
Decrease in rent recorded as deferred costs under
Colombian GAAP and reversed for U.S. GAAP
Purposes...................................................... -
------------- --------------
Net decrease in expenses.......................................... Ps 60,976 Ps 429,725
============= ==============
</TABLE>
Under U.S. GAAP, there are no operating lease commitments at June 30, 2000.
If the equipment under Global Leases, the IBM Arrangement and the related
DIAN Financing of the value-added tax and duty had been installed and accepted
(and thus the lease terms commenced) at June 30, 2000, the following additional
lease and tax obligations on a pro forma U.S. GAAP basis would have been
outstanding:
22
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
IBM DIAN
Global Leases Arrangement Financing Total
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Total minimum lease or tax and
Duty payments.................... Ps 191,902,529 Ps 1,039,928 Ps 28,636,266 Ps 221,578,723
Less--Imputed interest.............. (55,541,435) (76,366) (55,617,801)
--------------- ------------- -------------- ---------------
Present value of minimum lease
Payments......................... 136,361,094 963,562 28,636,266 165,960,922
Less--Current portion............... (31,056,105) (126,606) (3,511,782) (34,694,493)
--------------- ------------- -------------- ---------------
Long--term portion.................. Ps 105,304,989 Ps 836,956 Ps 25,124,484 Ps 131,266,429
=============== ============= ============== ===============
</TABLE>
The additional total minimum lease or tax and duty payments would have been as
follows under U.S. GAAP:
Payable in twelve months ending June 30,
----------------------------------------
2000........................... Ps 22,408,181
2001........................... 21,702,146
2002........................... 23,120,992
2003........................... 19,768,715
Thereafter..................... 134,578,689
---------------
Ps 221,578,723
===============
(vii) Revenue recognition
Under Colombian GAAP, revenues for connection fees for telephone lines are
recognized upon payment in cash or the execution of a promissory note (with a
10% down payment) by the customer and the Company's assignment of a telephone
number which is transferable to others by the customer.
Under U.S. GAAP the Company changed prospectively as of January 1, 1999 its
method of accounting for connection fee income from an "installation date
basis", which historically has been consistent with industry practice, to a
"deferred basis". Under the former policy, connection fees were recognized as
income at the date of installation with a dial tone. Under the new policy,
connection fee income less direct installation costs and direct selling costs is
deferred and amortized into income over five years using the straight- line
method. This change was made to reflect income in excess of direct costs over an
estimated service period. This change does not have a cumulative effect.
(viii) Deferred monetary correction
The deferred monetary correction asset and liability are reversed for U.S.
GAAP purposes.
(ix) Minority interest
The minority interests' share of the differences between Colombian GAAP and
U.S. GAAP are presented separately.
(x) Distribution to shareholder
Transtel purchased land and building from a major shareholder at appraised
value in August 1996. For U.S. GAAP, the difference between the amount paid and
the shareholder's historical basis is treated as a distribution to the
shareholder.
23
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(xi) Depreciation of Cablevision Assets
Under Colombian GAAP, goodwill or negative goodwill in an acquisition
accounted for as a purchase is determined as the purchase price paid in excess
of the acquiree's net worth, including reappraisal of assets. The assets of the
acquiree are recorded at book value adjusted for inflation and the amount of
asset reappraisals is shown as a separate caption in the balance sheet and not
depreciated. Such goodwill or negative goodwill is amortized over five years.
Under U.S. GAAP, goodwill is the excess of the purchase price paid over the
fair value of the assets and liabilities acquired. The assets and liabilities
are recorded at fair value and assets are depreciated over their useful lives.
The Company amortizes goodwill over five years for U.S. GAAP.
(xii) Inflation adjustment on inventories
Under Colombian GAAP, effective January 1, 1999 a decree issued by the
Colombian Congress eliminated the inflation adjustment relating to inventories.
Under U.S. GAAP, an adjustment is required for the inflation effects on
inventories so that a comprehensive basis of accounting for inflation is
maintained.
(xiii) Fiduciary Guarantee Trust and other reclassifications
Under Colombian GAAP, fiduciary guarantee trusts are formed to secure debts
by transferring the title of fixed assets to the trust. The net book value of
the trust is recorded as other assets and is amortized in the same way in which
the related fixed assets would be depreciated. Under U.S. GAAP, the fixed assets
used to form the fiduciary guarantee trust remain in natural fixed assets
classifications and are depreciated.
The amounts reclassified as fixed assets for U.S. GAAP purposes from the
fiduciary guarantee trust are as follows at June 30, 2000 (none at June 30,
1999):
Land................................... Ps 227,696
Building............................... 910,778
------------
1,138,474
Accumulated depreciation............... (56,076)
------------
Net.................................... Ps 1,082,398
============
Certain other reclassifications have been made to the Colombian GAAP
balance sheet to conform to the U.S. GAAP presentation, primarily the
reclassification of certain receivables to advances to suppliers, prepaid
expenses and noncurrent other assets.
In addition, because of the decree issued by the Colombian Congress
effective January 1, 1999 inflation adjustments are no longer applied to the
various revenue and expense accounts. While this change has no effect on net
income for Colombian or U.S. GAAP, for U.S. GAAP each item of revenue and
expense for the six months ended June 30, 2000 should be multiplied by the
average inflation factor of 1.0374 and "Net monetary inflation adjustment"
income decreased by the net effect.
(xiiii) Earnings per share
Under Colombian GAAP, earnings per share are computed by dividing net
income (loss) applicable to common shares by the weighted average number of
common shares outstanding for each period presented.
Under U.S. GAAP, earnings per share are calculated on the basis of the
weighted average number of common shares outstanding, adjusted for stock
dividends issued by the Company which are considered outstanding since the
beginning of the earliest period presented. For U.S. GAAP, the weighted average
number of shares was 34,611,747,976 during the six-month periods ended June 30,
1999 and 1999. These shares are different than
24
<PAGE>
Colombian GAAP since the capitalization in December 1998 of premium on shares
issued in July 1997 is treated as a stock issued under U.S. GAAP as of January
1, 1998.
Basic and diluted income (loss) per share under U.S. GAAP are the same and
were 0.01 single (0.23) Pesos and single Pesos for the six months ended June 30,
1999 and 1999, respectively.
25
<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: September 19, 2000 By: /s/ Guillermo O. Lopez
--------------------------
Name: Guillermo O. Lopez
Title: President
26
