<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September , 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-____.)
1
<PAGE>
TRANSTEL S.A.--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Pesos of September 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 September 30, 2000, such
systems provided service to an aggregate of approximately 290,148 subscribers
and had an average penetration of 28.8 lines per 100 people.
Throughout the nine months ended September 30, 2000 the Company has been
adding high quality subscribers in each of its markets. Management has
substantially increased the number of lines installed from 268,033 at September
30, 1999 to 296,658 at September 30, 2000. During the nine months ended
September 30, 2000 the Company has disconnected a total of 4,951 subscribers
improving its subscriber base by discontinuing service to delinquent accounts.
Despite such 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 September 30, 2000 had
23,582 cable TV subscribers, 13,681 Internet subscribers, 67,856 voice mail
customers and 360,783 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 nine ended September 30, 2000 is
different than previous trends because for the nine months ended September 30,
2000 usage derived revenues are an increasing share of overall revenues. The
first three quarters of 2000 have also evidenced the increasing importance of
local services revenues (those from basic charges and local usage). In the nine
months ended September 30, 2000, these revenues accounted for approximately 95%
of revenue compared to 72% for the nine months ended September 30, 1999. 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 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.
Nine months ended September 30, 1999 and 2000
The following is a discussion of the consolidated financial condition as of
September 30, 1999 and 2000 and the results of operations of the Company for the
nine months ended September 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 nine months ended September 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
2
<PAGE>
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 nine months ended September 30, 1999 and 2000. Unless
otherwise indicated, the financial information has been presented in constant
Pesos as of September 30, 2000. Dollar amounts are translated from Pesos amounts
at the Representative Market Rate on September 30, 2000, which was 2,212.26
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 Bugatel TeleGirardot Unitel/(3)/ Total
----------- ----------- -------- ----------- ------- ------------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipality served Palmira Cartago Popayan Jamundi Buga Girardot Cali NA
Population 318,000 125,900 76,600 59,100 337,400 161,000/(1)/ 1,980,600 3,058,600
Commencement date of
Company's operations Sep-95 Apr-97 May-97 Jun-97 Jul-97 Dec-97 Jun-97 NA
Number of subscribers at New New
commencement date 15,600 13,800 10,800 System 10,700 23,500 System 74,400
Number of subscribers as
of December 31, 1999 68,803 32,844 23,721 12,737 26,931 53,454 67,716 286,206
Number of subscribers as
of June 30, 2000 69,208 33,310 23,862 13,275 27,558 50,174 69,830 287,217
Total subscribers as of
September 30, 2000 70,948 34,054 24,340 13,608 28,235 50,091 68,872 290,148
Penetration/(2)/ 22.3 34.2 31.8 37.0 17.3 38.1 33.8 28.8
</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 and Cali. penetration includes the installed
lines of municipal competitors of approximately 8,952 lines, 8,250 lines,
30,005 lines, 6,705 lines, and 524,690 lines as per the Company's
estimates, respectively.
(3) Includes Unitel Yumbo (Wireline) and Unitel Cali (Wireless and Wireline).
Pay-TV and Internet Subscribers
<TABLE>
<CAPTION>
TelePalmira TeleCartago Caucatel TeleJamundi Bugatel TeleGirardot Unitel(2) Cablevision Total
----------- ----------- -------- ----------- ------- ------------ --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipality served Palmira Cartago Popayan Jamundi Buga Girardot Cali Cali NA
Population 318,000 125,900 76,600 59,100 337,400 161,000/(1)/ 1,980,600 1,980,600 3,058,600
Internet Subscribers
-------------------- 2,737 1,231 1,505 137 1,231 684 6,156 NA 13,681
Number of subscribers as
of September 30, 2000
Internet Penetration 0.86 0.98 1.9 0.23 0.36 0.42 0.3 NA 0.45
Pay-TV Subscribers
------------------
Number of Homes Passed NA NA NA NA NA NA NA 40,000 40,000
Number of subscribers as
of September 30, 2000 NA NA NA NA NA NA NA 23,582 23,582
</TABLE>
(1) Includes the neighboring cities of Flandes and Ricaurte.
(2) Includes Unitel Yumbo (Wireline) and Unitel Cali (Wireless and Wireline).
3
<PAGE>
Results of Operations
The composition of the Company's revenues for each of periods discussed herein
is as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------------------------------
1999 % 2000 %
------------- ----- ------------- -----
(in thousands of constant Pesos of September 30, 2000 purchasing
power, except percents data)
<S> <C> <C> <C> <C>
Connection fees............................. Ps 26,289,437 25.6% Ps 4,670,949 4.9%
Local usage charges......................... 29,124,902 28.3 46,045,440 48.1
Basic charges............................... 15,079,602 14.7 20,123,487 21.0
Long distance charges....................... 15,491,350 15.1 13,504,997 14.1
Other income................................ 7,002,717 6.8 7,354,546 7.7
------------- ----- ------------- -----
Total telephone........................... Ps 92,988,008 90.5 91,699,419 95.8
Pay television services..................... 9,778,615 9.5 4,049,363 4.2
------------- ----- ------------- -----
Total revenues............................ Ps102,766,623 100.0% Ps 95,748,782 100.0%
============= ===== ============= =====
</TABLE>
The following table expresses certain financial data from the Company's
statement of income as a percentage of total revenues:
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------
1999 2000
----- ------
<S> <C> <C>
Revenues.................................................................... 100.0% 100.0%
----- ------
Costs and expenses:
Operating costs.......................................................... (17.4) (17.8)
Administrative expenses.................................................. (23.4) (22.7)
Marketing expenses....................................................... (5.7) (4.9)
----- ------
Total................................................................. 46.6 45.4
----- ------
Operating income............................................................ 53.4 54.6
Nonoperating expenses....................................................... (77.6) (71.6)
Net monetary inflation adjustment income.................................... 26.0 17.5
----- ------
Income before income taxes and minority interest............................ 1.8 0.5
Income tax expense.......................................................... (1.1) (4.5)
----- ------
Income before minority interest............................................. 0.7 (4.0)
Minority interest........................................................... (9.6) (9.2)
----- ------
Net income.................................................................. (9.0)% (13.2)%
===== ======
</TABLE>
Revenues. The total revenues for the nine months ended September 30, 2000
("Interim 2000") decreased by Ps 7.018 billion, or -6.8%, to Ps 95.749 billion
from Ps 102.767 billion in the nine months ended September 30, 1999 ("Interim
1999"). The decrease in revenues for Interim 2000 was mainly attributable to the
decrease in connection fee revenue. The number of subscribers increased from
268,033 at September 30, 1999 to 290,148 at September 30, 2000, or 8% 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 21.618 billion from Ps
26.289 billion in Interim 1999 to Ps 4.671 billion as a result of 33,807 new
lines sold during Interim 2000 compared to 71,187 new lines sold in Interim
1999. Pay television services were Ps 4.049 billion in Interim 2000 compared to
Ps 9.779 billion in Interim 1999. This decrease in pay television revenues is
due to the lack of demand for videoconferencing and other special services
during Interim 2000. Long distance charges decreased by Ps 1.986 billion from Ps
15.491 billion in Interim 1999 to Ps 13.505 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 22.316 billion from Ps 51.207 billion in Interim 1999 to Ps
73.523 billion or 43.6% in Interim 2000.
4
<PAGE>
Costs and Expenses. Costs and expenses for Interim 2000 decreased by Ps
3.679 billion, or -7.8%, to Ps 43.545 billion from Ps 47.224 billion in Interim
1999.
Operating costs increased by Ps 0.641 billion from Ps 16.445 billion in
Interim 1999 to Ps 17.086 billion mainly as a result of increases in
depreciation of Ps 0.522 billion.
Administrative expenses for Interim 2000 decreased by Ps 2.142 billion to Ps
21.739 billion from Ps 23.881 billion in Interim 1999. The decrease was mainly
attributable to the decreases in salaries, benefits and other labor payments of
Ps 1.957 billion, as a result of the personnel reduction program.
Marketing expenses for Interim 2000 decreased by Ps 2.178 billion to Ps 4.720
billion from Ps 6.898 billion in Interim 1999. The decrease in marketing
expenses was primarily attributable to the decrease in salaries, benefits and
other labor payments of Ps 2.050 billion related with the program above
mentioned.
Operating Income. Operating income for Interim 2000 decreased by Ps 3.339
billion from Ps 55.543 billion in Interim 1999 to Ps 52.204 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>
Nine months ended September 30,
------------------------------------------
1999 2000
------------ ------------
(in thousands of constant Pesos of
September 30, 2000 purchasing power)
<S> <C> <C>
Financial Income:
Interest income........................................ Ps 21,027,840 Ps 27,294,408
Exchange gains......................................... 50,076,754 33,066,077
Other financial income................................. 676,891 897,435
-------------- --------------
71,781,485 61,257,920
-------------- --------------
Financial Expenses:
Interest expense....................................... (41,159,882) (56,511,907)
Bank commissions....................................... (99,774) (1,313,493)
Exchange losses........................................ (114,507,794) (73,894,049)
Bank expenses.......................................... (158,529) (654,726)
Other financial expenses............................... (317,658) (247,038)
-------------- --------------
(156,243,637) (132,621,213)
-------------- --------------
Other:
Sales of scrap and extra parts......................... 15,434 -
Other, net............................................. (2,195,291) 2,844,251
-------------- --------------
(2,179,857) 2,844,251
-------------- --------------
Total Non-operating Income (Expenses) Ps (86,642,009) Ps (68,519,042)
============== ==============
</TABLE>
Net non-operating expenses decreased from Ps (86.642) billion for Interim 1999
to Ps (68.519) billion in Interim 2000. The decrease was mainly due to the net
exchange loss occurred during Interim 2000 associated with the Senior Notes, the
Discount Notes and other liabilities denominated in Dollars due to the decrease
of devaluation from 30.81% September 1999, to 18.06% September 2000 of the
Colombian peso with respect to the Dollar.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income in Interim 2000 increased by Ps 0.438 billion to Ps 16.800 billion from
Ps 16.362 billion in Interim 1999.
Income Tax Expense. Income tax expense for Interim 2000 decreased by Ps
2.687 billion to Ps (4.288) billion from Ps (1.601) billion in Interim 1999
primarily because of tax loss carry forward benefits recorded for Transtel S.A.
during 2000.
5
<PAGE>
Minority Interest. Minority interest for Interim 2000 decreased by Ps 3.797
billion to Ps 8.803 billion from Ps 12.600 billion for Interim 1999 because
of the decreased net income of the operating subsidiaries.
Net Income (loss). Total income (loss) decreased by Ps (16.333) billion from
Ps (28.939) billion for Interim 1999 to Ps (12.606) billion for Interim 2000 as
a result of the factors discussed above.
Liquidity and Capital Resources
The fixed landline telephone business is a capital-intensive business, which
requires substantial investment to acquire and upgrade the telephones networks
in each of the Company's markets. In addition, the Company has required
significant capital for systems infrastructure development, sales and marketing
programs.
Net cash used by operating activities during Interim 2000 was Ps 3.330 billion
as compared used to Ps 41.721 billion for Interim 1999. The decrease in cash
used from operations for Interim 2000 was primarily caused by a decrease in net
income (loss) and caused by the fact that all of the operating companies, except
Unitel, have completed their expansion plans and therefore require less cash for
their operating activities. Net cash used in investing activities during
Interim 2000 was Ps 151.985 billion as compared to Ps 23.341 billion used 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 6.817
billion. Net cash provided by financing activities during Interim 2000 was Ps
131.398 billion as compared to Ps 12.170 billion used in Interim 1999. As of
September 30, 2000, the Company's borrowings were Ps 501.071 billion, consisting
primarily of the Senior Notes of Ps 331.839 billion and the Discount Notes of Ps
46.533 billion. Substantially all of the borrowings at September 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
September 30, 2000, the Company was in compliance with all such financial
covenants. See the description under the heading "Recent Events--Late Interest
Payment on the Senior Notes" below.
Annual interest payments on the Senior Notes by the Company will be
approximately $18.8 million, plus any additional interest as required, through
November 1, 2007. The principal amount of the Senior Notes is due on November 1,
2007. As of September 30, 2000, the Company has lent $95.5 million (Ps204.198
billion)
6
<PAGE>
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 September 30, 2000 are as follows:
<TABLE>
<CAPTION>
As of September 30, 2000
--------------------------------------
(in thousands of constant Pesos of
September 30,
2000 purchasing power and in Dollars)
<S> <C> <C>
Unitel.............................. Ps 66,346,472 $29,990,359
TeleJamundi......................... 48,130,977 21,756,474
TelePalmira......................... 50,417,089 22,789,857
TeleCartago......................... 21,758,097 9,835,235
Caucatel............................ 16,335,427 7,384,045
Bugatel............................. 8,193,118 3,703,506
-------------- -----------
Ps 211,181,180 $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 nine months ended September 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 Nine Months Ended September 30, 2000
(Amounts in thousands of constant Pesos of September 30, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
-------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues--subscribers........... Ps 23,895,673 Ps 24,085,022 Ps 2,724,440 Ps 12,412,042 Ps 9,589,383 Ps 7,622,658
Operating income (loss)............... 15,429,533 16,209,531 783,664 9,500,595 6,713,265 4,951,639
Net income............................ (688,368) 12,140,490 435,657 7,730,891 3,358,270 4,423,004
</TABLE>
CASH FLOW INFORMATION OF SUBSIDIARIES WITH INTERCOMPANY NOTES
For The Nine Months Ended September 30, 2000
(Amounts in thousands of constant pesos of September 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 (14,707,251) Ps 12,903,251 Ps 1,741,786 Ps 1,179,057 Ps 8,764,502 Ps 2,544,629
Cash flow used by investing
activities........................... 1,071,672 (31,976,908) (10,292,664) (8,230,516) (10,086,826) (6,119,426)
Cash flow provided (used) by financing
activities........................... 13,272,886 31,988,936 9,241,681 4,537,415 1,681,585 2,365,048
</TABLE>
7
<PAGE>
BALANCE SHEETS OF SUBSIDIARIES WITH INTERCOMPANY NOTES AT SEPTEMBER 30, 2000
(Amounts in thousands of constant Pesos of September 30, 2000 purchasing power)
<TABLE>
<CAPTION>
TelePalmira Unitel TeleJamundi TeleCartago Bugatel Caucatel
-------------- --------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Current assets ................ Ps 25,168,083 Ps 38,645,675 Ps 6,013,613 Ps 11,078,080 Ps 8,944,851 Ps 5,891,964
Properties, plant and
equipment....................... 95,653,345 182,320,362 61,223,794 61,604,885 45,702,550 43,920,458
Other noncurrent assets......... 40,776,047 38,529,871 10,003,750 10,672,302 10,495,767 6,056,512
-------------- --------------- -------------- -------------- --------------- ---------------
Total assets.................. Ps 161,597,475 Ps 259,495,908 Ps 77,241,157 Ps 83,355,267 Ps 65,143,168 Ps 55,868,934
============== =============== ============== ============== =============== ===============
Current liabilities............. Ps 28,913,086 Ps 44,533,484 Ps 4,437,734 Ps 13,838,057 Ps 14,434,116 Ps 5,764,111
Capital lease obligations....... 17,722,242 67,442,629 6,807,025 9,226,717 11,912,785 589,229
Intercompany Note to Transtel... 43,188,489 85,583,279 54,337,739 27,030,677 8,135,428 14,579,308
Other noncurrent liabilities.... 4,686,187 5,674,520 2,664,508 1,813,899 1,430,023 1,559,561
-------------- --------------- -------------- -------------- --------------- ---------------
Total liabilities............. 94,510,004 203,233,912 68,247,006 51,909,350 35,912,352 22,492,209
Total shareholders' equity...... 67,087,471 56,261,996 8,994,151 31,445,917 29,230,816 33,376,725
-------------- --------------- -------------- -------------- --------------- ---------------
Total liabilities and
shareholders' equity......... Ps 161,597,475 Ps 259,495,908 Ps 77,241,157 Ps 83,355,267 Ps 65,143,168 Ps 55,868,934
============== =============== ============== ============== =============== ===============
</TABLE>
Connection fees revenue for the nine months ended September 30, 2000 were
Ps0.657 billion, Ps 3.151 billion, Ps0.026 billion, Ps 0.131 billion, Ps 0.241
billion and Ps (0.026) 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 Ps 19.545
billion and Ps 14.621 billion, respectively, included in current liabilities at
September 30, 2000. As indicated in the above summarized balance sheet
information, these six Operating Companies have total long-term capital lease
obligations of Ps 113.701 billion at September 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 109.658
billion will be incurred.
Although the interest payments on the Senior Notes for the first four payments
(through November 1, 1999) were 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
to service these intercompany obligations through November 1, 1999, as of May 1,
2000, the date the first interest payment was due without the benefit of the
Escrow Account, these six Operating Companies have not yet been able to generate
sufficient cash flow from operations to make such interest payments in a timely
manner. See the description under the heading "Recent Events--Late Interest
Payment on the Senior Notes" below. 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 (Ps 33.184 billion) of
its 20.32% Senior Discount Notes due 2008 in a private placement. Interest at
0.10% will be payable in cash each year through August 13, 2008. Interest at
20.22% per annum will accrue over the term of the notes, and the total accrued
interest of $86.9 million (Ps 192.245 billion) and principal of $15.0 million
(Ps 33.184 billion) will be due on August 13, 2008. The balance of the Discount
Notes, including interest accreted but unpaid, is $6.0 million (Ps 13.349
billion) at September 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.
8
<PAGE>
Accounting for Inflation
As a Colombian company, the Company maintains its financial records in Pesos.
Colombian GAAP requires that the financial statements of Colombian companies be
adjusted to account for inflation. The inflation rate for the nine months ended
September 30, 2000 was 7.67%. 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 non-monetary
assets (except inventory) and liabilities and shareholders' equity accounts.
Monetary balances are not adjusted because they reflect the purchasing power of
the currency on the date of the balance sheet. Foreign currency balances are not
adjusted because they are translated into Pesos at the exchange rate in effect
on the same date. The resulting net gain or loss from exposure to inflation is
reflected as "Net monetary inflation adjustment income (loss)" in the income
statement for each period in question. On December 24, 1998, the Colombian
Congress decreed a National Fiscal Change to apply after January 1, 1999. This
regulation eliminated inflation adjustments relating to inventories and revenues
and expenses.
Income Tax Matters
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for the Company was 35% for 1996, 1997, 1998 and 1999
and for the nine months ended September 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 investors such as
Transtel S.A., the Company expects that future dividends paid to Transtel S.A.
by the Operating Companies will be taxable.
Reconciliation to U.S. GAAP
The unaudited Consolidated Interim Financial Statements are prepared in
accordance with Colombian GAAP, which differ from U.S. GAAP in certain
significant respects. A comparison of the Company's net income (loss) and
shareholders' equity at and for the nine months ended September 30, 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:
<TABLE>
<CAPTION>
Nine months ended,
----------------------------------------
1999 2000
----------- -----------
(in thousands of constant Pesos of
September 30, 2000 purchasing power)
<S> <C> <C>
Net Income (Loss)
Colombian GAAP .................... Ps (28,938,657) Ps (12,606,444)
U.S. GAAP ......................... (39,948,190) (16,034,313)
Shareholders' Equity
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
Colombian GAAP............................... 60,552,688 84,624,100
U.S. GAAP.................................... 7,345,418 20,767,274
</TABLE>
As more fully described and quantified in Note 6 to the unaudited Consolidated
Interim Financial Statements, the major differences between Colombian GAAP and
U.S. GAAP in each period relate to income taxes, revaluation of assets,
depreciation expense, capitalized interest, deferred charges, capital leases,
revenue recognition, reversal of monetary correction and purchase of properties
from a shareholder.
Macroeconomics
After a period of recession, Colombia is showing a slow recovery and is aiming
to meet the requirements of the settlement made with the IMF in exchange of a
monetary aid, which includes achieving results in three main fronts:
1. Tax reform proposal made by Minister Santos.
2. Accomplish privatization processes including the sale of Carbocol, Isagen
and ETB. The Carbocol sale has been completed although Isagen is in
process and the ETB sale was again cancelled due internal problems.
3. Achieving the targets in GDP growth to 3% for 2000, fiscal deficit,
inflation and reserves targets. During the first half of current year,
Colombia reached 3% in GDP and it is expected 3.9% for the second
semester 2000. Inflation rate for year 1999 was only 9.1% and for year
2000 is expected to be around 10% which is the target set with the IMF.
The increase in oil revenues provides Colombia with a better perspective to
meet its targets and it offsets a little the delay in the privatization
processes.
Another important factor that has led the country into a recovery process is
the exports. Colombian government has given strong support to exports
particularly following the significant depreciation of the currency (Peso) over
the past year. It is estimated that exports will increase by US$1.03 billion in
2000.
Even though Colombia shows a trend of economical recovery, violence is still a
negative factor undermining confidence in the country. The guerrillas are
increasing their attacks to the population and police installations, and are
declaring military objective to all US soldiers in Colombia that attempt to
participate in front-line attacks against them. All of this is mostly a
consequence of the Plan Colombia supported by the US and the majority of
Colombian population.
All of the above is taking effect while the government is also running the
peace talks with the guerrillas. Peace talks have recently been frozen by the
guerrillas as a way of putting pressure on the government and also due to the
activities of other armed group called the Paramilitares, which have established
to fight guerrilla aside from the government.
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
The Company is finishing with the execution of the Unitel expansion plan Phase
II in the city of Cali which is intended to give wireline telephone service to
subscribers inside the city using Fast Link technology replacing part of the
initially planned wireless capacity. The Company expects that this will
contribute to increase revenues not only because the increase in higher revenues
from subscribers but also by using these lines to generate higher usage through
internet service and data transmission.
10
<PAGE>
As of today all of the subsidiaries are growing at an organic pace due to the
markets are near saturation, except for Unitel in Cali which is increasing its
subscriber base.
The Company is still focusing on improving its collecting process and
improving client quality by selling in higher strata and commercials especially
in Cali. With the integration of Cablevision and Uniweb (internet service
provider) the Company has developed marketing plans and packages that interest
people in acquiring its products.
Recent Events
Delays and Technical Difficulties with Wireless Technology
DECT
----
The Company has experienced delays and technical difficulties with the supply,
installation and use of DECT. DECT is a fixed wireless technology which the
Company sought to use in its expansion plan in the city of Cali. DECT was
initially expected to be complete by March 1998. However, due to supply and
installation delays, the Company did not officially receive and accept the
equipment until September 2000, a delay of thirty (30) months. Due to such
delay, the Company has experienced subscriber loss, difficulty collecting
accounts receivables, problems with customer satisfaction and damage to Unitel's
reputation in the city of Cali. Additionally, once the equipment was installed,
customers have experienced technical problems with DECT. The following is a list
of certain key complaints by customers using DECT: (1) 53% of the complaints
were that customers sometimes received a busy tone or no tone at all whenever
the customer picked up the receiver to make a call, and (2) 16% of the
complaints were that customers sometimes heard echoes and noises which
interfered with their conversation. Additionally, calls were often interrupted
and the Company had problems with the access integrator software which made it
more difficult for the Company to install a line or to relocate the line. Such
complaints have affected client service, have damaged the Company's positive
image and has caused the Company to lose a large number of subscribers.
Due to the delays and technical difficulties with DECT, the Company decided to
reduced the size of its expansion plan in Unitel from an original goal of 59,000
wireless lines utilizing DECT to a revised goal of 35,000 wireless lines
utilizing DECT. The remaining 24,000 lines will utilize Fast Link wireline
technology instead of DECT. Additionally, throughout 2000, the Company
negotiated with the vendors, Siemens A.G. and Siemens S.A. (collectively, the
"Vendor") to settle claims relating to the problems with DECT. The negotiations
led to an agreement for the Company to lease from the Vendor the Fast Link
wireline equipment needed for the development of Unitel's new network at a
discount of approximately $6.3 million. The settlement agreement also calls for
the Vendor to construct the new network for Unitel. Finally, the Company is
currently preparing a detailed analysis of the accounts receivables increases as
a result of the problems with DECT. Management believes the Company will be in a
position to reduce such accounts receivable levels in the future. However, there
can be no assurance that the Company's procedures will result in significant
improvements in the Company's liquidity or its ability to timely collect
accounts receivables.
GSM
---
The Company has experienced continuing technical difficulties with the
installation and use of GSM. GSM is a fixed wireless technology which the
Company sought to use in the expansion plan for the rural areas serviced by
TelePalmira, Bugatel, TeleGiradot and TeleCartago. Once GSM was installed, the
Company incurred high additional and unexpected costs to assure its subscribers
had signal reception and to provide proper maintenance for the technology. Due
to imprecise initial infrastructure planning by the Vendor in determining the
type of equipment the Company required for its expansion plan, following the
installation of initial towers, a second infrastructure planning and a
reinstallation of new and more powerful towers was required. Despite the more
powerful towers, such towers still did not cover the total area that the
Company's original expansion plan intended to cover. In addition to the
coverage problem of the towers, there were also problems in the terminal system
due to poor manufacturing designs. The following is a list of certain
11
<PAGE>
problems which the Company experienced with GSM: (1) weak receptions of the
signal (low gains for the expected coverage), (2) terminal system blockades,
making the subscriber continually need to reset the system, (3) low-duration
batteries, (4) no features available, (5) the power adapters burned easily, (6)
low ring levels, (7) the entrant data service was not available, (8) blockades
when receiving faxes or a failure in detecting when the fax is completed, (9)
call interruption, (10) the system does not allow operation controlling which
makes service more difficult and expensive because the Company must continually
visit the subscribers, and (11) the system does not allow for traffic
restrictions such as long distance and cellular, and does not allow routing
traffic-A depending number.
Such technical problems have caused the Company to incur expensive additional
maintenance costs and other costs to attend to subscribers' needs.
Additionally, such problems have caused the Company to lose a large number of
subscribers and to suffer an increase in accounts receivables from its
customers. As a result, the Company anticipates subscriber and revenue losses
for these four subsidiaries.
Although GSM was delivered and installed, it was never officially accepted by
the Company. The Company and the Vendor are currently negotiating a settlement
agreement in which the Vendor would agree to reduce amounts the Company owes the
Vendor in consideration of the return by the Company of all GSM equipment. The
settlement agreement would also include a new payment schedule for the remaining
equipment leases which the Vendor has with the Company for other equipment. The
new payment schedule would defer the payments to be made by the Company to the
Vendor. Finally, the Company and the Vendor are negotiating a payment by the
Vendor to the Company of $5.0 million in consideration of various releases,
discharges and other agreements to be set forth in the settlement agreement. If
agreed to, the settlement agreement will provide that the $5.0 million payment
shall be made directly to HSBC Bank USA, as Indenture Trustee under the
Indenture relating to Transtel's Senior Notes, as partial payment for the
interest payment for the Senior Notes which was due on November 1, 2000. See
the description under the heading "Recent Events--Late Interest Payment on the
Senior Notes" below. If the settlement agreement is agreed upon and executed,
management believes that the revised payment schedule, coupled with the $5.0
million payment, should increase the Company's liquidity. However, there can be
no assurance that such settlement agreement will be agreed upon between the
Company and the Vendor and that such agreement, if reached, will result in an
overall increase in the Company's liquidity or allow the Company to timely make
principal or interest payments in the future.
Late Interest Payment on the Senior Notes
The Company was late making its interest payment on the Senior Notes which was
due on May 1, 2000 and is currently late making its interest payment on the
Senior Notes which was due on November 1, 2000. The delay in the May 1, 2000
interest payment was the result of the failure of a debtor of the Company to
repay amounts owed to the Company. The May 1, 2000 interest payment was
partially paid on May 1, 2000 and paid in full on May 30, 2000, within the 30-
day cure period, with proceeds from the Company's cash flows from general
operations. The delay in the November 1, 2000 interest payment is due to the
Company's inability to collect on a substantial amount of accounts receivables
from its customers because of the delays and technical difficulties with the two
wireless technologies, as described above, and the current poor economic
conditions in Colombia, including the devaluation of the Colombian peso with
respect to the Dollar and an unemployment rate of approximately 26% in the south
west region of Colombia. Higher costs and lower revenues from subscriber losses
due to the technical difficulties of the two fixed wireless technologies, as
described above, are also contributing factors to this late November 1, 2000
interest payment. If the Company and the Vendor execute the settlement
agreement relating to the GSM equipment, as described above, the Company
anticipates making the November 1, 2000 interest payment, which totals
approximately $9.6 million, with proceeds from (i) the $5.0 million payment
which would be made by the Vendor to the Company in connection with the
settlement agreement and (ii) the sale of $5.0 million in aggregate amount of
additional equity interests in the Company. See the description of the
negotiation of a possible settlement agreement between the Company and the
Vendor under the heading "Recent Events--Delays and Technical Difficulties with
Wireless Technology--GSM." However, there can be no assurance that a settlement
agreement relating to the GSM equipment will be agreed upon and executed by the
Company and the Vendor or that if a settlement agreement is agreed upon and
executed, that such agreement will contain the terms and
12
<PAGE>
conditions described above, including the payment by the Vendor to the Company
of $5.0 million. If the Company and the Vendor do not agree upon a settlement
agreement which includes a cash payment by the Vendor to the Company of at least
$5.0 million, the Company may seek additional financing to pay the November 1,
2000 interest payment. There can be no assurance that sufficient additional
financing will be available to pay the November 1, 2000 interest payment.
The delay in the November 1, 2000 interest payment resulted in an event of
default under the Indenture governing the Senior Notes, however, if the Senior
Notes are not accelerated or declared immediately due and payable prior to the
payment of the November 1, 2000 interest payment by the Company, then a payment
by the Company of the full amount of interest, including penalty interest, due
for the November 1, 2000 interest payment will cure such event of default. As
of January 12, 2000, to the Company's knowledge, the Senior Notes have not been
accelerated or declared immediately due and payable. However, there can be no
assurance that the Senior Notes will not be accelerated or declared immediately
due and payable prior to the payment by the Company of the November 1, 2000
interest payment.
The Company is currently considering a wide array of alternatives to improve
its liquidity and ensure timely payment of its future debt obligations. The
Company's Board of Directors has approved a plan for a significant reduction in
the Company's costs and expenses and is currently implementing this plan.
Management anticipates that once the technical problems and difficulties with
its wireless technologies, as described above, are resolved, the Company's
revenues will increase. Additionally, the Company is currently analyzing its
accounts receivables, is working toward reducing the amount of accounts
receivables owed to the Company and will incur an allowance for doubtful
accounts in the fourth quarter of 2000 with respect to certain accounts
receivables. However, there can be no assurance that such plan or other
alternative arrangements will be consummated or will result in an increase in
the Company's liquidity or its ability to timely make principal or interest
payments in the future. If the Company is unable to meet interest and principal
payments on the Senior Notes in the future, it may, depending on the
circumstances which then exist, seek additional financing. There can be no
assurance that sufficient additional financing will be available.
13
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
----------- ----------- --------
(Thousands
(Thousand of pesos of September 30, of Dollars)
2000)
<S> <C> <C> <C>
ASSETS
Current
Cash.................................................................... Ps 11,460,214 Ps 9,966,166 $ 4,505
Short-term and temporary investments.................................... 28,860,665 310,284 140
Accounts receivable, net................................................ 88,435,938 107,961,966 48,802
Inventories............................................................. 2,974,847 1,881,022 850
Prepaid expenses........................................................ 678,989 1,437,366 650
-------------- -------------- --------
Total current assets................................................... 132,410,653 121,556,804 54,947
Noncurrent
Accounts receivable..................................................... 45,652,425 66,612,250 30,110
Properties, plant and equipment, net.................................... 382,927,973 561,193,112 253,674
Deferred monetary correction............................................ 5,544,731 7,136,902 3,226
Deferred costs.......................................................... 67,306,936 50,129,429 22,660
Long-term investments................................................... 3,314,829 7,119,584 3,218
Other assets............................................................ 13,979,244 13,927,518 6,296
Reappraisal of assets................................................... 39,302,707 40,791,088 18,439
-------------- -------------- --------
Total assets........................................................... Ps 690,439,498 Ps 868,466,687 $392,570
============== ============== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt......................................................... Ps 16,118,683 Ps 22,366,600 $ 10,110
Current portion of other long-term debt................................. 4,081,942 4,137,711 1,870
Current portion of capital lease obligations............................ 8,593,093 19,799,368 8,950
Accounts payable........................................................ 52,731,406 92,635,013 41,873
Tax liabilities......................................................... 13,271,393 24,471,643 11,062
Labor liabilities....................................................... 223,503 2,497,827 1,129
Other liabilities....................................................... 13,676,731 1,155,453 523
Accrued pension obligations............................................. 690,644 1,013,650 458
-------------- -------------- --------
Total current liabilities.............................................. 109,387,395 168,077,265 75,975
Long-term liabilities
12 1/2% Senior Notes due 2007........................................... 329,161,970 331,839,000 150,000
20.32% Senior Discount Notes due 2008................................... 38,054,986 46,532,638 21,034
Other long-term debt.................................................... 497,849 8,942,562 4,451
Capital lease obligations............................................... 45,934,147 113,756,198 51,421
Deferred monetary correction............................................ 6,870,201 12,821,742 5,796
Accrued pension obligations............................................. 7,594,574 6,728,434 3,041
Other liabilities....................................................... 13,445,483 11,930,333 4,984
-------------- -------------- --------
Total liabilities...................................................... 550,946,605 700,628,172 316,702
-------------- -------------- --------
Minority interest........................................................ 78,940,205 83,214,415 37,616
-------------- -------------- --------
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)................................ 52,468,306 52,468,306 23,717
Retained earnings ..................................................... (8,233,154) 10,893,520 4,924
Surplus from reappraisal of assets...................................... 16,317,536 21,262,274 9,611
-------------- -------------- --------
Total shareholders' equity............................................. 60,552,688 84,624,100 38,252
-------------- -------------- --------
Total liabilities and shareholder's equity............................. Ps 690,439,498 Ps 868,466,687 $392,570
============== ============== ========
Memorandum accounts...................................................... Ps 373,076,710 Ps 252,042,554 $113,930
============== ============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
For the Nine Months Ended September 30, September 30,
------------------------------------------------------- ---------------------------------
1999 2000 2000 2000 2000
------ ------ ------ ------ --------
(Thousands of Pesos of September 30, (Thousands of (Thousands of (Thousands of
2000 purchasing power) Dollars Pesos of Dollars
--Unaudited) September 30, --Unaudited)
2000 purchasing
power)
<S> <C> <C> <C> <C> <C>
Revenues............................. Ps 102,766,623 Ps 95,748,782 $ 43,281 Ps 34,067,673 $ 15,399
--------------- --------------- -------- --------------- --------
Costs and expenses:
Operating costs................ 16,444,556 17,085,813 7,723 6,347,413 2,869
Administrative expenses........ 23,881,476 21,738,827 9,827 7,280,416 3,291
Marketing expenses............. 6,897,647 4,719,966 2,134 1,188,018 537
--------------- --------------- -------- --------------- --------
47,223,679 43,544,606 19,684 14,815,847 6,697
--------------- --------------- -------- --------------- --------
Operating income......... 55,542,944 52,204,176 23,597 19,251,826 8,702
--------------- --------------- -------- --------------- --------
Non operating income (expenses)
Financial income............... 71,781,485 61,257,920 27,690 13,765,073 6,222
Financial expenses............. (156,243,638) (132,621,213) (59,948) (33,657,147) (15,214)
Other.......................... (2,179,857) 2,844,251 1,286 (742,525) (336)
--------------- --------------- -------- --------------- --------
(86,642,010) (68,519,042) (30,972) (20,634,599) (9,328)
--------------- --------------- -------- --------------- --------
Net monetary inflation adjustment
income.............................. 16,362,135 16,799,647 7,594 771,714 349
--------------- --------------- -------- --------------- --------
Income (loss) before income
taxes and minority
interest................... (14,736,931) 484,781 219 (611,059) (277)
Income tax (expense) benefit......... (1,601,259) (4,287,885) (1,938) (3,596,189) (1,626)
--------------- --------------- -------- --------------- --------
Income (loss) before minority
interest................... (16,338,190) (3,803,104) (1,719) (4,207,248) (1,903)
Minority interest.................... (12,600,467) (8,803,340) (3,979) (2,851,515) (1,289)
--------------- --------------- -------- --------------- --------
Net income (loss)....... Ps (28,938,657) Ps (12,606,444) $ (5,698) Ps (7,058,763) $ (3,192)
=============== =============== ======== =============== ========
Earnings per share (in single Pesos
and Single Dollars per share)....... Ps (0.84) Ps (0.36) $ - $ (0.20) $ -
=============== =============== ======== =============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Nine months Ended September 30, 1999 and 2000
(Thousands of Pesos of September 30, 2000, except shares)
<TABLE>
<CAPTION>
Common Shares Outstanding
--------------------------------- Retained Surplus from Total
Number Amount Earnings Reappraisal Shareholders'
---------------- --------------- of Assets Equity
(Thousands) ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998........ 34,611,748 Ps 52,467,665 Ps 20,705,248 Ps 16,877,624 Ps 90,050,537
Net income.......................... (28,938,657) (28,938,657)
Movement during the period.......... (559,192) (559,192)
------------ ------------- ---------------- --------------- ----------------
Balance at September 30, 1999....... 34,611,748 52,467,665 (8,233,409) 16,318,432 60,552,688
============ ============= ================ =============== ================
Balance at December 31, 1999........ 34,611,748 Ps 52,468,306 Ps 23,499,963 Ps 19,192,188 Ps 95,160,457
Net income.......................... (12,606,444) (12,606,444)
Movement during the period.......... 2,070,087 2,070,087
------------ ------------- ---------------- --------------- ----------------
Balance at September 30, 2000....... 34,611,748 Ps 52,468,306 Ps 10,893,519 Ps 21,262,275 Ps 84,624,100
============ ============= ================ =============== ================
</TABLE>
Retained earnings balances consist of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1999 2000
------------- -------------
<S> <C> <C>
Legal reserve........................................ Ps 710,167 Ps 1,142,932
Appropriated for future construction................. 950,231 5,753,127
Appropriated for future acquisitions................. 19,044,850 16,603,904
Unappropriated retained earning...................... (28,938,657) (12,606,444)
------------- -------------
Ps (8,233,409) Ps 10,893,519
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-----------------------------------------------------
1999 2000 2000
---- ---- ----
(Thousands of Pesos of September 30, 2000 (Thousands
purchasing power) of
Dollars--
Unaudited)
<S> <C> <C> <C>
Sources of working capital:
Net income (loss).................................... Ps (28,938,657) Ps (12,606,444) $ (5,698)
Items that do not utilize (provide)
Working capital:
Depreciation...................................... 3,567,576 4,239,693 1,916
Amortization........................................ 12,186,750 10,270,207 4,642
Deferred income taxes.............................. (1,008,934) 0 0
Allowance for writedown of properties,
plant and equipment................................ (74,615) 695,833 315
Accretion of Interest on Senior Discount Note...... 4,703,528 9,812,919 4,435
Allowance for doubtful accounts.................... 1,480,250 0 0
Minority interest.................................. 12,600,467 8,803,340 3,979
Net inflation adjustment from non-current
balance sheet accounts............................. (16,362,134) (18,797,941) (8,497)
Deferred monetary correction, net.................. 554,812 (3,411,847) (1,542)
-------------- --------------- --------
Working capital provided by operations.............. (11,290,957) (994,240) (450)
-------------- --------------- --------
Financial resources generated otherwise:
Senior notes AND discount notes.................... 29,215,776 13,206
Accrued Pension obligations........................ (55,248) (26,405) (12)
Increase (decrease) in other debt.................. (9,905,840) 8,942,562 4,042
Capital lease obligations.......................... 12,160,940 72,794,987 32,906
Increase in other liabilities...................... 518,298 (442,159) (200)
Investment by minority interest.................... (1,901,709) 1,643,712 744
-------------- --------------- --------
816,441 112,128,478 50,686
-------------- --------------- --------
Total financial resources generated.............. (10,474,516) 111,134,238 50,237
-------------- --------------- --------
Financial resources utilized:
Purchases of properties, plant and
Equipment......................................... (82,871,108) (155,084,641) (70,103)
Increase in accounts receivable.................... (10,054,641) (4,545)
Increase in deferred charges....................... (20,040) (9)
Decrease in long-term investments.................. 218,472 (5,213,164) (2,356)
Decrease in other assets........................... (7,155,480) (1,304,819) (590)
Increase in deferred costs......................... (6,194,506) 0 0
Increase in other assets
Noncurrent accounts receivable
Decrease in accounts receivable................... 4,257,410 0 0
-------------- --------------- --------
(91,745,212) (171,677,305) (77,603)
-------------- --------------- --------
Effect of revaluing to constant pesos............... 84,474,492 27,675,943 12,509
-------------- --------------- --------
Increase (decrease) in working capital........... Ps (17,745,236) Ps (32,867,124) $(14,857)
============== ================ ========
Changes in working capital components:
Cash................................................. Ps 7,241,212 Ps 4,320,074 $ 1,953
Short-term and temporary investments................. (40,601,541) (8,847,091) (3,999)
Accounts receivable.................................. 54,453,116 26,396,763 11,932
Inventories.......................................... (175,685) (653,757) (296)
Prepaid expenses..................................... (253,279) 1,024,545 463
Short-term debt...................................... (90,630) (8,562,074) (3,870)
Short-term and current portion of
Other long-term debt................................. (2,353,598) (559,892) (253)
Current portion of capital lease obligations......... (3,741,576) (9,692,308) (4,381)
Accounts payable...................................... (12,914,252) (41,765,143) (18,879)
Tax liabilities...................................... (6,751,435) 2,401,584 1,086
Labor liabilities.................................... 917,764 (1,246,663) (564)
Current Portion Pension obligations.................. (54,869) (7,003) (3)
Other liabilities.................................... (13,420,463) 4,323,840 1,954
-------------- ---------------- --------
Increase (decrease) in working capital........... Ps (17,745,236) Ps (32,867,124) $(14,857)
============== ================ ========
<CAPTION>
For the Three Months
Ended September 30,
-----------------------------------
2000 2000
---- ----
(Thousands of Pesos (Thousands
of September 30, of
2000 purchasing Dollars--
power) Unaudited)
<S> <C> <C>
Sources of working capital:
Net income (loss).................................... Ps (7,058,764) $ (3,191)
Items that do not utilize (provide)
Working capital:
Depreciation...................................... 1,627,548 736
Amortization........................................ 3,477,336 1,572
Deferred income taxes.............................. 0 0
Allowance for writedown of properties,
plant and equipment................................ 214,960 98
Accretion of Interest on Senior Discount Note...... 3,555,984 1,607
Allowance for doubtful accounts.................... 0 0
Minority interest.................................. 2,851,515 1,289
Net inflation adjustment from non-current..........
balance sheet accounts............................. (2,770,007) (1,252)
Deferred monetary correction, net.................. (304,556) (138)
-------------- --------
Working capital provided by operations.............. 1,594,017 721
-------------- --------
Financial resources generated otherwise:
Senior notes AND discount notes.................... 10,047,676 4,542
Accrued Pension obligations........................ (290,636) (132)
Increase (decrease) in other debt.................. 2,312,636 1,045
Capital lease obligations.......................... 60,728,462 27,450
Increase in other liabilities...................... (3,231,987) (1,461)
Investment by minority interest.................... 3,361,570 1,519
-------------- --------
72,927,721 32,963
-------------- --------
Total financial resources generated.............. 74,521,738 33,684
-------------- --------
Financial resources utilized:
Purchases of properties, plant and
Equipment......................................... (84,118,685) (38,022)
Increase in accounts receivable.................... (12,528,009) (5,663)
Increase in deferred charges....................... (14,973) (7)
Decrease in long-term investments.................. 41,597 19
Decrease in other assets........................... (2,827,219) (1,278)
Increase in deferred costs......................... 0 0
Increase in other assets ........................
Noncurrent accounts receivable 0 0
Decrease in accounts receivable................... 0 0
-------------- --------
(99,447,289) (44,951)
-------------- --------
Effect of revaluing to constant pesos............... 2,375,894 1,074
-------------- --------
Increase (decrease) in working capital........... Ps (22,549,657) $(10,195)
============== ========
Changes in working capital components:
Cash................................................. Ps 4,451,479 $ 2,012
Short-term and temporary investments................. 23,001 10
Accounts receivable.................................. 6,446,450 2,914
Inventories.......................................... 20,934 9
Prepaid expenses..................................... (995,627) (450)
Short-term debt...................................... (3,680,426) (1,664)
Short-term and current portion of
Other long-term debt................................. (237,699) (107)
Current portion of capital lease obligations......... (7,221,324) (3,264)
Accounts payable...................................... (19,304,689) (8,726)
Tax liabilities...................................... (3,780,338) (1,709)
Labor liabilities.................................... 199,368 90
Current Portion Pension obligations.................. 233,105 105
Other liabilities.................................... 1,296,109 586
-------------- --------
Increase (decrease) in working capital........... Ps (22,549,657) $(10,193)
============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------------------
1999 2000 2000
---- ---- ----
(Thousands of Pesos of September 30, (Thousands
2000 purchasing power) of
Dollars--
Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income for the period....................................... Ps(28,938,657) Ps (12,606,444) $ (5,698)
Adjustments to reconcile net income with net
cash Provided by operations:
Depreciation.............................................. 3,567,576 4,239,693 1,916
Amortization.............................................. 12,186,750 10,270,207 4,642
Deferred income taxes..................................... (1,008,934) 0 0
Allowance for property plant and equipment................ (74,615) 695,832 316
Allowance for doubtful accounts........................... 1,480,250 0 0
Accretion of Interest on discount Senior notes............ 4,703,528 9,812,919 4,435
Minority interest......................................... 12,600,467 8,803,340 3,979
Net inflation adjustment from balance
Sheet Accounts............................................ (16,362,134) (18,797,941) (8,497)
Deferred monetary correction, net......................... 554,812 (3,411,847) (1,542)
Changes in operating assets and liabilities:
Accounts receivable....................................... (50,195,707) (36,451,404) (16,476)
Inventories............................................... 175,685 653,757 296
Prepaid expenses.......................................... 253,279 (1,024,545) (463)
Deferred costs............................................ (6,194,506) (20,040) (9)
Other assets.............................................. (7,155,480) (1,304,819) (590)
Accounts payable.......................................... 12,914,252 41,765,143 18,878
Labor liabilities......................................... (917,764) 1,246,663 563
Tax liabilities........................................... 6,751,435 (2,401,584) (1,086)
Accrued pension obligations............................... (379) (33,408) (15)
Other liabilities......................................... 13,938,760 (4,765,994) (2,154)
------------- -------------- --------
Net cash (used for) provided by
operating activities.................................. (41,721,382) (3,330,473) (1,505)
------------- -------------- --------
Cash flows from investing activities:
Acquisition of properties, plant and equipment................ (37,926,201) (155,084,641) (70,102)
Advances on properties plant and equipment.................... (46,846,616)
Purchases of investments...................................... (3,844,579) (3,717,510) (1,680)
Proceeds from sale of temporary investments
Proceeds from sale/maturity of
short-term investments.................................... 65,275,870 6,817,139 3,082
------------- -------------- --------
Net cash (used for) provided by
investing activities................................. (23,341,526) (151,985,012) (68,701)
------------- -------------- --------
Cash flows from financing activities:
Senior Notes.............................................. 29,215,776 13,206
Issuance of other debt........................................... (29,466,823) 33,054,015 14,941
Repayments of debt........................................ 22,005,210 (13,359,177) (6,038)
Dividend paid to minority interest........................ 0 0 0
Repayments of capital lease obligations................... (4,708,761) 82,487,295 37,286
------------- -------------- --------
Net cash provided by (used for)
financing activities................................ (12,170,374) 131,397,909 59,395
------------- -------------- --------
Effect of revaluing to constant pesos............................ 84,474,494 28,237,649 12,764
------------- -------------- --------
Net (decrease) increase in cash............................... 7,241,212 4,320,074 1,953
Cash at beginning of period................................... 4,219,002 5,646,092 2,552
------------- -------------- --------
Cash at end of period......................................... Ps 11,460,214 Ps 9,966,166 $ 4,505
============= ============== ========
Supplemental disclosure of cash flows inform:
Cash paid during the period for:
Interest.................................................. Ps 6,274,454 Ps 20,639,686 $ 11,916
============= ============== ========
Income taxes.............................................. Ps 4,450,767 Ps 11,915,432 $ 6,879
============= ============== ========
<CAPTION>
For the Three Months
Ended September 30,
-------------------------------------
2000 2000
---- ----
(Thousands of (Thousands
Pesos of of
September 30, Dollars--
2000 purchasing Unaudited)
power)
<S> <C> <C>
Cash flows from operating activities:
Net income for the period....................................... Ps (7,058,763) $ (3,191)
Adjustments to reconcile net income with net
cash Provided by operations:
Depreciation.............................................. 1,627,548 736
Amortization.............................................. 3,477,336 1,572
Deferred income taxes..................................... 0 0
Allowance for property plant and equipment................ 214,960 97
Allowance for doubtful accounts........................... 0 0
Accretion of Interest on discount Senior notes............ 3,555,984 1,607
Minority interest......................................... 2,851,515 1,289
Net inflation adjustment from balance
Sheet Accounts............................................ (2,770,007) (1,251)
Deferred monetary correction, net......................... (304,556) (138)
Changes in operating assets and liabilities:
Accounts receivable....................................... (18,974,459) (8,577)
Inventories............................................... (20,934) (9)
Prepaid expenses.......................................... 995,627 450
Deferred costs............................................ (14,973) (7)
Other assets.............................................. (2,827,218) (1,278)
Accounts payable.......................................... 19,304,689 8,726
Labor liabilities......................................... (199,368) (90)
Tax liabilities........................................... 3,780,338 1,709
Accrued pension obligations............................... (57,530) (26)
Other liabilities......................................... (3,624,426) (1,639)
------------- --------
Net cash (used for) provided by
operating activities.................................. (44,237) (20)
------------- --------
Cash flows from investing activities:
Acquisition of properties, plant and equipment................ (84,302,049) (38,106)
Advances on properties plant and equipment.................... 183,363 83
Purchases of investments...................................... (1,385,326) (626)
Proceeds from sale of temporary investments................... 6,817,139 3,081
Proceeds from sale/maturity of
short-term investments.................................... (5,423,806) (2,452)
------------- --------
Net cash (used for) provided by
investing activities................................. (84,110,679) (38,020)
------------- --------
Cash flows from financing activities:
Senior Notes.............................................. 10,047,676 4,542
Issuance of other debt........................................... 12,459,431 5,633
Repayments of debt........................................ (5,502,031) (2,487)
Dividend paid to minority interest........................ 0 0
Repayments of capital lease obligations................... 67,949,787 30,714
------------- --------
Net cash provided by (used for)
financing activities................................ 84,954,863 38,402
------------- --------
Effect of revaluing to constant pesos............................ 3,652,024 1,650
------------- --------
Net (decrease) increase in cash............................... 4,451,971 2,012
Cash at beginning of period................................... 5,514,195 2,493
------------- --------
Cash at end of period......................................... Ps 9,966,166 $ 4,505
============= ========
Supplemental disclosure of cash flows inform:
Cash paid during the period for:
Interest.................................................. Ps 142,863 $ 82
============= ========
Income taxes.............................................. Ps 4,124,580 $ 2,381
============= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Pesos of September 30, 2000 purchasing power, unless otherwise
specified)
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
-----------------------------
The interim consolidated financial statements as of and for the nine months
ended September 30, 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 nine months ended September 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 September 30, 2000
purchasing power. U.S. Dollar amounts are translated from Peso amounts at the
Representative Market Rate on September 30, 2000, which was 2,212.26 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 September 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>
19
<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
Ps17,241,276 and Ps 7,878,166 in cash, respectively. The Company acquired the
remaining 3% of both companies on December 15, 1998 for Ps 929,400 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 nine months ended September 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 (Ps 331.839 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 (Ps 33.184 billion) of
its 20.32% Senior Discount Notes due 2008 in a private placement. The net
proceeds of approximately $14.3 million (Ps 31.635 billion) were to pay for
capital expenditures, to provide working capital and/or to fund future
acquisitions. Interest at 0.10% will be payable in cash each year through August
13, 2008. Interest at 20.22% will accrue over the term of the Senior Discount
Notes, and the accrued interest of $86.9 million (Ps 192.245 billion) and
principal of $15.0 million (Ps 33.184 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 Ps 6,445,865 as of September 30,
2000.
20
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transtel S.A. is dependent upon transfer of funds from its subsidiaries to
make the required interest and principal payments on the Senior Notes and the
Certificates and the Senior Discount Notes. The subsidiaries have not
guaranteed the payment of the Senior Notes and have no obligations to remit
dividends on other distributions to Transtel S.A. for payment on the Senior
Notes and the Certificates and the Senior Discount Notes.
NOTE 5--OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities as of September 30, 1999 and 2000 consisted of the
following:
<TABLE>
1999 2000
--------- ---------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel Siemens Purchase
Agreement....................................................... Ps 4,670,871 Ps 4,394,934 (1)
Payable to Siemens AG for TeleGirardot Siemens Purchase
Agreement....................................................... 4,120,009 4,394,933 (2)
Payable to IBM....................................................... 821,160 963,671 (3)
Unearned interest income............................................. 161,379 0
Cable television fees paid advances.................................. 539,304 0
Accrued litigation loss............................................. 2,393,189 2,200,000
Deferred Income Taxes................................................
Negative goodwill.................................................... 299,555 0
Other................................................................ 440,016 36,795
------------------ ---------------
Ps 13,445,483 Ps 11,930,333
================== ===============
</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 Ps 2,200,000 (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 September 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 September 30, 1999 and 2000:
21
<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 (28,938,657) Ps (12,606,444)
(i) Deferred income taxes.................................. 4,463,026 (1,678,803)
(ii) Surplus from reappraisal of assets..................... - -
(iii) Depreciation........................................... (8,061,963) (10,545,460)
(iv) Capitalized interest................................... 2,860,147 5,144,737
(v) Deferred costs......................................... 1,645,444 4,251,443
(vi) Capital leases......................................... (85,632) (323,177)
(vii) Revenue recognition.................................... (18,960,038) 1,068,530
(viii) Reversal of deferred monetary correction............... 340,889 4,424,422
(ix) Effect of the above differences on minority interest... 6,928,197 (5,291,192)
(x) Distribution to shareholder............................ - -
(xi) Depreciation of Cablevision assets..................... (349,692) (478,369)
(xii) Inflation adjustment on inventories.................... 210,089 -
--------------- --------------
Consolidated net income (loss) under U.S. GAAP....................... Ps (39,948,190) Ps (16,034,313)
=============== ==============
</TABLE>
(b) Reconciliation of shareholders' equity:
The following summarizes the principal differences between accounting
practices under Colombian GAAP and U.S. GAAP and their effects on shareholders'
equity at September 30, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Consolidated shareholders' equity under Colombian GAAP............... Ps 60,552,688 Ps 84,624,100
(i) Deferred income taxes.................................. 14,564,283 16,586,670
(ii) Surplus from reappraisal of assets..................... (16,317,536) (22,275,481)
(iii) Depreciation........................................... (18,722,742) (31,763,631)
(iv) Capitalized interest................................... 6,330,789 12,045,183
(v) Deferred costs......................................... (30,055,029) (20,754,268)
(vi) Capital leases......................................... 1,767,353 1,398,227
(vii) Revenue recognition.................................... (24,185,519) (33,333,961)
(viii) Reversal of deferred monetary correction............... 1,325,470 6,174,213
(ix) Effect of the above differences on minority interest... 12,856,589 9,525,698
(x) Distribution to shareholder............................ (457,382) (457,383)
(xi) Depreciation of Cablevision assets..................... (523,634) (1,002,093)
(xii) Inflation adjustment on inventories.................... 210,088 -
--------------- --------------
Consolidated shareholders' equity under U.S. GAAP.................... Ps 7,345,418 Ps 20,767,274
=============== ==============
</TABLE>
(c) Analysis of changes in shareholders' equity:
The following summarizes the changes in shareholders' equity under U.S.
GAAP for the nine month periods ended September 30, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Balance at beginning of period................................. Ps 47,293,608 Ps 36,801,587
Net (loss) income.............................................. (39,948,190) (16,034,313)
-------------- --------------
Balance at end of period....................................... Ps 7,345,418 Ps 20,767,274
============== ==============
</TABLE>
The Company has no items of other comprehensive income.
22
<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:
23
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 2000
------------- -------------
<S> <C> <C>
External telephony networks................................................ Ps 4,994,018 Ps 4,992,986
Computer equipment......................................................... 400,350 486,415
Transport fleet and equipment.............................................. 2,251,613 2,162,482
Generator.................................................................. 99,739 99,686
------------- -------------
Total................................................................... 7,745,720 7,688,569
Less--Accumulated depreciation............................................. (3,073,162) (3,862,,211)
------------- -------------
Ps 4,672,558 Ps 3,826,358
============= =============
</TABLE>
The above amounts include cumulative net inflation adjustments of Ps
2,170,721 and Ps 2,215,855 at September 30, 1999 and 2000, respectively.
<TABLE>
<S> <C> <C>
Total minimum lease payments............................................... Ps 4,960,370 Ps 3,387,295
Less-Imputed interest...................................................... (2,269,914) (1,173,002)
------------- -------------
Present value of minimum lease payments.................................... 2,690,456 2,214,293
Less--Current portion...................................................... (549,661) (1,601,342)
------------- -------------
Long-term portion.......................................................... 2,140,795 612,951
============= =============
Deferred income from sale lease back....................................... Ps 256,587 Ps 245,785
============= =============
</TABLE>
The additional total minimum lease payments as follows under U.S. GAAP:
<TABLE>
<CAPTION>
Payable in twelve months
------------------------
ended September 30,
-------------------
<S> <C>
2000................................................................. Ps 1,601,342
2001................................................................. 1,705,558
2002................................................................. 80,395
-------------
Total minimum lease payments............................................ Ps 3,387,295
=============
</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 338,989 Ps 600,141
Increase in depreciation expense........................................... 707,192 409,646
Amortization of gain from sale of
Properties, plant and equipment on leaseback............................. (7,820) (10,802)
Increase in inflation adjustment income on capital
lease obligations........................................................ (222,877) (196,270)
-------------- -------------
Total................................................................... 815,484 802,715
-------------- -------------
Rent expense
Decrease in rent expense recorded under Colombian
GAAP.............................................................. (729,852) (479,538)
Decrease in rent recorded as deferred costs under
Colombian GAAP and reversed for U.S. GAAP Purposes................ -
-------------- -------------
Net decrease in expenses................................................... Ps 85,632 Ps 323,177
============== =============
</TABLE>
Under U.S. GAAP, there are no operating lease commitments at September 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 September 30, 2000, the following
additional lease and tax obligations on a pro forma U.S. GAAP basis would have
been outstanding:
24
<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 95,653,727 Ps 1,075,490 Ps 12,928,447 Ps 109,657,664
Less--Imputed interest............. (26,479,655) (78,978) (26,558,633)
------------- -------------- -------------- ---------------
Present value of minimum lease
Payments....................... 69,174,072 996,513 12,928,447 83,099,032
Less--Current portion.............. (10,376,111) (126,606) (1,939,267) (12,441,984)
------------- -------------- -------------- ---------------
Long--term portion................. Ps 58,797,961 Ps 869,907 Ps 10,989,180 Ps 70,657,048
============= ============== ============== ===============
</TABLE>
The additional total minimum lease or tax and duty payments would have been as
follows under U.S. GAAP:
Payable in twelve months ending September 30,
---------------------------------------------
2001.................................. 5,555,715
2002.................................. 10,858,217
2003.................................. 10,858,217
Thereafter............................ 82,385,515
--------------
Ps 109,657,664
==============
(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.
25
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(xi) Depreciation of Cablevision Assets
Under Colombian GAAP, goodwill or negative goodwill in an acquisition
accounted for as a purchase is determined as the purchase price paid in excess
of the acquiree's net worth, including reappraisal of assets. The assets of the
acquiree are recorded at book value adjusted for inflation and the amount of
asset reappraisals is shown as a separate caption in the balance sheet and not
depreciated. Such goodwill or negative goodwill is amortized over five years.
Under U.S. GAAP, goodwill is the excess of the purchase price paid over the
fair value of the assets and liabilities acquired. The assets and liabilities
are recorded at fair value and assets are depreciated over their useful lives.
The Company amortizes goodwill over five years for U.S. GAAP.
(xii) Inflation adjustment on inventories
Under Colombian GAAP, effective January 1, 1999 a decree issued by the
Colombian Congress eliminated the inflation adjustment relating to inventories.
Under U.S. GAAP, an adjustment is required for the inflation effects on
inventories so that a comprehensive basis of accounting for inflation is
maintained.
(xiii) Fiduciary Guarantee Trust and other reclassifications
Under Colombian GAAP, fiduciary guarantee trusts are formed to secure debts by
transferring the title of fixed assets to the trust. The net book value of the
trust is recorded as other assets and is amortized in the same way in which the
related fixed assets would be depreciated. Under U.S. GAAP, the fixed assets
used to form the fiduciary guarantee trust remain in natural fixed assets
classifications and are depreciated.
The amounts reclassified as fixed assets for U.S. GAAP purposes from the
fiduciary guarantee trust are as follows at September 30, 2000 and 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 2000
Land ................................................ Ps 250,344 Ps 228,353
Building.............................................. 1,001,370 913,409
------------ ------------
1,251,714 1,141,762
Accumulated depreciation.............................. (108,355) (64,091)
------------ ------------
Net .................................................. Ps 1,143,359 Ps 1,077,671
============ ============
</TABLE>
Certain other reclassifications have been made to the Colombian GAAP balance
sheet to conform to the U.S. GAAP presentation, primarily the reclassification
of certain receivables to advances to suppliers, prepaid expenses and noncurrent
other assets.
In addition, because of the decree issued by the Colombian Congress effective
January 1, 1999 inflation adjustments are no longer applied to the various
revenue and expense accounts. While this change has no effect on net income for
Colombian or U.S. GAAP, for U.S. GAAP each item of revenue and expense for the
nine months ended September 30, 2000 should be multiplied by the average
inflation factor of 1.0767 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
26
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
beginning of the earliest period presented. For U.S. GAAP, the weighted average
number of shares was 34,611,747,976 during the nine-month period ended September
30, 1999 and 2000. These shares are different than Colombian GAAP since the
capitalization in December 1998 of premium on shares issued in July 1997 is
treated as a stock issued under U.S. GAAP as of January 1, 1998.
Basic and diluted income (loss) per share under U.S. GAAP are the same and
were 0.11 single (0.04) Pesos- and single Pesos for the nine months ended
September 30, 1999 and 2000, respectively.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Transtel S.A.
---------------------------
(Registrant)
Date: January 16, 2001 By: /s/ Guillermo O. Lopez
-------------------------
Name: Guillermo O. Lopez
Title: President
28
