|
GLASSWORKS OF CHILE - 20-F - 20040701 - LIQUIDITY_CAPITAL
Liquidity and Capital Resources (2003 compared with 2002)
We generated a net cash flow from operations of Ch$35,435 million in
2003 and Ch$49,870 million in 2002. At December 31, 2003, we had working
capital of Ch$127,707 million, compared with working capital of Ch$139,338
million at December 31, 2002. We have historically financed our working
capital requirements with cash generated from operations. In the future, we
expect to continue to finance our working capital requirements from cash
generated by operations. Our management believes that our working capital is
sufficient for our present requirements. In the event that cash generated from
operations is at any time insufficient to finance our working capital
requirements, we would seek to finance such working capital needs through new
debt financing.
[4] Considering an exchange rate of 3.32 Argentine pesos per US dollar.
55
Current assets decreased by Ch$14,194 million, or 7.9% over the
previous year, primarily due to decreases in time deposits and marketable
securities of Ch$8,847 million and Ch$8,523 million, offset by an increase of
Ch$3,139 million in recoverable taxes. The decrease in marketable securities
is primarily due to the depreciation of the US Dollar to Chilean Peso exchange
rate from Ch$718.61 to Ch$593.80 per US Dollar.
Shareholders' consolidated equity was Ch$228,322 million as of
December 31, 2003 and Ch$233,643 million as of December 31, 2002. Our ratio of
total debt to equity was 0.92:1 on December 31, 2003 and 0.96:1 at December
31, 2002. In August 2002 Cristalerias effected a long-term bond placement for
4,100,000 Chilean Unidades de Fomento, or ChUF, (equivalent to US$90.1
million) in the local market. Of the total, ChUF 2,000,000 were placed with a
final maturity of 6 years at an annual interest rate of 5.3% and ChUF
2,100,000 were placed with a final maturity of 21 years at an annual interest
rate of 6.5%. During September 2002, part of the funds obtained from the bond
issuance were used to prepay half (US$50 million) of an existing syndicated
loan. The remaining balance of the syndicated loan (US$50 million) was
renegotiated during October 2002 with nine international financial
institutions, with a final maturity of 5 years, amortizations beginning 42
months from the closing date and at an annual interest rate of LIBOR plus
0.8%.
Total indebtedness owed to banks and financial institutions and to
the public in the form of bonds for our company, including accrued interest,
was Ch$128,813 million on December 31, 2003 and Ch$140,735 million at December
31, 2002. Short-term indebtedness with financial institutions and the public
was Ch$5,843 million at December 31, 2003, which represented the short-term
debt and current portion of long-term debt and Ch$6,383 million on December
31, 2002. At fiscal year end 2003, long-term indebtedness owed to banks and
financial institutions and to the public in the form of bonds (excluding the
short-term portion) totaled Ch$122,970 million of which Ch$ 33,294 million was
long-term obligations with banks and financial institutions and Ch$89,676
million in long-term obligations to the public represented by bonds. We
believe that the terms and conditions of our debt agreements are not out of
the ordinary and that we are in compliance in all material respects with such
terms and conditions. For further information with respect to the material
terms of our and our subsidiaries' indebtedness, see Notes 17 and 19, of the
consolidated financial statements.
During 2003, we incurred capital expenditures of Ch$25,644 million
at a consolidated level. The aforementioned figure included Ch$19,763 million
(US$33.3 million) related to the glass container business. The latter included
total reconstruction and capacity increase of one of our four glass melting
furnaces (furnace B) and the incorporation of a new production line (which now
total twelve). During 2003, Ch$ 4,830 million (US$8.1 million) were invested
to increase Vina Santa Rita's wine making capacity (through the acquisition of
technologically advanced equipment) to increase the capacity of fine wine
cellars, to increase the planted lands owned by our company, and to modernize
production processes. This was accomplished by installing new stainless steel
tanks and by acquiring high-tech equipment. In 2003, Red Televisiva Megavision
S.A. (CIECSA's main subsidiary), invested approximately Ch$ 1,051 million
(US$1.8 million), mainly in broadcasting equipment.
In 2002, we incurred capital expenditures of Ch$15,654 million at
consolidated level, which included Ch$10,403 million (US$17.5 million) related
to the glass container business. The latter included the partial refurbishing
of furnace A and its glass-forming machines. In 2002, Santa Rita invested Ch$
4,728 million (US$8.0 million) mainly in the agricultural and oenologic areas,
aimed at increasing and renovating the fine winemaking facilities and increase
fine wine storage capacity. In 2002, Red Televisiva Megavision S.A. invested
approximately Ch$ 521 million (US$0.9 million), mainly in broadcasting
equipment.
In 2001, we incurred capital expenditures of Ch$ 34,049 million
(US$57.3 million) at consolidated level. This figure included Ch$ 26,739
million (US$45.0 million) for the glass container business, which mainly
included reconstruction and capacity increase of Furnace C. In 2001 Santa Rita
invested Ch$ 7,900 million (US$13.3 million) in supplementing the vineyard's
planted land holdings by expanding winemaking capacity through the
installation of new stainless steel tanks and the acquisition of equipment; in
addition to a new wine cellar in Alto Jahuel. In 2001 Red Televisiva
Megavision S.A. invested Ch$303 million (US$ 0.5 million) mainly in
broadcasting equipment.
56
As of December 31, 2003, at a consolidated level we had Ch$67,394
million (US$113.5 million) in cash, time deposits and marketable securities, a
substantial portion of which is available to us for future investments. We
believe that cash flow from operations, cash balances, and available lines of
credit, will enable our company to meet working capital, capital expenditure
and debt service requirements for 2004. Moreover, an integral part of our
financial policy is to maintain adequate liquidity while maximizing
shareholder value through strategic investments and alliances.
As of December 31, 2003, there were no significant restrictions on
dividends or cash. Moreover, there are no significant commitments for the use
of funds in the future.
The following table presents schedules of contractual obligations
and commercial commitments as of December 31, 2003:
As of December 31, 2003
------------------------------------------------------------------
Less than 1 After 5
Contractual Obligations Total year 1-3 years 4-5 years years
--------- --------- --------- --------- ---------
(Ch$ millions)
Long-term Debt 150,545.4 7,731.1 65,157.7 11,686.3 65,970.3
Capital Lease Obligations -- -- -- -- --
Operating Leases -- -- -- -- --
Unconditional Purchase Obligations 6,059.2 6,059.2 -- -- --
Total Contractual Cash Obligations 156,604.6 13,790.3 65,157.7 11,686.3 65,970.3
|
Liquidity and Capital Resources (2002 compared with 2001)
We generated a net cash flow from operations of Ch$49,870 million in
2002 and Ch$40,873 million in 2001. At December 31, 2002, we had working
capital of Ch$139,338 million, compared with working capital of Ch$72,339
million at December 31, 2001. We have historically financed our working
capital requirements with cash generated from operations. In the future, we
expect to finance our working capital requirements from cash generated by
operations. Our management believes that our working capital is sufficient for
our present requirements. In the event that cash generated from operations is
at any time insufficient to finance our working capital requirements, we would
seek to finance such working capital needs through new debt financing.
Total individual assets for the glass container operations increased
by 15.0% from Ch$316,978 million in 2001 to Ch$364,371 million in 2002. This
increase in assets is primarily explained by an increase in current assets as
a consequence of short-term investments made with part of the funds obtained
from a UF 4,200,000 (US$97.9 million, historic) long-term bond issue effected
in the local market in August, 2002. Vina Santa Rita's total consolidated
assets increased by 3.4% from Ch$119,188 million on December 31, 2001, to
Ch$123,300 million on December 31, 2002, reflecting the purchase of winemaking
equipment, expansion of the wine storing capacity, planting of land owned by
the winery and modernization of productive processes. Comunicacion,
Informacion, Entretencion y Cultura S.A.'s total consolidated assets increased
to Ch$33,382 million on December 31, 2002 from Ch$28,408 million at December
31, 2001.
Shareholders' consolidated equity increased to Ch$233,643 million as
of December 31, 2002 from Ch$221,988 million as of December 31, 2001. Our
ratio of debt to equity increased from 0.84:1 on December 31, 2001 to 0.96:1
at December 31, 2002. The main reason behind this increase is a long-term bond
placement for 4,100,000 Chilean Unidades de Fomento, or ChUF, (equivalent to
US$90.1 million) effected by Cristalerias in August 2002, in the local market.
Of the total, ChUF 2,000,000 were
57
placed with a final maturity of 6 years at an annual interest rate of 5.3% and
ChUF 2,100,000 were placed with a final maturity of 21 years at an annual
interest rate of 6.5%. During September 2002, part of the funds obtained from
the bond issuance were used to prepay half (US$50 million) of an existing
syndicated loan. The remaining balance of the syndicated loan (US$50 million)
was renegotiated during October 2002 with nine international financial
institutions, with a final maturity of 5 years, amortizations beginning 42
months from the closing date and at an annual interest rate of LIBOR plus
0.8%.
Total indebtedness with financial institutions and the public for
our company, including accrued interest, was Ch$138,769 million on December
31, 2002 and Ch$105,775 million at December 31, 2001. Short-term indebtedness
with financial institutions and the public was Ch$6,383 million at December
31, 2002, which represented the short-term debt and current portion of
long-term debt owed to banks and financial institutions and to the public in
the form of bonds. At fiscal year end 2002, long-term indebtedness (excluding
the short-term portion) totaled Ch$44,721 million in long-term obligations to
banks and financial institutions and Ch$89,631 million in long-term
obligations to the public represented by bonds. We believe that the terms and
conditions of our debt agreements are not out of the ordinary and that we are
in compliance in all material respects with such terms and conditions. For
further information with respect to the material terms of our and our
subsidiaries' indebtedness, see Notes 14 and 15, of the consolidated financial
statements.
As of December 31, 2002, at consolidated level we had Ch$83,700
million (US$141.0 million) in cash, time deposits and marketable securities, a
substantial portion of which is available to us for future investments. An
integral part of our financial policy is to maintain adequate liquidity while
maximizing shareholder value through strategic investments and alliances.
As of December 31, 2002, there were no significant restrictions on
dividends or cash. Moreover, there are no significant commitments for the use
of funds in the future.
Impact of Governmental Policies
Our business is dependent upon the economic conditions prevailing in
our countries of operation. Various governmental economic, fiscal, monetary
and political policies, such as those related to inflation or foreign
exchange, may affect these economic conditions, and in turn may impact our
business. These government policies may also affect investments by our
shareholders. Please refer to "Item 3. Key Information--Risk Factors--Risks
Relating to Chile," for a discussion of governmental and political factors
that could materially affect investments by U.S. shareholders.
Trend Information
Our financial results will likely continue to be influenced by
factors such as changes in the level of consumer demand for glass containers
and wine, government policies regarding containers, wine and media and
communications industries, and the raw materials' costs associated to each
(please refer to Item 4 - Raw Materials). In addition, we expect our financial
results in 2004 to be influenced by:
o increased or decreased competition from glass containers substitutes
and direct competitors (Please refer to Item 4 - Competition);
o exchange rate fluctuations, particularly increases and decreases in
the value of the Chilean peso relative to the U.S. dollar and other
foreign currencies (Please refer to Item 11 - Exchange rate risks);
o increases or decreases in per capita consumption of the main sectors
that our company serves (such as wine, beer, and soft drinks), of
increased or decreased demand in Chile for glass containers, as well
as projected increases or decreases in Chilean wine consumption in the
Chilean and World markets, each of which could increase or decrease
sales.
Research and Development
We seek to provide our glass customers with innovative product
alternatives to meet their packaging needs. However, no single new product,
refinement, or group of new products and refinements, has been introduced
recently or is scheduled for introduction that would require significant or
material investment in research and development. We do not anticipate
significant investment in technological research and development in the near
future. Rather, we intend to continue market research and to purchase
established technologies in order to update and diversify our product line.
U.S. GAAP Reconciliation
The principal differences between Chilean GAAP and U.S. GAAP as they
relate to our company are the elimination of reappraisals of fixed assets, the
inclusion of overhead costs in inventories, the elimination of provisions for
future furnace repairs, the recording of a liability to reflect minimum
dividend payments required by law, the recording of deferred taxes, the
capitalization of mold equipment, differences in equity-method investments,
the accounting for derivatives and the differences in recognition criteria and
amortization policies for goodwill. For a more detailed explanation of these
differences between Chilean GAAP and U.S. GAAP, see Note 37 of the
consolidated financial statements. Pursuant to Chilean GAAP, our financial
statements recognize the effects of inflation in accordance with BT 64. As
permitted by Form 20-F, the effect of inflation accounting under BT 64 has not
been reversed in the reconciliation to U.S. GAAP.
Net income under U.S. GAAP for the years ended December 31, 2001,
2002 and 2003 was Ch$15,202 million, Ch$17,879 million and Ch$5,271 million
respectively. Net income under Chilean GAAP for the years ended December 31,
2001, 2002 and 2003 was Ch$18,487 million, Ch$17,837 million and Ch$6,427
million respectively. Net income under U.S. GAAP was 17.8% lower than under
Chilean GAAP in 2001 and 0.2% higher than under Chilean GAAP in 2002. Net
income under U.S. GAAP was 18.0% lower than under Chilean GAAP in 2003.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements.
58
ITEM 6: Directors, Senior Management and Employees
Directors and Officers of Registrant
Our company is managed by the board of directors, which, in
accordance with the company's by-laws, must consist of ten directors who are
elected at the general shareholders' meeting. The entire board of directors is
elected every three years. The board of directors may appoint replacements to
fill any vacancies that occur during periods between elections. Our company's
executive officers are appointed by the board of directors, and hold office at
the discretion of the board of directors. There are regularly scheduled
meetings of the board of directors once a month, and, occasionally,
extraordinary meetings are called when needed by the Chairman of the board of
directors.
The current board of directors was elected on April 15, 2003, for a
three-year tenure. Our company's directors and executive officers, as of
December 31, 2003, are as follows:
Current Position
Name Position Held Since
------------------------------------ -------------------------------------------- -----------------
Ricardo Claro Valdes(1) Chairman of the Board and Director 1975
Baltazar Sanchez Guzman(2) Vice Chairman of the Board and Director 1995
Joaquin Barros Fontaine Director 1990
Jaime Claro Valdes(1) Director 1988
Patricio Claro Grez Director 1997
Gustavo De La Cerda Acuna Director 2003
Cristian Eyzaguirre Johnston Director 2003
Juan Agustin Figueroa Yavar Director 1994
Patricio Garcia Dominguez Director 1975
Alfonso Swett Saavedra Director 1981
Cirilo Elton Gonzalez Chief Executive Officer 1990
Eduardo Acuna Donoso Technical Manager 1992
Benito Bustamante Castagnola Comptroller 1981
Eduardo Carvallo Infante Quality Control Manager 2003
Jose Miguel Del Solar Concha Human Resources Manager 2001
Juan Jose Edwards Guzman Commercial Manager 1995
Danilo Jordan Franulic Commercial Manager 1989
Daniel Navajas Urbina Operations Manager 1992
Rodrigo Palacios Fitz-Henry Chief Financial Officer 2001
-----------------
(1) Ricardo Claro Valdes and Jaime Claro Valdes are brothers. Please, see
"Item 7. Major Shareholders and Related Party Transactions--Control of
Registrant", for further illustration.
(2) Mr. Sanchez has been a director of our company since 1990.
|
Set forth below is a brief biographical description of the directors
and executive officers of our company:
Ricardo Claro Valdes. Mr. Claro is an attorney and has been a
Director and Chairman of the board of directors of our company since 1975. He
is a senior partner of Claro y Cia., a Santiago law firm and currently serves
as a director and Chairman of the board of directors of Elecmetal S.A. and
other companies within the Elecmetal Group, including Compania Sud Americana
de Vapores S.A., Vina Santa Rita, Red Televisiva Megavision
S.A., Metropolis-Intercom S.A., Ediciones
59
Financieras S.A. and Navarino S.A. He is also a director of Sudamericana
Agencias Aereas y Maritimas S.A., Vice-President of Fundacion Mar de Chile and
director of Fundacion Andes. From 1973 to 1975, Mr. Claro was Economic Advisor
to the Minister of Foreign Affairs serving as Ambassador-at-large.
Baltazar Sanchez Guzman. Mr. Sanchez holds a degree in business
administration and has been a Director of our company since 1990, and was
elected Vice Chairman of the board of directors in April of 1995. He is
Executive Vice President of Red Televisiva Megavision S.A., director of
Navarino S.A., Elecmetal S.A., Quemchi S.A., Compania Sud Americana de Vapores
S.A., Sudamericana Agencias Aereas y Maritimas S.A., Sociedad Anonima Vina
Santa Rita, Metropolis-Intercom S.A., Ediciones Financieras S.A., ME Global
Inc. (U.S.A)(all within the Elecmetal Group), and a member of the board of
directors of Inversiones Siemel S.A. and Siglo XXI. Mr. Sanchez was the
General Manager (Chief Executive Officer) of Vina Santa Rita
(from 1980 to 1983) and of Compania de Petroleos de Chile S.A. (COPEC) (from
1985 to 1990).
Joaquin Barros Fontaine. Mr. Barros has been a Director of our
company since 1990, and is a Director of Navarino S.A. and Envases CMF S.A,
Metropolis-Intercom S.A., Red Televisiva Megavision S.A. and Compania Sud
Americana de Vapores S.A. within the Elecmetal Group. He is also Executive
President of Quilicura S.A. and Compania de Inversiones La Central S.A. He is
Chairman of the board of directors of the Instituto Sanitas S.A., Sociedad
Anonima Jahuel Aguas Minerales y Balnearios and Productos Quimicos Tanax
S.A.C. e I. He is also a director of Vina Santa Emiliana.
Patricio Claro Grez. Mr. Claro is an industrial civil engineer and
has been a Director of our company since 1997. He is also a director of
Industrias Forestales S.A., Compania Chilena de Fosforos S.A., Bicecorp S.A.
and Banco Bice.
Jaime Claro Valdes. Mr. Claro is an industrial civil engineer and
has been a Director of our company since 1988. He is President of ME Global
Inc. (U.S.A) and of Quemchi S.A., Vice-President of Elecmetal S.A. and
Navarino S.A., Director of Vina Los Vascos S.A., Compania Sud Americana de
Vapores S.A., Sudamericana Agencias Aereas y Maritimas S.A., and Envases CMF
S.A. within the Elecmetal Group. He is also a director of Southern Peru Copper
Corporation (U.S.A).
Gustavo De La Cerda Acuna. Mr. De La Cerda has been a Director of
our company since 2003. He is a director of Elecmetal S.A., Quemchi S.A.,
Navarino S.A., Vina Santa Rita, within the Elecmetal Group.
He is also a member of the firm De La Cerda y Hatton S.A. and a director of
Banco Bice and Bicecorp S.A.
Cristian Eyzaguirre Johnston. Mr. Eyzaguirre is an economist and has
been a Director of our company since 2003. He is also a director of
Inversiones Cousino Macul S.A., Empresas Almacenes Paris S.A., Besalco S.A.,
Wenco S.A., Camara Chilena Norteamericana de Comercio A.G. and The Grange
School.
Juan Agustin Figueroa Yavar. Mr. Figueroa is an attorney and has
been a Director of our company since 1994. He is Chairman of the board of
directors of Maritima de Inversiones S.A. and a Director of Elecmetal S.A.,
Quemchi S.A., Navarino S.A. and Vina Santa Rita within the
Elecmetal Group. He is a senior partner of Figueroa y Coddou, a Santiago law
firm. He is also Chairman of the board of directors of Termas de Puyehue S.A.
and Full Professor of Procedural Law at the Universidad de Chile. He is also
President of the Fundacion Pablo Neruda and Chairman of the Board of Trustees
of the Universidad de Santiago. He is a member of the Constitutional Tribunal.
From 1990 to 1994, Mr. Figueroa was Minister of Agriculture of the Chilean
Government.
60
Patricio Garcia Dominguez. Mr. Garcia has been a Director of our
company since 1975. Mr. Garcia also serves as a director of Elecmetal S.A.,
Quemchi S.A., Navarino S.A., Compania Sud Americana de Vapores S.A. and
Sudamericana Agencias Aereas y Maritimas S.A. within the Elecmetal Group, as
well as Industrias Alimenticias Carozzi S.A., Empresas Cabo de Hornos S.A.,
Inversiones Union Espanola S.A., Inversiones Unespa S.A., Inversiones
Covadonga S.A., Cia. de Inversiones La Espanola S.A. and Inversiones Hispania
S.A.
Alfonso Swett Saavedra. Mr. Swett has been a Director of our company
since 1981. He serves as a Director of Elecmetal S.A., Quemchi S.A., Navarino
S.A., Red Televisiva Megavision S.A. and Vina Santa Rita
within the Elecmetal Group. Mr. Swett is Chairman of the board of directors of
Forus S.A. and Costanera S.A.C.I. and is Adviser to Sociedad de Fomento Fabril
(SOFOFA) and Generacion Empresarial.
Cirilo Elton Gonzalez. Mr. Elton holds a degree in business
administration and has been our company's General Manager (Chief Executive
Officer) since 1990. He serves as Vice-President of Rayen Cura S.A.I.C., and
as director of Maritima de Inversiones S.A. within the Elecmetal Group. Prior
to joining our company, he was Chief Executive Officer of Elecmetal S.A.,
starting in 1982.
Eduardo Acuna Donoso. Mr. Acuna is a chemist from the Pontificia
Universidad Catolica de Chile. He joined our company in 1963 and has served as
our company's Technical Manager since 1992.
Benito Bustamante Castagnola. Mr. Bustamante is a certified public
accountant from the Universidad de Chile. He has served as our company's
Comptroller since 1981.
Eduardo Carvalllo Infante. Mr. Carvallo is an industrial civil
engineer from the Pontificia Universidad Catolica de Chile and has served as
our company's Quality Control Manager since 2003.
Jose Miguel Del Solar Concha. Mr. Del Solar holds a degree in
business administration from the Universidad de Chile and has served as our
company's Human Resources Manager since 2001.
Juan Jose Edwards Guzman. Mr. Edwards holds a degree in business
administration from the Universidad de Chile. He has served as our company's
Sales Manager since 1995, and has been employed by the company since 1988.
Danilo Jordan Franulic. Mr. Jordan holds a degree in business
administration from the Universidad de Chile. He has served as our company's
Sales Manager since 1989 and has been employed by the company since 1974.
Daniel Navajas Urbina. Mr. Navajas is an industrial civil engineer
from the Pontificia Universidad Catolica de Chile. He has served as our
company's Operations Manager since 1992 and has been in the company since
1969.
Rodrigo Palacios Fitz-Henry. Mr. Palacios holds a degree in business
administration from the Pontificia Universidad Catolica de Chile. He has
served as our company's Chief Financial Officer since 2001.
Compensation of Directors and Officers
61
For the year ending December 31, 2003, the aggregate amount of gross
compensation paid by our company to all executive officers was Ch$933 million.
Members of the board of directors receive per diem fees and participate in our
company's net profits. As a group, directors received aggregate payments of
Ch$701 million corresponding to participation in fiscal year 2002 net income.
The Chairman of the board of directors receives twice the amount received by
any other director. Our company does not maintain any pension or retirement
programs for our directors or executive officers. We do not otherwise disclose
to our shareholders or make available to the public, information concerning
compensation of individual executive officers.
Board of Directors Practices
We maintain an Audit Committee composed of three members who are
also members of the board of directors, and the board of directors appoints
them. Members serve for the same amount of time as they serve as directors of
Cristalerias de Chile and can be re-elected. According to Article 50 BIS of
the Chilean Companies Act, the majority of the members of the Audit Committee
must be independent of the controlling shareholder, if possible. The Audit
Committee may appoint independent personnel to carry out certain functions.
The board of directors, at a meeting held on April 15, 2003, appointed the
members of the Audit Committee as follows:
o Mr. Juan Agustin Figueroa Yavar; President;
o Mr. Joaquin Barros Fontaine; and
o Mr. Patricio Claro Grez.
The main duties of the Audit Committee conducts monthly meetings and
its main duties are, among others:
o Supervising and controlling the proper functioning of our operations;
o Examining transactions with directors or related companies pursuant to the
terms of Article 44 and Article 89 of the Chilean Companies Act;
o Reviewing the audit reports prepared by the internal controller and
supervising the appropriateness of the Controlling Division's attributions;
and
o Interacting with, and approving the appointment of, the independent
auditors and rating agencies.
Compliance with NYSE Listing Standards on Corporate Governance
On November 4, 2003, the Securities and Exchange Commission approved
new rules proposed by the New York Stock Exchange (the "NYSE") intended to
strengthen corporate governance standards for listed companies. These new
corporate governance listing standards supplement the corporate governance
reforms already adopted by the Securities and Exchange Commission pursuant to
the Sarbanes-Oxley Act of 2002.
Pursuant to NYSE Rule 30A(11), the significant ways in which our
corporate governance practices differ from those followed by US companies under
NYSE listing standards are publicly available on our Web site,
www.cristalchile.com. We will also provide a printed copy of our Corporate
Governance Guidelines to our shareholders upon request.
The new NYSE rules do not change the NYSE traditional approach
permitting listed companies that are foreign private issuers to follow their
home jurisdiction governance practice where it
62
differs from the NYSE requirements. However, pursuant to NYSE Rule 303A(11),
listed companies that are foreign private issuers must disclose any
significant ways in which their corporate governance practices differ from
those followed by US companies under NYSE listing standards. Differences in
our corporate governance practices and the NYSE rules are identified in the
table below.
ITEM NYSE Rules Applicable to U.S. Listed Our Company's Practice
Companies
---------------------------------------- -------------------------------------- ----------------------------------
Directors Majority of Board must be There is no legal requirement as to
independent (NYSE 303A(1) and (2). the independence of the members of
the Board.
Corporate Governance Company must adopt corporate There is no legal obligation to
governance guidelines and post them adopt or publish principles of
on its website. The company's corporate governance. Chilean law
annual report must state that this establishes the composition,
information is available on its duration, and responsibilities of
website, and that the information is the Board and its members, as well
available in print to any as the obligation of the general
shareholder who requests it. (NYSE shareholder meeting (junta de
303A(9)). accionistas) to set the members'
remuneration annually, if the
by-laws establish that their duties
are to be compensated.
Company must disclose whether it has There is no legal obligation to
adopted a code of ethics for senior adopt a code of ethics. Chilean law
executive officers and senior establishes the obligation of the
financial officers, and must make entire company to comply with
the code publicly available either internal regulations (reglamento
in its 20-F filing, or on its interno) that govern the company and
website (together with a note in the its relations with personnel. Among
annual report disclosing that this other things, these regulations
information is posted on the website contain standards related to ethics
and listing the website address), or and loyalty. Notwithstanding,
with instructions in its 20-F filing companies may create internal codes
on how to obtain a copy without of ethics, but these may not be in
charge. Company must also disclose conflict with the internal
changes to, or waivers from, its regulations.
code of ethics. If the company has
not adopted a code of ethics, it
must explain why it has not done
so. (Sarbanes 406).
Internal Audit Function Company must maintain an internal There is no similar legal
audit function to provide management obligation, but companies do have an
and the audit committee with ongoing audit department, in parallel with
assessments of the company's risk the function of outside auditors
management processes and system of required by Chilean law.
internal control. A company may
choose to outsource this function to
a third party service provider other
than its independent auditor. (NYSE
303A(7)(d)).
63
|
Meetings of Non-management Directors Non-management Directors must meet There is no similar legal obligation.
regularly without management (NYSE However, according to Chilean law, a
303A(3)). a Director of a listed corporation (sociedad
anonima abierta) may not also be a manager.
Likewise, the title of manager is not compatible
with auditor, accountant, or president of that
same corporation. The Directors always meet in
legally constituted sessions to resolve matters
within their competency.
Nominating and Corporate Governance Company must have a fully There is no similar legal obligation. The
Committee independent nominating/corporate Board is responsible for determing the
governance committee and administration of the company. This power
compensation committee (NYSE may be delegated to the Board itself, or to the
303A(4), 303A(5), 303A(6), management in whole or in part, or to members of
303A(7)(c)). the Board, or, for specific purposes, to other
persons, such as the accountant or lawyers of the
corporation. Additionally, the Directors of listed
corporations must examine the remuneration systems
(sistemas de remuneraciones) and compensation plans
(planes de compensacion) for management and
principal executives of the corporation.
Audit Committee Company must establish an audit There is no similar legal obligation. However,
committee composed of at least three according to S.A. law 18.046, listed corporations
independent Directors (Sarbanes 301, with a net worth of more than UF 1.5 million must
NYSE 303A(6) and 303A(7)(a)); such have a committee of Directors (comite de
committee shall have control over directores), formed by three members, the majority
the auditors and auditing process of which shall be independent from the controlling
(Sarbanes 301, NYSE entity (controlador), unoless the number of
303A(7)(c)(iii)). Each member of independent directors is not enough to achieve such
the audit committee must be majority. the members of the committee are
financially literate (NYSE remunerated as set at the general shareholder
303A(7)(A)), and at least one member meeting. The committee fulfills the following
must be considered a "financial functions: (1) examines reports prepared by
expert," based on their (1) accounts inspectors and outside
understanding of GAAP and financial auditors, balance sheets, and other
64
|
statements; (2) experience in financial statements, and opine on them;
preparing and auditing financial (2) proposes to the Board, the outside auditors
statements of generally comparable and risk ratings agencies; (3) examines related
issuers, and applying such parties and those in which the directors may have
principles to accounting for an interest and reports on these to the Board;
estimates, accruals, and reserves; (4) examines remuneration systems and
(3) experience with internal compensation plans for managers and
accounting controls; and (4) main executives; and (5) other
understanding of audit committee matters required by the corporate
functions. (Sarbanes 407). If the by-laws, the general shareholder
committee does not have a "financial meeting, or the Board.
expert," it must explain why it does
not have one. (Sarbanes 407).
CEO Certification CEO must certify compliance with There is no similar legal
NYSE governance standards annually obligation. However, Chilean law requires
(NYSE 303A(12)(a)). This the Board to submit, on a yearly basis,
certification is in addition to the the annual report, balance sheet and
one required by Sarbanes 302. cash flow statement (memoria,
balance y estado de resultados)
to the regular shareholders
meeting for its approval.
Furthermore, listed corporations
must regularly and permanently
disclose any other relevant
information, by means of publications
and advisories established by law or
the authority.
Notification of Non-compliance by the CEO must promptly notify the NYSE, There is no similar legal
CEO to the NYSE in writing, of any material obligation. Please refer to the
non-compliance with the NYSE above comment.
corporate governance standards (NYSE
303A(12)(b)).
Material Differences in Corporate Foreign private issuers must provide There is no similar legal obligation.
Governance Standards a brief, general summary disclosing
any material differences between
their corporate governance practices
and applicable NYSE corporate
governance listing standards (NYSE
303A(11)).
|
Employees
As of December 31, 2003, our glass container husiness has on average
715 permanent employees, approximately 73.6% of whom were represented by two
different labor unions in collective bargaining negotiations with
65
our company. As of December 31, 2003, the average tenure of our full time
employees was approximately 14.1 years. We consider our relations with our
employees to be good.
Chilean law protects the right of our workers to bargain
collectively and to strike if agreements on labor contracts are not negotiated
and reached on a timely basis. We meet periodically with each of the two
unions to negotiate the renewal of the current collective bargaining
agreements covering our company's employees.
Good relationships with workers are reflected through the signing of
a 4-year collective bargaining agreement with workers' union, "Sindicato de
Trabajadores Nro 2" during 2002 and a 6-year collective bargaining agreement
with workers' union, "Sindicato de Trabajadores Nro 1" in 2001.
We do not maintain any pension or retirement programs for our
employees. However, the Company has recorded a liability for long term service
indemnities in accordance with the collective bargaining agreements entered in
to with its employees. This liability is shown at its current value, based on
the amount that would be owed if the employees terminated their employment. In
general, each employee is entitled to receive one month's salary for every
year of service with the Company if dismissed without legal cause. Workers in
Chile are subject to a national pension law that establishes a system of
independent pension plans, which are administered by the pension funds
administrators (Administradoras de Fondos de Pensiones). Our company has no
liability for the performance of the pension plans, or for any pension
payments to be made to the employees. However, we are responsible for
declaring (withholding) and paying, on a monthly basis, the social security
contributions corresponding to, and forming part of, the pension plan of each
employee administered by the relevant pension fund administrator.
ITEM 7: Major Shareholders and Related Party Transactions
Control of Registrant
Since July 6, 1995, we have had a total of 64,000,000 outstanding
shares of common stock, which represents our total registered capital stock.
The following table sets forth certain information regarding the
ownership of common stock, as of December 31, 2003, with respect to each
shareholder (with all directors and executive officers of our company as a
group) known to own more than 5% of the outstanding shares of common stock:
December 31, 2003
----------------------------------
# Of Shares Owned % Ownership
----------------- ---------------
Compania Electro Metalurgica S.A. 21,780,001 34.03
Bayona S.A. 5,912,540 9.24
Servicios y Consultorias Hendaya S.A. 5,679,359 8.87
Cia. De Inversiones La Central S.A. 4,418,933 6.90
AFP Provida S.A. Fondo de Pensiones 4,141,525 6.47
The Bank of New York (1) 3,663,966 5.72
AFP Habitat S.A. Fondo de Pensiones 3,441,977 5.38
-----------------
(1) As depositary for the ADRs
|
The Elecmetal Group, which includes Elecmetal, Bayona S.A. and
Servicios y Consultorias Hendaya S.A., was, as of December 31, 2003, the
beneficial owner of approximately 52.14% of the outstanding shares of common
stock of our company, and thereby has voting control of our company.
66
Compania Electro Metalurgica S.A. is a publicly-held Chilean
corporation engaged in steel foundry works and is also involved in a wide
range of business activities in Chile through its subsidiaries and affiliates,
which together comprise the Elecmetal Group, including: (i) glass and plastic
container manufacturing operations (through ownership of a controlling
interest in our company); (ii) media and communications (through our 99.9%
ownership of Red Televisiva Megavision S.A. and its 50% interest in Cordillera
Comunicaciones Ltda.) and (iii) wine production operations (through our 54.1%
ownership of Vina Santa Rita). On December 31, 2003, Mr. Ricardo Claro Valdes,
the Chairman of the board of directors and a Director of our company,
controlled, directly and indirectly, approximately 46.58% of the voting stock
of Compania Electro Metalurgica S.A.
The Elecmetal Group owns a majority of our outstanding shares of our
common stock. Consequently, the Elecmetal Group has the power to elect a
majority of our directors and to determine the outcome of substantially all
matters to be decided by vote of the shareholders. Disposal by the Elecmetal
Group of a significant portion of its shares of common stock could affect the
trading price of the common stock on the Santiago Stock Exchange, and
consequently, of our ADSs on the New York Stock Exchange, and control of the
company. Compania Electro Metalurgica S.A. and its subsidiaries and affiliates
are free to dispose of their shares of common stock at will.
Interest of Management in Certain Transactions
In the ordinary course of our business, we engage in a variety of
transactions with affiliates of our company and the Elecmetal Group. For a
detailed description of our company's related party transactions, see Note 6
of the consolidated financial statements. The principal transactions with such
related parties during the last three fiscal years are as follows:
Sales to Affiliates
Our company, including Vina Santa Rita, Comunicacion, Informacion,
Entretencion y Cultura S.A., Cristalchile Comunicaciones, Cristalchile
Inversiones S.A. and Constructora Apoger S.A., sells goods and services to
certain other companies within the Elecmetal Group and other related parties.
Net sales to related parties were Ch$313 million in 2003 and Ch$386 million in
2002.
Purchases from Affiliates
Our company, including Vina Santa Rita, CIESCA, Cristalchile
Comunicaciones S.A., Cristalchile Inversiones S.A. and Constructora Apoger
S.A., purchases goods and services from other companies in the Elecmetal Group
and other related parties. The effect on results of purchases from related
parties was a Ch$24 million charge in 2003 and a Ch$34 million credit in 2002.
Related Company Loans or Transactions
As of December 31, 2003, there is a balance of short term
receivables of Ch$ 1,167 million (Ch$403 million in 2002), that corresponds
mainly to a loan granted by CIECSA to Editorial Zig Zag of Ch$ 134 million
(Ch$ 237 million in 2002) including interests, with maturity on June 30, 2004,
at an annual interest rate of 1%; and to publicity sold by Red Televisiva
Megavision S.A. to Metropolis Intercom S.A. of Ch$63 million (Ch$54 million in
2002). The remainder corresponds to invoices receivable of Ch$319 million
(Ch$113 million in 2002) and Ch$650 million to dividends receivable from
Envases CMF.
67
Short term payable balances as of December 31, 2003 amount Ch$723
million (Ch$890 million in 2002) and correspond mainly to commercial
transactions under 90 days of Ch$222 million (Ch$385 million in 2002) and
dividends payable to majority shareholders of Ch$501 million (Ch$506 million
in 2002).
In 2003 there was a long term receivables balance of Ch$3 million
(Ch$1 million in 2002).
Article 89 of the Chilean Companies Act requires that our company's
transactions with related parties be on a fair basis, on similar terms to
those customarily prevailing in the market. We are required under Article 89
to compare the terms of any such transaction to those prevailing in the market
at the date the transaction is to commence. Directors (managers) of companies
that violate Article 89 are liable for losses resulting from such violation.
In addition, Article 44 of the Chilean Companies Act provides that any
transaction in which a director has a personal interest or is acting on behalf
of a third party may be performed only when the board of directors has
previously approved it knowing of such director's interest, and such
transaction is subject to fairness conditions similar to those prevailing in
the market. According to an amendment introduced to the Chilean Companies Act
in December 2000, if the proposed transaction involves amounts considered
material, the board of directors must previously declare that such transaction
is consistent with fairness conditions similar to those prevailing in the
market.
If it is not possible to reach such a judgment, the board of
directors may approve or reject the transaction or appoint two independent
appraisers. The appraisers' final conclusion must be presented to the
Shareholders and Directors for a period of 20 business days. In this case, the
board of directors may only approve or reject the transaction, with the
abstention of the interested director, once such period has elapsed.
Shareholders representing 5% or more of the issued voting shares may request
the board of directors to call for a shareholders' meeting to resolve the
matter, with the agreement of two thirds of the issued voting shares. For
purposes of this regulation, the law considers that the amount of a proposed
transaction must be considered "material" when it exceeds 1% of our company's
paid-in capital and reserves, provided that it also exceeds 2,000 UF, and in
any event, when it exceeds UF 20,000. All resolutions of the board of
directors approving such transactions must be reported to our shareholders at
the next annual shareholders' meeting. Violation of Article 44 does not affect
the validity of the transaction, but may result in administrative or criminal
sanctions and civil liabilities entitling our company, the shareholders or
third parties who suffer losses as a result of such violation, to demand
damages and reimbursement to our company by the interested director of a sum
equal to the benefits received by him, his principal or relatives. We believe
that, to the best of our knowledge, we have complied with the requirements of
Article 89 and Article 44 in all transactions with related parties.
ITEM 8: Financial Information
Consolidated Statements and Other Financial Information
See Item 17 and 18 for the consolidated financial statements
included within this document.
Dividend Policy and Dividends
Dividend Policy
Our company's dividend policy is decided upon, from time to time, by
the board of directors and is announced at the regular annual shareholders'
meeting, which is generally held in April of
68
each year. However, each year, the board of directors must submit to the
regular annual shareholders' meeting for shareholder approval a proposal for
the declaration of the final dividend or dividends in respect of the preceding
year, consistent with the then-established dividend policy. As required by the
Chilean Companies Act, unless otherwise decided by unanimous vote of the
issued and subscribed shares, we must distribute a cash dividend in an amount
equal to at least 30% of our net income for a given year, except to the extent
we have a deficit in retained earnings. Actual dividends paid have averaged
42.0% of our net income for the past five years.
Dividend payments were approved at the annual ordinary shareholders'
meetings, held on April 13, 1999, April 14, 2000, April 10, 2001, April 16,
2002 and April 15, 2003, amounting 40%, 40%, 50%, 40% and 40% with respect to
our net income for each year, respectively. There can be no assurance that
future dividends will be paid in an amount exceeding the 30% level required by
law. There can also be no assurances that the Chilean Companies' Act or
corporate law will remain in effect unaltered going forward. The board of
directors has the authority to decide whether such dividend will be paid in
the form of interim dividends or a single annual payment.
In 2003, the shareholders approved at the general shareholders'
meeting the payment of the proposed dividend of 40% of the net income for 2003
with the remainder to be deposited into Reserve Funds. The board of directors
was authorized to issue provisional dividends against the profits of 2003 and
to distribute interim dividends against the Future Dividends Fund without the
need to call a new meeting of shareholders for that purpose.
In 2004, the shareholders approved, at the general shareholders'
meeting, 40% of the net income for 2004 as a dividend payment, with the
remainder to be deposited into Reserve Funds to continue our growth. The board
of directors was authorized to issue provisional dividends against the profit
of 2004 and to distribute interim dividends against the Future Dividends Fund
without the need to call a new meeting of shareholders for that purpose.
It has been our general practice to pay two to four dividends during
each fiscal year. Under this arrangement, one or more interim dividends are
paid during the fiscal year, and a final dividend is declared at the annual
shareholders' meeting. The final dividend is in an amount that, together with
the interim dividends previously paid, is at least sufficient to satisfy the
statutory requirement that at least 30% of net income for the year be paid out
in dividends. Such final dividend is paid on a date fixed by the board of
directors, generally in the month of April.
The amount and timing for payment of dividends is subject to
revision from time to time, depending upon, among other factors, our
then-current level of sales, costs, cash flow, and capital requirements, as
well as market conditions. Any change in dividend policy would ordinarily be
effective for dividends declared in the year following adoption of the change,
and a notice of any such change of policy must be filed with Chilean
regulatory authorities and would be publicly available information. Notice of
such a change of policy would not, however, be sent to each shareholder or ADR
holder. Accordingly, there can be no assurance as to the amount or timing of
declaration or payment of dividends in the future.
Dividends are paid to shareholders of record on the fifth business
day preceding the date set for payment of the dividend. The holders of ADRs on
the applicable record dates for the ADSs will be entitled to all dividends
paid after their acquisition of the ADRs.
69
Dividends
The following table sets forth the dividends per share paid in terms
of that year's net income for each of the years indicated. The table includes
interim dividends and final dividends for the years indicated. The final
dividend is declared and paid after the annual ordinary shareholders' meeting
is held during March or April of the subsequent year. Information in U.S.
dollars is also presented on the aggregate dividends per ADS (each ADS
representing three shares of our common stock).
The following information comprises actual historical amounts not
restated in constant pesos:
Per Share (1) Per ADR (1) (2)
---------------------- ------------------
Year ending December 31, Ch$ (3) US$ (4) US$ (4)
-------------------------- --------- -------- --------
1999 123.10 0.232 0.697
2000 132.57 0.228 0.685
2001 138.10 0.210 0.630
2002 137.35 0.192 0.577
2003 70.20 0.114 0.342
-----------------
|
(1) The dividend is proposed by the board of directors and voted on and
declared by the shareholders at each annual shareholders meeting. Payment
is made to all holders of record on a subsequent date.
(2) Amounts shown do not reflect reductions for any applicable Chilean
Withholding Taxes.
(3) Represents dividends paid with respect to each year's net income in
historical Chilean pesos.
(4) Translated into U.S. dollars at the historical Observed Exchange Rates
on the respective dates of payment of dividends.
As a general requirement, shareholders who are not residents of
Chile must register as a foreign investor under one of the foreign investment
regimes contemplated by Chilean law to receive dividends, sales proceeds or
other distributions with respect to their shares remitted outside of Chile
through the Formal Exchange Market. Under the ADR facility, the depositary, on
behalf of ADR holders, will be granted access to the Formal Exchange Market to
convert cash dividend distributions from pesos to dollars and to pay such
dollars to ADR holders outside of Chile. Please, see "Item 10. Additional
Information--Exchange Controls and Other Limitations Affecting Stockholders",
for further illustration. Dividend distributions received in respect of shares
of our common stock by holders, including holders of ADRs, who are not Chilean
residents, are subject to Chilean withholding tax. Please see "Item 10.
Additional Information--Taxation", for further illustration.
Legal Proceedings
We are a party to certain legal proceedings arising in the ordinary
course of business. Other than as described in this annual report, we are not
aware of any litigation or arbitration proceedings which we believe will have
a material adverse effect on our company.
ITEM 9: The Offer and Listing
Nature of Trading Market
Our company's shares of common stock are listed on the Santiago
Stock Exchange and the Electronic Stock Exchange of Chile of Chile. Since
January 24, 1994, our company's ADSs, each one representing three shares of
common stock, have been listed on the New York Stock Exchange trading under
the symbol "CGW." The ADSs have been issued by The Bank of New York in its
role as the depositary. In 2003, the Chilean stock market accounted for
approximately 50.4% of the trading volume of the common stock, while 49.6% of
the trading took place on the New York Stock Exchange.
70
The table below shows the high and low closing prices of the common
stock in Chilean pesos, and the common stock trading volume on the Santiago
Stock Exchange for the periods indicated. It also shows high and low trading
prices expressed in historical Ch$:
Ch $ Per Share(1)
Share -----------------------------
Volume High Low
------------ ------------- -------------
1999 2,969,005 2,780 1,995
2000 5,103,766 3,820 2,580
2001 4,500,611 4,700 3,300
2002
1st quarter 747,220 4,550 4,100
2nd quarter 1,045,483 4,200 3,800
3rd quarter 2,570,569 3,936 3,499
4th quarter 1,014,451 4,450 3,600
2003
1st quarter 514,640 4,650 4,450
2nd quarter 668,760 6,600 4,580
3rd quarter 825,430 7,305 5,850
4th quarter 616,345 6,860 5,400
December 2003 103,934 5,900 5,400
January 2004 207,544 5,594 5,350
February 2004 720,969 5,500 5,100
March 2004 470,887 5,701 5,450
April 2004 997,705 5,500 5,250
May 2004 781,351 5,100 4,400
-----------------
|
(1) Chilean pesos per share of common stock reflect nominal price on trading
date. Source: Santiago Stock Exchange.
The table below shows the high and low closing prices of the common
stock in Chilean pesos, and the trading volume on the Electronic Stock
Exchange of Chile for the periods indicated. It also shows high and low
trading prices expressed in historical Ch$:
Ch$ Per Share(1)
Share -----------------------------
Volume High Low
------------ ------------- -------------
1999 691,236 2,665 2,010
2000 1,175,055 3,700 2,750
2001 2,549,007 4,680 3,370
2002
1st quarter 312,687 4,530.00 4,083.89
2nd quarter 417,780 4,159.76 3,767.88
3rd quarter 75,493 3,900.00 3,499.90
4th quarter 183,170 4,300.00 3,650.00
2003
1st quarter 46,033 4,654.00 4,530.00
2nd quarter 375,553 6,766.50 5,000.00
3rd quarter 181,009 7,300.00 6,042.30
4th quarter 15,627 6,810.00 6,532.30
December 2003 - - -
January 2004 122,102 5,550.00 5,300.00
February 2004 10,572 5,500.00 5,450.00
March 2004 92,757 5,700.00 5,551.00
April 2004 29,152 5,500.00 5,300.00
May 2004 276,567 4,675.76 4,400.00
|
71
(1) Chilean pesos per share of common stock reflect nominal price on trading
date. Source: Electronic Stock Exchange of Chile of Chile.
Chilean securities markets are substantially smaller, less liquid,
and more volatile than the main securities markets in the United States. The
Santiago Stock Exchange had a market capitalization of approximately Ch$51.3
trillion (US$86.3 billion), as of December 31, 2003, and an average monthly
trading volume of Ch$375 billion (US$632 million) during 2003.
Trading activity on the Santiago Stock Exchange is on the average
substantially less than it is on the principal national securities exchanges
in the United States. For the year ending December 31, 2002, only
approximately 10% of the securities listed on the Santiago Stock Exchange
traded on an average of 90% or more of the trading days. We estimate that for
the year ending December 31, 2002, our shares were traded on the Santiago
Stock Exchange an average of approximately 64.7% of such trading days. The
concentrated holding of our company's common stock, as well as the market's
limited liquidity, may impair the ability of a holder of American Depositary
Receipts, or ADRs, evidencing ADSs, to sell the underlying common stock in the
Chilean stock market, in the amount, and at the price and time as such holder
wishes, which could significantly increase the volatility of the ADSs' price.
Prior to the Combined Offering at the New York Stock Exchange and at the
Santiago Stock Exchange, there had not been a public market in the United
States for ADSs or common stock.
The table below shows the high and low closing prices for the ADSs
on the New York Stock Exchange and the trading volume of the ADSs on the New
York Stock Exchange for the periods indicated:
$ Per ADS(1)
ADS Trading ------------------------------
Volume High Low
-------------- ------------ -----------
1999 8,640,300 16.50 12.44
2000 4,134,800 22.25 14.50
2001 2,527,400 20.75 15.10
2002
1st quarter 295,700 20.05 18.70
2nd quarter 351,100 19.09 16.35
3rd quarter 657,500 16.35 15.13
4th quarter 255,500 18.65 14.85
2003
1st quarter 449,389 19.26 18.10
2nd quarter 37,394 28.00 19.15
3rd quarter 341,986 30.66 25.25
4th quarter 236,789 31.65 26.61
December 2003 129,000 30.00 26.61
January 2004 360,900 29.90 27.00
February 2004 21,900 28.49 26.20
March 2004 72,100 29.00 26.65
April 2004 32,800 26.67 24.00
May 2004 97,500 24.25 20.85
-----------------
|
(1) Trading began on January 24, 1994.
It is not practical for us to determine the proportion of ADSs
beneficially owned by U.S. residents.
The Santiago Stock Exchange was established in 1893, and it is a
private company whose equity consists of 48 shares held by 46 shareholders.
The Santiago Stock Exchange comprised 261
72
companies with listed shares as of December 31, 2003. The Santiago Stock
Exchange is Chile's principal exchange, and it accounted for approximately
76.4% of the equity trading volume in Chile during 2003. Approximately 22.8%,
of equity trading is conducted on the Electronic Stock Exchange of Chile, an
electronic trading market, which was created by banks and non-member brokerage
houses, and 0.8% on the Valparaiso Stock Exchange. Equities, closed-end funds,
fixed-income securities, short-term and money market securities, gold,
options, futures, and U.S. dollars are traded on the Santiago Stock Exchange.
There are two stock price indices for the Santiago Stock Exchange: the Indice
General de Precios de Acciones, or General Stock Price Index or IGPA, and the
Indice de Precios Selectivo de Acciones, or Selective Stock Price Index or
IPSA. The IGPA is calculated using the prices of 165 issues and is divided
into five main sectors: banks and finance, farming and forestry products,
mining, industrials, and miscellaneous. The IPSA is a major company index,
currently including the Santiago Stock Exchange's 40 most active stocks. Our
company's stock is included in the IGPA, but not in the IPSA.
In 1991, the Santiago Stock Exchange initiated a futures market with
two instruments: U.S. dollar futures and IPSA futures. Securities on the
Santiago Stock Exchange are traded primarily through an auction system with
live bidding, a firm offers system, an electronic trading system or through
the daily auction. Trading hours on the Santiago Stock Exchange are from 9:30
a.m. to 4:30 p.m. The Electronic Exchange operates continuously, from 9:00
a.m. to 6:00 p.m. every business day.
The table below summarizes recent value and performance indicators
for the Santiago Stock Exchange:
Market Trading
Capitalization (1) Volume (2) Daily
(US$ billion) (US$ million) IPSA Index (3)
-------------------- ------------------ ---------------
As of:
December 31, 1991 28.2 1,908.7 266.18
December 31, 1992 29.7 2,061.9 322.61
December 31, 1993 44.8 2,625.8 544.34
December 31, 1994 67.9 5,645.6 773.56
December 31, 1995 73.1 11,176.1 782.83
December 31, 1996 65.8 8,470.2 690.49
December 31, 1997 69.5 6,869.2 779.57
December 31, 1998 52.0 4,417.3 603.14
December 31, 1999 68.2 6,601.0 862.78
December 31, 2000 60.4 5,878.0 831.43
December 31, 2001 55.9 26,787.0 907.09
December 31, 2002 47.7 3,408.0 1,000.00
December 31, 2003 86.3 7,583.0 1,480.80
-----------------
|
(1) U.S. dollar equivalents for the year-end stock market capitalization and
trading volume figures are translated at the Observed Exchange Rate for
the last day of such period.
(2) Reflects annual trading volume of stock for 1991 to 2003.
(3) Index base=100 on December 31, 1990.
Source: Santiago Stock Exchange.
ITEM 10: Additional Information
Foreign Exchange Controls
Pursuant to the provisions of Chapter II of the new Compendium of
Foreign Exchange Regulations of the Central Bank of Chile, or the New
Compendium, that became effective on April 19,
73
2001, the foreign investments and remittances effected under the same are not
subject to currency exchange controls in Chile, except that such operations
must (i) be effected exclusively through the Formal Exchange Market and (ii)
be reported to the Central Bank in the fashion established for said purpose.
On January 23, 2002, the Central Bank agreed that, effective March 1, 2002,
amendments would be introduced to the New Compendium, which generally
simplified foreign exchange operations.
In the case of our company, however, the ADR facility was subject to
further regulations as governed by the former Compendium of Foreign Exchange
Regulations in effect prior to April 19, 2001; in fact, the ADR system was the
subject of an agreement, known as the Chapter XXVI agreement, between Citibank
N.A. (replaced by The Bank of New York in October 2000) in its role as
depositary for the common stock represented by the ADSs, our company and the
Central Bank of Chile, effected on January 25, 1994, pursuant to Article 47 of
the Ley Organica Constitucional regulating the Central Bank of Chile, in
connection with Chapter XXVI, Title I of the Compendium of Foreign Exchange
Regulations, or Chapter XXVI, in force through April 18, 2001, with regard to
the issue of ADSs through a Chilean company; the Chapter XXVI agreement seeks
to grant the depositary and ADR holders access to the Formal Exchange Market
in Chile.
At present, in accordance with the New Compendium, operations such
as the influx (into Chile) of foreign currency from abroad for the purpose of
investing in stock, and the payment of the dividends, interest and other
distributions that are not subject to agreements under the Chapter XXVI, are
solely required to comply with the aforementioned prerequisites of the New
Compendium Chapter II.
In spite of the fact that on April 19, 2001, the Central Bank
eliminated Chapter XXVI from the New Compendium, all contracts executed under
the provisions of Chapter XXVI remain in full force and effect and continue to
be governed by the provisions, and continue to be subject to the restrictions,
set forth in Chapter XXVI and the relevant Chapter XXVI agreement.
Accordingly, pursuant to Chapter XXVI, investments carried out under the same
are subject to the regulations described below and not to the current
regulations summarized in the preceding paragraph. The following is a summary
of some of the relevant provisions contained in our Chapter XXVI agreement, a
copy of which was registered as an annex in the Registration Statement.
According to Chapter XXVI and our Chapter XXVI agreement, the Central Bank of
Chile has agreed to authorize the depositary, on behalf of the holders of ADRs
and any other investor who is not a resident of Chile nor is domiciled in said
nation, to withdraw the ADRs (such common stock is referred to in this annual
report as withdrawn stock) with access the Formal Exchange Market to convert
Chilean pesos into U.S. dollars (and remit those dollars outside of Chile) for
the common stock represented by the ADS or the withdrawn stock, including
those amounts received as (i) cash dividends, (ii) funds collected from the
transfer in Chile of withdrawn stock subject to receipt from the Central Bank
of a Withdrawn Share stockholder certificate (or from an institution
authorized by the Central Bank) indicating that the residence and domicile of
this holder are outside of Chile and a certificate from a Chilean stock
exchange (or from a brokerage or securities firm incorporated in Chile) that
said withdrawn stock was transferred on a Chilean stock exchange, (iii) funds
collected from the transfer in Chile of the right to subscribe free-of-payment
common stock, (iv) funds collected from the liquidation, merger or
consolidation of our company and (v) other distributions, including, without
limitation, those stemming from any capitalization as a result of the holding
of common stock represented by ADS or withdrawn stock.
The assignees of withdrawn stock are not authorized to access any of
the preceding rights pursuant to Chapter XXVI. Investors who receive withdrawn
stock in exchange for ADRs have the right to redeposit said shares in exchange
for ADRs, so long as the conditions for redepositing are met.
Chapter XXVI provides that access to the Formal Exchange Market, in
connection with dividend payments, will be conditioned upon certification by
our company to the Central Bank that a
74
dividend payment has been made, and any applicable tax has been withheld.
Chapter XXVI also provides that access to the Formal Exchange Market, in
connection with the sale of Withdrawn Shares, or distribution thereon, will be
conditioned upon receipt by the Central Bank of certification by the
depositary that such Shares have been withdrawn, in exchange for delivery of
the pertinent ADRs, and receipt of a waiver of the benefit of the Chapter XXVI
agreement with respect thereto, until such Withdrawn Shares are redeposited.
Chapter XXVI requires an individual who brings foreign currency into
Chile to convert it to Chilean pesos on the same date and invest in common
stock within five banking days in order to receive the benefits of the Chapter
XXVI agreement. Should said individual decide, within that period, not to
acquire common stock, the individual may access the Formal Exchange Market to
reacquire U.S. dollars so long as the corresponding request is filed with the
Central Bank within seven banking days of the initial conversion to pesos. The
shares acquired, as described above, can be deposited for ADRs and holders can
receive the benefits of the Chapter XXVI agreement, subject to the receipt by
the Central Bank of a certificate from the depositary indicating that said
deposit has been made along with a receipt for a statement by the individual
making the deposit in which the individual waives the benefits of the Chapter
XXVI agreement with regard to the common stock deposited.
Access to the Formal Exchange Market under any of the circumstances
described above is not automatic. Pursuant to Chapter XXVI, such entry
requires the approval of the Central Bank based on a request presented by
means of an entity authorized to operate in the Formal Exchange Market, which
may be the depositary. The Chapter XXVI agreement states that if the Central
Bank fails to issue a ruling on the request within seven banking days, the
petition will be deemed approved.
In keeping with Chilean law, the Chapter XXVI agreement cannot be
modified unilaterally by the Central Bank. In addition, legal precedent exists
to indicate that the agreements signed under Chapter XXVI cannot be
invalidated by future legislative changes. Nonetheless, there can be no
assurances that additional Chilean restrictions on the holders of ADRs, the
transfer of supporting common stock or the remittance of funds secured via
such transfer may not be imposed in the future, nor is it possible to assess
the duration or effect of such restrictions should they be imposed. If, for
any reason, including changes to the Chapter XXVI agreement or Chilean law,
the depositary is unable to convert Chilean pesos into U.S. dollars, investors
would receive dividends and other distributions in Chilean pesos. From this
perspective, the standing of investors under a Chapter XXVI agreement is more
advantageous than that of those who invest under the regulations contained in
the New Compendium, given that the latter are not protected by a Chapter XXVI
agreement with the Central Bank and, therefore, the general conditions
applicable to access to the Formal Exchange Market could be subject to
modifications adopted by the Central Bank which could affect those investors
who bring in and liquidate foreign currency positions subsequent to said
modification.
According to the regulations issued by the Central Bank that took
effect on April 19, 2001, the entry of foreign currency into Chile for the
purpose of acquiring stock in a listed corporation will not be subject to a
mandatory deposit, or reserve requirement, with the Central Bank. The Central
Bank is entitled, however, to establish a reserve requirement at any time in
the future. The reserve requirement is also not applicable to the entry of
foreign currency into Chile for the purpose of acquiring stock in a listed
corporation that is a party to a Chapter XXVI agreement, so long as said
acquisition of shares has been effected in keeping with the provisions of said
Chapter XXVI agreement.
The Central Bank is responsible, among other things, for monetary
policy and foreign exchange controls in Chile. The correct registration of a
foreign investment will permit the investor, under the regulations of the
former Compendium, to access the Formal Exchange Market. Said registration is
no longer required under the regulations of the New Compendium, as the details
of the
75
transaction provided to the Central Bank would suffice. Foreign investments
can be registered with the Foreign Investment Committee as per Decree Law No.
600 of 1974. The fundamental regulations of the Central Bank of Chile (Ley
Organica) require a "special majority" vote of the Chilean Congress to be
modified.
Other Limitations
Dividend Policy
In accordance with Chilean law and our by-laws, we must distribute
cash dividends equal to at least 30% of our annual net income calculated in
accordance with Chilean GAAP, unless otherwise decided by a unanimous vote of
the holders of the shares of common stock (see "Item 8. Dividend Policy and
Dividends. Dividend Policy"). If there is no net income in a given year, we
can elect, but are not legally obligated, to distribute dividends out of
retained earnings. We may grant an option to our shareholders to receive any
dividend in excess of 30% in cash in our own shares or in shares of open stock
corporations held by our company. Shareholders who do not expressly elect to
receive a dividend other than in cash are legally presumed to have decided to
receive the dividend in cash. An U.S. holder of ADSs may, in the absence of an
effective registration statement under the U.S. Securities Act of 1933, as
amended, or an available exemption from the registration requirement
thereunder, effectively be required to elect to receive a dividend in cash.
Exchange Rates
All payments and distributions with respect to the ADSs must be
transacted in the Formal Exchange Market. See "Item 3. Key Information--Risk
Factors".
Share Capital
Pursuant to Article 12 of the Securities Market Law and Circular 585
of the Superintendencia de Valores y Seguros, certain information must be
reported to the Superintendencia de Valores y Seguros and Chilean Stock
Exchanges with regard to transactions involving the shares of listed stock
corporations (sociedades anonimas abiertas). Given that ADRs are considered to
represent common stock that support ADSs, trading of ADRs is subject to these
reporting requirements. As per the aforementioned Article 12, (i) individuals
or corporations who directly or through other individuals or corporations hold
10% or more of the subscribed capital of a company whose shares are listed on
the Superintendencia de Valores y Seguros Securities Registry or who, as a
result of stock acquisitions, come to hold said percentage, and (ii) the
directors, liquidators, senior executives, general manager and managers, as
the case may be, of said corporations, independent of the number of shares
they hold, must report to the Superintendencia de Valores y Seguros and the
Chilean stock exchanges on which that corporation's stock is traded all
acquisitions, direct or indirect acquisitions or transfers of shares effected
within two exchange business days as of the corresponding trade. The
aforementioned shareholders must also report whether the acquisition was
effected with the intent of acquiring control of the corporation, or whether
it was simply a financial investment.
In accordance with Article 54 of the Securities Market Law, modified
by Law No. No. 19,705 of December 20, 2000, any individual or entity who
directly or indirectly seeks to take over control of a listed corporation that
is offering its shares in a public tender, must report said intent to the
general public in advance. For said purpose, a written communication shall be
sent to the listed corporation targeted for control, to its controlling and
controlled corporations, to the Superintendencia de Valores y Seguros and,
lastly, to the exchanges on which the stock of the corporation whose control
is sought is traded. Furthermore, a prominent announcement must be published
in two newspapers that
76
circulate nationwide. The aforementioned communication and publication,
indicating at least price and other essential conditions of the corresponding
negotiation, must be effected at least ten business days prior to the date
upon which the trade is intended to occur and, in any case, as soon as
negotiations aimed at securing control commence. In addition, the effective
takeover of control must be reported (via communication to the same
persons indicated above and with announcements in the same newspapers)
within two business days of the closure of the deal. Lastly, if the intent is
to secure control via a public tender offer, the preceding regulations shall
not apply. Rather, in such cases, the applicable regulations will be those
contained in Title XXV of the Securities Market Law, introduced in conjunction
with the aforementioned Article 54 of the Securities Market Law, modified by
Law No. No. 19,705 of December 20, 2000.
Title XXV of the Chilean Securities Market Law on tender offers and
the regulations of the Superintendencia de Valores y Seguros provide that the
following transactions, performed directly or indirectly, shall be carried out
through a tender offer:
o An offer which allows a person to take control of a publicly
traded company, unless the shares are being sold by a
controlling shareholder of such company at a price in cash which
is not substantially higher than the market price and the shares
of such company are actively traded on a stock exchange;
o An offer for all the outstanding shares of a publicly traded
company upon acquiring two thirds or more of its voting shares
(this offer must be made at a price not lower than the price at
which appraisal rights may be exercised, that is, book value if
the shares of the company are not actively traded or, if the
shares of the company are actively traded, the weighted average
price at which the stock has been traded during the two months
immediately preceding the acquisition); and
o An offer for a controlling percentage of the shares of a listed
operating company if such person intends to take control of the
company (whether listed or not) controlling such operating
company, to the extent that the operating company represents
75.0% or more of the consolidated net worth of the holding
company.
Article 200 of the Chilean Securities Market Law prohibits any
shareholder that has taken control of a publicly traded company to acquire,
for a period of 12 months from the date of the transaction that granted it
control of the publicly traded company, a number of shares equal to or higher
than 3.0% of the outstanding issued shares of the target without making a
tender offer at a price per share not lower than the price paid at the time of
taking control. Should the acquisition from the other shareholders of our
company be made on the floor of a stock exchange and on a pro rata basis, the
controlling shareholder may purchase a higher percentage of shares, if so
permitted by the regulations of the stock exchange.
Title XV of the Chilean Securities Market Law sets forth the basis
to determine what constitutes a controlling power, a direct holding and a
related party. The Chilean Securities Market Law defines control as the power
of a person, or group of persons acting pursuant to a joint action agreement,
to direct the majority of the votes in a shareholders meeting of the
corporation, or to elect the majority of members of its boards of directors,
or to influence the management of the corporation significantly. Significant
influence is deemed to exist in respect of the person or group holding,
directly or indirectly, at least 25.0% of the voting share capital, unless:
o Another person or group of persons acting pursuant to joint
action agreement, directly or indirectly, control a stake equal
to or higher than the percentage controlled by such person;
77
o The person or group does not control, directly or indirectly,
more than 40.0% of the voting share capital and the percentage
controlled is lower than the sum of the shares held by other
shareholders holding more than 5.0% of the share capital; and
o In cases where the Superintendencia de Valores y Seguros has
ruled otherwise, based on the distribution or atomization of the
overall shareholding.
According to the Chilean Securities Market Law, a joint action
agreement is an agreement among two or more parties which, directly or
indirectly, own shares in a corporation at the time and whereby they agree to
participate with the same interest in the management of the corporation or
taking control of the same. The law presumes that such an agreement exist
between:
o A principal and its agents;
o Spouses and relatives up to certain level of kindred;
o Entities within the same business group; and
o An entity and its controller or any of its members.
Likewise, the Superintendencia de Valores y Seguros may determine
that a joint action agreement exists between two or more entities considering,
among others, the number of companies in which they participate, the frequency
with which they vote identically in the election of directors, appointment of
managers and other resolutions passed at shareholders meetings.
According to Article 96 of the Chilean Securities Market Law, a
business group of entities is the one presenting relations on ownership,
management or credit liabilities of such a nature that it may be assumed that
the economic and financial action of such members is directed by, or
subordinated to, the joint interest of the group, or that there are common
credits risks in the credits granted to, or securities issued by, them.
According to the Chilean Securities Market Law, the following entities are
part of the same business group:
o A company and its controller;
o All the companies with a common controller and the latter; and
o All the entities that the Superintendencia de Valores y Seguros
declares to be part of the business group due to one or more of
the following reasons:
o A substantial part of the assets of the company is involved in
the business group, whether as investments in securities, equity
rights, loans or guaranties;
o The company has a significant level of indebtedness and that the business
group has a material participation as a lender or guarantor;
o When the controller is a group of entities, that the company is
a member of a controller of the entities mentioned in the first
two bullets above and there are grounds to include it in the
business group; or
o When the controller is a group of entities, that the company is
controlled by a member of the controlling group and there are
grounds to include it in the business group.
78
The Chilean Companies Act requires Chilean companies to offer
existing shareholders the right to purchase a sufficient number of shares to
maintain their existing ownership percentage of such company whenever such
company issues new shares. U.S. holders of ADSs are not entitled to exercise
the preemptive rights unless a registration statement under the Securities Act
is effective with respect to such rights or an exemption from the registration
requirement thereunder is available. At the time of any preemptive rights
offering, we intend to evaluate the costs and potential liabilities associated
with any such registration statement, as well as the indirect benefits to us
of enabling the exercise by the holders of ADSs of such preemptive rights, and
any other factors we consider appropriate at the time to make a decision as to
whether to file such a registration statement. No assurance can be given that
any registration statement would be filed. If no registration statement is
filed, the depositary will attempt to sell affected ADS holders' preemptive
rights in a secondary market (if one exists) and distribute the proceeds
thereof. Should the depositary not be permitted or otherwise be unable to sell
such preemptive rights, the rights may be allowed to lapse with no
consideration to be received by the affected ADS holders.
Under Chilean law, preemptive rights are exercisable or freely
transferable by shareholders within a 30-day period following publication of
the relevant option. During such period, and for an additional 30-day period
thereafter, a Chilean company is not permitted to offer any unsubscribed
shares for sale to third parties on terms that are more favorable than those
offered to its shareholders. At the end of such additional 30-day period, a
Chilean open stock corporation is authorized to sell unsubscribed shares to
third parties on any terms if the shares are sold on a Chilean stock exchange.
Unsubscribed shares that are not sold on a Chilean stock exchange can be sold
to third parties only on terms no more favorable for the purchaser than those
offered to shareholders.
79
Dissenting Shareholders
The Chilean Companies Act establishes that, should an extraordinary
meeting of shareholders adopt any of the resolutions presented below, the
dissident shareholders have the right to withdraw from a Chilean company and
require that we repurchase our shares, subject to compliance with certain
terms and conditions described below unless said right to withdraw is
suspended, in the case of bankruptcy or agreements with creditors. To exercise
said rights, ADR holders must first withdraw the shares represented by their
ADRs, pursuant to the terms of the Depositary agreement. Dissident
shareholders are defined as those who vote against a resolution that results
in the right to withdraw or, should they be absent from said meeting, those
who declare their opposition to the resolution to us in writing within the
following 30 days. Dissenting shareholders must complete their right to
withdraw by offering their shares to us within 30 days of the adoption of the
resolution.
The resolutions that could trigger the right of the shareholder to
withdraw are as follows:
(a) The transformation of our company, specially into an entity
that is not a listed corporation regulated by the Chilean
Companies Act;
(b) Merger of our company with or into other companies;
(c) The transfer of 50% or more of corporate assets according to
the terms stated in Article 67 No9 of the Chilean Companies
Act;
(d) The granting of real or personal guarantees for third-party
obligations that exceed 50% of corporate assets;
(e) The adoption of preferential rights for a given class of shares
or a modification to existing rights, in which case the right
to withdraw shall only be applicable for those dissident
shareholders from the class of shares negatively impacted;
(f) The reorganization of the nullity of our corporation due to
formal errors in our incorporation or the modification of our
by-laws granting this right; and
(g) All other cases established by law or in our by-laws.
By legal means, the dissident shareholders shall have the right to withdraw if
we fail to comply with the conditions to be considered a listed stock
corporation and, in addition, if the extraordinary meeting of shareholders
agrees, via a two-thirds vote of eligible shareholders, that we should cease
to adhere to the regulations applicable to listed stock corporations. In
addition, if, as a consequence of any acquisition, an individual secures or
surpasses holdings of two thirds of the shares, said individual shall have a
period of 30 days as of the acquisition to effect an offer for the remaining
shares under the conditions established
80
by law. Should said offer fail to be effected within the established
timeframe, the aforementioned right to withdraw shall become effective for the
remaining shareholders. Lastly, it should be noted that our by-laws do not
include additional grounds for withdrawal.
Under Article 69 BIS of the Chilean Companies Act, the right to
withdraw is also granted to shareholders, other than the Administradoras de
Fondos de Pensiones, or AFPs, subject to certain terms and conditions, if we
are controlled by the Chilean government, directly or through any of its
agencies, and if two independent rating agencies downgrade the rating of our
stock from first class, because of certain actions specified in Article 69 BIS
and undertaken by our company or the Chilean government that negatively affect
and substantially impact the earnings of our company. Shareholders must
perfect their withdrawal rights by tendering their shares to us within 30 days
of the date of the publication or of the new rating by two independent rating
agencies. If the withdrawal right is exercised by a shareholder invoking
Article 69 BIS, the price paid to the dissenting shareholder shall be the
weighted average of the sales price for the shares as reported on the stock
exchanges on which our shares are quoted for the six-month period preceding
the publication of the new rating by two independent rating agencies. If the
Superintendencia de Valores y Seguros determines that the shares are not
actively traded the price shall be the book value.
Voting of Shares of common stock
The depositary will mail to all holders a notice containing the
information, or a summary thereof, included in any notice of a shareholders
meeting received by the depositary, and a brief statement, as to the manner in
which each such holder may instruct the depositary to exercise voting rights
in respect of shares of our common stock, as represented by ADSs held by the
holders. Holders on the record date set by the depositary are entitled to
instruct the depositary in writing, subject to the terms of Chilean law, the
By-Laws and the Deposit agreement, as to the exercise of voting rights
attached to the deposited shares of our common stock, and upon receipt of such
instructions the depositary has agreed that it will endeavor, insofar as
practicable, to vote or cause to be voted the shares of our common stock
underlying such holders' ADRs in accordance with such written instructions.
The depositary has agreed not to, and shall instruct the Custodian
and each of its nominees, if any, not to vote the shares of our common stock,
or other deposited securities represented by the ADSs evidenced by an ADR
other than in accordance with such written instructions from the holder. The
depositary may not itself exercise any voting discretion over any shares of
our common stock deposited with it under the ADR facility. If no instructions
are received by the depositary from a holder with respect to any of the
deposited securities represented by the ADSs evidenced by such holder's ADRs,
on or before the date established by the depositary for such purpose, the
depositary shall deem such holder to have instructed the depositary to give a
discretionary proxy to a person designated by our company to vote the
underlying shares.
Disclosure
Holders of ADRs are subject to certain provisions of the rules and
regulations promulgated under the U.S. Securities Exchange Act of 1934, as
amended, relating to the disclosure of interests in the shares of our common
stock. Any holder of ADRs, who is, or becomes, directly or indirectly, a 5%
owner (or such other percentage as may be prescribed by law or regulation), of
the outstanding shares of our common stock, must within ten days after
becoming a 5% owner (and thereafter, upon certain changes in such interests)
notify us, any U.S. securities exchange on which the ADRs (or shares of our
common stock) are traded and the Securities Exchange Commission, as required
by such rules and regulations. In addition, holders of ADRs are subject to the
reporting requirements contained in Articles 12 and 54 and Title XXV of the
Securities Market Law, which may apply when a
81
holder beneficially owns 10% or more of the common stock or has the intent to
take control of our company, as described under "Share Capital" above.
Taxation
Chilean Tax Considerations
The following discussion summarizes the material consequences to ADR
holders of Chilean income tax laws presently in force, including Ruling No.
324 (January 29, 1990), of the Chilean Internal Revenue Service. The
discussion sets forth the material Chilean income tax consequences of an
investment in the ADSs or shares of our common stock by a person who is
neither domiciled in nor a resident of Chile for tax purposes (a "foreign
holder"). It is not intended as tax advice to any particular investor, which
can be rendered only in light of that investor's particular tax situation.
Under Chilean law, provisions contained in statutes, such as tax
rates applicable to foreign investors, the computation of taxable income for
Chilean purposes, and the manner in which Chilean taxes are imposed and
collected may be amended only by another statute. In addition, the Chilean tax
authorities enact rulings and regulations of either general or specific
application, and interpret the provisions of Chilean tax law. Chilean tax may
not be assessed retroactively against taxpayers who act in good faith relying
on such rulings, regulations, and interpretations, but Chilean tax authorities
may change said rulings, regulations, and interpretations prospectively. There
is no income tax treaty in force between Chile and the United States.
Cash Dividends and Other Distributions
Cash dividends paid by our company with respect to the ADSs, or
shares of our common stock, held by a foreign holder will be subject to a 35%
Chilean withholding tax, which is withheld and paid over by our company (the
"Withholding Tax"). A credit against the Withholding Tax is available based on
the level of corporate income tax actually paid by our company on the income
to be distributed (the "First Category Tax"); however, this credit does not
reduce the Withholding Tax on a one-for-one basis because it also increases
the base on which the Withholding Tax is imposed. In addition, if we
distribute less than all our distributable income, the credit for
First-Category Tax paid by our company is proportionately reduced. Presently,
the maximum First-Category Tax rate is 17.0%. The example below illustrates
the effective Chilean Withholding Tax burden on a cash dividend received by a
foreign holder, assuming a Withholding Tax rate of 35%, an effective First
Category Tax rate of 17.0% and a distribution of 30% of the net income of our
company distributable after payment of the First Category Tax:
Company taxable income 100.0
First Category Tax (17.0% of Ch$100) (17.0)
Net distributable income 83.0
Dividend distributed (30% of net distributable income) 24.9
Withholding Tax (35% of the sum of Ch$24.9
dividend plus Ch$5.1 First Category Tax paid) (10.5)
Credit for 30% of First Category Tax 5.1
Net additional tax withheld (5.4)
Net dividend received 19.5
Effective dividend withholding rate 21.69%
|
In general, the effective dividend Withholding Tax rate, after
giving effect to the credit for the First Category Tax, can be calculated
using the following formula:
82
Effective dividend Withholding Tax rate = (Withholding Tax rate) - (First Category Tax rate)
---------------------------------------------------
1-(First Category Tax rate)
|
Under Chilean income tax law, dividends are generally assumed to
have been paid out of our oldest retained profits for purposes of determining
the level of First Category Tax that was paid by our company. For information
as to the retained earnings of our company for tax purposes and the tax credit
available on the distribution of such retained earnings, please see Note 16 of
the Financial Statements.
For dividends attributable to our profits during years when the
First Category Tax was 10% (before 1991), the effective dividend Withholding
Tax rate will be 27.8%. However, whether the First Category Tax is 10% or
17%, the effective overall combined tax rate imposed on our distributed
profits will be 35%.
Dividend distributions made in property would be subject to the same
Chilean tax rules as cash dividends. Stock dividends are not subject to
Chilean taxation.
Capital Gains
Gain from the sale exchange or other disposition by a foreign holder
of ADSs, or ADRs evidencing ADSs, will not be subject to Chilean taxation if
the disposition occurs outside Chile or it is performed under the rules of
Title XXIV of the Securities Market Law, as amended by Law N(degree)19,601,
dated January 18, 1999. The deposit and withdrawal of shares of common stock
in exchange for ADRs will not be subject to Chilean taxes.
The profit earned in a transfer or exchange of our common stock
(unlike the transfer or exchange of ADSs that represent said stock) shall be
subject to the First Category Tax and to the Withholding Tax (the former can
be credited to the later) if (i) the foreign holder has had the common stock
for less than one year as of the exchange of ADS for common stock, (ii) the
foreign holder acquired or transferred the common stock in the course of
his/her business or in a customary trade of shares or (iii) if the transfer
occurs between parties related by equity or economically. In all other cases,
the profit on the transfer of our common stock shall be subject to a flat
17.0% First Category Tax and the withholding tax shall not be applied.
However, if it is impossible to determine the taxable capital gain, a 5.0%
withholding will be imposed on the total amount to be remitted abroad without
any deductions as a provisional payment of the total tax due.
The tax basis of shares of our common stock received in exchange for
ADSs will be the acquisition value of the shares. The valuation procedure set
forth in the Deposit agreement, which values shares of our common stock which
are being exchanged at the highest price at which they trade on the Santiago
Stock Exchange on the date of the exchange, generally will determine the
acquisition value for this purpose. Consequently, the conversion of ADSs into
shares of our common stock and the immediate sale of the shares for the value
established under the Deposit agreement will not generate a capital gain
subject to taxation in Chile.
The exercise of preemptive rights relating to the shares of our
common stock will not be subject to Chilean taxation. Any gain on the sale of
preemptive rights relating to the shares of our common stock will be subject
to both the First Category Tax and the Withholding Tax (the former being
creditable against the latter).
The Chilean Internal Revenue Service has not enacted any rule nor
issued any ruling about the applicability of the following norms to the
foreign holders of ADRs.
83
An amendment to the Chilean Income Tax Law, Law N(degree)19,738
published on June 19, 2001, establishes an exemption for the payment of income
tax for foreign institutional investors, such as mutual funds, pension funds
and others, that obtain capital gains in the sales through a Chilean stock
exchange, a tender offer or any other system authorized by the
Superintendencia de Valores y Seguros, of shares of publicly traded
corporations that are significantly traded in stock exchanges.
A foreign institutional investor is an entity that is either:
o A fund that makes public offers of its shares in a country whose
public debt has been rated investment grade by an international
risk classification agency qualified by the Superintendencia de
Valores y Seguros;
o A fund that is registered with a regulatory entity of a country
whose public debt has been rated investment grade by an
international risk classification agency qualified by the
Superintendencia de Valores y Seguros, provided that the
investments in Chile, including securities issued abroad that
represent Chilean securities, held by the fund represent less
than 30.0% of its share value;
o A fund that holds investments in Chile that represent less than
30.0% of its share value, if the fund proves that no more that
10.0% of its share value is directly owned by Chilean residents;
o A pension fund that is exclusively formed by individuals that
receive their pensions on account of capital accumulated in the
fund;
o A fund regulated by Law N(degree) 18,657, or the Foreign Capital
Investment Funds Law, in which case all holders of its shares
must reside abroad or be qualified as local institutional
investors; or
o Another kind of institutional foreign investor that complies
with the characteristics defined by a regulation with the prior
report of the Superintendencia de Valores y Seguros and the
Chilean Internal Revenue Service (Servicio de Impuestos Internos).
In order to be entitled to the exemption, foreign institutional
investors, during the time in which they operate in Chile, must:
o Be organized abroad and not be domiciled in Chile;
o Not participate, directly or indirectly, in the control of the
issuers of the securities in which it invests and not hold,
directly or indirectly, 10.0% or more of such companies' capital
or profits;
o Execute an agreement in writing with a Chilean bank or
securities broker in which the intermediary is responsible for
the execution of purchase and sale orders and for the
84
verification, at the time of the respective remittance, that
such remittances relate to capital gains that are exempt from
income tax in Chile or, if they are subject to income tax, that
the applicable withholdings have been made; and
o Register in a special registry with the Chilean Internal Revenue Service.
Pursuant to an enacted amendment to the Chilean Income Tax
Law published on November 7, 2001 (Law N(degree) 19,768), the sale and
disposition of shares of Chilean public corporations which are significantly
traded on stock exchanges is exempted from Chilean taxes on capital gains if
the sale or disposition was made:
o On a local stock exchange or any other exchange authorized by
the Superintendencia de Valores y Seguros or in a tender offer
process pursuant to Title XXV of the Securities Market Law, so
long as the shares (a) were purchased on a public stock exchange
or in a tender offer process pursuant to Title XXV of the
Securities Market Law, (b) are newly issued shares issued in a
capital increase of the corporation or (c) were the results of
the exchange of convertible bonds (in which case the option
price is considered to be the price of the shares). In this
case, gains exempted from Chilean taxes shall be calculated
using the criteria set forth in the Chilean Income Tax; or
o Within 90 days after the shares would have ceased to be
significantly traded on a stock exchange. In such case, the
gains exempted from Chilean taxes on capital gains will be up to
the average price per share of the last 90 days. Any gains above
the average price will be subject to the First Category Tax.
In the case where the sale of the shares is made on a day that is
different than the date in which the exchange is recorded, capital gains
subject to taxation in Chile may be generated. On October 1, 1999, the Chilean
Internal Revenue Service issued Ruling N(degree) 3708, whereby it allowed
Chilean issuers of ADSs to amend the deposit agreements to which they are
parties in order to include a clause stating that, in the case that the
exchanged shares are sold by the ADSs' holders in a Chilean Stock Exchange,
either in the same day in which the exchange is recorded in the shareholders'
registry of the issuer or within the two prior business days to such date, the
acquisition price of such exchanged shares shall be the price registered in
the invoice issued by the stock broker that participated in the sale
transaction. Consequently, should we include this clause in the deposit
agreement, the capital gain that may be generated if the exchange date is
different than the date in which the shares received in exchange for ADSs were
sold, will not be subject to taxation.
Other Chilean Taxes
There are no Chilean inheritance, gift, or succession taxes
applicable to the ownership, transfer, or disposition of ADSs by a foreign
holder, but such taxes generally will apply to the transfer upon death, or by
gift of shares of our common stock by a foreign holder. There are no Chilean
stamp, issue, registration taxes, similar taxes, or duties payable by holders
of ADSs or shares of our common stock.
UNITED STATES TAX CONSIDERATIONS
The following discussion summarizes certain United States federal
income tax consequences of an investment in ADSs or shares of our common stock
by U.S. holders (as defined below) as of the date hereof. This discussion is
intended only as a descriptive summary, and does not purport to be a complete
analysis or listing of all possible tax considerations. The discussion deals
only with ADSs and shares of our common stock held as capital assets, and does
not address any special
85
United States tax consequences that may be applicable to U.S. holders who are
subject to special situations such as those of dealers in securities or
currencies, financial institutions, regulated investment companies, real
estate investment trusts, tax-exempt entities, insurance companies, traders in
securities that elect to use the mark-to-market method of accounting for their
securities, persons holding ADSs or shares of our common stock as part of a
hedging, integrated, conversion or constructive sale transaction or a
straddle, persons owning 10% or more of our voting stock, persons liable for
alternative minimum tax, investors in pass-through entities or persons whose
"functional currency" is not the United States dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed,
revoked or modified so as to result in United States federal income tax
consequences different from those discussed below. In addition, this summary
is based, in part, upon representations made by the depositary to us and
assumes that the Deposit Agreement, and all other related agreements, will be
performed in accordance with their terms. PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF SHARES OF COMMON STOCK OR ADSS SHOULD CONSULT
THEIR OWN TAX ADVISORS ABOUT THE UNITED STATES FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSS OR
SHARES OF COMMON STOCK.
As used in the annual report, the term "U.S. holder" means a holder
of ADSs or shares of common stock who is:
(i) an individual citizen or resident of the United States;
(ii) a corporation (or other entity treated as a corporation
for United States federal income tax purposes) created or organized in or
under the laws of the United States, any state thereof or the District of
Columbia;
(iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source; or
(iv) a trust that:
(x) is subject to the supervision of a court within
the United States and the control of one or more
United States persons as described in section
7701(a)(30) of the Code; or
(y) has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S.
person.
If a partnership holds ADSs or shares of our common stock, the tax
treatment of a partner will generally depend upon the status of the partner
and the activities of the partnership. Partners in a partnership holding ADSs,
or shares of our common stock, should consult their tax advisors.
ADSs
In general, for United States federal income tax purposes, U.S.
holders of ADSs will be treated as the owners of the underlying shares of
common stock that are represented by such ADSs. Accordingly, deposits or
withdrawals of shares of common stock by U.S. holders for ADSs will not be
subject to United States federal income tax.
86
Cash Dividends and Other Distributions
Cash dividends (including the amount of any Chilean taxes withheld)
paid to U.S. holders with respect to ADSs or shares of common stock will
generally be treated as dividend income to such holders, to the extent paid
out of current or accumulated earnings and profits, as determined under United
States federal income tax principles. Such income shall be included in the
gross income of a U.S. holder as ordinary income on the day received by the
U.S. holder, in the case of shares of common stock, or by the depositary, in
the case of ADSs. The dividends will not be eligible for the
dividends-received deduction allowed to corporations. With respect to U.S.
non-corporate investors, certain dividends received before January 1, 2009
from a qualified foreign corporation may be subject to reduced rates of
taxation. A foreign corporation is treated as a qualified foreign corporation
with respect to dividends received from that corporation on shares (or ADSs
backed by such shares) that are readily tradable on an established securities
market in the United States. United States Treasury Department guidance
indicates that our ADSs (which are listed on the New York Stock Exchange), but
not our shares of common stock, are readily tradable on an established
securities market in the United States. Thus, we do not believe that dividends
that we pay on our shares currently meet the conditions required for these
reduced tax rates. There can be no assurance that our ADSs will be considered
readily tradable on an established securities market in later years.
Non-corporate holders that do not meet a minimum holding period requirement
during which they are not protected from the risk of loss or that elect to
treat the dividend income as "investment income" pursuant to section 163(d)(4)
of the Code will not be eligible for the reduced rates of taxation regardless
of our status as a qualified foreign corporation. In addition, the rate
reduction will not apply to dividends if the recipient of a dividend is
obligated to make related payments with respect to positions in substantially
similar or related property. This disallowance applies even if the minimum
holding period has been met. Non-corporate U.S. holders should consult their
own tax advisors regarding the application of these rules given their
particular circumstances.
The amount of any dividend paid in Chilean pesos will equal the
United States dollar value of the Chilean pesos received calculated by
reference to the exchange rate in effect on the date the dividend is received
by the U.S. holder, in the case of shares of common stock, or by the
depositary, in the case of ADSs, regardless of whether the Chilean pesos are
converted into United States dollars. If the Chilean pesos received as a
dividend are not converted into United States dollars on the date of receipt,
a U.S. holder will have a basis in the Chilean pesos equal to their United
States dollar value on the date of receipt. Any gain or loss realized on a
subsequent conversion or other disposition of the Chilean pesos will be
treated as United States source ordinary income or loss.
Subject to certain conditions and limitations, Chilean withholding
taxes (after taking into account the credit for the First Category Tax) may be
treated as foreign taxes eligible for credit against a U.S. holder's United
States federal income tax liability. The overall limitation on foreign taxes
eligible for credit is calculated separately with respect to specific classes
or "baskets" of income. For purposes of calculating the foreign tax credit,
dividends paid with respect to ADSs or shares of our common stock will be
treated as income from sources outside the United States and will generally
constitute "passive income" or, in the case of certain U.S. holders,
"financial services income." Special rules apply to certain individuals whose
foreign source income during the taxable year consists entirely of "qualified
passive income" and whose creditable foreign taxes paid or accrued during the
taxable year do not exceed $300 ($600 in the case of a joint return). Further,
in certain circumstances, a U.S. holder that has held shares of our common
stock or ADSs for less than a specified minimum period during which it is not
protected from risk of loss, or is obligated to make payments related to the
dividends, will not be allowed a foreign tax credit for foreign taxes imposed
on dividends paid on shares of our common stock or ADSs. The rules governing
the foreign tax credit are complex. Investors are urged to consult their tax
advisors regarding the availability of the foreign tax credit under their
particular circumstances, including the
87
possible adverse impact on creditability to the extent a U.S. holder is
entitled to a refund of any Chilean taxes withheld or a reduced rate of
withholding.
To the extent that the amount of any distribution exceeds our
current and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of capital, causing a
reduction in the adjusted basis of the shares of common stock or ADSs (thereby
increasing the amount of gain, or decreasing the amount of loss, to be
recognized by the investor on a subsequent disposition of the shares of common
stock or ADSs), and the balance in excess of adjusted basis will be taxed as
capital gain recognized on a sale or exchange. Consequently, such
distributions in excess of our current and accumulated earnings and profits
would generally not give rise to foreign source income and a U.S. holder would
generally not be able to use the foreign tax credit arising from any Chilean
withholding tax imposed on such distributions unless such credit can be
applied (subject to applicable limitations) against United States tax due on
other foreign source income in the appropriate category for foreign tax credit
purposes.
Distributions to U.S. holders of ADSs, additional shares of common
stock, or preemptive rights with respect to shares of common stock that are
made, as part of a pro rata distribution, to all shareholders of our company,
will generally not be subject to United States federal income tax.
Passive Foreign Investment Companies
We do not believe that we are a passive foreign investment company
(a "PFIC") for United States federal income tax purposes, and expect to
continue our operations in such a manner that we will not become a PFIC. If,
however, we are or become a PFIC, U.S. holders could be subject to additional
United States federal income taxes on gain recognized with respect to the ADSs
or shares of common stock and on certain distributions, plus an interest
charge on certain taxes treated as having been deferred by the U.S. holder
under the PFIC rules.
Non-corporate U.S. holders will not be eligible for reduced rates of
taxation on any dividends received from us prior to January 1, 2009, if we are
a PFIC in the taxable year in which such dividends are paid or in the
preceding taxable year.
Capital Gains
Upon the sale or other disposition of ADSs or shares of common stock
(or preemptive rights with respect to such shares), U.S. holders will
recognize capital gain or loss for United States federal income tax purposes
in an amount equal to the difference between the amount realized for the ADSs
or shares of common stock (or preemptive rights), and the U.S. holder's basis
in the ADSs or shares of common stock (or preemptive rights). Such gain or
loss will generally be a capital gain or loss. Capital gains of individuals
derived with respect to capital assets held for more than one year are
eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations. U.S. holders will not recognize gain or loss on the
exercise of preemptive rights. Any gain or loss recognized by a U.S. holder
generally will be treated as United States source gain or loss. Consequently,
in the case of a disposition of shares of common stock (which, unlike a
disposition of ADSs, may be taxable in Chile), the U.S. holder may not be able
to use the foreign tax credit for Chilean tax imposed on the gain unless it
can apply the credit, subject to applicable limitations, against tax due on
other income from foreign sources.
Estate and Gift Taxation
As discussed above under "Chilean Tax Considerations-Other Chilean
Taxes", there are no Chilean inheritance, gift or succession taxes applicable
to the ownership, transfer or disposition of
88
ADSs by a foreign holder, but such taxes generally will apply to the transfer
at death or by gift of shares of common stock by a foreign holder. The amount
of any inheritance tax paid to Chile may be eligible for credit against the
amount of United States federal estate tax imposed on the estate of a U.S.
holder. Prospective purchasers should consult their personal tax advisors to
determine whether and to what extent they may be entitled to such credit. The
Chilean gift tax generally will not be treated as a creditable foreign tax for
United States tax purposes.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to
dividends paid in respect of ADSs or shares of common stock or the proceeds
received on the sale, exchange or redemption of ADSs or shares of common stock
within the United States (and in certain cases, outside the United States) by
U.S. holders other than certain exempt recipients (such as corporations). A
backup withholding tax may apply to such amounts if the U.S. holder fails to
provide an accurate taxpayer identification number or certification of other
exempt status or fails to report interest and dividends required to be shown
on its United States federal income tax returns.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against the U.S. holder's United States
federal income tax liability provided the required information is furnished to
the Internal Revenue Service.
Incorporation of Certain Documents by Reference
We will provide free of charge to each person to whom this report is
delivered, upon receipt of the written, or oral, request of any such person, a
copy of any or all the documents incorporated in this annual report by
reference (other than exhibits, unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to Cristalerias de Chile S.A., Hendaya 60, of. 201, Las
Condes, Santiago, Chile, Attention: Investor Relations. Telephone requests can
be directed to 562-787-8855. Fax requests to 562-787-8800
ITEM 11: Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosures about Market Risk (2003)
The following analysis of our risk management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in these forward-looking
statements. See Introduction "Disclosure Regarding Forward-Looking
Statements".
The Company faces market risk in two major areas: (i) variations in
interest rates, and (ii) foreign exchange rate fluctuations. The most
significant interest rate risk is our exposure to changes in the LIBOR and
TAB[5] rates that could affect consolidated bank liabilities, which totaled
approximately Ch$37,383 million as of December 31, 2003 (Ch$49,138 million as
of December 31, 2002).
The most significant foreign exchange rate risk is in the variation
of the Chilean peso against the U.S. dollar. We had operating liabilities of
approximately Ch$40,826 million and operating assets of approximately
Ch$17,612 million denominated in U.S. dollars as of December 31, 2003
[5] TAB = Active Banking Rate. Rate calculated by the Association of Banks
and Financial Institutions on the basis of maximum interest payable on
deposits plus reserve requirement and inflation.
89
(Ch$52,704 million and Ch$10,897 million, respectively, as of December 31,
2002). In addition, we had non-operating assets denominated in U.S. dollars of
approximately Ch$78,121 million and US$86.1 million in financial investments
denominated in U.S. dollars as of December 31, 2003 (Ch$74,230 million and
US$106.2 million respectively in 2002). In addition, we face risk from
purchases of raw materials that are denominated in US dollars, such as soda
ash and energy (natural gas, electric power and fuel oil) in the case of the
glass container business and labels, bottles and corks in the case of the wine
business.
We mitigate foreign exchange rate fluctuation risk in our U.S.
denominated bank liabilities through U.S. sales exports, a net investment
hedge in Argentina, and the use of foreign currency forward contracts. A
portion of this risk is mitigated by sales in U.S. dollars that are offset by
costs that are largely measured in Chilean pesos. During 2003 approximately
36% of the Company's consolidated sales were indexed to the variation of the
dollar/peso exchange rate (36.7% in 2002). While the Company generally enters
into derivative instruments to mitigate its risk to foreign currency, from
time to time it enters into foreign currency forward contracts. Those foreign
currency forward exchange contracts that form part of the Company's hedging
program are designated as such, and are effective as hedges. The amounts
payable and the amounts receivable related to foreign exchange hedging
contracts are recognized on a net basis under Other Current Liabilities as of
December 31, 2003 and 2002. Amounts payable or receivable under these
contracts offset gains and losses on the assets, liabilities and transactions
being hedged and are presented on a net basis at the end of the period and are
classified according to a contract's expiration date.
Although the actual foreign currency exchange risk to which we are
exposed depends upon the fluctuation of foreign exchange rates in which
monetary assets and liabilities are maintained as compared to the Chilean
peso, for accounting purposes our results from operations are affected by
variations in the exchange rate between the U.S. dollar and the Chilean peso
due to the application of BT 64. Under this Chilean accounting standard, the
effects of re-measuring our non-Chilean investments into U.S. dollars are
recorded in income, while the accumulated effects of Chilean peso to U.S.
dollar exchange rate fluctuations are recorded in equity, net of any
price-level restatement due to the effects of Chilean inflation on such
foreign investment amounts. As of December 31, 2003 we have dollar purchase
forward exchange contracts in the amount of US$44.6 million, that are mainly
compensated by dollar sale future exchange contracts of US$41.6 million; to
manage exposure related to certain foreign currency commitments, certain
foreign currency denominated balance sheet positions, and certain anticipated
foreign currency denominated expenditures. In 2002 we entered into foreign
currency forward exchange contracts in the amount of US$130.6 million.
Risk of Variations in Floating Interest Rates
We are exposed to market risk from changes in interest rates on our
short and long-term debt. As of December 31, 2003, consolidated bank
liabilities totaled approximately Ch$37,383 million, of which Ch$32,095
million correspond to loans in foreign currency at variable interest rates
related to the 6-month LIBOR plus 0.8% annually, Ch$4,492 million correspond
to loans in adjustable pesos in UFs exposed to changes in 90 and 180 days TAB
and Ch$796 million in loans in pesos at a fixed annual rate of 4.94%.
As of December 31, 2002, consolidated bank liabilities totaled
approximately Ch$49,138 million, of which Ch$41,855 million correspond to
loans in foreign currency at variable interest rates related to the 6-month
LIBOR, Ch$6,208 million correspond to loans in adjustable pesos in UFs exposed
to changes in the 6-month TAB and Ch$1,073 million in loans in pesos at a
fixed annual rate of 4.94%.
90
Of our obligations with the public, totaling Ch$90,955 million as of
December 2003, Ch$71,072 correspond to bonds issued by Cristalerias de Chile
and Ch$20,358 million to bonds issued by Vina Santa Rita; both at fixed
interest rates.
Furthermore, as of December 31, 2003, we held a total of
approximately Ch$72,096 million in short and long-term financial investments
such as time deposits, bonds, fixed rate mutual funds and resale agreements.
The interest rates for these investments vary at each renewal.
We are not a party to any agreement involving derivative financial
instruments to reduce exposure to adverse fluctuations in interest rates.
The table below provides information about our short and long-term
debt and investments, by fixed and variable interest rates as of December 31,
2003:
As of December 31, 2003
(Ch$ in millions)
---------------------------------------------------------------------
Short-term Long-Term
---------------------------------- --------------------------------
Floating rate Fixed rate Floating rate Fixed rate
-------------------- ----------- ----------------- -----------
LIBOR TAB LIBOR TAB
--------- -------- -------- -------
Bank liabilities 2,135 1,688 265 29,960 2,804 531
Bonds 1,754 89,676
-------- -------- ---------- ------- ------ -----------
Total debt 2,135 1,688 2,019 29,960 2,804 90,207
Time deposits 4,266
Marketable securities 59,615
Other current assets 12,755
-------- -------- ---------- ------- ------ -----------
Total investments --- --- 76,636 --- --- ---
-------- -------- ---------- ------- ------ -----------
Net Debt (Investments) 2,135 1,688 (74,617) 29,960 2,804 90,207
======== ======
-----------------
(1) Dollar denominated assets and liabilities have been converted to pesos
based on the Observed Exchange Rate, as of December 31, 2003, which was
Ch$593.80 = US$1.00.
|
The table below provides information about our short and long-term
debt and investments, by fixed and variable interest rates as of December 31,
2002:
As of December 31, 2002
(Ch$ in millions)
---------------------------------------------------------------------
Short-term Long-Term
---------------------------------- --------------------------------
Floating rate Fixed rate Floating rate Fixed rate
-------------------- ----------- ----------------- -----------
LIBOR TAB LIBOR TAB
--------- -------- -------- -------
Bank liabilities 3,046 1,153 216 38,809 5,055 856
Bonds 1,967 89,631
-------- -------- ---------- ------- ------ -----------
Total debt 3,046 1,153 2,183 38,809 5,055 90,487
Time deposits 13,112
Marketable securities 68,138
Other current assets 15,561
-------- -------- ---------- ------- ------ -----------
Total investments --- --- 96,811 --- --- ---
-------- -------- ---------- ------- ------ -----------
Net Debt (Investments) 3,046 1,153 ( 94,628) 38,809 5,055 90,487
-----------------
(1) Dollar denominated assets and liabilities have been converted to pesos
based on the Observed Exchange Rate, as of December 31, 2002, which was
Ch$718.61 = US$1.00.
|
91
The following table summarizes the debt obligations held by our
company, as of December 31, 2003, which are sensitive to changes in interest
rates. The table presents principal payment obligations that exist by maturity
date and the related weighted average interest rate. U.S. dollar-denominated
liabilities have been converted to pesos based on the Observed Exchange Rate,
as of December 31, 2003, which was Ch$593.80=US$1.00.
As of December 31, 2003
Expected maturity date
---------------------------------------------------------------------------------------------
Total Debt Fair
(incl. 200 Value
2004 2005 2006 2007 2008 Thereafter maturities) (1)
------- ------- ------- -------- ---- --------------------- --------
(Ch$ Equivalent in millions)
Bank Liabilities
Short and long-term Bank
Liabilities:
Fixed Rate
Ch$ denominated (3) 265.6 266.8 264.4 --- --- --- 796.8 796.8
Average interest rate (%)(2) 4.94% 4.94% 4.94% --- --- ---
US$ denominated --- --- --- --- --- --- --- ---
Average interest rate (%)(2) --- --- --- --- --- ---
Variable Rate
Ch$ denominated (3) 1,688.1 1,033.2 906.3 864.0 --- --- 4,491.6 4,491.6
Average interest rate (%)(4)(2) 5.11% 5.26% 5.26% 5.26%
US$ denominated 2,134.8 234.0 14,871.5 14,854.2 --- --- 32,094.5 32,094.5
Average interest rate (%)(2) 1.90% 1.99% 1.99% 1.99%
-----------------
1. These figures were calculated based on the discount value of future cash
flows expected to be received or paid, considering current discount rates
that reflect the different risks involved.
2. Average interest rate means, for variable rate debt, the average
prevailing interest rate on December 31, 2003, on Cristalerias' variable
rate debt, and for fixed rate debt, the average prevailing interest rate
on December 31, 2003, on Cristalerias' fixed rate debt.
3. These figures were calculated based on the Observed Exchange Rate, as of
December 31, 2003, which was Ch$593.8=US$ 1.00.
4. Calculated using the 360 days TAB (Chilean Active Bank Rate), which was
3.36% in 12/31/2003.
|
The following table summarizes the debt obligations held by our
company, as of December 31, 2002, which are sensitive to changes in interest
rates. The table presents principal payment obligations that exist by maturity
date and the related weighted average interest rate. U.S. dollar-denominated
liabilities have been converted to pesos based on the Observed Exchange Rate,
as of December 31, 2002, which was Ch$718.61=US$1.00.
92
As of December 31, 2002
Expected maturity date
---------------------------------------------------------------------------------------------
Total Debt Fair
(incl. 200 Value
2004 2005 2006 2007 2008 Thereafter maturities) (1)
------- ------- ------- -------- ---- --------------------- --------
(Ch$ Equivalent in millions)
Bank Liabilities
Short and long-term Bank
Liabilities:
Fixed Rate
Ch$ denominated (3) 10.6 --- --- --- --- --- 10.6 10.6
Average interest rate (%) (2) 3.2% --- --- --- --- ---
US$ denominated --- --- --- --- --- --- --- ---
Average interest rate (%) (2) --- --- --- --- --- ---
Variable Rate
Ch$ denominated (3) 1,422.0 2,523.5 1,566.7 905.9 863.6 --- 7,281.6 7,281.6
Average interest rate (%)(4)(2) 3.87% 2.56% 3.16% 2.22% 2.21% ---
US$ denominated 2,983.9 2,272.1 297.5 18,146.7 18,144.9 --- 41,845.2 41,845.2
Average interest rate (%) (2) 2.42% 2.49% 4.24% 2.68% 2.68% ---
-----------------
1. These figures were calculated based on the discount value of future cash
flows expected to be received or paid, considering current discount rates
that reflect the different risks involved.
2. Average interest rate means, for variable rate debt, the average
prevailing interest rate on December 31, 2002, on Cristalerias' variable
rate debt, and for fixed rate debt, the average prevailing interest rate
on December 31, 2002, on Cristalerias' fixed rate debt.
3. These figures were calculated based on the Observed Exchange Rate, as of
December 31, 2002, which was Ch$718.61=US$ 1.00.
4. Calculated using the 360 days TAB (Chilean Active Bank Rate), which was
0.32% on 02/01/03.
|
The following table summarizes the public debt obligations held by
our company, as of December 31, 2003. The table presents principal payment
obligations that exist by maturity date and the related interest rate.
As of December 31, 2003
Expected maturity date
---------------------------------------------------------------------------------------------
Total Debt
(incl. 200 Fair
2004 2005 2006 2007 2008 Thereafter maturities) Value
------- ------- ------- -------- -------- --------------------- --------
(Ch$ Equivalent in millions)
Short-term:
Fixed Rate
ChUF$ denominated --- --- --- --- --- --- --- ---
Interest rate (%) --- --- --- --- --- --- --- ---
Long-Term:
ChUF$ denominated 1,754.3 3,384.0 --- --- 33,840.0 52,452.0 91,430.3 92,894
Interest rate (%) 5.36% 6.25% --- --- 4.75% 5.95% --- ---
-----------------
|
The following table summarizes the public debt obligations held by
our company, as of December 31, 2002. The table presents principal payment
obligations that exist by maturity date and the related interest rate.
93
As of December 31, 2002
Expected maturity date
---------------------------------------------------------------------------------------------
Total Debt Fair
(incl. 200 Value
2004 2005 2006 2007 2008 Thereafter maturities) (1)
------- ------- ------- -------- -------- --------------------- --------
(Ch$ Equivalent in millions)
Bonds
Short-term:
Fixed Rate --- --- --- --- --- --- --- ---
ChUF$ denominated --- --- --- --- --- --- --- ---
Interest rate (%) --- --- --- --- --- --- --- ---
Long-Term:
ChUF$ denominated 1,966.3 --- 3,382.3 --- --- 86,249.0 91,598.6 91,961.7
Interest rate (%) 5.51% --- 6.25% --- --- 5.48% --- ---
|
Risk of Variations in Foreign Currency Exchange Rates
Our consolidated results are exposed to variations in exchange
rates, particularly to fluctuations in the peso-U.S. dollar exchange rate. As
of December 31, 2003, we held U.S. dollar-denominated operating assets
totaling approximately Ch$17,612 million and U.S. dollar-denominated
liabilities of approximately Ch$40,826 million. As a result, we had a net
exposure of Ch$23,214 million. As of December 31, 2002, we held U.S.
dollar-denominated operating assets totaling approximately Ch$10,897 million
and U.S. dollar-denominated liabilities of approximately Ch$52,704 million. As
a result, we had a net exposure of Ch$41,807 million.
The table below provides information about our U.S.
dollar-denominated operating assets and liabilities:
December 31, 2002 December 31, 2003
(Ch$ in millions) (Ch$ in millions)
---------------- -----------------
On-Balance Sheet Financial
Instruments (1)
Assets
Cash 333.1 465.4
Miscellaneous Receivables 4,491.9 4,920.4
Other assets 6,072.3 12,226.5
Total assets 10,897.3 17,612.3
Liabilities
Obligations to Banks 40,383.2 31,900.9
Accounts payable 3,158.5 1,439.2
Documents payable 2,367.4 1,762.3
Accrued expenses 5,424.8 4,931.6
Miscellaneous Creditors 1,370.3 792.1
Total liabilities 52,704.2 40,826.1
-----------------
[(1) ADD FN TEXT HERE]
|
As of December 31, 2003, we held approximately Ch$2,665 million in
U.S. dollar-denominated time deposits, Ch$37,066 million in marketable
securities, as well as foreign currency forward contracts to purchase U.S.
dollars totaling US$ 44.6 million and foreign currency forward contracts to
sell U.S. dollars totaling US$41.6 million.
94
As of December 31, 2002, we held approximately Ch$3,301 million in
U.S. dollar-denominated time deposits, Ch$64,253 million in marketable
securities, as well as foreign currency forward contracts to purchase U.S.
dollars totaling US$ 130.6 million.
The table below provides information about our U.S.
dollar-denominated time deposits and forward exchange agreements that are
sensitive to foreign currency exchange rates as of December 31, 2003:
As of December 31, 2003
Expected maturity date
------------------------------------------------------------------------------------
Fair
2004 2005 2006 2007 2008 Thereafter Total Value
---------- --------- --------- ------- -------- ------------ --------- --------
On-Balance Sheet Financial
Instruments (Ch$ in millions)
US$ Time Deposits 2,665 --- --- --- --- --- 2,665 2,665
Marketable Securities 37,066 --- --- --- --- --- 37,066 37,066
Long-Term Bonds --- 8,036 --- --- --- --- 8,036 8,450
Reverse Repurchase agreements 3,586 --- --- --- --- --- 3,586 3,586
Anticipated Transactions and Expected transaction date
Related Derivatives (Ch$ in millions)
Forward Exchange agreements
(Receive US$/Pay UF): (1)
Contract Amount (2) --- --- --- --- --- --- --- ---
Average Contractual Exchange Rate
(UF/US$) Forward Exchange agreements
(Receives Ch$/Pays US$)
Contract Amount (3) (2,398) --- --- --- --- --- (2,398) (2,366)
Average Contractual Exchange Rate 662.83
(Ch$/US$)
(1) The UF-U.S. dollar exchange rate differs from the peso-U.S. dollar
exchange rate because the UF automatically adjusts with Chilean inflation
and is tied in part to the peso-U.S. dollar exchange rate.
(2) These figures were calculated based on the Observed Exchange Rate as of
December 31, 2003, which was Ch$593.80=US$1.00.
(3) This average exchange rate includes Dollar purchase forward exchange
contracts of US$44.6 million and Dollar sale future exchange contracts of
US$41.6 millin, which take into account an average exchange rate of
Ch$686.91/US$1 and Ch$638.74/US$1 respectively.
|
The table below provides information about our U.S.
dollar-denominated time deposits and forward exchange agreements that are
sensitive to foreign currency exchange rates, as of December 31, 2002:
As of December 31, 2002
Expected maturity date
-----------------------------------------------------------------------------------
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
---------- --------- -------- ------- ------ ------------- ------- ---------
On-Balance Sheet Financial
Instruments (Ch$ in millions)
US$ Time Deposits 3,301 --- --- --- --- --- 3,301 3,301
Marketable Securities 64,253 --- --- --- --- --- 64,253 64,378
Long-Term Bonds --- --- 9,938 --- --- --- 9,938 10,494
Reverse Repurchase agreements 5,692 --- --- --- --- --- 5,692 5,692
95
|
Anticipated Transactions and Expected transaction date
Related Derivatives (Ch$ in millions)
Forward Exchange agreements
(Receive US$/Pay UF): (1)
Contract Amount (2) (628) --- --- --- --- --- (628) 1,076
Average Contractual Exchange Rate 0.04295
(UF/US$) Forward Exchange agreements
(Receives Euros/Pays US$)
Contract Amount (3) --- --- --- --- --- --- --- ---
Average Contractual Exchange Rate
(US$/Euro)
(1) The UF-U.S. dollar exchange rate differs from the peso-U.S. dollar
exchange rate because the UF automatically adjusts with Chilean inflation
and is tied in part to the peso-U.S. dollar exchange rate.
(2) These figures were calculated based on the Observed Exchange Rate as of
December 31, 2002, which was Ch$718.61=US$1.00.
|
In addition, during 2003, approximately 36% of our consolidated
sales were denominated in U.S. dollars (36.7% in 2002). These sales stemmed
primarily from the exports of wine from Vina Santa Rita and
from sales by Cristalerias in Chile for contracts denominated in U.S. dollars.
Furthermore, during 2003, 30% of our consolidated costs, were denominated in
U.S. dollars (27.4% in 2002). In the case of the glass container business
approximately 34% of sales and 27% of costs were denominated in US Dollars
(34% and 28% respectively in 2002); the latter mainly related to costs of raw
materials such as soda ash and energy. In the case of Santa Rita approximately
54.5% of consolidated sales and 34.0% of consolidated costs are denominated in
US Dollars; the latter mainly corresponding to dry costs such as corks, labels
and bottles.
As of December 31, 2003, we held investments in Argentina of
Ch$16,150 million as represented by a 40% ownership interest in Rayen Cura
S.A.I.C., which has been remeasured into U.S. dollars as required under BT 64
(Ch$20,763 million in 2002).
Other Risks
i. Competition
The glass containers industry in Chile is subject to substitutes
such as plastics, tetra packs and aluminum and steel cans. Additionally, the
Company faces competition from a local producer and from imports of glass
containers. An increase in the level of competition could affect the Company's
sales and/or its margins, and therefore impact negatively its results. At the
same time it is worth mentioning that the Company has an important market
share in each of the glass container segments in which it participates as well
as the advantages that glass has compared with potential substitutes. In
addition, the Company owns 50% of a plastic containers producer, Envases CMF
S.A., and owns 40% of Rayen Cura S.A.I.C., a glass producer located in the
province of Mendoza, Republic of Argentina.
In the case of the wine business there is a high level of
competition in the local market that allows fluctuations in the Company's
profitability. In relation to foreign markets, the level of globalization and
the large amount of participants in the wine industry make these markets
highly competitive.
96
ii. Concentration of sales to the wine sector
During 2003 59.7% of individual sales of the glass business in Chile
were glass containers for the wine sector. Of this total, 81% was attributable
to wine exports. In this way, potential problems in the commercialization or
production of Chilean wine could negatively affect the Company's results. In
addition, it is noteworthy that 44.1% of the Company's consolidated sales
correspond to sales of Vina Santa Rita.
Agricultural risk
Production of fine wines depends importantly of quantity and quality
of harvested grapes. Being an agricultural activity, grapes harvest is
influenced by factors such as weather and plagues. Likewise, a higher than
expected harvest represents a reduction of direct costs, and, at the same
time, could have negative effects in the sale price of the final product. Vina
Santa Rita has demanding quality standards on its agricultural assets
administration, which include, among others: plague resistant plantations,
deep wells that ensure a higher water availability and frost and hail control
systems in the majority of its vineyards, in order to reduce exposure to the
aforementioned factors. Additionally, Vina Santa Rita has invested in
plantations in order to increase self supply for its fine wines production.
ITEM 12: Description of Securities other than Equity Securities
Not Applicable
PART II
ITEM 13: Defaults, Dividend Arrearages and Delinquencies
Not Applicable
ITEM 14: Material Modifications to the Rights of Security Holders and Use
of Proceeds
Not Applicable
ITEM 15: Controls and Procedures
Within the 90 days prior to the date of this report, we carried out
an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls
and procedures. There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control objectives. Based
upon and as of the date of our evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that the disclosure controls and procedures
are effective to provide reasonable assurance that information required to be
disclosed in the reports we file and submit under the Exchange Act is
recorded, processed, summarized and reported as and when required.
97
Furthermore, there were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 16: Reserved
ITEM 16A. Audit Committee Financial Expert
In accordance with Chilean laws and regulations, our Board of
Directors, at its meeting on April 19, 2003, elected the following three
members of what is called the "Committee of Directors," which is the Audit
Committee:
o Mr. Juan Agustin Figueroa Yavar, President
o Mr. Joaquin Barros Fontaine
o Mr. Patricio Claro Grez
The Board is in the process of evaluating whether any current member
of the Audit Committee qualifies as an "audit committee financial expert," as
the term is defined in Item 16A of Form 20-F. If the evaluation, once
complete, shows that no current member of the Audit Committee is qualified as
such an expert, the Board of Directors intends to propose an appropriately
qualified audit committee financial expert as a candidate to the Audit
Committee.
ITEM 16B. Conduct Ruling
We have adopted a conduct ruling that applies to our chief executive
officer and all senior financial officers of our company, including the chief
financial officer, corporate comptroller and accounting officer. Our conduct
ruling is filed as Exhibit 11.1. If we make any substantive amendment to the
conduct ruling or grant any waivers, including any implicit waiver, from a
provision of the conduct ruling, we will disclose the nature of such amendment
or wavier on our website, www.cristalchile.com.
ITEM 16C.Principal Accountant Fees and Services
The following table sets forth the fees billed to us by our
independent auditors, Ernst & Young Limitada, during the fiscal years ended
December 31, 2002 and 2003:
Year ended December 31,
-------------------------------
2002 2003
--------- ---------
(Ch$ in constant millions)
Audit fees (1) 85 85
Audit-related fees (2) -- --
Tax fees (3) -- --
Other fees (4) -- --
Total fees 85 85
-----------------
|
(1) Audit Fees consist of services that would normally be provided in
connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can
reasonably provide.
98
(2) Audit-Related Fees relate to assurance and associated services that
traditionally are performed by the independent accountant, including:
attest services that are not required by statute or regulation;
accounting consultation and audits in connection with mergers,
acquisitions and divestitures; employee benefit plans audits; and
consultation concerning financial accounting and reporting standards.
(3) Tax and Legal Fees relate to services performed by the tax division for
tax compliance, planning, and advice.
(4) All Other Fees relate to products and services provided by the principal
accountant that are not otherwise described in this table.
Audit fees in the above table are the aggregate fees billed and
contracted to be billed by Ernst & Young Limitada in connection with the audit
of our 2003 annual financial statements, statutory and regulatory filings and
engagements, including the review of our interim financial statements as of
and for the period ended June 30, 2003.
We did not incur any audit-related fees, tax fees or other fees with
Ernst & Young Limitada. Audit-related fees would include assurance and related
services that are related to the performance of the audit or review of our
financial statements. Tax fees would include tax compliance, tax advice, and
tax planning.
Audit Committee Pre-Approval Policies and Procedures
We have adopted pre-approval policies and procedures under which all
audit and non-audit services provided by our external auditors must be
pre-approved by the audit committee. Any service proposals submitted by
external auditors need to be discussed and approved by the audit committee
during its meetings, which take place at least four times a year. Once the
proposed service is approved, we or our subsidiaries formalize the engagement
of services. In addition, the members of our board of directors are briefed on
matters discussed by the different committees of our board.
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During 2003, no issuer or affiliated party repurchases were made
pursuant to publicly announced plans or programs or not pursuant to such
plans.
99
PART III
ITEM 17: Financial Statements
Our financial statements have been prepared in accordance with Item
18 hereof.
ITEM 18: Financial Statements
The following consolidated financial statements of our company and
its subsidiaries are included at the end of this annual report:
Independent Auditors' Report....................................................................F-2
Consolidated balance sheets at December 31, 2002 and 2003.......................................F-4
Consolidated statements of income for the years ended December 31, 2001, 2002 and 2003..........F-6
Consolidated statements of cash flows at December 31, 2001, 2002 and 2003.......................F-8
Notes to the Consolidated Financial Statements................................................ F-10
The following consolidated financial statements of Cordillera
Comunicaciones Ltda. and its subsidiaries are included at the end of this
annual report:
Independent Auditors' Report....................................................................G-3
Consolidated balance sheets at December 31, 2002 and 2003.......................................G-5
Consolidated statements of income for the years ended December 31, 2001, 2002 and 2003..........G-7
Consolidated statements of cash flows at December 31, 2001, 2002 and 2003.......................G-8
Notes to the Consolidated Financial Statements.................................................G-10
|
100
ITEM 19: Exhibits
The exhibits filed with or incorporated by reference in this annual
report are listed in the index of exhibits below.
Exhibit Number Description
12.1 Certification of Mr. Cirilo Elton Gonzalez pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
12.2 Certification of Mr. Rodrigo Palacios Fitz-Henry, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
13.1 Certification of Mr. Cirilo Elton Gonzalez pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
(filed herewith).
13.2 Certification of Mr. Rodrigo Palacios Fitz-Henry pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002 (filed herewith).
8.1 List of Cristalerias Subsidiaries (filed herewith).
11.1 Conduct Ruling of the company (filed herewith).
|
101
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 2002 and 2003 and for each of the
three years in the period ended December 31, 2003
together with the Reports of Independent Auditors
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Pages
INDEPENDENT AUDITORS' REPORT:
Audit Report of Ernst & Young - 2002 and 2003 F-2
Audit Report of Langton Clarke - 2001 F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2002
and 2003 F-4 - F-5
Consolidated Statements of Income for each of the
three years in the period ended December 31, 2003 F-6
Consolidated Statements of Changes in Shareholders'
Equity for each of the three years in the period ended
December 31, 2003 F-7
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2003 F-8 - F-9
Notes to the Consolidated Financial Statements F-10
------------
Ch$ - Chilean pesos
ThCh$ - Thousands of Chilean pesos
US$ - United States dollars
ThUS$ - Thousands of United States dollars
UF - Unidad de Fomento "UF" is a daily, indexed, peso-denominated
accounting unit. The UF rate is set daily in advance based on the
change in the Chilean Consumer Price Index of the previous month.
------------
|
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Cristalerias de Chile S.A.:
We have audited the accompanying consolidated balance sheets of Cristalerias
de Chile S.A. and Subsidiaries (the "Company") as of December 31, 2002 and
2003, and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of the Company for the year ended December 31, 2001 were
audited by Langton Clarke, a member of Andersen Worldwide, who issued an
unqualified opinion in their report dated February 28, 2002, except for Notes
2(a), 2(b), 35 and 39 for which the date was May 29, 2002. Andersen Worldwide
has ceased operating as a member of the Securities and Exchange Commission
Practice Section of the American Institute of Certified Public Accountants.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cristalerias de
Chile S.A. and Subsidiaries as of December 31, 2002 and 2003, and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles in Chile, which
differ in certain respects from accounting principles generally accepted in
the United States of America (see Note 37 to the consolidated financial
statements).
/s/ Ernst & Young
ERNST & YOUNG LTDA.
Santiago, Chile
February 26, 2004
|
F-2
This is a copy of a previously issued Arthur Andersen - Langton Clarke report.
Arthur Andersen - Langton Clarke has not reissued the report, nor has Arthur
Andersen - Langton Clarke consented to the inclusion of the report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cristalerias de Chile S.A.:
We have audited the accompanying consolidated balance sheets of Cristalerias
de Chile S.A. (the "Company") and subsidiaries as of December 31, 2000 and
2001 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001, all expressed in thousands of constant Chilean pesos.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with accounting principles generally
accepted in Chile, but do not conform with accounting principles generally
accepted in the United States of America. A description of these differences
and a reconciliation of consolidated net income and shareholders' equity under
accounting principles generally accepted in Chile to the corresponding amounts
that would be reported in accordance with accounting principles generally
accepted in the United States, except for the omissions, as allowed pursuant
to Item 18 of SEC Form 20-F, of adjustments necessary to eliminate the effect
of price-level changes and the translation of non-Chilean operations described
in Notes 2(b) and 2(t), is set forth in Note 39 to these consolidated
financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Cristalerias de Chile S.A. and subsidiaries as of December 31, 2000 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in Chile.
As explained in Note 3 to these consolidated financial statements, on January
1, 2000 the Company prospectively recorded the tax effects of temporary
differences adopted using the liability method in accordance with Technical
Bulletins No. 60 and 68 issued by the Chilean Association of Accountants
and Circular No. 1,466 issued by the Chilean Superintendency of
Securities and Insurance.
LANGTON CLARKE
Santiago, Chile February 28, 2002,
(except for Notes 2(a), 2(b), 35 and 39 for which the date is May 29, 2002)
F-3
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003 and thousands of U.S. dollars)
As of December 31,
---------------------------------------------
ASSETS 2002 2003 2003
ThCh$ ThCh$ ThUS$
(Note 2(o))
----------- ----------- -----------
CURRENT ASSETS:
Cash 2,450,019 3,513,737 5,917
Time deposits (Note 4) 13,112,270 4,265,706 7,184
Marketable securities (Note 4) 68,137,825 59,614,973 100,396
Current receivables, net of allowance for doubtful accounts of
ThCh$704,809 and ThCh$701,509 respectively (Note 5) 43,530,243 45,000,647 75,784
Accounts receivable from related companies (Note 6) 403,409 1,166,627 1,965
Inventories (Note 7) 32,129,652 31,888,316 53,702
Recoverable taxes, net (Note 8) 795,607 3,934,227 6,626
Prepaid expenses 1,718,272 1,636,025 2,755
Deferred income taxes (Note 8) 1,192,020 1,060,466 1,786
Other current assets (Note 9) 15,561,568 12,755,237 21,481
----------- ----------- --------
Total current assets 179,030,885 164,835,961 277,596
----------- ----------- --------
PROPERTY, PLANT AND EQUIPMENT (Note 11):
Land 13,058,482 13,083,665 22,034
Buildings and construction 55,742,387 61,582,136 103,709
Machinery and equipment 132,480,170 144,254,005 242,934
Other property, plant and equipment 11,252,568 11,475,204 19,325
Technical revaluation of property, plant and equipment 7,713,765 6,606,881 11,126
Less: Accumulated depreciation (91,550,235) (100,861,120) (169,857)
----------- ------------ ---------
Net property, plant and equipment 128,697,137 136,140,771 229,271
----------- ----------- ---------
OTHER ASSETS:
Investments in related companies (Note 12) 110,749,484 103,059,369 173,559
Investments in others companies (Note 13) 825,600 825,600 1,390
Long-term receivables 196,909 210,268 354
Accounts receivables from related companies (Note 6) 1,442 2,894 5
Intangibles, net (Note 15) 10,771,986 10,593,695 17,841
Goodwill, net (Note 14) 9,822,246 8,978,309 15,120
Other assets (Note 16) 16,907,513 13,298,636 22,396
----------- ----------- ---------
Total other assets 149,275,180 136,968,771 230,665
----------- ----------- ---------
Total assets 457,003,202 437,945,503 737,532
=========== =========== =========
The accompanying notes are an integral part of these consolidated financial statements.
|
F-4
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003
and thousands of U.S. dollars)
As of December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY ----------------------------------------------
2002 2003 2003
ThCh$ ThCh$ ThUS$
(Note 2(o))
----------- ----------- -----------
CURRENT LIABILITIES:
Short-term bank liabilities (Note 17) 10,590 165,648 279
Current portion of long-term bank liabilities (Note 17) 4,405,941 3,922,847 6,606
Current portion of bonds payable (Note 19) 1,966,286 1,754,288 2,954
Dividends payable 729,869 503,684 848
Trade accounts payable 13,399,179 11,233,939 18,919
Miscellaneous creditors 2,440,235 1,657,009 2,791
Accounts payable to related companies (Note 6) 890,409 722,925 1,217
Accrued expenses (Note 20) 10,872,844 8,440,614 14,215
Withholdings 2,714,583 3,294,333 5,548
Unearned income 1,634,702 3,035,936 5,113
Other current liabilities (Note 18) 628,635 2,397,846 4,038
----------- ----------- -------
Total current liabilities 39,693,273 37,129,069 62,528
----------- ----------- -------
LONG-TERM LIABILITIES:
Long-term bank liabilities (Note 17) 44,720,914 33,294,496 56,070
Bonds payable (Note 19) 89,631,274 89,676,000 151,021
Accounts payable 14,210 - -
Miscellaneous creditors 2,505,839 272,283 459
Accrued expenses (Note 20) 5,627,116 7,539,441 12,697
Deferred income taxes (Note 8) 4,046,876 4,030,879 6,788
----------- ----------- -------
Total long-term liabilities 146,546,229 134,813,099 227,035
----------- ----------- -------
COMMITMENTS AND CONTINGENCIES (Note 29):
MINORITY INTEREST (Note 21): 37,120,269 37,681,750 63,459
SHAREHOLDERS' EQUITY (Note 22):
Authorized, subscribed and paid-in capital represented by
64,000,000 shares with no par value 65,396,749 65,396,749 110,133
Share premium 27,874,377 27,874,377 46,942
Other reserves 9,810,228 6,421,900 10,815
Retained earnings 112,724,808 122,202,039 205,797
Net income 17,837,269 6,426,520 10,823
----------- ----------- -------
Total shareholders' equity 233,643,431 228,321,585 384,510
----------- ----------- -------
Total liabilities and shareholders' equity 457,003,202 437,945,503 737,532
=========== =========== =======
The accompanying notes are an integral part of these consolidated financial statements.
|
F-5
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Translation of financial statements originally
issued in Spanish - See Note 2) (Restated for
general price-level changes and expressed in
thousands of constant Chilean pesos as of
December 31, 2003 and thousands of U.S. dollars)
Years ended December 31,
---------------------------------------------------------------
2001 2002 2003 2003
ThCh$ ThCh$ ThCh$ ThUS$
(Note 2(o))
------------ ------------ ------------ ------------
OPERATING RESULTS:
Net sales 147,648,547 162,667,833 169,941,105 286,192
Cost of sales (90,986,823) (95,725,678) (105,685,566) (177,982)
------------ ------------ ------------ ---------
Gross margin 56,661,724 66,942,155 64,255,539 108,210
Selling and administrative expenses (22,764,040) (24,915,744) (26,613,799) (44,819)
------------ ------------ ------------ --------
Operating income 33,897,684 42,026,411 37,641,740 63,391
------------ ------------ ------------ --------
NON-OPERATING RESULTS:
Net interest expense (Note 23) (4,256,736) (4,329,668) (4,235,958) (7,134)
Equity participation in net income (loss) of
related companies (Note 12) (7,692,604) (8,991,404) (4,538,754) (7,644)
Other non-operating income (Note 23) 6,980,179 1,276,956 928,916 1,564
Other non-operating expense (Note 23) (2,857,052) (4,114,556) (2,313,971) (3,897)
Price-level restatement, net (Note 24) (2,361,148) (1,970,860) (802,562) (1,352)
Foreign currency translation, net (Note 25) 1,401,312 4,997,842 (17,064,668) (28,738)
------------ ------------ ------------ -------
Non-operating income (loss) (8,786,049) (13,131,690) (28,026,997) (47,201)
------------ ------------ ------------ -------
Income before income taxes and minority
interest 25,111,635 28,894,721 9,614,743 16,190
Income taxes (Note 8) (5,183,099) (6,461,791) (1,347,581) (2,268)
Extraordinary income (Note 26) 1,857,013 - - -
------------ ------------ ------------ -------
Income before minority interest 21,785,549 22,432,930 8,267,162 13,922
Minority interest (Note 21) (3,298,782) (4,595,661) (1,840,642) (3,099)
------------ ------------ ------------ -------
Net income 18,486,767 17,837,269 6,426,520 10,823
============ ============ ============ =======
The accompanying notes are an integral part of these consolidated financial statements.
|
F-6
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Expressed in thousands of historical Chilean pesos, except as stated)
Previous
Share Share Other Retained Year's Net Net Income
Capital Premium Reserves Earnings Income For the Year Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
----------- ---------- ---------- ----------- ----------- ------------- ------------
Balance as of January 1, 2001 60,973,186 25,988,901 6,058,558 87,131,175 17,042,239 - 197,194,059
Profit distribution 2001 - - 107,536 16,934,703 (17,042,239) - -
Dividends - - - (8,996,480) - (8,996,480)
Price-level restatement of equity
accounts 1,890,169 805,655 172,570 3,070,988 - - 5,939,382
Currency translation adjustment - - 1,604,256 - - - 1,604,256
Subsidiary start-up stage deficit - - (123,129) - - - (123,129)
Net income for the year - - - - - 17,770,611 17,770,611
---------- ---------- ---------- ----------- ---------- ---------- -----------
Balance as of December 31, 2001 62,863,355 26,794,556 7,819,791 98,140,386 - 17,770,611 213,388,699
========== ========== ========== =========== ========== ========== ===========
Balance as of December 31, 2001
restated to constant Chilean Pesos
as of December 31, 2003 65,396,749 27,874,377 8,134,929 102,095,444 - 18,486,767 221,988,266
========== ========== ========== =========== ========== ========== ===========
Balance as of January 1, 2002 62,863,355 26,794,556 7,819,791 98,140,386 17,770,611 - 213,388,699
Profit distribution 2002 - - 123,129 17,647,482 (17,770,611) - -
Dividends - - - (7,494,400) - - (7,494,400)
Price-level restatement of
equity accounts 1,885,901 803,837 238,285 3,315,252 - - 6,243,275
Currency translation adjustment - - 1,531,894 - - - 1,531,894
Net income for the year - - - - - 17,660,662 17,660,662
---------- ---------- ---------- ----------- ---------- ---------- -----------
Balance as of December 31, 2002 64,749,256 27,598,393 9,713,099 111,608,720 - 17,660,662 231,330,130
========== ========== ========== =========== ========== ========== ===========
Balance as of December 31, 2002
restated to constant Chilean Pesos
as of December 31, 2003 65,396,749 27,874,377 9,810,228 112,724,808 - 17,837,269 233,643,431
========== ========== ========== =========== ========== ========== ===========
Balance as of January 1, 2003 64,749,256 27,598,393 9,713,099 111,608,720 17,660,662 - 231,330,130
Profit distribution 2003 - - 17,660,662 (17,660,662) - -
Dividends - - - (8,406,400) - - (8,406,400)
Price-level restatement of
equity accounts 647,493 275,984 97,131 1,339,057 - - 2,359,665
Currency translation adjustment - - (3,388,330) - - - (3,388,330)
Net income for the year - - - - - 6,426,520 6,426,520
---------- ---------- ---------- ----------- ---------- ---------- -----------
Balance as of December 31, 2003 65,396,749 27,874,377 6,421,900 122,202,039 - 6,426,520 228,321,585
========== ========== ========== =========== ========== ========== ===========
As of December 31, 2001, 2002 and 2003 there were 64,000,000 shares authorized, issued and outstanding.
The accompanying notes are an integral part of these consolidated financial statements.
|
F-7
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003
and thousands of U.S. dollars)
Years ended December 31,
---------------------------------------------------------
2001 2002 2003 2003
ThCh$ ThCh$ ThCh$ ThUS$
(Note 2(o))
---------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME 18,486,767 17,837,269 6,426,520 10,823
Net (gain) loss on sale of property and equipment (44,944) 50,438 122,185 206
Net (gain) loss on sale of other assets (2,070,142) - - -
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 12,256,348 13,710,672 14,727,039 24,801
Amortization of intangibles 164,506 180,998 296,917 500
Amortization of bonds 243,585 206,036 326,029 549
Amortization of prepaids 851,293 394,263 438,315 738
Write-offs and provisions 4,038,228 8,518,965 1,972,742 3,322
Equity in net loss of related companies 7,692,604 8,991,404 4,538,754 7,644
Amortization of goodwill 855,611 653,119 577,203 972
Price-level restatement, net 2,361,148 1,970,860 802,562 1,352
Foreign exchange gain, net (1,401,312) (4,997,842) 17,064,668 28,738
Other, net (845,431) 3,708,085 (8,192,875) (13,797)
CHANGES IN OPERATING ASSETS:
(Increase) decrease in current receivable (6,108,279) (4,645,631) 581,545 979
(Increase) decrease in inventories 865,030 (3,647,598) (574,569) (968)
Increase in other assets (3,780,216) (1,914,417) (903,829) (1,522)
CHANGES IN OPERATING LIABILITIES:
Increase (decrease) in trade accounts payable 1,675,405 1,316,413 (3,954,092) (6,659)
Increase (decrease) in bank liabilities (1,106,081) 2,434,166 (370,023) (623)
Increase (decrease) in income tax 1,579,465 582,027 (2,353,081) (3,963)
Increase (decrease) in accounts payable to related 2,118,652 (200,725) 882,098 1,486
companies
Increase (decrease) in withholdings (257,894) 125,485 1,186,630 1,999
Loss in minority interest 3,298,782 4,595,661 1,840,642 3,099
---------- ---------- ---------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 40,873,125 49,869,648 35,435,380 59,676
========== ========== ========== =======
The accompanying notes are an integral part of these consolidated financial statements.
|
F-8
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003 and thousands of U.S. dollars)
Years ended December 31,
-----------------------------------------------------------
2001 2002 2003 2003
ThCh$ ThCh$ ThCh$ ThUS$
(Note 2(o))
------------ ------------ ------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings from banks and others 8,802,865 3,173,791 220,986 372
Bonds payable 19,045,096 69,077,493 - -
Borrowings from related companies 1,986,639 78,545 124,518 210
Dividends paid (9,834,314) (9,246,022) (9,942,762) (16,744)
Payment of loans (12,180,660) (45,549,482) (4,377,152) (7,371)
Payment for bond issuance costs - (3,870,561) - -
Repayment of bonds (1,100,268) (1,060,815) (212,214) (357)
Payment of loans from related companies (2,320,860) (325,781) (150,068) (253)
Other sources of financing 982,810 - - -
Other finance payments (163,477) (458,765) (1,452,340) (2,446)
---------- ---------- ----------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,217,831 11,818,403 (15,789,032) (26,589)
---------- ---------- ----------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 1,525,951 239,409 369,137 622
Proceeds from sales of permanent investment 957,932 1,395 - -
Proceeds from sales of other investments 55,981,752 11,467,486 2,395,881 4,035
Proceeds from loans from related companies 1,384,696 90,831 2,032,082 3,422
Proceeds from forwards contracts 10,617,050 5,038,015 2,770,343 4,665
Additions to property, plant and equipment (34,049,120) (15,654,305) (25,643,601) (43,186)
Disbursements for forward contracts - - (9,977,356) (16,803)
Permanent investments (4,091,354) (4,112,747) (3,920,618) (6,603)
Investment in financial instruments (67,597,460) (1,609,107) (2,465,810) (4,153)
Related company loans (157,778) (31,002) (46,737) (79)
Other investing activities 112,347 (477,609) (340,376) (573)
---------- ---------- ----------- --------
NET CASH USED IN INVESTING ACTIVITIES (35,315,986) (5,047,634) (34,827,055) (58,653)
---------- ---------- ----------- --------
TOTAL NET CASH FLOW OF THE PERIOD 10,774,970 56,640,417 (15,180,707) (25,566)
EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS
EQUIVALENTS (1,302,575) (1,708,086) (3,439,516) (5,792)
---------- ---------- ----------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,472,395 54,932,331 (18,620,223) (31,358)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 29,825,469 39,297,864 94,230,195 158,690
---------- ---------- ----------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 39,297,864 94,230,195 75,609,972 127,332
========== ========== =========== ========
The accompanying notes are an integral part of these consolidated financial statements.
|
F-9
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
1. BUSINESS DESCRIPTION
The primary activity of Cristalerias de Chile S.A. ("Cristalerias") and
its subsidiaries (collectively, the "Company") is the production of glass
bottles and plastic containers for the beverage industry. The Company
also has majority holdings in companies within the communications and
wine production industries. Virtually all the sales made by Cristalerias
de Chile S.A. are within the domestic market, with the exception of wine
bottle sales which have a significant export volume. In addition, Santa
Rita also has a significant volume of export sales and is one of the
largest exporters of wine in Chile.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis for preparation of financial statements:
The consolidated financial statements of the Company have been prepared
on the basis of accounting principles generally accepted in Chile and
specific guidelines issued by the Chilean Superintendency of Securities
and Insurance (the "SVS"), which are collectively referred to as "Chilean
GAAP". Certain accounting practices applied by the Company that conform
with generally accepted accounting principles in Chile do not conform
with generally accepted accounting principles in the United States of
America ("U.S. GAAP"). Certain prior year amounts have been reclassified
to conform to the current year method of presentation.
The preparation of financial statements in conformity with Chilean GAAP,
along with the reconciliation to U.S. GAAP, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
In certain cases generally accepted accounting principles require that
assets or liabilities be recorded or disclosed at their fair values. The
fair value is the amount at which an asset could be bought or sold or the
amount at which a liability could be incurred or settled in a current
transaction between willing parties, other than in a forced or
liquidation sale. Where available, quoted market prices in active markets
have been used as the basis for the measurement; however, where quoted
market prices in active markets are not available, the Company has
estimated such values based on the best information available, including
using modeling and other valuation techniques.
The accompanying financial statements reflect the consolidated results of
operations of Cristalerias and its subsidiaries. All significant
inter-company accounts have been eliminated in consolidation. The company
consolidates the financial statements of the companies in which it
controls a majority of voting shares. Investments in companies in the
development stage are accounted for using the equity method, except that
any participation in income or losses is included directly in
shareholders' equity instead of being reflected in the Company's
consolidated statement of income.
F-10
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(a) Basis for preparation of financial statements, continued:
As of December 31, 2001, 2002 and 2003, Cristalerias
consolidated the following companies:
Name % Participation
2001 2002 2003
----- ----- -----
Cristalchile Comunicaciones S.A. 99.99 99.99 99.99
Constructora Apoger S.A. "Apoger" (1) 80.00 80.00 80.00
CIECSA S.A. and subsidiaries "CIECSA" (2) 98.21 98.21 98.45
Vina Santa Rita "Santa Rita" (3) 54.10 54.10 54.10
Cristalchile Inversiones S.A. 99.99 99.99 99.99
(1) Apoger consolidates its subsidiary, Monte Azul Ltda. of which it owns
99.0%.
(2) Consolidated CIECSA S.A. includes the balances of its subsidiary,
Megavision S.A. of which previously owned 78.01%. Beginning August 27, 2002,
CIECSA's participation in Megavision S.A. increased to 99.99%. Beginning the
third quarter of 2001, CIECSA's subsidiary, Ediciones Chiloe S.A. has not been
consolidated, because ownership has decreased from 75% to 50%, and the Company
no longer has control.
(3) Santa Rita and subsidiaries includes the balances of its subsidiaries,
Vina Dona Paula S.A. and Vina Carmen S.A., of which it owns 99.0% and 100%,
respectively. Sur Andino S.A., which is 100% owned and consolidated, was
formed on March 1, 2001.
|
(b) Price-Level Restatement:
The financial statements have been price-level restated in order to reflect
the effect of the changes in the purchasing power of the Chilean currency
during each year. All non-monetary assets and liabilities and income statement
accounts have been restated to reflect the changes in the Chilean consumer
price index from the date they were acquired or incurred to year-end.
The purchasing power gain or loss included in net income within the account
"price-level restatement" reflects the net effect of Chilean inflation on the
monetary assets and liabilities held by the Company.
The restatements were calculated using the official consumer price index
("CPI") of the National Institute of Statistics and based on the "prior month
rule", in which the inflation adjustments are based on the consumer price
index at the close of the month preceding the close of the respective year or
transaction. This index is considered by the business community, the
accounting profession and the Chilean government to be the index which most
closely complies with the technical requirement to reflect the variation in
the general level of prices in the country and, consequently, is widely used
for financial reporting purposes in Chile.
F-11
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(b) Price-Level Restatement, continued:
The values of the Chilean consumer price index used for financial
accounting price-level restatement purposes are as follows:
Change over
previous
Index November 30
------ -----------
November 30, 2001 110.10 3.1%
November 30, 2002 113.36 3.0%
November 30, 2003 114.44 1.0%
|
By way of comparison, the year-end values of the Chilean consumer price
index are as follows:
Change over
previous
Index December 31
------ -----------
December 31, 2001 109.76 2.6%
December 31, 2002 112.86 2.8%
December 31, 2003 114.07 1.1%
|
The above-mentioned price-level restatements do not purport to represent
appraisal or replacement values and are only intended to restate all
non-monetary financial statement components in terms of local currency of
a single purchasing power and to include in the net result for each year
the gain or loss in purchasing power arising from the holding of monetary
assets and liabilities exposed to the effects of inflation.
Assets and liabilities that are denominated in index-linked units of
account are stated at the year-end values of the respective units of
account. The principal index-linked unit used in Chile is the Unidad de
Fomento (UF), which changes daily to reflect the changes in Chile's
consumer price index. Many of the Company's investments and liabilities
are denominated in UF. As the Company's indexed liabilities exceed its
indexed assets, an increase in the index results in a net loss on
indexation.
Values for the UF are as follows (historical pesos per UF):
Ch$
---------
December 31, 2001 16,262.66
December 31, 2002 16,744.12
December 31, 2003 16,920.00
|
F-12
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(b) Price-Level Restatement, continued:
Comparative financial statements:
All amounts in the financial statements and notes are expressed in
constant Chilean pesos of December 31, 2003 purchasing power, unless
otherwise stated. For comparative purposes, the December 31, 2001 and
2002 financial statements, and the amounts disclosed in the related
footnotes have been restated by 4.0%(1) and 1.0%, respectively, in order
to present such information in terms of Chilean pesos as of December 31,
2003. This updating does not change the prior year's statements or
information in any way except to update the amounts to constant Chilean
pesos of similar purchasing power.
(1) Originally reported 2001 figures multiplied by 3.0% then multiplied
by 1.0%
(c) Assets and liabilities denominated in foreign currency:
Balances in foreign currencies have been translated into Chilean Pesos at
the Observed Exchange Rate as reported by the Central Bank of Chile as
follows:
As of December 31,
-------------------------------------------
Symbol 2001 2002 2003
------ -------- --------
Ch$ Ch$ Ch$
U.S. Dollar US$ 654.79 718.61 593.80
Pound Sterling GBP 948.01 1,152.91 1,056.21
German Mark (1) DEM 296.36 - -
Italian Lira (1) ITL 0.30 - -
Swiss Franc CHF 390.62 517.69 477.64
French Franc (1) FRF 88.36 - -
Danish Corona (1) DKK 77.82 - -
Euro EUR 578.18 752.55 744.95
Argentine peso (2) ARG 385.17 216.45 204.05
(1) Beginning on January 1, 2002, these currencies have been replaced by
the Euro.
(2) In recent years prior to December 31, 2001, the Argentine peso was
pegged to the U.S. dollar at a rate of 1 Argentine peso to 1 U.S. dollar.
In early December 2001, restrictions were put in place that prohibited
cash withdrawals above a certain amount and foreign money transfers, with
certain limited exceptions. While the legal exchange rate remained at 1
peso to 1 U.S. dollar, financial institutions were allowed to conduct
only limited activity due to these controls, and currency exchange
activity was effectively halted except for personal transactions in small
amounts. In January 2002, the Argentine government announced its intent
to create a dual currency system with an "official" fixed exchange rate
of 1.4 pesos to 1 U.S. dollar for import and export transactions and a
"free" floating exchange rate for other transactions. On January 11,
2002, the exchange rate market holiday ended and closing new "free"
floating exchange rates ranged from 1.6 to 1.7 pesos to 1 U.S. dollar
notwithstanding the official foreign exchange rate as of December 31,
2001, 2002 and 2003, in accordance with SVS Circular No. 81. The
conversion of Argentine subsidiary financial statements reflect the
conversion rate of 1.7, 3.32 and 2.91 pesos to 1 U.S. dollar,
respectively.
|
F-13
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(c) Assets and liabilities denominated in foreign currency, continued:
Transactions in foreign currencies are recorded at the exchange rate
prevailing when the transactions occur. Foreign currency balances are
translated at the exchange rate prevailing at the month end. The
resulting translation gains and losses related to these balances are
included in foreign exchange gains and losses in the income statement for
the period to which they relate.
(d) Time deposits, marketable securities and investments under
agreements to resell:
Time deposits and marketable securities are shown at cost plus
price-level restatement (indexation) and accrued interest, which
approximates the market value of these items.
Investments in mutual funds are presented at their redemption value at
the end of each accounting period. Investment in other companies are
recorded at the lower of price-level restated cost or market value.
Financial instruments acquired subject to reverse repurchase agreements
are classified as Other Current Assets (see Note 9). These financial
instruments are notes issued by the Chilean Central Bank, primarily
denominated in UF and are stated at cost plus interest and indexation
accrued at year-end.
Investments held by the Company in bonds of Celulosa Arauco are included
in Other Assets and recorded at par value, without adjusting them to the
market value because the Company intends to hold these bonds until their
maturity (see Note 16).
(e) Inventories:
Inventories are valued at price-level restated cost, or at replacement
cost, if lower. Finished goods are shown at restated direct costs, which
include raw materials, energy and direct labor costs. Raw materials are
valued at historical cost, which does not exceed net realizable value.
Inventory costs are transferred to cost of sales on the basis of
weighted-average cost.
Rights to show television programs and programs produced by Megavision
are valued at cost less amortization. The inventory of programs is
amortized on an accelerated basis over the number of contracted showings
in order to match the higher income earned from the initial showings.
The stated values of inventories do not exceed their estimated net
replacement cost.
F-14
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(f) Property, plant and equipment:
Property, plant and equipment are presented at price-level restated cost;
as further restated for permitted technical revaluations carried out
during 1979 and 1986. Depreciation has been calculated on a straight-line
basis, taking into account the estimated useful lives of the assets,
which are as follows:
Years
-----
Buildings and construction 15 - 50
Machinery and equipment 5 - 20
Other 3 - 10
|
The Company accounts for repairs and maintenance expenditures that do not
improve the operating capacity of its fixed assets as expenses.
Expenditures such as betterments or significant improvements that enhance
the operating capacity of its fixed assets are capitalized. When disposed
of, the difference between the sales proceeds and the net book value of
the fixed assets is treated as a gain or a loss.
(g) Investments in related companies:
Investments in companies in which the Company's participation exceeds 10%
but is 50% or less are accounted for using the equity method unless the
Company does not have significant control. In addition, if a company
(such as Cristalerias) is part of a group under common control which owns
more than 10% of the outstanding voting shares of a related company, each
company in the controlled group which has an ownership interest in the
related company accounts for its investment using the equity method. The
Company's proportional share in net income and losses of related
companies is recognized in non-operating income and expense in the
Consolidated Statements of Income, after eliminating any unrealized
profits from transactions between related companies.
(h) Staff severance indemnities:
The Company has recorded a liability for long-term service indemnities in
accordance with the collective bargaining agreements entered into with
its employees. This liability is shown at its current value, based on the
amount that would be owed if the employees terminated their employment.
In general, each employee is entitled to receive one month's salary for
every year of service with the Company.
F-15
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(i) Deferred income taxes and tax income:
Prior to 2000, deferred income taxes were recorded based only on those
non-recurring timing differences between the recognition of income and
expense items for financial statement and tax purposes.
Under Chilean law, the Parent Company and its subsidiaries are required
to file separate tax declarations.
Beginning January 1, 2000, the Company records deferred income taxes in
accordance with Technical Bulletin No. 60 and related amendments,
recognizing the deferred tax effects of all temporary differences between
the financial and tax values of assets and liabilities, using the
liability method.
The effect of the temporary differences existing at December 31, 1999
were recorded in complementary asset and liability accounts, and will be
recognized in the statement of operations in the period in which they
reverse.
(j) Allowance for doubtful accounts:
The Company and its subsidiaries have established an allowance for
doubtful accounts, which for presentation purposes is deducted from
accounts receivables and notes receivables. The criteria used in
determining the allowance is based on the aging of the balances due.
(k) Intangibles:
Intangible assets comprise the value paid by Megavision in 1990 for the
right to use the Channel 9 television frequency and its regional channels
network and certain trademarks held by Santa Rita. The television
broadcast rights have a long productive life, and according to commercial
transactions it has maintained its economic value. The television
broadcast rights are being amortized over a 40 year period on a
decelerated basis, that is, the depreciation charge will increase as a
proportion of the remaining balance. The decelerated basis has been
chosen in order to match the amortization expense with the expected
increases in advertising revenue. Trademarks are carried at historical
cost plus price-level restatement. Beginning January 1, 1998, Santa Rita
began to amortize these trademarks on a straight-line basis over a
40-year period.
(l) Goodwill and negative goodwill:
Goodwill has resulted from comparing the price paid for the investment
made with the proportional carrying values of the investment's net assets
acquired. The amortization of these values is over a period of 20 years.
As of December 31, 2002 and 2003, there are no negative goodwill amounts
recorded.
F-16
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(m) Foreign currency forward exchange contracts:
While the Company generally enters into derivative instruments to
mitigate its risk to foreign currency, from time to time it enters into
foreign currency forward contracts that are speculative in nature. Those
foreign currency forward exchange contracts that form part of the
Companies hedging program are designated as such, and are effective as
hedges. The amounts payable and the amounts receivable related to foreign
exchange hedging contracts are recognized on a net basis under Other
Current Liabilities as of December 31, 2002 and 2003. Amounts payable or
receivable under these contracts offset gains and losses on the assets,
liabilities and transactions being hedged and are presented on a net
basis at the end of the period and are classified according to the
contract's expiration date.
(n) Revenue Recognition:
Revenue is recognized (a) upon shipment of goods, at which time title
transfers to the customer, or (b) upon broadcasting for advertising
services.
(o) Convenience translation to U.S. dollars:
The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The United States dollar amounts disclosed
in the accompanying financial statements are presented solely for the
convenience of the reader at the December 31, 2003 closing exchange rate
of Ch$593.80 per US$1. This translation should not be construed as
representing that the Chilean peso amounts actually represent or have
been, or could be, converted into United States dollars at that exchange
rate or at any other rate of exchange.
(p) Statement of cash flows:
The Company considers all time deposits and instruments under repurchase
agreements with a remaining maturity of less than 90 days as of year-end
to be cash equivalents.
(q) Repurchase and Resale agreement operations:
The financial instruments acquired with resale agreement are presented at
their acquisition value plus the interests and indexation adjustments
accrued at the closing of the fiscal year and they are classified as
Other Current Assets.
F-17
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(r) Bonds:
Bonds payable are recorded at the weighted-average yield rate of 5.60%.
The difference between the face value and the proceeds received, equal to
the premium or discount, is deferred and amortized on a straight-line
basis over the term of the bonds, which is not materially different than
the effective-interest method.
(s) Computer Software:
The Company and Santa Rita acquired computer packages from third parties,
which are recorded as Fixed Assets and amortized over 36 months by
Cristalerias and over 48 months by the subsidiary Santa Rita,
respectively.
(t) Foreign investments:
In accordance with Technical Bulletin No. 64 ("BT 64") of the Chilean
Association of Accountants, and Official Circular No. 5294 of the
SVS, permanent foreign investments established in countries defined by BT
64 as being unstable, whose activities do not constitute an extension of
the Company's operations are controlled and measured in U.S. dollars.
Differences between the Chilean peso and the U.S. dollar exchange rate
variation and fluctuations in CPI are accounted for as a charge or credit
to the equity account called "Cumulative Translation Adjustment." Under
BT 64, foreign exchange differences on US dollar-denominated liabilities
that have been designated as a hedge of such investments are also
included in the same equity account to the extent the hedge is effective.
This rule corresponds to the Company's equity method investment in Rayen
Cura and Santa Rita's consolidated subsidiary Dona Paula S.A.
(u) Research and development costs:
The Company charges research and development costs to expense, when they
are incurred.
F-18
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
3. CHANGES IN ACCOUNTING PRINCIPLES
There were no changes in accounting principles during the years ended
December 31, 2002 and 2003 that would affect the comparability with
previously issued financial statements.
4. TIME DEPOSITS AND MARKETABLE SECURITIES
The composition of time deposits is as follows:
Institution Currency 2002 2003
---------- ---------
ThCh$ ThCh$
Banco Santander-Santiago US$ - 2,665,003
ScotiaBank US$ 307,139 -
Banco J.P. Morgan Chase Bank US$ 1,198,453 -
Banco Deutsche Bank Chile S.A. US$ 1,795,528 -
Banco de Chile Ch$ - 1,235,194
BankBoston Ch$ - 365,509
Banco Santander-Santiago Ch$ 9,811,150 -
---------- ---------
Total 13,112,270 4,265,706
========== =========
|
Marketable securities consist of the following:
2002 2003
---------- ----------
ThCh$ ThCh$
Treasury bonds and money market securities 64,099,289 55,308,119
Equity securities 3,837,333 4,154,550
Other 201,203 152,304
---------- ----------
Total 68,137,825 59,614,973
========== ==========
|
F-19
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
5. CURRENT RECEIVABLES
Current receivables are summarized as follows:
2002 2003
---------- ----------
ThCh$ ThCh$
Trade accounts receivable 38,644,697 40,109,328
Miscellaneous accounts receivable 711,493 1,903,513
Notes receivable 4,878,862 3,689,315
---------- ----------
Sub-total 44,235,052 45,702,156
Less: Allowance for doubtful accounts (704,809) (701,509)
---------- ----------
Total 43,530,243 45,000,647
========== ==========
|
The movements in the allowance for doubtful accounts as at December 31,
2001, 2002 and 2003 are as follows:
2001 2002 2003
-------- -------- --------
ThCh$ ThCh$ ThCh$
Allowance beginning (561,743) (550,308) (704,809)
Charges to costs and expenses (169,773) (223,769) (32,427)
Charges to other accounts 160,926 53,236 2,890
Amounts written off 20,282 16,032 32,837
-------- -------- --------
Total (550,308) (704,809) (701,509)
======== ======== ========
|
F-20
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
6. RELATED PARTY TRANSACTIONS
The following table details amounts receivable from and payable to
related parties as of December 31, 2002 and 2003:
Balance Receivable Balance Payable
--------------------- ---------------------
2002 2003 2002 2003
------- --------- ------- -------
ThCh$ ThCh$ ThCh$ ThCh$
Short-term:
Metropolis - Intercom S.A. (indirect affiliate company) 54,082 81,113 - 8,307
Inversiones Bayona S.A. (shareholder) - - 125,405 88,688
Servicios y Consultorias Hendaya S.A. (shareholder) 4,702 5,597 121,928 85,795
Elecmetal S.A. (majority shareholder) 859 672 461,954 326,700
Editorial Zig-Zag S.A.(affiliate) 236,590 133,970 - -
Cordillera Comunicaciones Ltda. (affiliate) - - - -
Claro y Compania (common board members) 240 202 40,283 3,945
Distribuicion via Directa (common control) - - - -
Envases CMF S.A. (affiliate) 139 659,218 88,036 189,381
Marketing Meter Ltda. (affiliate) - - 9,964 9,865
Cia. Sudamericana de Vapores S.A. (common control) 17,474 - 6,789 8,789
Quemchi S.A. (common control) - 1,009 - -
Navarino S.A. (common control) - 1,009 - -
Vina Los Vascos S.A. (indirect affiliate) 86,275 124,713 7,385 -
Rayen Cura S.A.I.C. (affiliate) 2,929 156,992 26,164 -
Ediciones Financieras S.A. (affiliate) 119 2,132 2,501 1,455
------- --------- ------- -------
Total Short-term 403,409 1,166,627 890,409 722,925
======= ========= ======= =======
Long-term:
Ediciones Chiloe S.A. (affiliate) 1,442 2,894 - -
------- --------- ------- -------
Total Long-term 1,442 2,894 - -
======= ========= ======= =======
|
All related party transactions use estimated market rates.
F-21
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
6. RELATED PARTY TRANSACTIONS, continued:
Transactions with related parties that affect net income are as follows:
Amount of transaction (Charge) Credit to income
-------------------------------- ---------------------------------
2001 2002 2003 2001 2002 2003
--------- --------- --------- ---------- ---------- ---------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
CRISTALCHILE S.A.
Servicios y Consultorias Hendaya S.A.
(shareholder)
Services received 1,285,681 1,330,538 1,370,806 (1,285,681) (1,330,538) (1,370,806)
Dividends paid 783,255 723,329 780,060 - - -
Services Provided 20,213 19,606 20,872 20,213 19,606 20,872
Sales 7,842 4,184 3,354 39 131 905
Cia. Electro Metalurgica S.A. (shareholder)
Dividends paid 3,003,736 2,773,923 2,991,483 - - -
Payments on company's behalf 21 - 280 - - -
Purchase of industrial materials 6,287 3,711 3,585 - - -
Advertising sold 2,359 1,502 1,603 535 222 824
Claro y Compania (common board member)
Legal Counsel 170,363 235,340 231,441 (170,363) (235,340) (231,441)
Sales 1,290 896 852 360 297 237
Navarino S.A. (common parent)
Services Provided 9,966 9,914 10,130 9,966 9,914 10,130
Quemchi S.A. (common parent)
Services Provided 9,966 9,914 10,760 9,966 9,914 10,760
Loans Granted 52,015 - - - - -
Repayment of Loans 52,015 - - - - -
Interest on Loans Granted 159 - - 159 - -
Cia Sudamericana de Vapores S.A. (common parent)
Shipping Services 420,106 12,388 266,586 (420,106) (12,388) (266,586)
Advertising contracts 55,482 26,934 - 55,482 26,934 -
Services received 46,203 41,045 45,856 (46,203) (41,045) (45,856)
Sales 51,246 46,786 32,085 11,343 9,822 10,528
Rayen Cura S.A. (equity-method investment)
Direct Sales 39,944 185 697,022 10,642 - 186,317
Paid in Capital 3,370,346 - - - - -
Repayment of Loans 419 - - - - -
Cordillera Comunicaciones Ltda. (equity-method
investment)
Broadcasting rights - 216,084 - - - -
Vinedos Cullipeumo Ltda. (directors in common)
Purchase of Industrial Materials 40,055 82,273 40,468 - - -
CAP S.A. (directors in common)
Advertising sold 2,601 - - 2,601 - -
|
F-22
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
6. RELATED PARTY TRANSACTIONS, continued:
Amount of transaction (Charge) Credit to income
-------------------------------- ---------------------------------
2001 2002 2003 2001 2002 2003
--------- --------- --------- ---------- ---------- ---------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
CIECSA S.A.
Envases CMF S.A. (equity-method investment)
Purchase of Industrial Materials 18,071 515,410 628,148 - 50,018 -
Sales 180 196 432 36 65 120
Paid in Capital 522,274 - - - - -
Repayment of Loans 1,295,482 - - - - -
Interest on Loans Granted 60,912 - - 60,912 - -
Reimbursement of Expenses 12,611 - - (12,611) - -
Other - 4,299 57,184 - - -
Televisa S.A. de CV (former owner of affiliate)
Sales 36,326 - - 36,326 - -
Purchase of Materials 1,874,076 - - (1,874,076) - -
Metropolis Intercom S.A. (equity-method investment)
Advertising sold 187,794 322,762 19,258 (187,794) (322,762) (19,258)
Subscription sold - - - - - -
Advertising purchased 65,535 15,461 204,396 (65,535) (15,461) (204,396)
Sales - 9,876 30,881 - 3,272 11,096
Other - 144 159 - - (159)
Forus S.A. (directors in common)
Advertising sold - 81,378 - - (2,056) -
Ediciones Financieras S.A. (subsidiary)
Payments on company's behalf 10,372 - - - - -
Advertising sold 56,932 27,124 22,476 - (18,419) (14,476)
Advertising purchased 61,677 - - (61,677) - -
Other sold 4,877 9,515 7,220 800 1,834 2,007
Services received 9,057 6,928 1,702 (9,057) (6,928) (1,702)
Carmen Luz Sanchez (directors in common)
Purchase of Industrial Materials - 60,085 38,358 - - -
Costanera S.A.C.I. (directors in common)
Program production 80,917 - - (80,917) - -
Inversiones Bayona S.A. (majority shareholder)
Dividends 815,413 1,416,497 1,377,874 - - -
Vina Los Vascos S.A. (equity-method investment)
Direct Sales 490,381 520,556 446,123 111,047 140,441 119,267
Purchase of Industrial Materials 44,818 40,089 35,032 - - -
Inmobiliaria Don Aberto S.A. (equity-method
investment)
Interest on Loans Granted 980 - - 980 - -
Loans Repaid 43,888 - - - - -
Dividends 46,825 - - - - -
|
F-23
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
7. INVENTORIES
Inventories have been valued in accordance with the policy described in
Note 2(e). The principal components are as follows:
2002 2003
---------- ----------
ThCh$ ThCh$
Finished products 8,413,106 8,107,685
Raw materials and fuel 17,377,449 18,798,989
Operating supplies and spare parts 2,631,039 2,420,880
Goods-in-transit 199,063 497,244
Foreign and local programming not transmitted 3,508,995 2,063,518
---------- ----------
Total 32,129,652 31,888,316
========== ==========
|
8. INCOME AND DEFERRED TAXES
The Company and its subsidiaries have recorded a current tax provision of
15% in 2001, 16% in 2002 and 16.5% in 2003 of taxable income for income
tax and for withheld employee taxes. The income tax liability is
determined based on current Chilean tax laws and is presented as a net
asset or liability.
Net recoverable taxes assets as of December 31, 2002 and 2003 are
calculated, as follows:
2002 2003
---------- ----------
ThCh$ ThCh$
Provision for current income taxes (4,265,885) (1,271,856)
Withheld employee taxes (9,444) (14,646)
---------- ----------
Total current taxes (4,275,329) (1,286,502)
Credits:
Credit Art. 33 79,295 48,293
Monthly income tax installments 4,388,053 4,647,506
Training expeditures 123,675 111,801
Grants 48,448 46,311
---------- ----------
Total Credits 4,639,471 4,853,911
Income tax refund 364,142 3,567,409
Other credits 431,465 366,818
---------- ----------
Recoverable taxes, net 795,607 3,934,227
========== ==========
|
F-24
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
8. INCOME AND DEFERRED TAXES, continued:
As legislated in 2001, the income tax rate increased from 15% in 2001 to
16% in 2002 to 16.5% in 2003, and will increase to 17% in 2004 and for
periods thereafter. Deferred tax assets and liabilities as of December
31, 2003, are recorded using the applicable tax rate depending on the
year of reversal. The net deferred tax liabilities recognized by the
Company as of December 31, 2002 and 2003 amounted to ThCh$2,854,856 and
ThCh$2,970,413, respectively, and is classified as short and long-term as
follows:
2002 2003
---------------------------- ---------------------------
Short Term Long Term Short Term Long Term
---------- ---------- ---------- ----------
ThCh$ ThCh$ ThCh$ ThCh$
Deferred income tax assets:
Allowance for doubtful accounts 114,245 - 118,540 -
Unearned revenues 277,899 - 516,109 -
Vacation provision 172,514 - 202,898 -
Severance payments 1,886 35,823 1,415 27,208
Packaging provision 117,346 - 107,601 -
Furnace repairs provision 324,861 296,101 - 563,187
Inventories obsolence provision 13,489 - 24,255 -
Spareparts obsolence provision 95,046 - 97,280 -
Bond discount amortization 59,212 - 86,317 -
Intangibles amortization 231,721 - - -
Deferred customs duties 14,250 - - -
Depreciation - 13,658 - 17,352
Unrealized earnings related companies 121,084 53,463 174,233 7,922
Other provisions 92,745 104,623 49,791 108,980
Direct labor costs 20,438 - 11,337 -
Required bank reserve 8,737 - - -
Accumulated tax losses - 4,723,875 - 4,506,337
Complementary account, net of amortization (191,149) (4,085,799) (5,796) (3,269,380)
--------- ---------- --------- ----------
Total deferred income tax assets 1,474,324 1,141,744 1,383,980 1,961,606
--------- ---------- --------- ----------
Deferred income tax liabilities:
Depreciation - 8,057,421 - 8,561,734
Other events 12,756 1,029 - -
Deferred customs duties - 153,739 - 77,512
Advanced expenses 44,123 - 47,272 -
Bond discount 52,183 806,022 53,620 765,732
Capitalized moldings - 251,222 - 256,166
Required bank reserve - - - 38,486
Deferred expenses 173,242 - 222,622 -
Complementary accounts, net of amortization - (4,080,813) - (3,707,145)
--------- ---------- --------- ----------
Total deferred income tax liabilities 282,304 5,188,620 323,514 5,992,485
========= ========== ========= ==========
Net deferred tax asset (liability) 1,192,020 (4,046,876) 1,060,466 (4,030,879)
========= ========== ========= ==========
|
F-25
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
8. INCOME AND DEFERRED TAXES, continued:
Income tax expense as of December 31, 2001, 2002 and 2003 is as follows:
2001 2002 2003
----------- ----------- -----------
ThCh$ ThCh$ ThCh$
Parent Company 1st category tax (4,036,042) (4,275,329) (1,286,502)
Deferred tax expense (461,879) (2,204,700) (572,894)
Tax benefit for tax losses 6,404 (39,382) (279,876)
Deferred tax amortization of complementary accounts (640,594) 57,620 626,161
Other (50,988) - 165,530
---------- ---------- ----------
Income tax expense (5,183,099) (6,461,791) (1,347,581)
========== ========== ==========
|
9. OTHER CURRENT ASSETS
Other current assets are valued as described in Note 2 (q) and are
principally comprised of investments in government securities subject to
reverse repurchase agreements.
2002 2003
---------- ----------
ThCh$ ThCh$
Reverse repurchase agreements (see Note 10) 15,167,670 12,370,106
Other 393,898 385,131
---------- ----------
Total 15,561,568 12,755,237
========== ==========
|
F-26
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
10. REVERSE REPURCHASE AGREEMENTS:
Carrying value as of
-----------------------------
Purchase Maturity Purchase December 31,
Issuer Date Date Date 2002
------ ---------- ---------- ---------- ------------
BCI CB 12/30/2002 01/02/2003 831,230 831,257
BCI CB 12/30/2002 01/06/2003 336,330 336,347
BBV BHIF 11/28/2002 01/06/2003 810,608 812,039
BBV BHIF 12/04/2002 01/06/2003 654,054 655,065
BBV BHIF 12/09/2002 03/10/2003 627,066 627,890
BBV BHIF 12/02/2002 01/06/2003 725,796 727,041
Scotiabank 12/31/2002 01/08/2003 303,000 303,441
Scotiabank 12/13/2002 01/10/2003 101,000 101,161
Scotiabank 12/13/2002 01/29/2003 101,000 101,161
Scotiabank 10/25/2002 03/21/2003 371,680 364,303
Scotiabank 11/07/2002 04/25/2003 289,668 291,116
Scotiabank 11/14/2002 05/23/2003 286,249 290,996
Scotiabank 11/25/2002 06/20/2003 214,524 218,153
Scotiabank 12/30/2002 01/24/2003 108,870 108,879
BCI CB 12/06/2002 01/03/2003 3,041,606 3,048,703
Scotiabank 11/20/2002 01/10/2003 364,369 364,693
Scotiabank 12/20/2002 01/10/2003 3,031,980 3,035,426
Inversiones Boston CB 12/27/2002 01/03/2003 353,500 353,627
Inversiones Boston CB 12/30/2002 01/03/2003 303,000 303,028
BBV BHIF 12/27/2002 01/06/2003 515,955 522,686
BBV BHIF 12/27/2002 01/09/2003 143,321 145,191
BBV BHIF 12/23/2002 01/23/2003 704,051 726,111
Banco de Chile 12/26/2002 01/03/2003 199,580 203,274
Inversiones Boston CB 12/27/2002 01/03/2003 393,900 394,041
Inversiones Boston CB 12/30/2002 01/03/2003 60,600 60,606
Inversiones Boston CB 12/30/2002 01/03/2003 156,550 156,564
Inversiones Boston CB 12/27/2002 01/03/2003 84,840 84,871
---------- ----------
Total 15,114,327 15,167,670
========== ==========
|
F-27
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
10. REVERSE REPURCHASE AGREEMENTS: continued:
Carrying value as of
-----------------------------
Purchase Maturity Purchase December 31,
Issuer Date Date Date 2003
------ ---------- ---------- ---------- ------------
BCI CB 12/24/2003 01/05/2004 1,600,000 1,600,709
Banchile CB 12/29/2003 01/06/2004 1,560,000 1,560,239
Banchile CB 12/30/2003 01/05/2004 2,107,000 2,107,176
Banco de Chile 12/29/2003 01/09/2004 300,000 300,052
Banco de Chile 12/30/2003 01/09/2004 740,000 740,057
Banco de Chile 12/30/2003 01/05/2004 314,120 314,120
Banco de Chile 12/29/2003 01/09/2004 86,000 86,015
Banco de Chile 12/29/2003 01/09/2004 500,000 500,087
Banco de Chile 12/29/2003 01/28/2004 2,139,905 2,142,692
Banco Santander Santiago 12/30/2003 03/21/2004 1,139,923 1,129,298
Banco Santander Santiago 10/08/2003 01/16/2004 320,000 322,538
Banco Santander Santiago 10/16/2003 01/06/2004 320,000 322,300
Banco Santander Santiago 11/06/2003 02/05/2004 310,000 311,505
Banco Santander Santiago 11/12/2003 02/20/2004 310,000 311,292
Banco Santander Santiago 11/15/2003 01/27/2004 310,000 310,994
Banco Santander Santiago 11/25/2003 01/16/2004 310,000 311,032
---------- ----------
Total 12,366,948 12,370,106
========== ==========
|
F-28
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment have been valued in accordance with Note
2(f). The items comprising property, plant and equipment of the Company
at each year end, are primarily land, industrial buildings,
infrastructure, machinery and equipment distributed among the Padre
Hurtado Plant, the San Sebastian plant and Megavision's Vicuna Mackenna
facilities and Santa Rita's vineyards, building, infrastructure and
equipment distributed among Alto Jahuel and Peralillo.
a) Technical revaluation and adjustment of book value:
Property, plant and equipment include increases arising from the
technical revaluation of certain assets carried out during 1979 and 1986,
in accordance with instructions from the SVS.
The gross amount of technical revaluation included in the carrying amount
of assets is detailed below by class of asset:
2002 2003
--------- ---------
ThCh$ ThCh$
Land 318,839 318,839
Buildings and construction 6,287,935 6,288,042
Machinery and equipment 1,106,991 -
--------- ---------
Total increase in value due to technical revaluation of
property, plant and equipment 7,713,765 6,606,881
========= =========
|
During 2003, the technical revaluation for machinery and equipment was
written-off as these amounts were fully amortized.
F-29
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
11. PROPERTY, PLANT AND EQUIPMENT, continued:
b) Depreciation
The depreciation charge to income each year and the balance of
accumulated depreciation at each year-end are summarized as follows:
2001 2002 2003
---------- ---------- ----------
ThCh$ ThCh$ ThCh$
Depreciation of:
Property, plant and equipment 11,989,359 13,502,089 14,518,455
Technical revaluation 266,989 208,583 208,584
---------- ---------- ----------
Depreciation expense 12,256,348 13,710,672 14,727,039
========== ========== ==========
|
c) Accumulated depreciation at each year-end is distributed as
follows:
2002 2003
----------- ------------
ThCh$ ThCh$
Property, plant and equipment (85,591,188) (95,800,480)
Technical revaluation (5,959,047) (5,060,640)
----------- ------------
Accumulated depreciation (91,550,235) (100,861,120)
=========== ============
|
12. INVESTMENTS IN RELATED COMPANIES
The investments in related companies at each year-end are as follows:
2002 2003
----- ----------- ----- -----------
% ThCh$ % ThCh$
Vina Los Vascos S.A. 43.00 5,107,907 43.00 5,797,019
Envases CMF S.A. 50.00 16,155,277 50.00 16,212,135
Ediciones Chiloe S.A. 50.00 597,972 50.00 560,628
Cordillera Comunicaciones Ltda. (1) 0.25 366,084 0.25 332,298
Cordillera Comunicaciones Holding Ltda. 50.00 72,850,574 50.00 66,127,314
Editorial Zig-Zag 49.89 387,776 49.89 411,983
Inmobiliaria Don Alberto 38.17 13 38.17 (45)
Rayen Cura S.A.C.I. 40.00 15,283,881 40.00 11,935,164
Metropolis Intercom S.A. (1) - - 2.21 1,682,873
----------- -----------
Total 110,749,484 103,059,369
=========== ===========
(1) These investments are accounted under the equity method, since the Company
has significant influence and significant indirect ownership of these
companies.
|
F-30
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
12. INVESTMENTS IN RELATED COMPANIES, continued:
Income resulting from these investments for each year is as follows:
Participation in net income (loss)
------------------------------------------------
2001 2002 2003
---------- ---------- ----------
ThCh$ ThCh$ ThCh$
Vina Los Vascos S.A. 492,608 481,271 689,110
Envases CMF S.A. 955,790 1,287,806 706,798
Inmobiliaria y Constructora Richelieu S.A. (471) -
Ediciones Chiloe S.A. (38,088) (45,122) (77,664)
Cordillera Comunicaciones Ltda. (36,587) (46,195) (33,785)
Cordillera Comunicaciones Holding Limitada 7,280,811) (8,565,515) (6,723,259)
Editorial Zig-Zag S.A. 67,889 42,864 24,300
Inmobiliaria Don Alberto S.A. (11,761) (1,107) (59)
Rayen Cura S.A.C.I. (1,841,173) (2,145,406) 921,623
Metropolis Intercom S.A. - - (45,818)
---------- ---------- ----------
Total (7,692,604) (8,991,404) (4,538,754)
========== ========== ==========
|
The Company has valued its investments in related companies as described
in Note 2(g). The following is a description of the Company's significant
investments.
Metropolis Intercom S.A.
On April 30, 2003, the shareholders of Metropolis Intercom S.A. approved
an increase to capital by authorizing the issuance of 3,923,834 shares,
raising ThCh$ 4,931,000. The share issuance was equally participated by
the Company's subsidiary, Cristalchile Comuniciones, and Liberty
Comunicaciones de Chile Una Ltda., both joint-venture partners in
Metropolis Intercom's parent company Cordillera Comunicaciones Holding
Limitada. Cristalerias paid ThCh$ 2,462,794 for the shares, leading to an
investment of ThCh$ 1,733,963 and unrecognized loss of ThCh$ 728,831
included in Goodwill (see Note 14).
F-31
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
12. INVESTMENTS IN RELATED COMPANIES, continued:
Rayen Cura S.A.I.C.
The Company transferred the investment it had in Rayen Cura S.A.I.C., a
company established in the city of Mendoza, Argentina, to its subsidiary
CristalChile Inversiones S.A. for ThCh$18,340,577 (historic pesos),
equivalent to US$25,582,473 (historic dollars) on December 28, 2001,
which included a loan from shareholders issued in July 2001 of
US$4,800,000. This transaction had no effect on results as it was a
transaction between entities under common control and all amounts were
recorded at book values.
During 2002, the partners contributed US$9,900,000 in equal proportions
to Rayen Cura, maintaining the Company's 40% share.
On January 31, April 25 and September 30, 2003 Rayen Cura S.A.I.C.,
carried out repayment of part of a capital increase paid on April 29,
2002. Total amounts reimbursed amounted to US$ 2,600,000 (approximately
ThCh$ 1,543,880).
In accordance with Chilean GAAP, CristalChile Inversiones S.A. remeasures
the Rayen Cura S.A.C.I. financial statements from Argentine peso into
U.S. dollars. The accounting charge to results as a consequence of
remeasuring into U.S. dollars was ThCh$2,140,616 at December 31, 2003 and
ThCh$3,090,768; ThCh$2,315,764 at December 31, 2002 and 2001,
respectively.
In accordance with Technical Bulletin No. 64, the Company presents the
following information with respect to this foreign investment (See Note
2(t)):
2001 2002 2003
---------- ---------- -----------
ThCh$ ThCh$ ThCh$
Participation of Cristalchile in Rayen Cura S.A.I.C. 13,660,363 15,283,881 11,935,164
Goodwill on investment, net of accumulated amortization 5,480,923 5,478,884 4,214,863
---------- ---------- -----------
Total investment value 19,141,286 20,762,765 16,150,027
========== ========== ==========
Participation in net income (loss) for the year (1,841,173) (2,145,406) 921,623
========== ========== ==========
Participation in net income available for dividends - - -
========================================
|
The investment in RayenCura S.A.I.C. is measured in U.S. dollars in
accordance with Technical Bulletin No 64.
F-32
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
12. INVESTMENTS IN RELATED COMPANIES, continued:
Ediciones Chiloe S.A.
CIECSA sold 443,731 shares of Ediciones Chiloe S.A. to Recoletos Chile
Ltda. on September 27, 2001, thereby reducing its share in the company to
50%. The sale generated a gain of ThCh$570,630 as well as the recognition
of ThCh$50,879 from previously unrecognized earnings. During the
Shareholders' meeting held on September 27, 2001, the shareholders agreed
to increase the company's capital by ThCh$711,886 through the issuance of
1,500,795 shares, which were equally purchased by CIECSA S.A. and
Recoletos Chile Ltda., so each party maintained the same ownership
percentage. In the issuance, 1,297,013 shares, equivalent to ThCh$606,847
were paid by contributing 1,046 shares of Ediciones Financieras S.A.
valued at ThCh$438,539 and forgiveness of loans of ThCh$168,308.
On February 4, 2002, the shareholders of Ediciones Chiloe agreed to
purchase, 86,352 shares that had already been subscribed. The subsidiary
Ciecsa paid ThCh$20,058 (ThCh$ 19,859 historic pesos), equivalent to
43,176 shares, thus maintaining 50% participation in Ediciones Chiloe.
Payment is pending for 135,030 shares that mature in September 2004.
Envases CMF S.A.
During the Shareholders' meeting of Crowpla Reicolite S.A. that was held
on June 29, 2001, shareholders agreed to increase the company's capital
to ThCh$27,276,994 divided into 56,000 shares, through the issuance of
29,000 shares equivalent to ThCh$16,278,926. Andina Inversiones
Societarias S.A. purchased 28,000 shares worth ThCh$15,760,283, and
Cristalerias purchased 1,000 shares worth ThCh$518,644. As a result of
this transaction, Cristalerias decreased its ownership in the company to
50% and the investment is no longer consolidated as neither company has
control of the joint-venture. Cristalerias recognized a gain from the
excess of its share in the joint venture's equity and the book value of
its investment of ThCh$2,132,248, which is included in Gain on Sale of
Investments in Other Non-Operating Income (see Note 25). The company
changed its name to Envases CMF S.A. during November 2001.
13. INVESTMENTS IN OTHER COMPANIES
The investment in other companies, are detailed as follows:
Number of Share Accounting value
Corporation shares percentage 2002 2003
----------- --------- ---------- ------- -------
% ThCh$ ThCh$
Internet Holding S.A. 57,104 7.42 222,082 222,082
Bazuca Com. INC 266,500 7.89 603,518 603,518
------- -------
Total 825,600 825,600
======= =======
|
F-33
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
14. GOODWILL, NET
Goodwill, net of accumulated amortization of ThCh$4,254,256 and
ThCh$4,830,056 as of December 31, 2002 and 2003, respectively, is as
follows:
2002 2003
--------- ---------
ThCh$ ThCh$
Editorial Zig-Zag S.A. 108,754 102,402
Ciecsa S.A. 1,454,822 1,333,587
Vina Santa Rita 609,214 559,038
Red Televisiva Megavision S.A. 935,535 882,273
Vina Los Vascos S.A. 1,235,037 1,168,585
Rayen Cura S.A.I.C. 5,478,884 4,214,863
Metropolis Intercom S.A. - 717,561
--------- ---------
Goodwill, net 9,822,246 8,978,309
========= =========
|
On August 27, 2002, CIECSA increased its ownership share in Red
Televisiva Megavision S.A. from 78.01% to 99.99%. This acquisition was
accounted for under the purchase method, generating additional goodwill
of ThCh$867,823 for the amount of the purchase price over the carrying
value of net assets purchased.
15. INTANGIBLES, NET
Intangibles at each year-end are as follows:
2002 2003
---------- ----------
ThCh$ ThCh$
Channel 9 and regional network frequency concessions 10,180,259 10,180,259
Trademarks 1,595,011 1,622,172
---------- ----------
11,775,270 11,802,431
Accumulated frequency amortization (819,387) (968,366)
Accumulated trademarks amortization (183,897) (240,370)
---------- ----------
Intangibles, net 10,771,986 10,593,695
========== ==========
|
F-34
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
16. OTHER ASSETS
Other assets at each period-end are as follows:
2002 2003
---------------------------------
ThCh$ ThCh$
Inventories of domestic and foreign programming to be
broadcast in over one year 1,842,966 604,428
Celulosa Arauco bonds (1) 9,938,100 8,036,005
Bond discount 3,461,960 3,117,738
Bond issuance costs 1,224,806 1,050,258
Other 439,681 490,207
---------------------------------
Total Other assets 16,907,513 13,298,636
=================================
|
(1) During 2001, the Company purchased Celulosa Arauco bonds with a face value
of US$13,420,000 at an effective rate of 2.40% with a maturity date of
September 15, 2005. The bonds are presented at amortized cost. The bonds are
intended to be held-to-maturity, and therefore have not been marked to market
at year-end.
17. BANK LIABILITIES
a) Short-term bank liabilities as of December 31, 2002 and 2003 are as
follows:
2002 2003
-------------------------------
Bank Currency ThCh$ ThCh$
Banco Santander-Santiago Ch$ - 30,281
Fondo Provincial de Mendoza US$ 10,590 15,906
Banco de Chile US$ - 119,461
-------------------------------
Total 10,590 165,648
===============================
|
The weighted-average annual interest rate on short-term borrowings was 3.20%
as of December 31, 2002 and 2.04% as of December 31, 2003.
F-35
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
17. BANK LIABILITIES, continued:
b) Long-term bank liabilities outstanding at each year-end are as
follows:
Balances as of December 31, 2002 Balances as of December 31, 2003
-------------------------------- --------------------------------
Current Long-term Current Long-term
Bank or Financial Institution Type of Portion Portion Total Portion Portion Total
Currency ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
-------------------------------------------------------------------------------------------
J.P Morgan Chase (syndicate) US$ 199,543 36,289,805 36,489,348 126,213 29,690,000 29,816,213
Banco Santander-Santiago UF 275,555 - 275,555 486,776 - 486,776
ScotiaBank UF 412,643 1,623,370 2,036,013 419,746 1,218,135 1,637,881
Banco Santander-Santiago UF - 1,830,959 1,830,959 - 1,373,904 1,373,904
Banco Edwards UF 294,442 1,220,263 1,514,705 610,653 - 610,653
Banco Argentaria US$ 267,957 401,935 669,892 218,358 109,178 327,536
Banco Regional de Cuyo US$ - 52,444 52,444 - 51,562 51,562
Citibank, N.A. US$ 1,989,317 2,117,052 4,106,369 1,624,551 109,070 1,733,621
Dresdner US$ 527,174 - 527,174 - - -
Banco del Estado Ch$ 268,191 804,577 1,072,768 265,573 531,147 796,720
BCI UF 171,119 380,509 551,628 170,977 211,500 382,477
---------------------------------------------------------------------------------
4,405,941 44,720,914 49,126,855 3,922,847 33,294,496 37,217,343
=================================================================================
|
2002 2003
Weighted - average interest rate 2.83% 2.40%
Percentage of debt in foreign currency 68.00% 90.00%
Percentage of debt in local currency 32.00% 10.00%
|
During September 2002, the Company prepaid US$50,000,000 of the J.P. Morgan
Chase syndicated loan and renegotiated the remaining US$50,000,000 to extend
the due date and the lower interest rate to LIBOR + 0.8%.
Scheduled maturities of the long-term bank obligations as of December 31, 2003
are as follows:
Year Ending December 31, ThCh$
------------------------ --------------------
2005 1,533,988
2006 16,042,276
2007 15,718,232
2008
-
Thereafter -
--------------------
Total 33,294,496
====================
|
The Company's syndicated loan with J.P Morgan Chase Bank has certain
restrictive covenants, the most significant of which are summarized
below:
a) The Company cannot have a total debt to capitalization ratio of more than
0.45 to 1.0.
b) The unconsolidated net debt to EBITDA ratio, as defined in the covenant
cannot exceed 2.5 to 1.0.
c) Interest coverage ratio cannot be less than 4.0, during 2004 thereafter
and,
d) Net worth cannot be less than UF10,000,000.
F-36
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
As of December 31, 2003, the Company is in compliance with these
covenants.
F-37
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
18. OTHER CURRENT LIABILITIES
As of December 31, 2003 there are balances in Other Current Liabilities
of ThCh$2,397,846 (ThCh$628,635 in 2002) corresponding to forward
contracts in foreign currency entered into by Cristalerias and the
subsidiaries, Vina Santa Rita and CIECSA S.A. (See Note 28 for further
description of financial derivatives).
19. BONDS PAYABLE
The Company has made the following public bond issuances:
Series C and D bonds Santa Rita
On December 15, 2000, Santa Rita issued Series C bonds of UF 200,000 with
an annual interest rate of 6.25% payable semiannually with principal due
in the fifth year, and Series D bonds of UF 1,000,000 with an annual
interest rate of 6.25% payable semiannually with principal due in 32
semiannual installments beginning in December 2005.
Series C and D bonds Cristalerias de Chile
During August 2002, Cristalerias de Chile placed long-term bonds in the
local market for UF 4,100,000. Of the total, UF 2,000,000 were issued
with a final maturity of 6 years at an annual interest rate of 4.75% and
UF 2,100,000 were issued with a maturity of 21 years at an annual
interest rate of 5.8%.
The bonds payable at each period-end consist of the following:
2002 2003
------------------------------------
ThCh$ ThCh$
Principal 89,842,669 89,676,000
Accrued interest 1,754,891 1,754,288
------------------------------------
91,597,560 91,430,288
Current portion (1,966,286) (1,754,288)
------------------------------------
Long-term portion 89,631,274 89,676,000
====================================
|
F-38
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
19. BONDS PAYABLE, continued:
Scheduled maturities of the long-term portion of the principal of
these bonds as of December 31, 2003 are as follows:
Maturing during the year
Ending December 31, ThCh$
------------------
2005 11,844,000
2006 8,460,000
2007 8,460,000
2008 8,460,000
Thereafter 52,452,000
------------------
Total 89,676,000
==================
|
The above-mentioned bond issues contain certain restrictive
covenants; the most significant of which are summarized below:
a) Financial Indicators:
o Individual Balance (unconsolidated balance sheet of parent company) - debt
leverage not exceeding 1.2 times.
o Consolidated Balance - debt leverage not exceeding 1.4 times.
b) Insurance for the Company and Subsidiaries' assets.
c) Transactions related to Articles No.44 and 89, which
are transactions with related parties, from Act 18,046 must
be carried out according to the conditions thereby
established.
d) Other minor restrictions related to bonds issuance contract.
As of December 31, 2003, the Company is in compliance with these
covenants.
F-39
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
20. ACCRUED EXPENSES
The composition of short and long-term accrued expenses at each
year-end is as follows:
2002 2003
-------------------------------------
ThCh$ ThCh$
Short-term accrued expenses:
Board of Directors' share in profits (i) 899,487 334,256
Staff severance indemnities (iii) 169,904 182,124
Furnace repairs and reconstruction (ii) 2,030,386 -
Obligations for pallets 711,184 639,214
Accrued vacation 1,070,119 1,174,601
Royalty for authoring rights 252,948 59,000
Publicity agency commissions 3,121,753 4,201,817
Sales commissions 364,952 242,003
Suppliers 781,868 315,402
Insurance 444,857 404,026
Machine repairs 541,335 533,844
Other 484,051 354,327
-------------------------------------
Total short-term accrued expenses 10,872,844 8,440,614
=====================================
Long-term accrued expenses:
Staff severance indemnities (iii) 3,854,058 4,129,428
Furnace repairs and reconstruction (ii) 1,773,058 3,410,013
-------------------------------------
Total long-term accrued expenses 5,627,116 7,539,441
=====================================
|
(i) As of December 31 of each year, a provision is made for the
Board of Directors' share of net income.
(ii) Furnace repairs and reconstruction:
This provision is made over the estimated useful life of each smelter
furnace refractor so that significant repairs or reconstruction will
not have a distorting effect on the results of the year in which the
repairs are performed. As of December 31, 2003, the short-term
portion of the provision represents the estimated cost of repairs to
be made to the furnaces in 2003. The Company has a total provision
for this purpose of ThCh$3,803,444 and ThCh$3,410,013, at December
31, 2002 and 2003, respectively.
(iii)Staff severance indemnities provision:
The provision for staff severance indemnity payments is shown at its
current value, as stated in Note 2(h). The movement in this account
was as follows:
2002 2003
------------------------------------
ThCh$ ThCh$
Balance at beginning of year 3,825,912 4,023,962
Provisions established during the year 299,777 464,541
Payments (101,727) (176,951)
------------------------------------
Balance at year end 4,023,962 4,311,552
====================================
|
F-40
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
21. MINORITY INTEREST
The consolidated subsidiaries generating minority interest at each year-end
are as follows:
Equity Participation in net (income) loss Participation
2002 2003 2001 2002 2003 2001 2002 2003
--------------------------------------------------------------------------------------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ % % %
CIECSA S.A. Consolidated 271,434 313,351 149,292 (299,999) (42,665) 1.79 1.73 1.55
Constructora Apoger S.A. 10,154 939 841 (80) 293 20.00 20.00 20.00
Cristalchile Comunicaciones
S.A. 1,446 1,262 145 170 126 0.01 0.01 0.002
S.A. Vina Santa Rita 36,837,235 37,366,198 (3,449,060) (4,295,752) (1,798,396) 45.90 45.90 45.90
----------------------------------------------------------------------
Total 37,120,269 37,681,750 (3,298,782) (4,595,661) (1,840,642)
======================================================================
|
On August 26, 2003, CIECSA S.A. issued 36,400,000 shares which were
purchased by Cristalerias de Chile in the amount of ThCh$ 910,000,
increasing their ownership to 98.45%.
F-41
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
22. CHANGES IN SHAREHOLDERS' EQUITY
(a) Other reserves:
As of December 31, 2001, 2002 and 2003, other reserves consist of the
following:
2001 2002 2003
--------------------------------------------------
ThCh$ ThCh$ ThCh$
Reserve for future capital increases 4,007,637 4,198,685 4,413,578
Reserve for technical revaluation of Property, plant and
equipment 1,962,974 1,771,923 1,557,032
Currency translation adjustment 2,292,409 3,839,620 451,290
Subsidiary start-up stage deficit (128,091) - -
--------------------------------------------------
Total other reserves 8,134,929 9,810,228 6,421,900
==================================================
|
(b) Dividends:
In accordance with law 18.046, the Company must declare a minimum
dividend of 30% of net income for the year. The Company paid
dividends to shareholders during 2001, 2002 and 2003 related to the
results of operations during 2000, 2001, 2002, detailed below in
historic pesos:
Year Related to Dividend per Share Type of Dividend Date of Payment
--------------- ------------------- ---------------- ---------------
(historic pesos)
2000 21.00 Interim 07/2000
2000 21.00 Interim 10/2000
2000 22.00 Interim 01/2001
2000 41.57 Final 04/2001
2000 27.00 Revised Final 05/2001
2001 21.00 Interim 07/2001
2001 21.00 Interim 10/2001
2001 30.00 Interim 01/2002
2001 66.10 Final 04/2002
2002 15.00 Interim 07/2002
2002 15.00 Interim 10/2002
2002 21.00 Interim 01/2003
2003 25.20 Final 04/2003
2003 15.00 Interim 10/2003
2003 21.00 Interim 01/2004
|
F-42
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
23. NON-OPERATING INCOME AND EXPENSE
2001 2002 2003
-------------------------------------------------------
Net interest expense during each ThCh$ ThCh$ ThCh$
year were as follows:
Interest income 2,953,840 2,578,216 2,592,973
Interest and other financial expense (7,210,576) (6,907,884) (6,828,931)
-------------------------------------------------------
Net interest expense (4,256,736) (4,329,668) (4,235,958)
=======================================================
Non-operating income during each year were as follows:
Other non-operating income:
Net sales of materials and other 21,003 5,072 49,377
Amortization of unrealized profit 62,374 41,933 40,319
Gain on sale of investments 6,009,896 - -
Office rental 293,551 281,193 205,950
Indemnities 97,975 416,532 69,669
Taxation franchise 208,006 167,469 208,832
Other 287,374 364,757 354,769
-------------------------------------------------------
Total other non-operating income 6,980,179 1,276,956 928,916
=======================================================
|
F-43
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
23. NON-OPERATING INCOME AND EXPENSE, continued:
Non-operating expense during each year were as follows:
2001 2002 2003
----------------------------------------------------
ThCh$ ThCh$ ThCh$
Amortization of goodwill (855,611) (653,119) (577,203)
Amortization of intangibles (164,506) (180,998) (296,917)
Write-offs of accounts receivable (316,928) (1,023,310) (65,247)
Board of Directors' participation in profits (101,723) (185,708) (77,195)
Professional expenses (752,087) (780,630) (763,206)
Indemnities (145,459) (15,471) (55,264)
Insurance (12,204) (30,275) (50,856)
Other (508,534) (1,245,045) (428,083)
----------------------------------------------------
Total non-operating expense (2,857,052) (4,114,556) (2,313,971)
====================================================
|
24. PRICE-LEVEL RESTATEMENT
The price-level restatement is determined under Chilean GAAP by
restating the following non-monetary assets and liabilities:
2001 2002 2003
------------------------------------------------------
ThCh$ ThCh$ ThCh$
Shareholders' equity (6,178,740) (6,305,707) (2,359,665)
Liabilities (3,611,727) (3,762,538) (1,600,215)
Property, plant and equipment, net 3,829,952 3,770,742 1,196,325
Current assets 1,248,946 1,811,694 269,147
Other assets 3,052,167 4,367,692 1,893,389
Minority interest (64,064) (969,774) (367,423)
------------------------------------------------------
Adjustment to balance sheet accounts (1,723,466) (1,087,891) (968,442)
Adjustment to income statement accounts (637,682) (882,969) 165,880
------------------------------------------------------
Net price-level restatement effect (2,361,148) (1,970,860) (802,562)
======================================================
|
F-44
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
25. FOREIGN CURRENCY TRANSLATION
There is a net charge to results in the 2003 fisical year of
ThCh$17,064,668 and a net credit to results of ThCh$ 1,401,313 and
ThCh$ 4,997,842, in 2001 and 2002, respectively, due to exchange
differences.
2001 2002 2003
-------------------------------------------------------
ThCh$ ThCh$ ThCh$
Cash and Marketable Securities (676,071) 1,705,160 (11,140,298)
Accounts Receivable 219,813 1,293,270 (740,666)
Time Deposits 3,330,101 5,693,422 (103,771)
Inventory 376,843 503,818 (626,401)
Forward contracts - 612,906 (9,657,149)
Other Assets 38,065 2,317,362 (3,168,056)
-------------------------------------------------------
Sub-total foreign exchange gains 3,288,751 12,125,938 (25,436,341)
Short-term Bank Loans (912,559) (2,947) 3,460
Accounts Payable (121,433) (339,418) 395,870
Notes Payable (1,505,322) (420,480) 341,397
Short-term Misc. Creditors (36,484) (53,712) 166,960
Short-term Provisions (367,960) (91,964) 5,124
Long-term Bank Loans 1,639,800 (4,511,829) 6,240,500
Long-term Provisions (381,888) (461,107) 625,155
Other Long-term Liabilities (179,415) (1,143,775) 141,438
Other Liabilities (22,177) (102,864) 451,769
-------------------------------------------------------
Sub-total foreign exchange (losses) (1,887,438) (7,128,096) 8,371,673
-------------------------------------------------------
Foreign Currency Translation, net 1,401,312 4,997,842 (17,064,668)
=======================================================
|
26. EXTRAORDINARY ITEMS
For the year ended December 31, 2002 and 2003, there were no
extraordinary items.
For the year ended December 31, 2001, the provision for repairs on
Furnace C of ThCh$1,857,013 was reversed net of taxes as an extraordinary
item because the furnace was completely rebuilt, instead of being
repaired.
27. BOND ISSUANCE COSTS
The Company and its subsidiary, Vina Santa Rita, issued bonds in March
2001 and August 2002, respectively, and incurred issurance costs
(including bond discount) of ThCh$4,530,487 as of December 31, 2003
(ThCh$5,051,970 in 2002). These costs are classified as Other Current
Assets and Other Assets and are being amortized over the life of the
bonds.
The charge for the amortization of these expenses is recorded in Net
Interest Expense and amounted to ThCh$36,998, ThCh$163,893 and
ThCh$521,483 for the fiscal years ended December 31, 2001, 2002 and 2003,
respectively.
F-45
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
28. FINANCIAL DERIVATIVE CONTRACTS:
The Company and its subsidiaries, Vina Santa Rita and CIECSA S.A., have
entered into forward foreign currency purchase contracts with notional
amounts of US$44,600,000 and foreign forward currency sales contracts
with notional amounts of US$ 41,600,000 in 2003 which is equivalent to
ThCh$ 52,514,361 at each contract date.
As of December 31, 2002 and 2003, the net liabilities balance is
presented in Other Current Liabilities of ThCh$628,635 and
ThCh$2,397,847, respectively.
Additional information regarding hedging and speculative (non-hedging)
instruments is presented in the following table where the forward
contracts are listed by period of maturity date:
-----------------------------------------------------------------------------------------------------
As of December 31, 2003
-------------------------------------------
Notional Amount Maturity Hedged Spot Value Net Asset/
(1) Transaction (Liability)
ThCh$ ThCh$ ThCh$
-----------------------------------------------------------------------------------------------------
Non-hedging instruments:
22,827,689 3rd Quarter 2004 N/A N/A (3,500,809)
22,197,232 3rd Quarter 2004 N/A N/A 1,751,782
2,769,040 3rd Quarter 2004 N/A N/A (399,035)
621,570 3rd Quarter 2004 N/A N/A 29,659
633,250 3rd Quarter 2004 N/A N/A 36,661
1,289,040 1st Quarter 2004 N/A N/A 98,653
Hedging instruments:
742,140 1st Quarter 2004 U.S. dollar debt 593,800 (157,434)
742,140 1st Quarter 2004 U.S. dollar debt 593,800 (157,565)
692,260 4th Quarter 2004 U.S. dollar debt 593,800 (99,758)
-------------------- -------------
52,514,361 (2,397,847)
==================== =============
|
(1) US$ equivalent at contract date
F-46
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
28. FINANCIAL DERIVATIVE CONTRACTS, continued;
As of the year ended December 31, 2002 the Company entered into forward
currency purchase contracts with a notional amount of US$130,600,000
which is equivalent to ThCh$ 93,962,463 at each contract date.
Additional information regarding hedging and speculative (non-hedging)
instruments is presented in the following table where the forward
contracts are listed by period of maturity date:
-----------------------------------------------------------------------------------------------------
As of December 31, 2002
----------------------------------------
Notional Amount Maturity Hedged Spot Value Net Asset/
(1) Transaction (Liability)
ThCh$ ThCh$ ThCh$
-----------------------------------------------------------------------------------------------------
Non-hedging instruments:
24,988,593 1st Quarter 2004 N/A N/A 268,980
4,788,356 2nd Quarter 2004 N/A N/A 292,216
36,674,738 3rd Quarter 2004 N/A N/A (1,110,729)
12,872,250 4th Quarter 2004 N/A N/A (533,715)
1,342,088 1st Quarter 2004 N/A N/A 100,750
672,599 1st Quarter 2004 N/A N/A 49,904
682,053 1st Quarter 2004 N/A N/A 15,088
650,268 2nd Quarter 2004 N/A N/A 63,847
728,503 4th Quarter 2004 N/A N/A (3,767)
728,503 4th Quarter 2004 N/A N/A (4,177)
1,471,489 4th Quarter 2004 N/A N/A (21,108)
1,471,489 4th Quarter 2004 N/A N/A (20,888)
1,457,006 4th Quarter 2004 N/A N/A (7,436)
356,803 4th Quarter 2004 N/A N/A 5,593
356,803 4th Quarter 2004 N/A N/A 5,593
Hedged instruments:
1,345,199 1st Quarter 2004 U.S. dollar debt 1,451,592 96,903
1,344,310 1st Quarter 2004 U.S. dollar debt 1,451,592 76,955
682,053 1st Quarter 2004 U.S. dollar debt 725,796 14,968
674,680 1st Quarter 2004 U.S. dollar debt 725,796 40,672
674,680 1st Quarter 2004 U.S. dollar debt 725,796 41,716
---------------- --------------------
93,962,463 (628,635)
================ ====================
|
(1) US$ equivalent at contract date
F-47
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
29. COMMITMENTS AND CONTINGENCIES
Cristalerias de Chile S.A. and its subsidiaries have the following
commitments as of December 31, 2003:
(a) Liens held by third parties:
Cristalerias has ThCh$233,457 and ThCh$3,707,569 in assets pledged as
of December 31, 2003 related to third party creditors. A schedule of
the release dates of the liens is as follows:
As of December 31, 2003
------------------------------------------------------------
Balance payable of related debt
---------------------------- -------------------- ------------------------------------------------------------
Lien holder Subsidiary 2004 2005-2006 After 2006 Total
---------------------------- -------------------- ----------- ------------ ------------- -----------
ThCh$ ThCh$ ThCh$ ThCh$
Banco Santander Santiago Red Televisiva
Megavision S.A. 486,776 915,936 457,968 1,860,680
Scotiabank Red Televisiva
Megavision S.A. 419,746 812,090 406,045 1,637,881
BCI Red Televisiva
Megavision S.A. 170,977 211,500 - 382,477
Edif. Metropolis AGF Cristalerias de
Chile - - 7,932 7,932
Other Cristalerias de
Chile - - 225,525 225,525
----------- ------------ ------------- -----------
Total 1,077,499 1,939,526 1,097,470 4,114,495
=========== ============ ============= ===========
|
(b) Indirect guarantees of equity-method subsidiary obligations (i):
As of December 31, 2003
------------------------------------------------------------
Balance payable of related debt
------------------------------------------------------------
Equity-method
Guarantee Investment 2004 2005-2006 After 2006 Total
---------------------------- -------------------- ----------- -------------- ------------ -----------
ThCh$ ThCh$ ThCh$ ThCh$
Societe de Participations
Financieres et
Industrielles, France Rayen Cura S.A.I.C. 684,058 1,368,116 - 2,052,174
----------- -------------- ------------ -----------
Total 684,058 1,368,116 - 2,052,174
=========== ============== ============ ===========
|
(i) The guarantee in this table was provided by the Company and the
majority owner of Rayen Cura to a third party creditor that had
entered into an obligation with Rayen Cura, an equity-method
investment of the Company. If Rayen Cura is unable to meet the
requirements of the related obligation, the Company will be required
to make future payments on behalf of Rayen Cura up to the remaining
amount payable in proportion to the Company's 40% ownership
percentage. No liability has been recorded by the Company for the
guarantee because the estimated fair value of the guarantee is not
significant, since it is expected that the equity-method investment
will meet the required debt payments.
F-48
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
29. COMMITMENTS AND CONTINGENCIES, continued:
Legal Proceedings: Cristalerias is party to various lawsuits arising
in the ordinary course of its business amounting to a total at-risk
amount of ThCh$126,000. Management considers it unlikely that any
losses associated with pending lawsuits will significantly affect the
Company's results of operations, financial position or cash flows,
although no assurance can be given to such effect. The Company has
not established a provision for these lawsuits except for a total of
ThCh$10,000 committed for pending civil and labor lawsuits related to
the subsidiary, Megavision as of December 31, 2003.
Grape Contracts: The Company's subsidiary, Santa Rita, enters into
purchase contracts with local growers in order to ensure the company
has sufficient amounts of fine quality grapes to be used in the
company's wine production. Approximately 36.4% of the Company's
grapes are obtained from these contracts, while another approximately
30.5% are obtained from the Company's own vineyards and an additional
approximately 33.1% is purchased at market. The Company only incurs
obligations when the grapes are delivered to the Company and as such
are not recorded as liabilities.
Technical Agreement: Cristalerias pays monthly fees of ThCh$170,000
for a technical assistance agreement which expires in September 2004.
Advertising contracts: Megavision has commitments of ThCh$8,317,202
in advertising contracts for future broadcast as of December 31,
2003.
30. GUARANTEES FROM THIRD PARTIES:
The Company has received the following guarantees from third parties
as of December 31, 2002 and 2003:
2002 2003
-----------------------------------
ThCh$ ThCh$
Rental of BankBoston Real Estate Property 6,222 -
Rental of Bank Security Real Estate Property - 5,144
Rental of property Telecomunicaciones Cono Sur Ltda 2,199 -
Rental of office 202 AGF Building 6,188 6,191
Rental of office Metropolis Building 3,200 3,201
Promissory notes from Suppliers 1,691 1,674
Container installation (Tersanoix S.A.) 281,431 -
Purchase of grapes and wine 1,048,057 1,037,576
Purchase of posts and grapevine plants (Intelmaq) 45,638 35,051
Underground materials storehouse Buin Salfa Montajes 33,456 366,164
-----------------------------------
Total 1,428,082 1,455,001
===================================
|
F-49
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
31. FOREIGN CURRENCIES
As of December 31, 2002 and 2003, foreign currency denominated assets
and liabilities in the disclosed currencies are as follows:
2002 2003
-----------------------------------
Foreign currency ThCh$ ThCh$
Assets:
Cash Other currencies - 89,583
Cash U.S. dollars 333,092 465,420
Cash Euro dollars 14,760 81,791
Cash Argentina peso 52,891 45,698
Time deposits U.S. dollars 3,301,120 2,665,004
Marketable securities U.S. dollars 64,253,376 37,066,215
Marketable securities Euro dollars - 18,394,208
Accounts receivable U.S. dollars 4,377,905 4,302,946
Accounts receivable Euro dollars 2,894,220 3,043,044
Accounts receivable Other currencies 1,452,291 2,636,983
Accounts receivable Argentina peso - 43,245
Notes receivable U.S. dollars 106,579 -
Notes receivable Argentina peso 120,568 10,941
Miscellaneous accounts receivable U.S. dollars 5,303 460,465
Miscellaneous accounts receivable Euro dollars 10,217 -
Miscellaneous accounts receivable Argentina peso 4,781 18,472
Notes and accounts receivable
from related companies U.S. dollars 2,054 156,992
Taxes receivable Other currencies - 41,439
Prepaid expenses U.S. dollars 591,938 472,978
Prepaid expenses Argentina peso - 19,864
Other current assets U.S. dollars 6,072,324 3,586,110
Other assets U.S. dollars 11,781,066 8,640,432
Other assets Argentina peso - 460,166
Other assets Other currencies 278,707 -
|
F-50
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
31. FOREIGN CURRENCIES, continued:
2002 2003
-----------------------------------
Foreign currency ThCh$ ThCh$
Current liabilities:
Short-term bank liabilities U.S. dollars - 149,742
Short-term bank liabilities Argentina peso 10,590 15,906
Current portion of long-term bank liabilities U.S. dollars 2,784,447 1,842,909
Current portion of long-term liabilities U.S. dollars 370,029 305,803
Trade accounts payable U.S. dollars 3,158,460 1,439,172
Trade accounts payable Euro dollars 47,778 15,535
Trade accounts payable Other currencies 6,362 4,518
Trade accounts payable Argentina peso 140,229 80,946
Notes payable U.S. dollars 2,367,430 1,762,250
Notes payable Euro dollars 43,728 2,666
Miscellaneous creditors U.S. dollars 120,588 670,855
Accrued expenses U.S. dollars - 12,369
Accrued expenses Argentina peso - 8,542
Accrued expenses Other currencies 22,427 -
Provisions Euro dollars 518,564 1,269,243
Provisions U.S. dollars 3,651,783 1,521,583
Provisions Argentina peso 79,480 5,110
Provisions Other currencies 604,871 722,936
Other current liabilities U.S. dollars 628,635 2,397,847
Long-term liabilities:
Long-term bank liabilities U.S. dollars 36,289,805 29,908,248
Long-term bank liabilities Argentina peso 3,376,008 51,562
Other long-term liabilities U.S. dollars - 115,227
Miscellaneous creditors U.S. dollars 1,249,708 121,249
Long-term provisions U.S. dollars 1,773,057 3,410,013
|
F-51
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
32. SANCTIONS:
During 2001, 2002 and 2003, no sanctions by the Chilean Superintendency
of Securities and Insurance and other regulatory agencies have been
applied to the Company.
33. SUBSEQUENT EVENTS:
On January 9, 2003, CristalChile Comunicaciones S.A., 50% owner of
Metropolis Intercom S.A., reached an agreement of understanding with
Liberty Media International, indirect owner of the remaining 50% of
Metropolis and majority shareholder of VTR S.A. in order to merge
Metropolis and VTR. The agreement is subject to numerous conditions,
among them, drafting of a final agreement, approval by the board of
directors or related parties of Liberty Media including UnitedGlobalCom,
Inc., approval by the Chilean Anti-Monopoly Commission, and approval by
the board of directors of CristalChile Comunicaciones S.A.
As of and for the year ending December 31, 2003, the Company has not
recorded any adjustment in the financial statements related to the
proposed merger.
On January 13, 2004, the Company paid a dividend of Ch$15 per share on
the 64,000,000 outstanding shares. The Board of Directors approved this
dividend in November 2003.
Management is not aware of any other subsequent events that have occurred
after the date of these financial statements that may significantly
affect these financial statements.
34. ENVIRONMENT:
The Company is committed to the preservation of the environment. During
2003, the Company invested ThCh$205,409 to purchase equipment to be used
in the treatment of nitrous oxide in the new Furnace B. During 2002, the
Company invested ThCh$ 206,201 to repair an electrostatic precipitator,
which is used to filter gases discharged from the glass smelting process,
in order to continue complying with emission standards for particulate
matter issued by the Chilean Government.
Additionally the subsidiary, Vina Santa Rita S.A. invested ThCh$33,002
and ThCh$39,369 to comply with the laws and regulations on industrial
processing and installations during 2002 and 2003, respectively.
35. SHAREHOLDER INFORMATION:
During the years ended December 31, 2001, 2002 and 2003, there were no
share transactions made by the directors, majority shareholders, and
parties related to the directors.
F-52
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
35. SHAREHOLDER INFORMATION, continued:
During the years ended December 31, 2001, 2002 and 2003, distribution of
shareholder were as follows:
% of Participation Number of Shareholders
Type of Shareholder 2001 2002 2003 2001 2002 2003
---------------------------------------------------------------------------------------------------------------
10% or more 34.03 34.03 34.03 1 1 1
Less than 10% and equal to or greater
than UF200 65.81 65.82 65.83 261 261 258
Less than 10% and less than UF200 0.16 0.15 0.14 831 815 768
-----------------------------------------------------------------------
Totals 100.00 100.00 100.00 1,093 1,077 1,027
=======================================================================
Controlling shareholders 52.14 52.14 52.14 3 3 3
=======================================================================
|
Cristalerias is a member of the Elecmetal Group and is a subsidiary of
Compania Electrometalurgica S.A., Bayona S.A., and Servicios y Consultorias
Hendaya S.A.
36. BOARD OF DIRECTORS' REMUNERATION:
Required disclosures of amounts paid to the Board of Directors of the
Company during each year are as follows:
2001 2002 2003
------------------------------------------------------
ThCh$ ThCh$ ThCh$
Share of previous year's net income 854,336 880,655 902,577
Fees for attendance at meetings 9,181 8,079 8,331
Payment of special services 3,855 3,558 2,763
------------------------------------------------------
Total 867,372 892,292 913,671
======================================================
|
As of December 31, 2003, the Company and its subsidiary Vina Santa
Rita S.A., have accrued an estimated ThCh$334,256 (ThCh$899,487 in
2002 and ThCh$889,687 in 2001) for 2003 Directors' remuneration that
will be paid during 2004.
F-53
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Generally accepted accounting principles in Chile (Chilean GAAP) vary in
certain important respects from the generally accepted accounting
principles in the United States of America (U.S. GAAP). Such differences
involve certain methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by U.S. GAAP.
I. Differences in Measurement Methods:
The principal methods applied in the preparation of the accompanying
financial statements which have resulted in amounts that differ from
those that would have otherwise been determined under U.S. GAAP are as
follows:
(a) Inflation accounting:
The cumulative inflation rate in Chile as measured by the Consumer Price
Index for the three-year period ended December 31, 2003 was 7.25%.
Chilean GAAP requires that the financial statements be restated to
reflect the full effects of the loss in the purchasing power of the
Chilean peso on the financial position and results of operations of
reporting entities. The method, described in Note 2(b), is based on a
model which enables calculation of net inflation gains or losses caused
by monetary assets and liabilities exposed to changes in the purchasing
power of local currency, by restating all non-monetary accounts in the
financial statements. The model prescribes that the historical cost of
such accounts be restated for general price-level changes between the
date of origin of each item and the year-end, but requires that latest
cost values be used for the restatement of inventories.
The inclusion of price-level adjustments in the accompanying financial
statements is considered appropriate under the prolonged inflationary
conditions affecting the Chilean economy even though the cumulative
inflation rate for the last three years does not exceed 100%. As allowed
pursuant to Form 20-F the reconciliation included herein of consolidated
net income, comprehensive income and shareholders' equity, as determined
with U.S. GAAP, does not include adjustments to eliminate the effect of
inflation accounting under Chilean GAAP.
(b) Revaluation of property, plant and equipment:
As mentioned in Note 2(f), certain property, plant and equipment are
reported in the financial statements at amounts determined in accordance
with a technical appraisal. Revaluation of property, plant and equipment
is an accounting principle not generally accepted in the United States.
The effects of the reversal of this revaluation, as well as of the
related accumulated depreciation and depreciation expense for the year is
shown below, under paragraph I(q).
F-54
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
(b) Revaluation of property, plant and equipment, continued:
In accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" during 2000 and 2001, which was superceded by SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" beginning in 2002, the Company evaluates the carrying
amount of property, plant and equipment and other long-lived
assets, in relation to the operating performance and future
undiscounted cash flows of the underlying business. These
standards require that an impairment loss be recognized in the
event that facts and circumstances indicate that the carrying
amount of an asset may not be fully recoverable, when compared
to the estimated future undiscounted cash flows. Impairment, if
determined, is recorded based on an estimate of future
discounted cash flows, as compared to current carrying amounts.
For the years ended December 31, 2001, 2002, and 2003 no
additional amounts were recorded for impairment under U.S.
GAAP.
(c) Allocation of certain overhead costs to inventories:
As indicated in Note 2(e), finished and in-process products are
reported in the financial statements at restated direct costs
plus price-level restatement, which include the related raw
material, energy and direct labor costs. Accordingly, certain
indirect manufacturing expenses are excluded from inventory,
which is contrary to U.S. GAAP. The effects of including
certain indirect manufacturing expenses are included under
paragraph I(q) below.
(d) Income taxes:
Under Chilean GAAP, until December 31, 2000, deferred income
taxes were recorded based on non-recurring timing differences
between the recognition of income and expense items for
financial statement and tax purposes. Accordingly, there was an
orientation toward the income statement focusing on differences
in the timing of recognition of revenues and expenses in
pre-tax accounting income and taxable income. Chilean GAAP also
permitted not providing for deferred income taxes where a
deferred tax asset or liability is not expected to be realized.
Starting January 1, 2001, the Company recorded income taxes in
accordance with Technical Bulletin No. 60 of the Chilean
Association of Accountants, recognizing, using the liability
method, the deferred tax effects of temporary differences
between the financial and tax values of assets and liabilities.
As a transitional provision, a contra asset or liability has
been recorded offsetting the effects of the deferred tax assets
and liabilities not recorded prior to January 1, 2001. Such
contra asset or liability must be amortized to income over the
estimated average reversal periods corresponding to the
underlying temporary differences to which the deferred tax
asset or liability relates.
Under U.S. GAAP, companies must account for deferred taxes in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", which requires
an asset and liability approach for financial accounting and
reporting of income taxes, under the following basic
principles:
F-55
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(d) Income taxes, continued:
(i) A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary
differences and tax loss carryforwards.
(ii) The measurement of deferred liabilities and assets is based on
the provisions of the enacted tax law. The effects of future
changes in tax laws or rates are not anticipated.
(iii) The measurement of deferred tax assets are reduced by a
valuation allowance, if based on the weight of available
evidence, it is more likely than not that some of the deferred
tax assets will not be realized.
Temporary differences are defined as any difference between the
financial reporting basis and the tax basis of an asset and
liability that at some future date will reverse, thereby resulting
in taxable income or expense. Temporary differences ordinarily
become taxable or deductible when the related assets are recovered
or the related liability is settled. A deferred tax liability or
asset represents the amount of taxes payable or refundable in future
years as a result of temporary differences at the end of the current
year.
The principal difference in the accounting for deferred income taxes
between Chilean and U.S. GAAP relates to the reversal of the
complementary assets and liabilities recorded as a transitional
provision for unrecorded deferred taxes as of January 1, 2001 and
their corresponding amortization into income. The effect of these
differences on the net income and shareholders' equity of the
Company is included in paragraph I (q) below.
e) Accounting for investments in related companies:
The adjustment to related companies includes the effect on the
income and equity on the consolidated accounts of Cristalerias of
the adjustments to U.S. GAAP that affect the accounts of the
Company's equity investees. The principal U.S. GAAP adjustments
affecting the Company's equity investees are as follows:
(i) The recording of deferred taxes in accordance with SFAS
No. 109
(ii) The recording of goodwill in accordance with SFAS No. 142
(iii) The recording of financial derivatives in accordance with
SFAS No. 133
(iv) The depreciation of external networks in accordance with
U.S. GAAP
(v) The recording of indirect costs in accordance with U.S. GAAP
(vi) The deferred income tax effect of the above adjustments
These adjustments principally relate to deferred taxes, production
costs, and goodwill amortization. The effects of this adjustment are
included under paragraph I(q) below.
F-56
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(f) Minimum dividend required by Chilean law:
As required by the Chilean Companies Act, unless otherwise
decided by the unanimous vote of holders of the issued and
subscribed shares, the Company must distribute a cash dividend
in an amount equal to at least 30% of the Company's net income
for each year as determined in accordance with Chilean GAAP,
unless and except to the extent the Company has unabsorbed
prior year losses. Since the payment of the 30% dividend out of
each year's income is a legal requirement in Chile, a provision
has been made in the accompanying U.S. GAAP reconciliation in
I(q) below to recognize the corresponding decrease in net
equity at the end of each year in which the net income is
earned.
(g) Furnace repair provision:
Under Chilean GAAP, provisions may be accrued for estimated
future repairs that will be required to be made to significant
property, plant and equipment. Accordingly, Cristalerias has
accrued provisions for estimated future repairs to the
Company's furnaces. Under U.S. GAAP the Company expenses such
repairs in the year incurred or capitalizes these costs if they
are considered to be a betterment that would significantly
improve the useful life of the asset. The effects of this
adjustment are included under paragraph I(q) below.
(h) Depreciation of molds as property, plant, and equipment:
Under U.S. GAAP, molds used in the production process are
treated as property, plant and equipment and are depreciated
over their expected useful lives. The Company, in accordance
with Chilean GAAP, has historically expensed some of these
items as incurred. As of January 1, 1997, the Company began to
capitalize purchased molds and depreciate them over a period of
24 months. For U.S. GAAP purposes, the molds are depreciated
using the unit-of-production method with the estimated useful
life per mold ranging from 12,000,000 units produced to
20,000,000 units produced, depending upon the type and
specifications of the individual molds. The effects of this
adjustment are included under paragraph I(q) below.
F-57
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(i) Investments in marketable securities:
Under Chilean GAAP, investments in debt and equity securities
are accounted for at the lower of cost or market value.
Under U.S. GAAP, investments in debt and equity securities are
accounted for according to the purpose for which these
investments are held. U.S. GAAP defines three distinct purposes
for holding investments:
o Investments held-for-trading purposes
o Investments available-for-sale
o Investments held-to-maturity
The Company considers that all of its investments are
held-for-trading except for the Santa Emiliana shares which are
available-for-sale and the Celulosa Arauco bonds purchased
during 2001, which are considered held-to-maturity. There are
no differences between Chilean GAAP and U.S. GAAP for
held-for-trading and held-to-maturity investments. For
available-for-sale investments, the accounting treatment in
accordance with U.S. GAAP is to value these instruments at fair
value and record the change in fair value as a separate
component of shareholders' equity, net of deferred taxes. The
effects on shareholders' equity of adopting this treatment are
included under paragraph I(q) below.
(j) Intangible assets:
Under Chilean GAAP, the cost of the frequency purchased by the
subsidiary Megavision S.A. is being amortized on a decelerated
basis as described in Note 2(k). Under U.S. GAAP, such
intangible assets are amortized on a straight-line basis since
they relate to a finite concession period. During 1998, the
Company began amortizing trademarks under Chilean GAAP on a
straight-line basis over a period of 40 years, in accordance
with Technical Bulletin No. 55 of the Chilean Association of
Accountants. Previously under Chilean GAAP, companies were not
required to amortize those costs relating to trademarks. In
accordance with U.S. GAAP, companies are required to amortize
trademarks on a systematic and rational basis over the expected
period for which an economic benefit will be derived from the
trademark as long as the right does not have an indefinite
life. For U.S. GAAP purposes, the Company has historically, and
continues to, amortize deferred costs related to trademarks on
a straight-line basis over a period of 25 years. The effects of
the adjustments are included under paragraph I(q) below.
F-58
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(k) Unrealized profit and negative goodwill:
(i) In 1995 the Company recorded the contribution of Cable
TV companies to Cordillera Comunicaciones S.A., a related
Company, at an amount that exceeded the book value of
these investments. Under Chilean GAAP the excess amount
was recorded as income in 1995. Under U.S. GAAP, the
profit from this transaction is unrealized because of the
Company's influence in the related company.
(ii) Additionally, under U.S. GAAP, the excess of the fair
value of the assets received over the purchase price is
allocated to reduce the values assigned to the non-current
assets. This reduces the U.S. GAAP depreciation base in
property, plant and equipment by the excess purchase
price. As a consequence, the U.S. GAAP adjustment includes
income from the decreased depreciation of the fixed assets
using straight-line depreciation over an original useful
life of 13 years. The effects of recording the unrealized
profit and reduced depreciation expense is included under
Paragraph I(q) below.
(l) Goodwill:
(i) Under Chilean GAAP, assets acquired and liabilities
assumed are recorded at their carrying value, and the
excess of the purchased price over the carrying value are
recorded as goodwill. Circular No. 1358, dated December 3,
1997 issued by the SVS, extended the maximum amortization
period of goodwill to 20 years from the previous 10 years.
Under U.S. GAAP, assets acquired and liabilities assumed
are recorded at their estimated fair values, and the
excess of the purchased price over the estimated fair
value of the net identifiable assets and liabilities
acquired are recorded as goodwill, unless the transaction
is between entities under common control, in which case
the related party transaction would be recorded using book
values and no goodwill would be recorded. Under U.S. GAAP,
the Company amortized goodwill on a straight-line basis
over the estimated useful lives of the assets, ranging
from 20 to 40 years for goodwill acquired prior to July 1,
2001 and all other goodwill prior to January 1, 2002. The
effects of adjustment to U.S. GAAP, to reverse the related
amortization expense on goodwill not accepted in U.S. GAAP
and different amortization periods is included in the net
income and shareholders' equity reconciliation to U.S.
GAAP under paragraph I(q) below.
(ii) Under Chilean GAAP, the Company has evaluated the carrying
amount of goodwill for impairment. The evolution of
impairment was based on the fair value of the investment
which the Company determined using a discounted cash flow
approach, stock valuations and recent comparable
transactions in the market. In order to estimate fair
value, the Company made assumptions about future events
that are highly uncertain at the time of estimation. The
results of this analysis showed that the Company's
goodwill was not impaired.
F-59
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(l) Goodwill, continued:
In accordance with U.S. GAAP, the Company adopted SFAS No. 142
"Goodwill and Other Intangible Assets", (SFAS No. 142) as of January
1, 2002. SFAS 142 applies to all goodwill and identified intangible
assets acquired in a business combination. Under the new standard,
all goodwill, including that acquired before initial application of
the standard, and indefinite-lived intangible assets are not
amortized, but must be tested for impairment at least annually.
Previously, the Company evaluated the carrying amount of goodwill,
in relation to the operating performance and future undiscounted
cash flows of the underlying business. The impairment tests, which
were performed during 2002 and 2003, resulted in no impairment of
the Company's goodwill. The following effects are included in the
net income and shareholders' equity reconciliation to U.S. GAAP
under paragraph I(q) below:
(a) Adjustment to record differences in goodwill amortization
between Chile GAAP and U.S. GAAP as of December 31, 2001, and
(b) The reversal of goodwill amortization recorded under Chilean
GAAP relating to reporting units that were not found to be impaired
under U.S. GAAP for the years ended December 31, 2002 and 2003, and
(c) Gain on sale from differing carrying values under U.S. GAAP and
Chile GAAP in the sale of the related party Ediciones Chiloe during
2001.
Amortization of goodwill under U.S. GAAP of ThCh$390,239, ThCh$0 and
ThCh$0 for the years ended December 31, 2001, 2002 and 2003,
respectively, is included in operating income for U.S. GAAP
purposes.
(iii) The following details what the Company's net income under U.S.
GAAP would have been for the year ended December 31, 2001, excluding
goodwill amortization expense:
(Unaudited)
Year ended
December 31,
2001
----------------------
ThCh$
Net income under U.S. GAAP 15,202,365
Add back: Goodwill amortization 2,051,694
----------------------
Adjusted net income 17,254,059
======================
|
(m) Results of subsidiaries in the development stage:
Under Chilean GAAP, costs incurred during the development stage of a
controlled company are not charged to the income statement during
the year in which they were incurred, being charged instead directly
to an equity account (Subsidiary start-up deficit). U.S. GAAP
requires that all such costs be included to the consolidated income
statement in the year incurred. The effects are included under
paragraph I(q) below.
F-60
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(n) Translation of financial statements of investments outside of
Chile:
In accordance with the Chilean foreign currency translation
standard, "BT 64", the financial statements of foreign subsidiaries
that operate in countries exposed to significant risks, and are not
considered to be an extension of the Company's operations, are
remeasured into U.S. dollars. The Company has remeasured its foreign
subsidiaries into U.S. dollars under this requirement as follows:
- Monetary assets and liabilities are translated at year-end rates
of exchange between the U.S. dollar and the local currency.
- All non-monetary assets and liabilities and shareholder's equity
are translated at historical rates of exchange between the U.S.
dollar using the closing exchange rate and the local currency.
- Income and expense accounts are translated at monthly average
rates of exchange between the U.S. dollar and local currency.
- The effects of any exchange rate fluctuations are included in the
results of operations for the period.
Under BT 64, the investment in the foreign subsidiary is price-level
restated in the accounting records of the parent company, the
effects of which are reflected in income, while the effects of the
foreign exchange gain or loss between the Chilean peso and the U.S.
dollar using the closing exchange rate are reflected in equity in
the account "Cumulative Translation Adjustment"; as the foreign
investment itself is measured in U.S. dollars.
The foreign currency translation procedures described above are part
of the comprehensive basis of preparation of price-level adjusted
financial statements required by Chilean GAAP. Inclusion of
inflation and translation effects in the financial statements is
considered appropriate under the inflationary conditions that have
historically affected the Chilean economy, and accordingly, are not
eliminated in the reconciliation to U.S. GAAP as permitted by Form
20-F.
F-61
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(o) Derivative instruments:
The Company is exposed to foreign currency risk arising from
long-term debt denominated in U.S. dollars. This risk is partially
mitigated by the Company's export revenues which are in U.S.
dollars. The Company uses short duration forward foreign currency
contracts, where possible, to transfer risk from exposure in U.S.
dollars to an exposure in UF. Under Chilean GAAP, the Company defers
forward contract gains and recognizes losses when accounting
criteria under Chile GAAP permits hedging. The hedging criteria and
documentation requirements under Chilean GAAP are less onerous than
U.S. GAAP. The Company recorded a net liability of ThCh$628,634 and
ThCh$2,397,846, as of December 31, 2002 and 2003, respectively. Fair
values under Chilean GAAP have been estimated using the closing spot
exchange rate at the period end.
Beginning January, 1, 2001, under U.S. GAAP, the accounting for
derivative instruments is described in (SFAS No. 133), "Accounting
for Derivative Instruments and Hedging Activities and other
complementary rules and amendments". SFAS No. 133, as amended,
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No.
133 required that changes in the derivative instrument's fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative instrument's gains and losses to offset related results
on the hedged item in the income statement, to the extent effective,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge
accounting.
SFAS No. 133, in part, allows special hedge accounting for "fair
value" and "cash flow" hedges. SFAS No. 133 provides that the gain
or loss on a derivative instrument designated and qualifying as a
"fair value" hedging instrument as well as the offsetting loss or
gain on the hedged item attributable to the hedged risk be
recognized currently in earnings in the same accounting period.
While the Company enters into derivatives for the purpose of
mitigating its global financial and commodity risks, from time to
time it enters into foreign currency forward contracts that are
speculative in nature. These operations do not meet the
documentation requirements to qualify for hedge accounting under
U.S. GAAP. Therefore changes in the respective fair values of all
derivatives are reported in earnings when they occur.
F-62
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(o) Derivative instruments, continued:
The cumulative effect resulting from the adoption of SFAS No. 133 on
January 1, 2001 was a net gain of ThCh$64,469 which is presented net
of tax of ThCh$12,068, and minority interest under the caption
"Cumulative effect of change in accounting principles. The
adjustment is due to the difference between recording forward
contracts at spot exchange rates under Chilean GAAP and marking the
forward contracts to market using forward rates in according with US
GAAP. The effect of the adjustment between the current market values
and the fair value for the years ended December 31, 2002 and 2003 is
included in paragraph I(q) below.
(p) Elimination of gain on Joint-venture:
During July 2001, the Company deconsolidated its subsidiary Crowpla
Reicolite S.A. as part of a joint venture transaction with Andina
Inversiones Societarias S.A., in which the Company retained a 50%
interest in Crowpla Reicolite S.A. Under Chilean GAAP a gain of
ThCh$2,070,143 was recognized based on the difference between the
net assets contributed as part of the joint-venture and the
Company's share in the joint-venture's equity. This occurred as two
transactions, first Cristalerias sold capital in Crowpla Reicolite
S.A. which Andina Inversiones Societarias S.A. purchased, and
secondly, Andina Inversiones transferred assets into Crowpla
Reicolite (now called "Envases CMF S.A.") to complete the joint
venture. Under U.S. GAAP, these series of transactions are viewed as
one transaction and contributions to joint ventures are recorded at
book value of net assets contributed with a gain being recorded only
to the extent that cash is received, unless it is reinvested in the
business. The gain recorded under Chilean GAAP is reversed under
U.S. GAAP as a deferred credit and is amortized over the
weighted-average estimated useful lives of the joint-venture's
assets which, as of the date that the joint-venture was formed, was
12 years. The effect of the adjustment is included under paragraph
I(q) below.
F-63
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(q) Effects of conforming to U.S. GAAP:
The adjustments to reported net income required to conform with U.S.
GAAP are as follows (all amounts are expressed in thousands of
constant Chilean pesos as of December 31, 2003):
2001 2002 2003
-------------------------------------------------
ThCh$ ThCh$ ThCh$
Net income as reported under Chilean GAAP 18,486,761 17,837,269 6,426,520
Revaluation of property, plant and equipment (paragraph I(b)) 343,359 208,256 208,478
Allocation of certain overhead costs to inventories (paragraph I(c)) (274,850) (460,075) 173,922
Income taxes (paragraph I(d)) 284,288 (336,627) (635,706)
Accounting for investments in related companies (paragraph I(e)) (1,812,961) 195,475 20,944
Furnace repair provision (paragraph I(g)) (2,432,046) (694,679) (393,430)
Depreciation of molds as property, plant and equipment (paragraph I(h)) 518,232 232,105 297,418
Intangibles assets (paragraph I(j)) (183,294) 104,018 (137,357)
Unrealized profit and negative goodwill (paragraph I(k)) 23,184 23,108 23,108
Goodwill (paragraph I(l(i))) 1,674,639 - -
Goodwill amortization (paragraph I(l(ii))) (314,354) 653,119 542,800
Results of subsidiaries in the development stage (paragraph I(m)) (128,092) - -
Derivative instruments (paragraph I(o)) 1,116,276 366,163 (1,673,964)
Elimination of gain on Joint-venture (paragraph I(p)) (2,070,143) 172,512 172,512
Effect of minority interests on U.S. GAAP adjustments (151,571) (208,322) 10,473
Deferred tax effect of the above adjustments 58,468 (213,010) 235,350
-------------------------------------------------
Net income in accordance with U.S. GAAP before cumulative effect of change in
accounting principles 15,137,895 17,879,310 5,271,068
-------------------------------------------------
Cumulative effect of change in accounting principle, net of taxes of
ThCh$12,068 and minority interest 64,469 - -
------------------------------------------------
Net income in accordance with U.S. GAAP 15,202,364 17,879,310 5,271,068
-------------------------------------------------
Other comprehensive income:
Unrealized holding gain on marketable securities, net of applicable taxes
(paragraphs I(i)) (1,035,250) 73,312 (99,397)
Foreign exchange translation adjustment 1,668,908 1,569,793 (3,523,815)
-------------------------------------------------
Comprehensive income in accordance with U.S. GAAP 15,836,022 19,522,415 1,647,856
=================================================
|
F-64
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(q) Effects of conforming to U.S. GAAP, continued:
The adjustments required to conform net shareholders' equity amounts
to U.S. GAAP are as follows (all amounts are expressed in thousands
of constant Chilean pesos as of December 31, 2003):
2002 2003
-----------------------------------
ThCh$ ThCh$
Net shareholders' equity as reported under Chilean GAAP 233,643,431 228,321,585
Revaluation of property, plant and equipment (paragraph I(b)) (7,713,765) (6,606,881)
Revaluation of property, plant and equipment, accumulated depreciation (paragraph 5,959,046 5,060,640
I(b))
Allocation of certain overhead costs to inventories (paragraph I(c)) 3,562,998 3,736,920
Income taxes (paragraph I(d)) 203,737 (431,969)
Accounting for investments in related companies (paragraph I(e)) 3,541,745 3,562,689
Minimum dividend required by Chilean law (paragraph I(f)) (2,014,206) (969,876)
Furnace repair provision (paragraph I(g)) 3,803,443 3,410,013
Depreciation of molds as property, plant and equipment (paragraph I(h)) 2,073,539 2,370,957
Investments in marketable securities (paragraph I(i)) 2,011,276 1,891,521
Intangible assets (paragraph I(j)) (1,714,743) (1,852,100)
Unrealized profit and negative goodwill (paragraph I(k(i))) (298,034) (298,034)
Amortization of unrealized profit and negative goodwill (paragraph I(k(ii))) 115,614 138,722
Goodwill (paragraph I(l)) (3,368,500) (3,379,109)
Goodwill amortization (paragraph I(l)) 3,142,538 3,560,462
Derivative instruments (paragraph I(o)) 1,704,981 31,017
Elimination of gain on joint-venture - gross (paragraph I(p)) (2,070,144) (2,070,144)
Elimination of gain on joint-venture - accumulated amortization (paragraph I(p)) 172,511 345,024
Effect of minority interests on U.S. GAAP adjustments (399,366) (388,893)
Deferred tax effect of the above adjustments (3,366,050) (3,110,344)
-----------------------------------
Net shareholders' equity in accordance with U.S. GAAP 238,990,051 233,322,200
===================================
|
F-65
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(q) Effects of conforming to U.S. GAAP, continued:
The following summarizes the changes in shareholders' equity under U.S.
GAAP during the years ended December 31, 2001, 2002 and 2003:
2001 2002 2003
------------------------------------------------------
ThCh$ ThCh$ ThCh$
Balance as of January 1 221,889,516 228,510,560 238,990,051
Dividends paid (9,539,740) (7,729,314) (8,360,037)
Change in minimum dividends accrued 324,761 (1,313,610) 1,044,330
Net income in accordance with U.S. GAAP 15,202,365 17,879,310 5,271,068
Foreign exchange translation adjustment 1,668,908 1,569,793 (3,523,815)
Unrealized holding gain (loss) on marketable
securities, net of applicable taxes (1,035,250) 73,312 (99,397)
------------------------------------------------------
Balance as of December 31 228,510,560 238,990,051 233,322,200
======================================================
|
(r) Other Comprehensive Income:
In accordance with US GAAP, Cristalerias reports a measure of all
changes in shareholders' equity that result from transactions and other
economic events of the period other than transactions with owners
("comprehensive income"). Comprehensive income is the total of net
income and other non-owner equity transactions that result in changes in
net shareholders' equity.
The following represents the components of other comprehensive income,
together with the related tax effects by component for the years ended
December 31, 2001, 2002 and 2003 (in thousands of constant Chilean pesos
as of December 31, 2003).
F-66
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(r) Other Comprehensive Income, continued:
Before-Tax Amount Tax (Expense) or Net of Tax
Benefit Amount
---------------------------------------------------------
ThCh$ ThCh$ ThCh$
For the year ended December 31, 2001
Unrealized holding gains on marketable securities
arising during period: (1,195,311) 160,061 (1,035,250)
Foreign exchange translation adjustment 1,668,908 - 1,668,908
-----------------------------------------------------
Other comprehensive income 473,597 160,061 633,658
=====================================================
For the year ended December 31, 2002
Unrealized holding gains on marketable securities
arising during period: 87,798 (14,486) 73,312
Foreign exchange translation adjustment 1,569,793 - 1,569,793
------------------ ----------------------------------
Other comprehensive income 1,657,591 (14,486) 1,643,105
=====================================================
For the year ended December 31, 2003
Unrealized holding loss on marketable securities
arising during period: (119,755) 20,358 (99,397)
Foreign exchange translation adjustment (3,523,815) - (3,523,815)
-----------------------------------------------------
Other comprehensive income (3,643,570) 20,358 (3,623,212)
=====================================================
|
The following represents accumulated other comprehensive income
balances as of December 31, 2002 and 2003 (in thousands of constant
Chilean pesos as of December 31, 2003).
As of December 31, 2002
--------------------------------------------------------------
Unrealized Gains Cumulative Foreign Accumulated Other
on Securities Exchange Translation Comprehensive Income
Adjustment
Beginning balance 1,615,720 2,294,542 3,910,262
Current-period change 73,312 1,569,793 1,643,105
--------------------------------------------------------------
Ending balance 1,689,032 3,864,335 5,553,367
==============================================================
|
As of December 31, 2003
--------------------------------------------------------------
Unrealized Gains Cumulative Foreign Accumulated Other
on Securities Exchange Translation Comprehensive Income
Adjustment
Beginning balance 1,689,032 3,864,335 5,553,367
Current-period change (99,397) (3,523,815) (3,623,212)
--------------------------------------------------------------
Ending balance 1,589,635 340,520 1,930,155
==============================================================
|
F-67
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
II. Additional Disclosure Requirements:
(a) Earnings per share:
The following earnings per share information is not generally
required for presentation in the financial statements under Chilean
GAAP but is required under U.S. GAAP:
2001 2002 2003
--------------------------------------
Ch$ Ch$ Ch$
Chilean GAAP basic earnings per share (Ch$) (1) 288.86 278.71 100.41
======================================
U.S. GAAP basic earnings per share (Ch$1) (1):
U.S. GAAP earnings per share before cumulative effect of 237.54 279.38 82.36
======================================
change in accounting principle
Cumulative effect of change in accounting principle 1.01 - -
--------------------------------------
U.S. GAAP net earnings per share 238.55 279.38 82.36
======================================
Weighted average number of common shares outstanding (in thousands) 64,000 64,000 64,000
======================================
|
(1) There are no requirements to provide earnings per share
disclosures under Chilean GAAP. The earnings per share data shown
above are determined by dividing net income available to common
shareholders in accordance with U.S. GAAP and Chilean GAAP
respectively by the weighted-average number of shares outstanding.
The Company has a simple capital structure and has not issued any
convertible debt securities. Consequently, there are no diluting
effects on the earnings per share of the Company.
(b) Income taxes:
The provision for income taxes was as follows:
Chilean GAAP: 2001 2002 2003
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Current tax expense 4,036,042 4,275,329 1,286,502
Deferred tax expense (benefit) and others as
calculated under Chilean GAAP: 1,147,057 2,186,462 61,079
-----------------------------------------------------
Charge for the year under Chilean GAAP 5,183,099 6,461,791 1,347,581
U.S. GAAP Adjustments
Deferred tax effect of applying FAS No. 109 (284,288) 336,627 635,706
Deferred tax effect of adjustments to U.S. GAAP (58,468) 213,010 (235,350)
Deferred tax effect of cumulative effect of change
in accounting principle 12,068 - -
-----------------------------------------------------
Charge for the year under U.S. GAAP 4,852,411 7,011,428 1,747,937
=====================================================
|
F-68
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(b) Income taxes, continued:
Deferred tax assets (liabilities) as of each year-end are summarized as
follows:
2002 2003
------------------------------------------- --------------------------------------------
SFAS No. 109 SFAS No. 109 Total SFAS No. 109 SFAS No. 109 Total
applied to applied to US Deferred applied to applied to US Deferred
hilean GAAP GAAP Taxes under Chilean GAAP GAAP Taxes under
C Balances Adjustments SFAS No. 109 Balances Adjustments SFAS No. 109
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Deferred income tax assets:
Tax loss carryforwards (1) 4,723,875 - 4,723,875 4,506,337 - 4,506,337
Furnace repair provision 620,962 (620,962) - 563,187 (563,187) -
Provision for doubtful accounts 114,245 - 114,245 118,540 - 118,540
Inventory and packaging provision 225,881 - 225,881 229,139 - 229,139
Accrued vacation expense 172,514 - 172,514 202,898 - 202,898
Unearned revenues and unrealized income 452,446 - 452,446 698,264 - 698,264
Staff severance indemnities 37,709 - 37,709 28,623 - 28,623
Bond discount amortization 59,212 - 59,212 86,317 - 86,317
Other provisions 197,368 - 197,368 158,771 - 158,771
Direct labor costs 20,438 - 20,438 11,337 - 11,337
Other 268,366 41,378 309,744 17,349 10,568 27,917
------------------------------------------- --------------------------------------------
Total deferred income tax assets 6,893,016 (579,584) 6,313,432 6,620,762 (552,619) 6,068,143
------------------------------------------- --------------------------------------------
Deferred income tax liabilities:
Depreciation (8,057,421) - (8,057,421) (8,561,734) - (8,561,734)
Bond discount (858,205) - (858,205) (819,352) - (819,352)
Inventories - (587,895) (587,895) - (635,277) (635,277)
Molds (251,222) (352,502) (603,724) (256,166) (403,063) (659,229)
Forwards contracts - (281,321) (281,321) - (5,273) (5,273)
Intangibles - (1,232,887) (1,232,887) - (1,192,554) (1,192,554)
Deferred customs duties (153,739) - (153,739) (77,512) - (77,512)
Deferred costs (173,242) - (173,242) (222,622) - (222,622)
Marketable securities - (331,861) (331,861) - (321,559) (321,559)
Other (57,908) - (57,908) (85,758) - (85,758)
------------------------------------------- --------------------------------------------
Total deferred income
tax liabilities (9,551,737) (2,786,466) (12,338,203) (10,023,144) (2,557,725) (12,580,869)
------------------------------------------- --------------------------------------------
Net deferred tax assets (liabilities)
resulting from SFAS No. 109 (2,658,721) (3,366,050) (6,024,771) (3,402,382) (3,110,344) (6,512,726)
=========================================== ============================================
|
(1) In accordance with the current enacted tax law in Chile, such tax losses
may be carried forward indefinitely.
F-69
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(b) Income taxes, continued:
The classification of the deferred income tax assets and liabilities
above is detailed as follows:
2002 2002
-------------------------------------
ThCh$ ThCh$
Short-term (918,810) 168,342
Long-term (5,105,961) (6,681,068)
-------------------------------------
Net deferred tax liabilities (6,024,771) (6,512,726)
=====================================
|
The provision for income taxes differs from the amount of income tax
determined by applying the applicable Chilean statutory income tax rate
to pretax income calculated in accordance with U.S. GAAP as a result of
the following differences:
2001 2002 2003
-------------------------------------------------------
ThCh$ ThCh$ ThCh$
Tax provision at statutory Chilean tax rates 3,215,200 3,979,917 1,351,613
Increase (decrease) in taxes resulting from:
Amortization of goodwill and other intangibles (257,594) - -
Price-level restatement not accepted for tax
purposes (159,932) (23,671) (22,310)
Equity in net income of related companies 1,448,344 1,785,957 296,778
Tax credits and other permanent differences 606,393 1,269,225 121,856
-------------------------------------------------------
Effective tax provision 4,852,411 7,011,428 1,747,937
=======================================================
|
The Chilean statutory first category (corporate) income tax rate was 15%
prior to 2001, however tax rates increased to 16% in 2002, with
subsequent increases to 16.5% in 2003, and is scheduled to increase to
17% in 2004 and thereafter, in accordance with the currently enacted tax
legislation.
In accordance with Chilean law, Cristalerias de Chile S.A. and each of
its subsidiaries compute and pay tax on an individual legal entity
basis.
The Company had net operating tax-loss carry forwards related to its
subsidiaries of approximately ThCh$26,507,865 as of December 31, 2003
that can be carried forward indefinitely.
(c) Cash flows:
The Company's subsidiary Simetral was not consolidated under Chilean
GAAP until 2002, because this company was in the development stage prior
to 2002. Under U.S. GAAP this subsidiary would have been consolidated,
regardless of when their operations began. Additionally, under U.S.
GAAP, only instruments with an original maturity of less than 90 days
are considered to be cash and cash equivalents.
F-70
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(c) Cash flows, continued:
Cash flow amounts reconciled in accordance with U.S. GAAP, as
presented below include restatement to constant Chilean pesos as of
December 31, 2003 as part of the comprehensive basis used by the
Company in preparing its price-level adjusted financial statements.
Foreign registrants that prepare comprehensive price-level adjusted
financial statements are permitted to not reconcile the effects of
price level changes to U.S. GAAP. Consequently, the effects of the
price level adjustments have not been reconciled.
Consolidation of the Company's development stage operations would
result in the following differences under U.S. GAAP:
2001 2002 2003 2003
-----------------------------------------------------------
ThCh$ ThCh$ ThCh$ ThUS$
Cash provided by operating activities reported under Chilean GAAP 40,873,125 49,869,648 35,435,380 59,676
Effect of consolidation of subsidiary in Simetral (180,207) - - -
----------------------------------------------------------
Cash provided by operating activities under US GAAP 40,692,918 49,869,648 35,435,380 59,676
----------------------------------------------------------
Cash provided by financing activities reported under Chilean GAAP 5,217,831 11,818,403 (15,789,032) (26,589)
Effect of consolidation of subsidiary in Simetral 158,129 - - -
Proceeds from loans from related companies 1,384,696 90,831 153,564 259
----------------------------------------------------------
Cash provided by financing activities under US GAAP 6,760,656 11,909,234 (15,635,468) (26,330)
-----------------------------------------------------------
Cash used in investing activities reported under Chilean GAAP (35,315,986) (5,047,634) (34,827,055) (58,649)
Proceeds from loans from related companies (1,384,696) (90,831) (153,564) (259)
Reclassification of repurchase agreement - (364,303) (635,570) (1,070)
-----------------------------------------------------------
Cash used in investing activities under US GAAP (36,700,682) (5,502,768) (35,616,189) (59,978)
-----------------------------------------------------------
Effect of inflation on cash and cash equivalents under Chilean GAAP (1,302,575) (1,708,086) (3,439,516) (5,792)
----------------------------------------------------------
Effect of inflation on cash and cash equivalents under Chilean GAAP (1,302,575) (1,708,086) (3,439,516) (5,792)
-----------------------------------------------------------
Net change in cash and cash equivalents under Chilean GAAP
9,472,395 54,932,331 (18,620,223) (31,358)
Effect of consolidation of subsidiary in Simetral (22,079) - - -
Reclassification of repurchase agreement - (364,303) (635,570) (1,070)
-----------------------------------------------------------
Net change in cash and cash equivalents under US GAAP 9,450,316 54,568,028 (19,255,793) (32,428)
-----------------------------------------------------------
Cash and cash equivalents at beginning of year under Chilean GAAP 29,825,469 39,297,864 94,230,195 158,690
Effect of consolidation of subsidiary in Simetral 148,733 - - -
----------------------------------------------------------
Cash and cash equivalents at beginning of year under US GAAP 29,974,202 39,297,864 94,230,195 158,690
----------------------------------------------------------
Cash and cash equivalents at end of year under Chilean GAAP 39,297,864 94,230,195 75,609,972 127,332
Effect of consolidation of subsidiary in Simetral 126,654 - - -
Reconciliation of repurchase agreement - (364,303) (635,570) ( 1,070)
----------------------------------------------------------
Cash and cash equivalents at end of year under US GAAP 39,424,518 93,865,892 74,974,402 126,262
===========================================================
|
F-71
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(d) For purposes of the statements of cash flows under U.S. GAAP, the
company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents
as follows:
2001 2002 2003
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Cash deposits that are cash equivalents 3,055,994 2,450,019 3,513,737
Time deposits that are cash equivalents 14,347,867 13,112,270 4,265,706
Money market securities 10,095,194 64,300,492 55,460,423
Repurchase agreements 11,925,463 14,003,111 11,734,536
------------------------------------------------------
Total cash and cash equivalents 39,424,518 93,865,892 74,974,402
=====================================================
|
Supplementary Cash flow information:
2001 2002 2003
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Interest paid 6,564,524 3,411,897 7,510,044
Taxes paid 4,028,079 3,590,684 5,161,304
|
F-72
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(e) Investments in related companies:
The following tables show combined summary financial information of the
related companies accounted for using the equity method. All amounts are in
thousands of constant Chilean pesos of December 31, 2003 purchasing power.
The condensed information shown here has been combined from each company's
individual financial statements prepared in accordance with Chilean GAAP. For
the overall effect on the financial statements of Cristalerias de Chile S.A.
of the application of U.S. GAAP to the financial statements of these
companies, see paragraph I(q) above.
2001 2002 2003
------------------------------------------------------
ThCh$ ThCh$ ThCh$
Current assets 59,544,152 70,305,255 71,395,646
Non-current assets 459,508,673 423,360,327 531,374,536
------------------------------------------------------
Total assets 519,052,825 493,665,582 602,770,182
======================================================
Current liabilities 48,707,437 42,340,632 77,442,945
Non-current liabilities 52,985,555 74,069,920 102,402,872
------------------------------------------------------
Total liabilities 101,692,992 116,410,552 179,845,817
======================================================
Net sales 104,105,558 107,476,905 154,247,114
======================================================
Gross profit 25,328,360 22,523,603 29,959,333
======================================================
Net loss (30,839,340) (36,024,119) (31,293,484)
======================================================
Company's share of loss (Note 12) (7,692,604) (8,991,404) (4,538,754)
======================================================
|
(f) Segment information:
The Company operates principally in three business segments,
substantially all of which are located in Chile, which comprise the (i)
the production and sale of glass and plastic containers, (ii) the wine
segment, (iii) the media and communications business and (iv) other,
which includes real estate operations. Total revenues by segment are
comprised of sales to unaffiliated customers, as reported in
Cristalchile's consolidated income statement and inter-segment sales,
which are accounted for at invoice prices. Operating expenses are
allocated between Cristalchile's operating segments on a proportionate
basis.
The methods of revenue recognition by segment are (i) (a) glass
containers: when a sales commitment has been made through the issuance
of a sales invoice and the product has been delivered and (b) plastic
containers: upon delivery, (ii) wine: upon delivery, (iii) media and
communications: upon broadcast of the program or advertisement, and (iv)
other, which includes real estate: upon period of rental.
F-73
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(f) Segment information, continued:
The Company's segment data, based on Chilean GAAP balances, are as
follows:
Glass Wines Communications Other Total
-------------------------------------------------------------------------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
As for and for the year ended
December 31, 2001
Revenues from external
customers 68,434,649 67,698,318 16,771,906 (5,256,326) 147,648,547
Revenues from transactions
with other operating segments
of the same enterprise 6,436,967 - - (6,436,967) -
Interest income 1,672,632 1,205,582 74,206 1,421 2,953,840
Interest expense (4,091,543) (2,589,099) (529,935) - (7,210,576)
Depreciation (7,946,049) (3,229,292) (1,081,007) - (12,256,348)
Amortization (1,550,452) (280,501) (258,318) (25,725) (2,114,995)
Income tax expense (3,475,055) (1,750,592) 40,931 1,617 (5,183,099)
Earnings (loss) from
equity-method (897,145) 492,608 (7,287,597) (470) (7,692,604)
Net Income 20,250,210 7,510,832 (7,044,440) (2,229,835) 18,486,767
Total Assets 160,336,575 119,188,544 110,243,517 19,203,084 408,971,720
Capital Expenditures 25,846,336 7,900,239 302,544 - 34,049,120
As for and for the year ended
December 31, 2002
Revenues from external
customers 71,767,516 72,438,586 25,063,613 (6,601,882) 162,667,833
Revenues from transactions
with other operating segments
of the same enterprise 6,260,478 - 341,404 (6,601,882) -
Interest income 1,889,088 610,585 77,730 813 2,578,216
Interest expense (4,665,150) (1,833,501) (409,233) - (6,907,884)
Depreciation (9,105,507) (3,725,337) (879,829) - (13,710,672)
Amortization (607,792) (295,945) (530,678) - (1,434,416)
Income tax expense (4,074,990) (2,414,252) 28,160 (708) (6,461,791)
Earnings (loss) from
equity-method (858,708) 481,271 (8,610,816) (3,151) (8,991,404)
Net Income 16,417,253 9,355,774 (5,433,779) (2,501,980) 17,837,269
Total Assets 206,229,614 123,299,581 106,650,023 20,823,984 457,003,202
Capital Expenditures 10,403,089 4,728,002 523,214 - 15,654,305
As for and for the year ended
December 31, 2003
Revenues from external
customers 74,549,216 74,939,862 26,544,548 (6,092,521) 169,941,105
Revenues from transactions
with other operating segments
of the same enterprise 5,773,771 - 318,750 (6,092,521) -
Interest income 2,256,765 247,432 88,528 248 2,592,973
Interest expense (4,840,988) (1,702,955) (284,988) - (6,828,931)
Depreciation (9,903,163) (4,011,470) (812,406) - (14,727,039)
Amortization (956,810) (196,368) (208,593) (276,693) (1,638,464)
Income tax expense (1,463,667) (657,693) 229,565 544,212 (1,347,581)
Earnings (loss) from
equity-method 1,628,362 689,110 (6,810,408) (45,818) (4,538,754)
Net Income 5,556,118 3,915,158 (4,232,402) 1,187,646 6,426,520
Total Assets 198,876,855 122,381,264 99,834,108 16,853,276 437,945,503
Capital Expenditures 19,763,094 4,829,510 1,050,997 - 25,643,601
|
F-74
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(g) Geographic information:
Although all of the Company's operations are located in Chile, export
revenues, primarily from customers in the United Kingdom, the United
States and Canada, totaled ThCh$29,384,627, ThCh$31,695,353 and
ThCh$39,841,325 for the years ended December 31, 2001, 2002 and 2003,
respectively.
(h) Supplementary information on marketable securities:
Supplementary information on available for sale marketable securities is as
follows:
As of December 31, 2002
-----------------------------------------------------
Carrying value Unrealized Market value
Holding Gains
ThCh$ ThCh$ ThCh$
Bonds 55,053,309 - 55,053,309
Equity securities and mutual funds 13,084,516 2,011,276 15,095,792
-----------------------------------------------------
Total 68,137,825 2,011,276 70,149,101
=====================================================
|
Within one year After one year After five years
The contracted maturities of these securities are as But within five but within 10
follows: years years
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Government securities 55,053,309 - -
Equity securities and mutual funds 15,095,792 - -
-----------------------------------------------------
Total 70,149,101 - -
=====================================================
|
As of December 31, 2003
-----------------------------------------------------
Carrying value Unrealized Market value
Holding Gains
ThCh$ ThCh$ ThCh$
Bonds 47,852,283 - 47,852,283
Equity securities and mutual funds 11,762,690 1,891,521 13,654,211
-----------------------------------------------------
Total 59,614,973 1,891,521 61,506,494
=====================================================
|
Within one year After one year After five years
The contracted maturities of these securities are as But within five but within 10
follows: years years
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Bonds 47,852,283 - -
Equity securities and mutual funds 13,654,211 - -
----------------------------------------------------
Total 61,506,494 - -
=====================================================
|
Equity stock investments and mutual fund investments do not have a fixed
maturity date, but are anticipated to be sold within one year.
F-75
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(h) Supplementary information on marketable securities, continued:
Supplementary information on held-to-maturity marketable securities is as
follows:
As of December 31, 2002
-----------------------------------------------------
Carrying value Unrealized Market value
Holding Gains
ThCh$ ThCh$ ThCh$
Bonds 10,139,303 354,848 10,494,151
-----------------------------------------------------
Total 10,139,303 354,848 10,494,151
=====================================================
|
Within one year After one year After five years
The contracted maturities of these securities are as But within five but within 10
follows: years years
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Bonds - 10,494,151 -
-----------------------------------------------------
Total - 10,494,151 -
=====================================================
|
As of December 31, 2003
-----------------------------------------------------
Carrying value Unrealized Market value
Holding Loss
ThCh$ ThCh$ ThCh$
Bonds 8,188,309 413,865 8,602,174
-----------------------------------------------------
Total 8,188,309 413,865 8,602,174
=====================================================
|
Within one year After one year After five years
The contracted maturities of these securities are as But within five but within 10
follows: years years
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Bonds - 8,602,174 -
-----------------------------------------------------
Total - 8,602,174 -
=====================================================
|
(i) Other disclosures:
The Company has accounted for its liability for severance indemnities as
disclosed in Notes 2(h) and 21. Except for severance indemnities, the
Company does not provide any post-employment or post-retirement benefits
to its employees and accordingly, there is no need to record any
additional obligations in accordance with either SFAS No. 106 "Employers'
Accounting for Post-retirement Benefits other than Pensions" or SFAS No.
112 "Employers' Accounting for Post-employment Benefits" or SFAS No. 132
"Employers' Disclosure About Pensions and Other Postretirement Benefits".
The Company had advertising expenses of ThCh$3,173,637, ThCh$2,753,152
and ThCh$4,126,224 for the years ended December 31, 2001, 2002 and 2003.
There were no significant lease obligations or rental expenses for the
years ended December 31, 2001, 2002 and 2003.
F-76
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(i) Other disclosures, continued:
Reliance on Significant Customers:
The Company sells glass to three unrelated companies that have from time
to time accounted for more than 10% of the Company's glass segment sales
over the last three years. Sales to these companies accounted for 35.9%
(15.0%, 11.4% and 9.5%), 37.83% (16.7%, 11.6% and 9.5%) and 40.46%
(18.7%, 12.1% and 9.7%) of the Company's total net sales for the years
ended December 31, 2001, 2002 and 2003 of the company's glass segment
sales, respectively.
(j) Concentrations of Credit Risk
The Company holds bank balances and places deposits in a number of
different financial institutions and in this way attempts to reduce
counterparty risk. The Company does not believe that it is exposed to any
material credit risk from any single financial institution. No customer
has outstanding receivables of more than 10%. The concentration of the
Company's accounts receivable balances are as follows:
Percentage of accounts receivable
Sector 2003
----
Glass Container
Liquor 4.16%
Beer 5.22%
Soft Drink 6.23%
Wine 29.86%
Other Glass Container 1.41% 46.88%
-------------
TV Advertisement 12.99%
Wine 40.13%
-------------
Total 100.00%
=============
|
The Company's debtors are all dependent on the Chilean economy, and
significant proportions of these debtors operate in the beverage
industry. As a result, the Company could be vulnerable to a downturn
in economic activity in Chile. However, the Company so far does not
have any experience of credit losses due to non-payment by major
customers. Additionally, the credit risk that the Company has faced
from creditors has been reduced as a result of the Company's position
in the market for the production of glass bottles. In the event of
failure by the Company's counterparties, the Company would be exposed
to a loss equivalent to the amount shown in the balance sheet.
F-77
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(k) Disclosure regarding the fair value of financial instruments:
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" and SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" under US
GAAP, information is provided about the fair value of certain financial
instruments for which it is practicable to estimate that value. For the
purposes of SFAS No. 107, the estimated fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties.
There are certain limitations inherent in the fair value data, since
while the data represents Management's best estimates and certain
assumptions; the data is subjective, involving significant estimates and
assumptions regarding current economic and market conditions.
The methods and assumptions used to estimate the fair values are as
follows:
o For cash, short-term deposits and investments, and current
receivables and payables the carrying amounts approximate the fair
value due to the short-term maturity of these instruments.
o For interest earning assets and interest bearing liabilities that
are contracted at variable interest rates, book value is considered
to be equivalent to fair value.
o Estimates of fair values of financial instruments for which no
quoted prices or secondary market exists have been made using
valuation techniques such as forward pricing models, present value
of estimated future cash flows, and modeling techniques. These
estimates of fair values include assumptions made by the Company
about market variables that may change in the future. Changes in
assumptions could have a significant impact on the estimate of fair
values disclosed. As a result, such fair value amounts are subject
to significant uncertainty and are highly dependent on the quality
of the assumptions used.
o For interest earning assets and interest bearing liabilities,
contracted at fixed interest rates with an original maturity of more
than one year, the fair values have been calculated by discounting
contractual cash flows at the current market origination rates for
financial instruments with similar terms.
F-78
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(k) Disclosure regarding the fair value of financial instruments,
continued:
2002 2003
Carrying Value Estimated Fair Value Carrying Value Estimated Fair
Value
Assets ThCh$ ThCh$ ThCh$ ThCh$
Cash 2,450,019 2,450,019 3,513,737 3,513,737
Time deposits 13,112,270 13,112,270 4,265,706 4,265,706
Marketable securities 70,149,101 70,149,101 61,506,494 61,506,494
Other instruments 15,561,567 15,561,567 12,755,237 12,755,237
Current accounts receivable 43,933,653 43,933,653 46,167,274 46,167,274
Long-term receivables 198,351 198,351 210,268 210,268
Long-term other instruments 16,907,513 17,262,361 13,298,636 13,712,501
Forward contracts 2,469,835 2,469,835 1,700,502 1,700,502
Liabilities
Accounts payable 13,413,389 13,413,389 11,233,939 11,233,939
Long-term bank liabilities 49,126,856 49,126,856 37,217,343 37,217,343
Bonds payable 91,597,561 91,597,561 91,430,288 92,894,025
Miscellaneous creditors 4,946,074 4,946,074 1,929,292 1,929,292
Forward contracts 1,393,590 1,393,590 4,067,331 4,067,331
|
The carrying amounts above are presented in accordance with U.S. GAAP.
(l) Restrictions on payment of dividends:
As of December 31, 2003, the Company had undistributed earnings of
ThCh$3,724,559 in companies accounted for by the equity method, included
as a part of consolidated retained earnings.
Dividends received from such entities were ThCh$454,504, ThCh$237,759 and
ThCh$215,661 for the years ended December 31, 2001, 2002 and 2003,
respectively.
F-79
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(m) Recent accounting pronouncements:
In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). This standard requires that under U.S. GAAP
obligations associated with the retirement of tangible long-lived assets
be recorded as liabilities when those obligations are incurred, with the
amount of the liability initially measured at fair value. Upon initially
recognizing a liability for an asset retirement obligation, an entity
must capitalize the cost by recognizing an increase in the carrying
amount of the related long-lived asset. Over time, this liability is
accreted to its present value, and the capitalized cost is depreciated
over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded
amount or incurs a gain or loss upon settlement. The effective date of
application of SFAS No. 143 is January 1, 2003. The implementation of
SFAS No. 143 had no material impact on the results of operations or
financial position of the Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities-an interpretation of ARB 51," to expand upon
and strengthen existing accounting guidance that addresses when a company
should include in its financial statements the assets, liabilities and
activities of another entity. Many variable interest entities, including
special purpose entities have commonly been referred to as
special-purpose entities or off-balance sheet structures, but the
guidance applies to a larger population of entities. In general, a
variable interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that
do not provide sufficient financial resources for the entity to support
its activities. The Company must apply Interpretation No. 46 to variable
interest entities created after January 31, 2003. The Company did not
create any variable interest entities after January 31, 2003 and is in
the process of assessing the impact of the Interpretation in relation to
business relationships created before January 31, 2003. The effective
date of Interpretation No. 46 is January 1, 2004 for variable interest
entities created before January 31, 2003. The Company does not expect the
implementation of the Interpretation to have a material impact on the
Company's results of operation or financial position.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). The Interpretation
significantly changed practice in the accounting for, and disclosure of,
guarantees. In general, the Interpretation applies to contracts or
indemnification agreements that contingently require the guarantor to
make payments to the guaranteed party based on changes in an underlying
that is related to an asset, liability, or an equity security of the
guaranteed party. Guarantees meeting the characteristics described in the
Interpretation, are required to be initially recorded at fair value,
which is different from the general current practice of recording a
liability only when a loss is probable and reasonably estimable, as those
terms are defined in FASB Statement No. 5, "Accounting for
Contingencies". The Interpretation also requires a guarantor to make
significant new disclosures for virtually all guarantees even when the
likelihood of the guarantor's having to make payments under the guarantee
is remote. The Interpretation's disclosure requirements are effective for
financial statements of interim or annual periods ending after December
15, 2002. The Interpretation's initial recognition and initial
measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of
the guarantor's fiscal year-end. The implementation of FIN 45 had no
material impact on the results of operations or financial position of the
Company.
F-80
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(n) Goodwill
As discussed in paragraph (l), section (ii), the Company adopted SFAS
142, which requires companies to stop amortizing goodwill and certain
intangible assets with an indefinite useful life. Instead, SFAS 142
requires that goodwill and intangible assets deemed to have an indefinite
useful life be reviewed for impairment upon adoption of SFAS 142,
effective January 1, 2002 and annually thereafter. Under SFAS 142,
goodwill impairment is deemed to exist if the net book value of a
reporting unit exceeds its estimated fair value. The Company's reporting
units are at the operating subsidiary level. This methodology differs
from the Company's previous policy, as provided under accounting
standards existing at that time of using undiscounted cash flows on an
enterprise-wide basis to determine if goodwill was recoverable. During
2002 and 2003, the Company did not recognize an impairment charge to
reduce the carrying value of goodwill.
In calculating the fair value of reporting units, the Company used a
discounted cash flow approach, stock valuations and recent comparable
transactions in the market. Prior to performing the review for
impairment, SFAS 142 required that all goodwill deemed to be related to
the entity as a whole be assigned to all of the Company's reporting
units, including the reporting units of the acquirer.
A summary of the changes in the Company's goodwill under U.S. GAAP during
the year ended December 31, 2002 and 2003, by reporting unit is as
follows:
Goodwill
-----------------------------------------------------------------------------------------------------------------------
Cumulative
Effect of Cumulative
January 1, Accounting Translation December 31,
Company 2002 Acquisitions Change Impairment Adjustment 2002
-----------------------------------------------------------------------------------------------------------------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Rayen Cura S.A.(1) 5,825,649 - - - 340,917 6,166,566
S.A. Vina Santa Rita 1,028,248 - - - - 1,028,248
Vina Los Vascos S.A. 598,703 - - - - 598,703
Zig-Zag S.A. 122,131 - - - - 122,131
Red Televisiva Megavision S.A. 200,656 412,467 - - - 613,123
----------------------------------------------------------------------------------------------------------------------
Total 7,775,387 412,467 - - 340,917 8,528,771
======================================================================================================================
|
F-81
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(n) Goodwill, continued
Goodwill
------------------------ ------------- -------------- -------------- ------------- -------------- ------------
Cumulative
Effect of Cumulative
January 1, Accounting Translation December
Company 2003 Acquisitions Change Impairment Adjustment 31, 2003
------------------------ ------------- -------------- -------------- ------------- -------------- ------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Rayen Cura S.A.(1) 6,166,566 - - - (1,154,182) 5,012,384
S.A. Vina Santa Rita 1,028,248 - - - - 1,028,248
Vina Los Vascos S.A. 598,703 - - - - 598,703
Zig-Zag S.A. 122,131 - - - - 122,131
Red Televisiva 613,123 - - - - 613,123
Megavision S.A.
------------------------ ------------- -------------- -------------- ------------- -------------- ------------
Total 8,528,771 - - - (1,154,182) 7,374,589
======================== ============= ============== ============== ============= ============== ============
|
(1) In thousands of constant Chilean pesos as of December 31, 2003,
using exchange rate of Ch$ 593.80 per US$ .
Metropolis Intercom S.A.'s unrealized gain has not been included in
this rollforward as these amounts do not represent goodwill.
The Company's intangible assets were ThCh$11,775,270 and
ThCh$11,802,431 and related accumulated amortization were
ThCh$3,950,914 and ThCh$4,256,746 as of December 31, 2002 and 2003,
respectively, in accordance with U.S. GAAP. All of the Company's
intangible assets are subject to amortization, since they relate to
finite contracts or concessions, however there is a difference in
the amortization methodology between Chilean and U.S. GAAP, Chilean
GAAP permits recording depreciation on a decelerated basis and while
under U.S. GAAP intangibles are amortized on a straight-line basis
over their expected useful life. Intangible amortization is expected
to be approximately ThCh$305,832 over each of the next five years,
not taking inflation or future purchases into account.
F-82
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(o) Summarized information in accordance with U.S. GAAP
In addition to differences in measurement methods between Chile GAAP
and U.S. GAAP, certain reclassifications are required to be made in
order to prepare information in accordance with U.S. GAAP. These
reclassifications would be made to the line items of the Chilean GAAP
income statement to show the same presentation as would be required
under a U.S. GAAP format. Amounts that are included in non-operating
income and expenses would be included as operating income under U.S.
GAAP. These reclassifications exclude consolidation of development
stage companies during 2001, the effect of which is immaterial.
The condensed consolidated statements of income under U.S. GAAP,
classified in accordance with U.S. GAAP are presented as follows:
2001 2002 2003
---------------------------------------------------------
ThCh$ ThCh$ ThCh$
Sales 147,648,547 162,667,833 169,941,105
Cost of sales (93,175,486) (96,648,327) (105,607,656)
---------------------------------------------------------
Gross margin 54,473,061 66,019,506 64,333,449
Selling and administrative expenses (15,627,514) (26,232,938) (24,195,912)
---------------------------------------------------------
Operating income 38,845,547 39,786,568 40,137,537
Non-operating income (loss) (15,352,417) (10,091,846) (31,288,361)
---------------------------------------------------------
Net income before income taxes and minority interest
23,493,130 29,694,722 8,849,176
Income taxes (4,840,411) (7,011,428) (1,747,939)
---------------------------------------------------------
Income before minority interest
18,652,719 22,683,294 7,101,237
Minority interest (3,450,353) (4,803,983) (1,830,169)
---------------------------------------------------------
Net income 15,202,366 17,879,311 5,271,068
=========================================================
|
F-83
CRISTALERIAS DE CHILE S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Translation of financial statements
originally issued in Spanish - See Note 2)
(Restated for general price-level changes and
expressed in thousands of constant Chilean pesos
as of December 31, 2003, except as indicated)
37. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, continued:
(o) Summarized information in accordance with US GAAP, continued:
Certain reclassifications would be made to the line items of the
Chilean GAAP balance sheet to show the same presentation as would be
required under a U.S. GAAP format. Amounts payable or receivable
under forward contacts would only be stated net if there was a right
of offset, bond discount presented as Other Assets in Chilean GAAP
would be reclassified as long-term liabilities against bonds payable.
The summarized consolidated balance sheets under U.S. GAAP,
classified in accordance with U.S. GAAP are presented as follows:
2001 2002 2003
---------------------------------------------------------
ThCh$ ThCh$ ThCh$
Total current assets 121,435,516 177,964,582 165,774,275
Property, plant and equipment 219,255,103 222,320,911 239,372,848
Accumulated depreciation of property, plant and equipment (76,829,482) (85,591,189) (95,718,243)
---------------------------------------------------------
Property, plant and equipment, net 143,654,605
142,425,621 136,729,722
Goodwill 9,139,480 9,931,488 8,726,420
Accumulated amortization of goodwill (1,364,093) (1,402,717) (1,351,831)
---------------------------------------------------------
Goodwill, net
7,775,387 8,528,771 7,374,589
Other assets 143,570,778 141,664,042 129,519,455
----------------------------------------------------------
Total assets
415,207,302 464,887,117 446,322,924
=========================================================
Current liabilities 53,994,752 45,730,556 43,534,389
Long-term liabilities 96,290,184 142,646,8761 31,395,692
Minority interest 36,411,806 37,519,635 38,070,643
Shareholder's equity 228,510,560 238,990,050 233,322,200
----------------------------------------------------------
Total liabilities and shareholder's equity 415,207,302 464,887,117 446,322,924
=========================================================
|
38. CONSOLIDATED FINANCIAL STATEMENTS OF CORDILLERA COMUNICACIONES HOLDING
LIMITADA AND SUBSIDIARIES
In accordance with Chilean GAAP, as of December 31, 2003, the Company
included its equity method investment in Cordillera Comunicaciones
Holding Limitada and subsidiaries ("Cordillera") (See Note 10) in the
balance sheet account "Investments in related companies" and its
participation in earnings for the years ended December 31, 2001, 2002 and
2003 in the income statement account "Equity participation in net income
(loss) of related companies". For purposes of complying with the
requirements of Form 20-F, the Company is required to present separately,
the Chilean GAAP audited financial statements with a reconciliation to
U.S. GAAP of Cordillera as of December 31, 2002 and 2003 and for the
three years in the period ended December 31, 2003, as Cordillera met the
definition of a significant subsidiary under Rule 1-02 (w) of Regulation
S-X as of December 31, 2003.
F-84
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Consolidated Financial Statements as of
December 31, 2002 and 2003 and for the years
ended December 31, 2001, 2002 and 2003 together with
the Report of Independent Auditors
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Index to Consolidated Financial Statements
Pages
Report of Independent Auditors:
Audit Report of Ernst & Young - 2002 and 2003 3
Audit Report of Langton Clarke - 2001 4
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2002 and 2003 5
Consolidated Statements of Income for the three years ended
December 31, 2001, 2002 and 2003 7
Consolidated Statements of Cash Flows for the three years ended
December 31, 2001, 2002 and 2003 8
Notes to the Consolidated Financial Statements 10
Ch$ - Chilean pesos
ThCh$ - Thousands of Chilean pesos
US$ - United States Dollars
ThUS$ - Thousands of United States Dollars
UF - Unidad de Fomento "UF" is a daily-indexed peso-denominated
accounting unit. The UF rate is set daily in advance based on the
change in the Chilean Consumer Price Index of the previous month.
|
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Cordillera Comunicaciones Holding Limitada:
We have audited the accompanying consolidated balance sheets of Cordillera
Comunicaciones Holding Limitada and subsidiaries (the "Company") as of
December 31, 2002 and 2003, and the related consolidated statements of income
and cash flows for the two years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements of the Company as of December 31, 2001 and
for the year then ended were audited by Langton Clarke, a member of Andersen
Worldwide, who issued an unqualified opinion in their report dated February
28, 2002, except for Notes 2(a), 2(c) and 27 for which the date was May 29,
2002. Andersen Worldwide has ceased operating as a member of the Securities
and Exchange Commission Practice Section of the American Institute of
Certified Public Accountants.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Cordillera Comunicaciones Holding Limitada and subsidiaries at December 31,
2002 and 2003, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in Chile, which differ in certain respects from accounting
principles generally accepted in the United States of America (see Note 28 to
the consolidated financial statements).
ERNST & YOUNG LTDA. [OBJECT OMITTED]
Santiago, Chile February 27, 2004
G-3
This is a copy of a previously issued Arthur Andersen - Langton Clarke report.
Arthur Andersen - Langton Clarke has not reissued the report, nor has Arthur
Andersen - Langton Clarke consented to the inclusion of the report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cordillera Comunicaciones Holding Limitada:
We have audited the accompanying consolidated balance sheets of Cordillera
Comunicaciones Holding Limitada (the "Company") and subsidiaries as of
December 31, 2000 and 2001 and the related consolidated statements of income
and cash flows for each of the three years in the period ended December 31,
2001, all expressed in thousands of constant Chilean pesos. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with accounting principles generally
accepted in Chile, but do not conform with accounting principles generally
accepted in the United States of America. A description of these differences
and a reconciliation of consolidated net income and shareholders' equity under
accounting principles generally accepted in Chile to the corresponding amounts
that would be reported in accordance with United States generally accepted
accounting principles, except for the omissions, as allowed pursuant to Item
17 of SEC Form 20-F, of adjustments necessary to eliminate the effect of
price-level changes described in Note 2(c), is set forth in Note 27 to these
consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cordillera
Comunicaciones Holding Limitada and subsidiaries as of December 31, 2000 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in Chile.
As explained in Note 3 to these consolidated financial statements, starting
January 1, 2000, the Company modified the method in which income taxes are
recorded, recognizing deferred taxes in accordance with generally accepted
accounting principles in Chile and the Superintendency of Securities and
Insurance. During 2001 the Company modified its criteria for depreciating its
external network from a straight-line method to a progressive method on the
basis of estimated growth of average subscribers. During 2001, the Company
also modified the amortization method of Cable TV residence installations in
order to assure consistent useful lives among installations originally
installed by the Company and those acquired.
LANGTON CLARKE
Santiago, Chile February 28, 2002,
(except for Notes 2(a), 2(c) and 27 for which the date is May 29, 2002)
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Consolidated Balance Sheets
for the years ended December 31
(Translation of financial statements originally issued in Spanish
- see Note 2)
(Restated for general price-level changes and expressed in thousands
of constant Chilean pesos as of December 31, 2003 except as stated)
As of December 31,
-----------------------------------------------
2002 2003 2003
ASSETS ThCh$ ThCh$ ThUS$
Note 2(e)
CURRENT ASSETS
Cash 404,286 205,388 346
Time deposits (Note 5) 4,936,648 805,179 1,356
Marketable securities (Note 6) 812,430 - -
Trade receivables, net of allowance for doubtful accounts
of ThCh$5,053,701 and ThCh$6,144,894, respectively (Note 7) 3,739,641 2,517,565 4,241
Notes receivable 173,283 90,392 152
Miscellaneous receivables (Note 8) 1,606,489 2,608,708 4,393
Notes and accounts receivable from related companies (Note 11) 333,637 226,838 382
Income taxes recoverable, net (Note 24) 84,792 74,765 125
Prepaid expenses (Note 9) 858,029 964,731 1,624
Deferred income taxes (Note 24) 623,696 1,184,628 1,995
Other current assets, net (Note 10) 7,823,123 5,962,072 10,041
----------------------------------------
Total current assets 21,396,054 14,640,266 24,655
----------------------------------------
PROPERTY, PLANT AND EQUIPMENT (Note 12)
Land 487,823 487,823 822
Buildings and other infrastructure 110,427,653 115,577,177 194,640
Machinery and equipment 9,939,220 11,750,324 19,788
Furniture and equipment 3,762,055 4,026,282 6,776
Other property, plant and equipment 14,197,851 14,724,167 24,797
Less: accumulated depreciation (24,872,679) (33,840,639) (56,986)
-----------------------------------------
Property, plant and equipment, net 113,941,923 112,725,134 189,837
-----------------------------------------
OTHER ASSETS
Investment in other companies (Note 14) 259,854 227,817 384
Goodwill, net (Note 15) 65,016,645 60,829,024 102,440
Intangibles, net 1,043,521 1,669,947 2,812
Deferred income taxes (Note 24) 3,578,867 5,019,018 8,452
Other assets (Note 13) 12,030,032 11,302,855 19,035
-----------------------------------------
Total other assets 81,928,919 79,048,661 133,123
-----------------------------------------
TOTAL ASSETS 217,266,896 206,414,061 347,615
=========================================
|
The accompanying notes are an integral part of these consolidated financial
statements.
G-5
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Consolidated Balance Sheets
for the years ended December 31
(Translation of financial statements originally issued in Spanish
- see Note 2)
(Restated for general price-level changes and expressed in thousands
of constant Chilean pesos as of December 31, 2003 except as stated)
As of December 31,
-----------------------------------------------
2002 2003 2003
LIABILITIES AND SHAREHOLDERS' EQUITY ThCh$ ThCh$ ThUS$
Note 2(e)
CURRENT LIABILITIES
Banks and financial institutions, short-term (Note 16) 16,770 - -
Banks and financial institutions, current portion (Note 16) 42,587 7,445,646 12,539
Accounts payable (Note 17) 12,508,111 9,032,587 15,211
Notes payable (Note 18) 207,635 11,837 20
Miscellaneous payables (Note 19) 311,309 1,016,554 1,712
Notes and accounts payable to related companies (Note 11) 1,409,380 734,659 1,237
Accrued liabilities and withholdings (Note 20) 1,488,049 1,265,504 2,131
Unearned revenues 828,510 719,021 1,211
Other current liabilities (Note 10) - 4,188,044 7,054
-------------------------------------------
Total current liabilities 16,812,351 24,413,852 41,115
-------------------------------------------
LONG-TERM LIABILITIES
Banks and financial institutions, non-current portion (Note 16) 36,867,508 29,508,724 49,695
Long-term notes payables (Note 21) 16,719,923 14,401,629 24,253
Other long-term liabilities (Note 22) 433,919 1,804,798 3,039
-------------------------------------------
Total long-term liabilities 54,021,350 45,715,151 76,987
-------------------------------------------
Minority interest 732,047 4,030,429 6,789
Commitments and contingencies (Note 26)
SHAREHOLDERS' EQUITY (Note 23)
Paid-in capital 200,844,300 200,844,300 338,236
Price-level restatement 1,807,600 1,807,600 3,044
Accumulated deficit (39,819,722) (56,950,752) (95,912)
Net loss (17,131,030) (13,446,519) (22,644)
-------------------------------------------
Total Shareholders' equity 145,701,148 132,254,629 222,724
-------------------------------------------
Total Liabilities and Shareholders' equity 217,266,896 206,414,061 347,615
===========================================
|
The accompanying notes are an integral part of these consolidated financial
statements.
G-6
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Consolidated Statements of Income
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003
except as stated)
For the years ended December 31,
----------------------------------------------------------------------
2001 2002 2003 2003
ThCh$ ThCh$ ThCh$ ThUS$
OPERATING INCOME Note 2(e)
Operating revenue 47,748,180 46,742,630 44,975,680 75,742
Operating costs (38,532,872) (42,530,949) (38,082,828) (64,134)
-------------------------------------------------------------
Operating margin 9,215,308 4,211,681 6,892,852 11,608
-------------------------------------------------------------
Administrative and selling expenses (18,199,446) (15,568,891) (13,931,701) (23,462)
-------------------------------------------------------------
Operating loss (8,984,138) (11,357,210) (7,038,849) (11,854)
-------------------------------------------------------------
NON-OPERATING INCOME
Financial revenue 147,414 363,812 212,802 358
Other non-operating income 221 57,154 298,755 503
Financial expenses (1,695,581) (2,372,141) (2,642,668) (4,450)
Other non-operating expenses (1,497,206) (1,529,670) (1,101,700) (1,855)
Goodwill amortization (Note 15) (4,123,225) (4,105,116) (4,184,519) (7,047)
Price-level restatement, net (Note 4) (633,626) (664,246) (1,190,856) (2,005)
-------------------------------------------------------------
Non-operating loss (7,802,003) (8,250,207) (8,608,186) (14,496)
-------------------------------------------------------------
-------------------------------------------------------------
Loss before taxes and minority interest (16,786,141) (19,607,417) (15,647,035) (26,350)
-------------------------------------------------------------
Income taxes (Note 24) 2,148,223 2,389,871 2,038,031 3,432
Minority interest 76,297 86,516 162,485 274
-------------------------------------------------------------
Net loss (14,561,621) (17,131,030) (13,446,519) (22,644)
============================================================-
|
The accompanying notes are an integral part of these consolidated financial
statements.
G-7
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31
(Translation of financial statements originally issued in Spanish
- see Note 2)
(Restated for general price-level changes and expressed in thousands
of constant Chilean pesos as of December 31, 2003 except as stated)
For the years ended December 31,
-------------------------------------------------------------
2001 2002 2003 2003
CASH FLOWS FROM OPERATING ACTIVITIES ThCh$ ThCh$ ThCh$ ThUS$
Note 2(e)
Net loss (14,561,621) (17,131,030) (13,446,519) (22,645)
Charges (credits) to income that do not represent cash
flows
Depreciation 7,258,539 8,551,082 9,509,897 16,015
Amortization of software and other 328,834 313,515 437,134 736
Residential cable TV installations amortization 1,941,656 2,764,525 3,525,929 5,938
(Gain) Loss in sale of fixed assets (6,850) - 31,521 53
Deferred taxes (1,634,765) (2,558,686) (2,042,691) (3,440)
Write-offs 1,053,605 659,174 283,407 477
Allowance for doubtful accounts 3,670,211 3,037,732 1,197,856 2,017
Vacation provision 285,191 164,957 153,895 259
Valuation and obsolescence provision - 127,441 141,042 238
Goodwill amortization 4,123,225 4,105,116 4,184,519 7,047
Price-level restatement, net 633,626 664,246 1,190,856 2,005
Accrued interest 371,211 893,471 835,292 1,407
Investment price level restatement 64,613 312,898 (193,581) (326)
Unrealized (gain) loss on forward contracts 240,561 838,394 292,989 493
Other 1,733,455 (103,925) (3,914) (7)
Decrease (increase) in Assets
Trade receivables, net (4,496,466) (3,634,684) (10,370) (17)
Miscellaneous receivables 1,843,963 (690,461) (1,001,945) (1,687)
Inventory 1,065,316 - - -
Accounts receivable from related parties (216,520) 113,352 48,310 81
Income taxes recoverable, net 3,273,505 822,289 10,242 17
Prepaid expenses (1,415,189) 1,484,999 (106,702) (180)
Other current assets, net (1,655,167) 399,761 - -
(Decrease) increase in Liabilities
Accounts and notes payable (603,394) (3,830,144) (3,671,650) (6,183)
Miscellaneous payables (2,826,774) (9,676) 695,361 1,171
Accrued liabilities and withholdings (1,647,093) 264,121 (54,134) (91)
Notes and accounts payable to related parties (1,543,568) 796,764 (667,389) (1,124)
Unearned revenues (239,003) 463,421 (109,489) (184)
Other current liabilities (1,280) - 305,829 515
Minority interest (3,123) (86,516) (162,485) (274)
---------------------------------------------------
Total cash flows provided from (used in) operating
activities (2,963,302) (1,267,864) 1,373,210 2,311
===================================================
|
The accompanying notes are an integral part of these consolidated financial
statements.
G-8
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31
(Translation of financial statements originally issued in Spanish
- see Note 2)
(Restated for general price-level changes and expressed in thousands
of constant Chilean pesos as of December 31, 2003 except as stated)
For the years ended December 31,
---------------------------------------------------------------
2001 2002 2003 2003
CASH FLOWS FROM FINANCING ACTIVITIES ThCh$ ThCh$ ThCh$ ThUS$
Note 2(e)
Loan proceeds 18,479,386 17,918,023 - -
Issuance of subsidiary shares - - 4,924,603 8,294
-------------------------------------------------------
Total cash flows from financing activities 18,479,386 17,918,023 4,924,603 8,294
-------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property, plant and equipment 63,905 - 201,267 339
Purchase of property, plant and equipment (12,554,796) (3,597,399) (8,215,178) (13,835)
Purchase of software and licenses (867,838) (372,083) (442,214) (745)
Additions to residential Cable TV installations (3,862,933) (4,423,291) (3,430,911) (5,778)
-------------------------------------------------------
Total cash flows used in investing activities (17,221,662) (8,392,773) (11,887,036) (20,019)
-------------------------------------------------------
Total net cash flow for the year (1,705,578) 8,257,386 (5,589,223) (9,414)
-
Effect of inflation on cash and cash equivalents (78,202) (434,743) (125,618) (210)
-------------------------------------------------------
Increase (decrease) of cash and cash equivalents during
the year (1,783,780) 7,822,643 (5,714,841) (9,624)
Cash and cash equivalents at the beginning of the year 6,648,617 4,864,837 12,687,480 21,366
-------------------------------------------------------
Cash and cash equivalents at the end of the year 4,864,837 12,687,480 6,972,639 11,742
=======================================================
|
The accompanying notes are an integral part of these consolidated financial
statements.
G-9
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 1. The Company:
Cordillera Comunicaciones Holding Limitada (the "Company") was incorporated on
December 31, 1994. On that date, the founders of the Company contributed 100%
of the shares of cable television systems serving the communities of Santiago,
Temuco, Vina del Mar, Valdivia, Puerto Montt, Puerto Varas and Los Angeles,
Chile. This contribution resulted in dissolution of the underlying companies,
with the Company assuming all of the assets and liabilities of the predecessor
companies. Included in the assets of the predecessor companies are cash,
property, plant and equipment and certain organizational costs contributed by
the founders to the various companies prior to their dissolution. The
acquisitions were recorded under the purchase method of accounting.
Note 2. Significant Accounting Policies:
(a) General:
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in Chile and the
regulations established by the SVS (collectively "Chilean GAAP"). Certain
accounting practices applied by the Company that conform with generally
accepted accounting principles in Chile do not conform with generally accepted
accounting principles in the United States ("U.S. GAAP"). A reconciliation of
Chilean GAAP to U.S. GAAP is provided in Note 28. Certain amounts in the prior
year's financial statements have been reclassified to conform to the current
year's presentation.
The preparation of financial statements in conformity with Chilean GAAP, along
with the reconciliation to U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
In certain cases generally accepted accounting principles require that assets
or liabilities be recorded or disclosed at their fair values. The fair value
is the amount at which an asset could be bought or sold or the amount at which
a liability could be incurred or settled in a current transaction between
willing parties, other than in a forced or liquidation sale. Where available,
quoted market prices in active markets have been used as the basis for the
measurement; however, where quoted market prices in active markets are not
available, the Company has estimated such values based on the best information
available, including using modeling and other valuation techniques.
The accompanying financial statements reflect the consolidated operations of
Cordillera Comunicaciones Holding Limitada and subsidiaries. All significant
intercompany transactions have been eliminated in consolidation. The Company
consolidates the financial statements of companies in which it controls over
50% of the voting shares.
G-10
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 2. Significant Accounting Policies, continued:
(a) General, continued:
The Company consolidates the following subsidiares:
2001 2002 2003
% % %
Pacific Television Limitada 99.5 99.5 99.5
Metropolis Intercom S.A. 99.5 99.5 95.1
Cordillera Comunicaciones Limitada 99.5 99.5 99.5
|
(b) Periods covered
These financial statements reflect the Company's financial results of its
balance sheet, its operating results and its cash flows for the years ended
December 31, 2001, 2002 and 2003.
(c) Price-level restatement:
The Company's financial statements have been restated to reflect the effects
of variations in the purchasing power of Chilean pesos during the year. For
this purpose non-monetary assets and liabilities, equity and income statement
accounts have been restated in terms of year-end constant pesos based on the
change in the Chilean consumer price index during the years ended December 31,
2001, 2002 and 2003 at 3.1%, 3.0% and 1.0%.
(d) Assets and liabilities denominated in foreign currency:
Balances in foreign currencies have been translated into Chilean Pesos at the
Observed Exchange Rate as reported by the Central Bank of Chile as follows:
As of December 31
------------------------------------------------------
2001 2002 2003
------------------------------------------------------
Ch$ Ch$ Ch$
U.S. Dollar 654.79 718.61 593.80
Unidad de Fomento 16,262.66 16,744.12 16,920.00
|
Transactions in foreign currencies are recorded at the exchange rate
prevailing when the transactions occur. Foreign currency balances are
translated at the exchange rate prevailing at the month end. The resulting
translation gains and losses related to these balances are included in
price-level restatement in the income statement for the period to which they
relate.
G-11
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 2. Significant Accounting Policies, continued:
(e) Convenience translation to U.S. Dollars:
The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The United States dollar amounts disclosed in the
accompanying financial statements are presented solely for the convenience of
the reader and have been translated at the closing exchange rate of Ch$593.80
per US$1 as of December 31, 2003. This translation should not be construed as
representing that the Chilean peso amounts actually represent or have been, or
could be, converted into United States dollars at that exchange rate or at any
other rate of exchange.
(f) Time deposits:
This account corresponds to fixed term deposits in Chilean pesos and U.S.
dollars, which are recorded at cost, plus inflation-indexation and accrued
interest at year end.
(g) Marketable securities:
This account corresponds to investments in mutual funds, which are presented
at their redemption value at the end of each accounting period.
(h) Trade receivables:
Trade receivables include sales of advertising and rendering of monthly cable
television service. This balance is stated net of an allowance for
uncollectible receivables. The allowance was determined by considering 100% of
the receivables from subscribers who are connected to the Company's network
and are over three months past due, and specifically identified debtors who
have been disconnected from the Company's network or are in the process of
being disconnected.
(i) Prepaid expenses:
Program costs, movies, series and documentaries, are capitalized and charged
to expense when broadcasted or are amortized over the term of the contract,
whichever is greater.
(j) Property, plant and equipment:
Property, plant and equipment are stated at their acquisition value and are
price-level restated. Depreciation is computed using the straight-line method
over the estimated remaining useful lives of the assets, which are as follows:
Years
-----
Buildings and other infrastructure 20 - 38
Machinery and equipment 7 - 10
Furniture and equipment 5 - 10
Other 5 - 7
|
G-12
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 2. Significant Accounting Policies, continued:
(j) Property, plant and equipment, continued:
The Company depreciates its fibre optic external network using a progressive
method based on the projected number of subscribers per product line.
(k) Leased assets:
The Company has entered into financing lease agreements for property, plant
and equipment, which include options to purchase at the end of the term of the
agreement. These assets are not legally owned by the Company and cannot be
freely disposed of until the purchase option is exercised. These assets are
shown at the present value of the contract, determined by discounting the
value of the installments and the purchase option at the interest rate
established in the respective agreement.
(l) Software:
The cost of the computer applications purchased from external vendors needed
for managing the Company's business is amortized using the straight-line
method over an estimated useful life of four years. For the years ended
December 31, 2001, 2002 and 2003 amortization charged to income amounted to
ThCh$ 328,834, ThCh$ 313,515 and ThCh$ 437,134, respectively.
(m) Investment in other companies:
Investments in other companies are recorded at the lower of cost adjusted by
price-level restatement or market value.
(n) Goodwill:
Goodwill is calculated as the excess of the purchase price of cable television
operations acquired over their net book value and is amortized on a
straight-line basis over 20 years.
(o) Other assets
Other assets primarily consist of deferred costs of Cable TV residence
installations or drops, which are amortized over their remaining estimated
useful life which is estimated as 5 years. For the years ended December 31,
2001, 2002 and 2003 the amount amortized was ThCh$ 1,941,656, ThCh$ 2,764,525
and ThCh$ 3,525,929, respectively.
(p) Accrued vacation expense
In accordance with Technical Bulletin No. 47 issued by the Chilean Association
of Accountants, employee vacation expenses are recorded on the accrual basis.
G-13
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 2. Significant Accounting Policies, continued:
(q) Revenue recognition and unearned revenues
Revenues from cable subscriptions are recognized during the month that the
services are to be performed and revenues from advertising are recognized when
the advertising is broadcast. Unearned revenues relate to advance billing on
advertising contracts, which have not yet been broadcast. As of December 31,
2002 and 2003, deferred revenues were ThCh$ 828,510 and ThCh$ 719,021,
respectively.
(r) Current and deferred income taxes
Deferred income taxes are recorded based on timing differences between
accounting and taxable income. As a transitional provision, a contra asset or
liability has been recorded offsetting the effects of the deferred tax assets
and liabilities not recorded prior to January 1, 2000. Such contra asset or
liability amounts must be amortized to income over the estimated average
reversal periods corresponding to the underlying temporary differences to
which the deferred tax asset or liability relates calculated using the tax
rates to be in effect at the time of reversal.
(s) Financial derivatives
The Company maintains forward contracts in order to hedge the future payments
related to liabilities denominated in U.S. dollars. The Company also enters
into forward contracts to hedge cash flows in U.S. dollars of anticipated
transactions, primarily programming contracts. Gains and losses are recorded
at the closing spot exchange rate on the forward contracts, and the gains or
losses related to anticipated transactions are deferred and recorded net in
other current assets or liabilities, until the sale date of the contracts.
Additionally, the initial discount or premium is deferred over the life of the
contract and is netted with the gain or loss recorded for the contract.
(t) Cash and cash equivalents:
Cash and cash equivalents are comprised of cash, time deposits, repurchase
agreements and marketable securities with a remaining maturity of 90 days or
less as of each year-end. The detail of cash and cash equivalents as of
December 31, 2002 and 2003 is as follows:
2002 2003
ThCh$ ThCh$
Cash 404,286 205,388
Time deposits 4,936,648 805,179
Marketable securities 812,430 -
Repurchase agreements 6,534,116 5,962,072
------------------------------------
Total 12,687,480 6,972,639
====================================
|
G-14
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 3. Changes in Accounting Principles
There have been no changes in accounting principles during the years ended
December 31, 2002 and 2003 that would affect the comparability with previously
issued financial statements.
Note 4. Price - Level Restatement, net:
The detail of price-level restatement credited (charged) to income for the
year ended December 31 is as follows:
2001 2002 2003
ThCh$ ThCh$ ThCh$
Price-level restatement of:
Shareholders' equity (5,360,662) (4,766,517) (1,449,834)
Non-monetary liabilities (332,339) (1,020,140) (395,698)
Non-monetary assets 6,286,029 6,039,402 1,933,767
Currency exchange difference:
Monetary liabilities (2,551,288) (2,507,006) 4,166,177
Monetary assets 1,364,206 1,555,876 (5,430,993)
Price-level restatement of income amounts (39,572) 34,139 (14,275)
--------------------------------------------
Price-level restatement, net (633,626) (664,246) (1,190,856)
============================================
|
Note 5. Time Deposits:
Time deposits as of December 31, 2002 and 2003 are as follows:
2002 2003
Financial Institution Currency ThCh$ ThCh$
Santander Ch$ - 805,179
Chase Manhattan Bank US$ 4,936,648 -
------------------------------------
Total 4,936,648 805,179
====================================
|
Note 6. Marketable Securities:
Details of marketable securities as of December 31, 2002 and 2003 are as
follows:
Type of
Financial Institution investment 2002 2003
ThCh$ ThCh$
F.M. Security Check Mutual fund 812,430 -
----------------------------
Total 812,430 -
============================
|
G-15
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 7. Trade Receivables, net:
Trade receivables, net as of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Cable Services 5,899,301 6,937,808
Invoiced advertising receivable 2,894,041 1,724,651
Allowance for doubtful accounts-cable services monthly services (4,936,714) (6,015,082)
Allowance for doubtful accounts on advertisement (116,987) (129,812)
---------------------------
Total allowance for doubtful accounts (5,053,701) (6,144,894)
---------------------------
Total 3,739,641 2,517,565
===========================
|
The movements in the allowance for doubtful accounts as of December 31, 2001,
2002 and 2003 are as follows:
2001 2002 2003
ThCh$ ThCh$ ThCh$
Allowance beginning (2,618,627) (2,390,793) (5,053,701)
Additions to allowance (charged against income) (2,369,459) (5,004,311) (1,681,193)
Amounts written off 2,597,293 2,341,403 590,000
--------------------------------------------
Total (2,390,793) (5,053,701) (6,144,894)
============================================
|
Note 8. Miscellaneous Receivables:
Miscellaneous receivables as of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Materials receivable 210,330 287,395
Suppliers advances 46,785 402,453
Employee advances 14,474 4,666
Receivables from Compania de Telecomunicaciones de Chile S.A. 383,108 1,044,850
Receivables from advertising rights 907,462 201,620
Receivables from Comunicaciones Intercom S.A. 34,164 -
Network receivables - 499,603
Other receivables 10,166 168,121
------------------------
Total 1,606,489 2,608,708
========================
|
G-16
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 9. Prepaid Expenses:
Prepaid expenses as of December 31, 2002 and 2003 are follows:
2002 2003
ThCh$ ThCh$
Programming rights 17,633 24,267
Advertising rights 126,629 176,428
Prepaid transmission poles usage rights 1,425 369,046
Prepaid rent 205,363 207,534
Prepaid insurance 175,686 -
Other 331,293 187,456
------------------------
Total 858,029 964,731
========================
|
G-17
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 10. Other Current Assets and Liabilities:
Other current assets as of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Repurchase agreements 6,534,116 5,962,072
Forward contracts 1,289,007 -
---------------------------
Total 7,823,123 5,962,072
===========================
|
Other current liabilities as of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Forward contracts - 4,188,044
---------------------------
Total - 4,188,044
===========================
|
The detail of repurchase agreements held by the Company as of December 31,
2002 and 2003 are as follows:
2002 2003
Financial Institution Currency ThCh$ ThCh$
Credito e Inversiones Ch$ 859,550 1,038,769
Santander Ch$ 1,215,782 908,453
Santander Ch$ 2,032,016 2,004,666
Santander Ch$ - 1,096,954
Estado Ch$ 1,213,435 -
Estado Ch$ 1,213,333 -
Corpbanca - 913,230
--------- ---------
Total 6,534,116 5,962,072
========= =========
|
G-18
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 10. Other Current Assets and Liabilities, continued:
The Company has entered into forward foreign currency contracts with notional
amounts of US$ 48,000,000 and US$ 37,350,000 as of December 31, 2002 and 2003,
respectively.
Forward contracts for the year ended December 31, 2002 is detailed as follows:
Notional Amount
Financial Institution ThUS$ Maturity Date 2002
ThCh$
Security 5,000 2/6/2003 172,881
Bankboston 5,000 3/5/2003 158,071
Santiago 4,000 1/6/2003 140,481
Bhif 1,000 4/8/2003 34,530
Bhif 6,000 5/6/2003 210,927
Bankboston 4,000 4/8/2003 134,316
Santander 1,000 1/7/2003 30,524
Santander 1,500 1/15/2003 -
Santander 500 1/15/2003 -
Santander 2,500 2/12/2003 -
Santander 500 1/15/2003 -
Santander 2,500 3/6/2003 89,746
BCI 2,000 4/10/2003 112,435
Santander 1,500 5/15/2003 91,497
BCI 2,500 4/8/2003 113,599
BCI 750 7/11/2003 -
BCI 250 7/11/2003 -
Santander 1,000 9/8/2003 -
Santander 1,000 8/6/2003 -
BCI 500 10/10/2003 -
Santander 500 10/10/2003 -
BCI 500 11/7/2003 -
Security 200 11/7/2003 -
Security 400 11/12/2003 -
Corpbanca 200 11/7/2003 -
Corpbanca 200 11/7/2003 -
BCI 500 12/7/2003 -
Security 500 12/15/2003 -
Security 500 12/17/2003 -
Corpbanca 1,500 6/18/2003 -
------- ------------
Total 48,000 1,289,007
======= ============
|
G-19
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 10. Other Current Assets and Liabilities, continued:
Forward contracts for the year ended December 31, 2003 is detailed as follows:
Notional Amount 2003
Financial Institution ThUS$ Maturity Date ThCh$
BCI 250 01/06/2004 (32,862)
Security 1,000 01/02/2004 (136,536)
Security 500 01/02/2004 (67,025)
Security 500 01/02/2004 (66,677)
Security 1,000 01/05/2004 (128,903)
Security 250 01/05/2004 (33,015)
Security 250 01/06/2004 (33,108)
Security 250 01/06/2004 (32,440)
Corpbanca 500 01/06/2004 (64,786)
Corpbanca 250 01/06/2004 (33,082)
Corpbanca 250 01/06/2004 (32,800)
BCI 500 01/30/2004 (76,241)
Security 500 02/04/2004 (81,850)
Security 500 02/04/2004 (80,044)
Security 500 02/04/2004 (81,412)
Security 500 02/04/2004 (81,367)
Security 500 02/04/2004 (81,231)
Security 500 02/04/2004 (81,457)
Security 500 02/04/2004 (81,141)
Security 1,000 01/30/2004 (164,759)
Security 500 02/27/2004 (84,603)
Corpbanca 500 02/04/2004 (80,908)
Corpbanca 500 02/04/2004 (80,275)
Corpbanca 500 02/04/2004 (82,015)
BCI 500 03/02/2004 (85,074)
BCI 500 03/02/2004 (85,531)
BCI 500 03/02/2004 (85,157)
BCI 250 03/02/2004 (42,724)
Security 500 03/02/2004 (84,605)
Security 500 03/30/2004 -
Security 500 02/27/2004 (76,400)
Security 500 03/30/2004 -
BCI 550 04/05/2004 (74,776)
BCI 500 04/05/2004 (67,868)
BCI 500 04/05/2004 (67,831)
BCI 250 02/27/2004 (34,496)
BCI 250 02/27/2004 (34,229)
BCI 500 02/27/2004 (68,991)
BCI 1,000 03/30/2004 (136,894)
BCI 1,000 03/30/2004 (136,146)
BCI 500 03/30/2004 (67,961)
----------
Subtotal (2,947,220)
==========
|
G-20
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 10. Other Current Assets and Liabilities, continued:
Forward contracts for the year ended December 31, 2003 is detailed as follows,
continued:
Notional Amount 2003
Financial Institution ThUS$ Maturity Date ThCh$
Subtotal (2,947,220)
----------
BCI 500 03/30/2004 (68,372)
Security 600 04/01/2004 (83,975)
Security 2,500 04/06/2004 (342,772)
Security 750 04/30/2004 -
Security 750 04/30/2004 -
Corpbanca 450 04/05/2004 (61,164)
Security 3,000 05/03/2004 (345,446)
Security 1,000 05/03/2004 (117,525)
Security 500 05/03/2004 (58,763)
Security 500 05/31/2004 (58,656)
Security 1,000 05/31/2004 (115,213)
Corpbanca 750 05/31/2004 -
Estado 750 05/31/2004 -
Estado 750 06/30/2004 -
Estado 300 06/30/2004 -
Estado 200 06/30/2004 -
Estado 250 06/30/2004 -
Estado 500 07/30/2004 -
Estado 500 06/30/2004 -
Estado 500 08/31/2004 -
Estado 500 08/31/2004 -
Estado 500 01/30/2004 1,455
Estado 1,500 02/27/2004 4,024
Estado 1,000 01/30/2004 5,583
---------
Total 40,350 (4,188,044)
=========
|
Deferred gains or (losses) on forward contracts that hedge cash flows in U.S.
dollars for anticipated transactions amounted to ThCh$ 206,708, (ThCh$
147,363) and ThCh$ 926,592 for the years ended December 31, 2001, 2002 and
2003 respectively.
G-21
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 11. Balances and Transactions with Related Companies:
a) Balances with related companies as at December 31, 2002 and 2003 are as
follows:
2002 2003
ThCh$ ThCh$
Short term accounts receivable:
Red Televisiva Megavision S.A. 50,890 1,214
Ediciones Financieras S.A. 1,772 -
Crown Media 87,996 25,350
Vina Santa Rita 5,283 14,436
Bresnan Communications de Chile S.A. 187,696 185,838
-------------------------
Total Short-term accounts receivable 333,637 226,838
=========================
Short term accounts payable:
Bresnan Communications Company Limited partnership 206,360 168,831
Vina Santa Rita 50,924 24,052
Red Televisiva Megavision S.A. 136,765 63,189
Pramer 106,637 29,690
Discovery 727,615 347,375
DMX 4,896 8,533
Crown Media 141,530 68,287
Ediciones Financieras S.A. 21,642 -
USA Network - 24,702
Hendaya S.A. 13,011 -
-------------------------
Total 1,409,380 734,659
=========================
|
G-22
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 11. Balances and Transactions with Related Companies, continued:
b) Transaction with related companies during the years ended December 31,
2001, 2002 and 2003 are as follows:
2001 2002 2003
ThCh$ ThCh$ ThCh$
-----------------------------------------------------------------------------
Effect on Effect on Effect on
Loss Loss Loss
Transaction (Charge)/ (Charge)/ (Charge)/
Company description Amount credit Amount credit Amount credit
-----------------------------------------------------------------------------------------------------------------------------------
S.A. Vina Santa Rita Advertising 140,006 127,456 15,461 15,461 19,258 19,258
Red Televista Megavision S.A. Advertising 7,084 - 322,762 322,762 204,555 (201,545)
Red Televista Megavision S.A Payment on behalf of third - - - - 984 -
party
Ediciones Financieras Invoicing of services - - - - 63,295 63,295
Ediciones Financieras Advertising 107,267 57,026 41,316 48,491 81,248 (81,248)
Pramer Programming 314,388 (314,388) 243,335 (243,335) 82,427 82,427
Discovery Programming - - 1,663,489 1,663,489 1,454,032 (1,454,032)
DMX Service - - 10,879 10,879 43,302 43,302
Crown Media Service 312,527 (312,527) 209,772 (310,772) 206,068 206,068
Turner Programming 1,821,641 (1,821,641) - - - -
HBO Programming 5,947,942 (5,947,942) - - - -
|
G-23
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 12. Property, Plant and Equipment:
Property, Plant and Equipment as of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Land 487,823 487,823
Buildings and other infrastructure
Buildings 126,177 126,177
External networks 109,010,675 112,210,760
Head end installations 1,290,801 1,572,197
Equipment hub - 1,668,043
---------------- ------------------
Total 110,427,653 115,577,177
Machinery and equipment 9,939,220 11,750,324
---------------- ------------------
Furniture and equipment 3,762,055 4,026,282
---------------- ------------------
Other property, plant and equipment
Vehicles 866,636 634,439
Tools and instruments 121,836 152,576
Fixed assets in transit 4,320 58,378
Leased office installations 745,443 1,195,172
Cable TV materials 2,553,060 4,151,714
Works in progress 955,710 1,428,980
Decoding equipment 8,617,691 6,769,753
Leased assets 333,155 333,155
---------------- ------------------
Total 14,197,851 14,724,167
Total assets 138,814,602 146,565,773
Accumulated depreciation (24,872,679) (33,840,639)
---------------- ------------------
Total property, plant and equipment, net 113,941,923 112,725,134
================ ==================
|
Depreciation:
Depreciation expense for the years ended December 31, 2001, 2002 and 2003
amounted to ThCh$ 7,258,539, ThCh$ 8,551,082 and ThCh$ 9,509,897,
respectively.
G-24
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 13. Other Assets:
Other assets as of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Long-term broadcast rights 1,485 -
Rental guarantees 83,990 115,286
Residential cable TV installations 16,462,261 19,893,172
Accumulated amortization of residential cable TV installations (6,064,699) (9,590,628)
Projects in development 589,800 -
Rent of hubs, external net 370,523 412,467
Administrative projects-in-progress 68,157 33,987
Other assets 518,515 438,571
---------------- ---------------
Total 12,030,032 11,302,855
================ ===============
|
Note 14. Investment in Other Companies:
Investments in other companies as of December 31, 2002 and 2003 are as
follows:
Participation 2002 2003
ThCh$ ThCh$
Bazuca.Com Chile S.A. 1.615% 187,268 153,211
Internet Holding S.A. 1.519% 276,640 276,644
Valuation allowance (204,054) (202,038)
----------------- -----------------
Total 259,854 227,817
================= =================
|
Note 15. Goodwill, net:
2002 2003
ThCh$ ThCh$
Metropolis Intercom S.A. 96,850,167 96,850,167
Other 5,052,078 5,052,078
Accumulated amortization (36,885,600) (41,073,221)
------------------ ------------------
Goodwill, net 65,016,645 60,829,024
================== ==================
|
Goodwill amortization for the years ended December 31, 2001, 2002 and 2003
amounted to ThCh$ 4,123,225, ThCh$ 4,105,116 and ThCh$ 4,184,519,
respectively.
G-25
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 16. Banks and Financial Institutions Liabilities:
Short-term and long-term obligations with banks and financial institutions as
of December 31, 2002 and 2003 are as follows:
U.S. Dollars UF TOTAL
2002 2003 2002 2003 2002 2003
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
---------------------------------------------------------------------------------
Short-term
Credito e Inversiones 16,770 - - - 16,770 -
---------------------------------------------------------------------------------
Total 16,770 - - - 16,770 -
=================================================================================
Principal Owed 16,770 - - - 16,770 -
Current portion of long-term
Santander-Santiago - - 15,311 3,002,586 15,311 3,002,586
Credito e Inversiones - - 7,924 1,434,700 7,924 1,434,700
Estado de Chile - - 7,539 1,503,966 7,539 1,503,966
Corpbanca - - 11,813 1,504,394 11,813 1,504,394
---------------------------------------------------------------------------------
Total - - 42,587 7,445,646 42,587 7,445,646
=================================================================================
|
The weighted-average annual interest rate on short-term borrowing was 5.67% as
of December 31, 2003.
----------------------------------------------------------------------
Total
----------------------------------------------------------------------
Bank or Financial Currency 2002 2003
Institution
Long-term ThCh$ ThCh$
----------------------------------------------------------------------
Banco Santander UF 14,879,017 11,909,153
Banco Credito e inversiones UF 7,101,244 5,683,830
Banco Corpbanca UF 7,443,633 5,957,877
Banco Estado UF 7,443,614 5,957,864
-------------- -----------
Total 36,867,508 29,508,724
============== ===========
|
The weighted-average annual interest rate on long-term borrowing was 5.66% as
of December 31, 2003.
On July 8, 2001, the Company entered into a syndicated loan agreement led by
Banco Santander of up to UF 2,823,800 with variable interest rates based on
the current 180 day Chilean Active Banking Rate (TAB) plus 1.4%, interest due
semi-annually, with principal payment beginning June 15, 2004 and maturing in
December 15, 2008.
G-26
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 16. Banks and Financial Institutions Liabilities, continued:
Scheduled maturities of long-term bank obligations as of December 31, 2003 are
as follows:
Year ThCh$
2004 7,445,646
2005 7,377,181
2006 7,377,181
2007 7,377,181
2008 7,377,181
---------------------
Total 36,954,370
=====================
|
The Company' s syndicated loan lead by Banco Santander has certain restrictive
covenants, the most significant of which are summarized below:
a) The Company cannot have a total debt to capitalization ratio of
more than 1.0
b) Interest coverage ratio cannot be less than 2.5, and
c) Total indebtedness cannot be more than UF 3,000,000
As of December 31, 2003, the Company is in compliance with these covenants or
has received the appropriate bank waivers.
Note 17. Accounts Payable:
The detail of Accounts payable as of December 31, 2002 and 2003 are as
follows:
2002 2003
ThCh$ ThCh$
Suppliers 5,829,880 5,367,417
Programming 5,163,508 2,736,230
Fees 733,824 5,284
Other accounts payable 780,899 923,656
------------------- -------------------
Total 12,508,111 9,032,587
=================== ===================
|
Note 18. Notes Payable:
Notes payable as of December 31, 2002 and 2003 are as follows:
Creditor 2002 2003
ThCh$ ThCh$
Compania de Seguros Las Americas S.A. 197,089 -
Other 10,546 11,837
-------------------- -------------------
Total 207,635 11,837
==================== ===================
|
G-27
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 19. Miscellaneous Payables:
Miscellaneous payables of December 31, 2002 and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Compania de Telecomunicaciones de Chile S.A. 216,019 213,880
Comunicaciones Intercom S.A. 84,279 83,445
Others 11,011 719,229
-----------------------------------------
311,309 1,016,554
=========================================
|
Note 20. Accrued Liabilities and Withholdings:
The balance of Accrued liabilities and withholdings as of December 31, 2002
and 2003 are as follows:
2002 2003
ThCh$ ThCh$
Vacations 429,235 409,146
Personnel benefits 66,065 66,066
Withholdings 877,746 669,879
Invoices 101,974 90,840
Others 13,029 29,573
-------------------- -------------------
Total 1,488,049 1,265,504
==================== ===================
|
Note 21. Long-Term Notes Payable:
On July 30, 2000, in connection with a purchase transaction involving Compania
de Telecomunicaciones de Chile S.A. (CTC), the Company entered into a loan
agreement with CTC for a total of US$20,000,000 payable over 5 years with an
annual interest rate of 6%.
The balance of the long-term notes payable as of December 31, 2002 and 2003
are as follows:
Principal Principal Accrued interest (6%) 2002 2003
ThUS$ ThCh$ ThCh$ ThCh$ ThCh$
20,000 11,876,000 2,525,629 16,716,923 14,401,629
----------- --------- ---------- ----------
Total 11,876,000 2,525,629 16,719,923 14,401,629
=========== ========= ========== ==========
|
G-28
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 22. Other Long-term Liabilities:
2002 2003
ThCh$ ThCh$
Deferred gain on sale of subsidiary's shares, net (i) - 1,437,708
Other 433,919 367,090
------------------ -----------------
Total 433,919 1,804,798
================== =================
|
(i) During the year ended December 31, 2003, the Company's subsidiary
Metropolis Intercom S.A. issued an additional 3,923,834 shares raising ThCh$
4,924,603 in cash. The Company did not subscribe to any of the shares. As the
cash received was greater than the related increase in minority interest, the
Company recorded a deferred gain of ThCh$ 1,455,918 which will be amortized to
income over future periods. As of December 31, 2003 ThCh$ 18,210 in
amortization income was recognized.
Note 23. Shareholders' Equity:
The changes in shareholders equity for the years ended December 31, 2001, 2002
and 2003 are as follows:
Paid-in Price-level Accumulated Net loss Total
Capital restatement Deficit for the year
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Balance as of January 1, 2001 187,258,805 1,685,330 (15,916,134) (7,633,459) 165,394,542
Reclassification of prior year net loss - - (7,633,459) 7,633,459 -
Price-level restatement 5,805,023 52,245 (730,037) - 5,127,231
Net loss for the year - - - (13,997,522) (13,997,522)
-----------------------------------------------------------------------------------
Balance as of December 31, 2001 193,063,828 1,737,575 (24,279,630) (13,997,522) 156,524,251
-----------------------------------------------------------------------------------
Price-level restatement
-----------------------------------------------------------------------------------
for comparison purposes 200,844,300 1,807,600 (25,258,098) (14,561,622) 162,832,180
-----------------------------------------------------------------------------------
Balance as of January 1, 2002 193,063,828 1,737,575 (24,279,630) (13,997,522) 156,524,251
Reclassification of prior year net loss - - (13,997,522) 13,997,522 -
Price-level restatement 5,791,915 52,126 (1,148,315) - 4,695,726
Net loss for the year - - - (16,961,416) (16,961,416)
-----------------------------------------------------------------------------------
Balance as of December 31, 2002 198,855,743 1,789,701 (39,425,467) (16,961,416) 144,258,561
-----------------------------------------------------------------------------------
Price-level restatement 200,844,300 1,807,600 (39,819,722) (17,131,030) 145,701,148
-----------------------------------------------------------------------------------
for comparison purposes
Balance as of January 1, 2003 198,855,743 1,789,701 (39,425,467) (16,961,416) 144,258,561
Reclassification of prior year net loss - - (16,961,416) 16,961,416 -
Price-level restatement 1,988,557 17,899 (563,869) - 1,442,587
Net loss for the year - - - (13,446,519) (13,446,519)
-----------------------------------------------------------------------------------
Balance as of December 31, 2003 200,844,300 1,807,600 (56,950,752) (13,446,519) 132,254,629
===================================================================================
|
G-29
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 24. Income Taxes and Deferred Taxes:
a) Income taxes recoverable
As of December 31, 2002 and 2003, the Company had the following income
taxes recoverable:
2002 2003
ThCh$ ThCh$
Current income taxes and Article 21 (5,392) (4,660)
Monthly income tax installments 11,396 11,283
Credit for training expenses 76,812 66,166
Credit value-added tax 1,976 1,976
---------------------------------------
Total 84,792 74,765
=======================================
|
b) Income taxes
Income tax benefits for the years ended December 31, 2001, 2002, and 2003
are as follows:
2001 2002 2003
ThCh$ ThCh$ ThCh$
Credit for absorbed earnings 355,290 (163,423) -
Amortization of complementary accounts 390,017 - -
Deferred income taxes 1,406,070 2,558,686 2,042,691
First category tax provision (3,154) (5,392) (4,660)
-------------------------------------------------------
Total 2,148,223 2,389,871 2,038,031
=======================================================
|
The summary of net deferred taxes for the years ended December 31, 2002
and 2003 are as follows:
2002 2003
Short-term deferred taxes ThCh$ ThCh$
Short-term assets 623,696 1,342,149
Short-term liabilities - (157,521)
------------------------------------------
Net short-term deferred taxes 623,696 1,184,628
==========================================
Long-term deferred taxes
2002 2003
ThCh$ ThCh$
Long-term assets 5,580,601 8,145,767
Long-term liabilities (2,001,734) (3,126,749)
------------------------------------------
Net long-term deferred taxes 3,578,867 5,019,018
==========================================
|
G-30
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 24. Income Taxes and Deferred Income Taxes, continued:
c) Deferred income taxes
As of December 31, 2002 and 2003 the Company has recorded deferred
taxes for temporary differences as follows:
As of December 31, 2002 As of December 31, 2003
----------------------------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities
----------------------------------------------------------------------------------------------------
Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term
-------------------------- ------------------------- ---------------------- ---------------------
Allowance for doubtful
accounts 353,442 - - - 1,078,606 - - -
Goods and services provision 38,406 - - - 16,259 - - -
Assets provision - - - - - 301,306 - -
Unearned revenues 136,709 - - - 177,729 - - -
Vacation provision 70,824 - - - 69,555 - - -
Accumulated depreciation - - - - - 3,540 - -
Forward contracts 24,315 - - - - - (157,521) -
Tax loss carryforwards (1) - 12,286,151 - - - 14,395,139 - -
Trademarks - 1,629 - - - - -
Leasing - 51,276 - - - 56,607 - (64,282)
Accumulated depreciation - 4,474 - (4,529,906) - - - (5,285,746)
Leasing operations - - - (55,138) - 2,365 - -
Software - - - (173,425) - - - (282,107)
Leased installations - - - (61,275) - - - (125,687)
Complementary account - (6,762,929) - 2,818,010 - (6,613,190) - 2,631,073
------------ ------------ ------- ---------- ------------- ---------- --------- -----------
Total 623,696 5,580,601 - (2,001,734) 1,342,149 8,145,767 (157,521) (3,126,749)
============ ============ ======= ========== ============= ========== ========= ===========
|
(1) In accordance with the current enacted tax law in Chile, accumulated tax
losses can be carried-forward indefinitely.
G-31
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 25. Board of Directors Compensation:
During the years ended December 31, 2001, 2002 and 2003 the Board of Directors
did not receive compensation for their services.
Note 26. Contingencies and Commitments:
The Company is party to various lawsuits arising in the ordinary course of its
business. Management considers it unlikely that any losses associated with the
pending lawsuits will significantly affect the Company or its subsidiaries'
results of operations, financial position and cash flows, although no
assurance can be given to such effect. Accordingly, the Company has
established a provision for these lawsuits, which Management considers to be
adequate.
On June 8, 2001, the Company's subsidiary, Metropolis Intercom S.A. obtained a
syndicated loan with Banco Santiago, Banco del Estado de Chile, Banco Credito
Inversiones and CorpBanca, for UF 2,823,800. Metropolis Intercom S.A.
guaranteed the loan with the HFC (Hybrid Coaxial fiber-optic Network) and the
equipment related to the network.
On December 9, 2003, the Chilean Subsecretary of Telecomunications ("Subtel")
notified the Company's subsidiary, Metropolis Intercom S.A. ("Metropolis"),
that the regulatory agency considered MI's VOIP services was in violation of
Article No. 8 of the General Telecomunications Law. Subtel alleged that
Metropolis was exploiting a public utility (telephone service) without the
express consent of the appropriate regulatory agency and ordered that
Metropolis cease commercial operations related to that service until the issue
would be resolved.
As the matter is not yet resolved by the relevant authority, the minister of
telecommunications, Metropolis has requested a suspension of the order. This
suspension was subsequently granted for a period of 60 days.
Furthermore, on December 19, 2003, Metropolis filed it's defense to the
allegations maded by Subtel, and is currently awaiting the next step of this
legal matter.
Recently, Metropolis has requested and considers it likely that Subtel will
grant an additional extension to allow Metropolis to present results from
tests that will be performed supporting Metropolis' position.
The eventual decision of the Minister of Transportation and Telecommunications
is appealable before the Court of Appeals, and in the event that the Court of
Appeals does not overule a negative resolution by the Ministry, Metropolis
will be required to cease or modify the VOIP services as determined. As of and
for the year ended December 31, 2003, the Company has not recorded an accrual
related to these regulatory inquiries as the outcome is uncertain and unable
to be estimated.
G-32
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 27. Subsequent Events
On January 9, 2004, CristalChile Comunicaciones S.A., 50% owner of Metropolis
Intercom S.A., reached an agreement of understanding with Liberty Media
International, indirect owner of the remaining 50% of Metropolis and majority
shareholder of VTR S.A. in order to merge Metropolis and VTR. The agreement is
subject to numerous conditions, among them, drafting of a final agreement,
approval by the board of directors of related parties of Liberty Media
including UnitedGlobalCom, Inc., approval by the Chilean Anti-Monopoly
Commission, and approval by the board of directors of CristalChile
Comunicaciones S.A.
As of and for the year ending December 31, 2003, the Company has not recorded
any adjustment in the financial statements related to the proposed merger.
Management is not aware of any other subsequent events between December 31,
2003 and the issuance of these financial statements that would materially
impact the financial statements.
G-33
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles:
Accounting principles generally accepted in Chile vary in certain important
aspects from those generally accepted in the United States. Such differences
involve certain methods for measuring the amounts included in the financial
statements as well as additional disclosures required by U.S. GAAP.
The principal differences between Chilean GAAP and U.S. GAAP are described
below together with explanations, where appropriate, of the method used in the
determination of the adjustments that affect net income and total
shareholders' equity. References below to "SFAS" are to United States
Statements of Financial Accounting Standards.
The preparation of financial statements in conformity with Chilean GAAP, along
with the reconciliation to U.S. GAAP, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
I. Differences in measurement methods
The principal methods applied in the preparation of the accompanying financial
statements, which have resulted in amounts that differ from those that would
have otherwise been determined under U.S. GAAP, are as follows:
(a) Inflation accounting:
The cumulative inflation rate in Chile as measured by the Consumer Price Index
for the three years ended December 31, 2003 was 7.3%.
Chilean GAAP requires that the financial statements be restated to reflect the
full effects of the loss in the purchasing power of the Chilean peso on the
financial position and results of operations of reporting entities. The
method, described in Note 2(c), is based on a model which enables calculation
of net inflation gains or losses caused by monetary assets and liabilities
exposed to changes in the purchasing power of local currency, by restating all
non-monetary accounts in the financial statements. The model prescribes that
the historical cost of such accounts be restated for general price-level
changes between the date of origin of each item and the year-end, but requires
that latest cost values be used for the restatement of inventories. Under U.S.
GAAP, financial statement amounts must be reported in historical currency.
The inclusion of price-level adjustments in the accompanying financial
statements is considered appropriate under the prolonged inflationary
conditions affecting the Chilean economy even though the cumulative inflation
rate for the last three years does not exceed 100%. The reconciliation
included herein of consolidated net income and Shareholders' equity, as
determined with U.S. GAAP, does not include adjustments to eliminate the
effect of inflation accounting under Chilean GAAP.
G-34
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(b) Deferred income taxes:
Starting January 1, 2000, the Company recorded income taxes in accordance with
Technical Bulletin No. 60 (BT No. 60) of the Chilean Association of
Accountants, recognizing, using the liability method, the deferred tax effects
of temporary differences between the financial and tax values of assets and
liabilities. As a transitional provision, a contra asset or liability has been
recorded offsetting the effects of the deferred tax assets and liabilities not
recorded prior to January 1, 2000. Such contra asset or liability must be
amortized to income over the estimated average reversal periods corresponding
to the underlying temporary differences to which the deferred tax asset or
liability relates.
Under U.S. GAAP, companies must account for deferred taxes in accordance with
Statement Financial Accounting Standards (SFAS) No.109 "Accounting for Income
Taxes", which requires an asset and liability approach for financial
accounting and reporting of income taxes, under the following basic
principles:
(i) A deferred tax liability or asset is recognized for the estimated
future tax effects attributable to temporary differences and tax loss
carryforwards.
(ii) The measurement of deferred tax liabilities and assets is based on the
provisions of the enacted tax law. The effects of future changes in
tax laws or rates are not anticipated.
(iii) The measurement of deferred tax assets are reduced by a valuation
allowance, if based on the weight of available evidence, it is
more-likely-than-not that some portion of the deferred tax assets will
not be realized.
Temporary differences are defined as any difference between the financial
reporting basis and the tax basis of an asset and liability that at some
future date will reverse, thereby resulting in taxable income or expense.
Temporary differences ordinarily become taxable or deductible when the related
asset is recovered or the related liability is settled. A deferred tax
liability or asset represents the amount of taxes payable or refundable in
future years as a result of temporary differences at the end of the current
year.
As of December 31, 2002 and 2003, a valuation allowance was recorded under
U.S. GAAP to provide against tax loss carryforwards to the extent it is
estimated more-likely-than-not that such net deferred tax assets will not be
realized.
The effect of these differences and the effects of deferred taxes over the
adjustments to U.S. GAAP on the net loss and shareholders' equity of the
Company is included in paragraph (i) below.
G-35
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(c) Goodwill:
Under Chilean GAAP, assets acquired and liabilities assumed are recorded at
their carrying value in the records of the acquired company, and the excess of
the purchase price over the carrying value is recorded as goodwill, and is
amortized over a maximum period of 20 years.
Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their
estimated fair values, and the excess of the purchase price over the estimated
fair value of the net identifiable assets and liabilities acquired is recorded
as goodwill, unless the transaction is between entities under common control,
in which case the related party transaction would be recorded using book
values and no goodwill would be recorded. Prior to July 1, 2001 under U.S.
GAAP, the Company amortized goodwill on a straight-line basis over the
estimated useful lives of the assets, ranging from 20 to 40 years.
Under Chilean GAAP, the Company has evaluated the carrying amount of goodwill
for impairment. The evaluation of impairment was based on the fair value of
the investment which the Company determined using a discounted cash flow
approach, stock valuations and recent comparable transactions in the market.
In order to estimate fair value, the Company made assumptions about future
events that are highly uncertain at the time of estimation. The results of
this analysis showed that the Company's goodwill was not impaired.
In accordance with U.S. GAAP, the Company adopted SFAS No. 142 "Goodwill and
Other Intangible Assets", ("SFAS 142") as of January 1, 2002. SFAS 142 applies
to all goodwill and identified intangible assets acquired in a business
combination. Under the new standard, all goodwill, including that acquired
before initial application of the standard, and indefinite-lived intangible
assets are not amortized, but must be tested for impairment at least annually.
Previously, the Company evaluated the carrying amount of goodwill, in relation
to the operating performance and future undiscounted cash flows of the
underlying business and the transitional impairment test required by the
standard, which was performed during the first half of 2002, which resulted in
no impairment of the Company's recorded goodwill.
The following effects are included in the net loss and shareholders' equity
reconciliation to U.S. GAAP under paragraph (i) below:
(a) Adjustment to record differences in goodwill amortization between
Chile GAAP and U.S. GAAP as of December 31, 2001, and
(b) The reversal of goodwill amortization recorded under Chilean GAAP
for the years ended December 31, 2002 and 2003.
G-36
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(c) Goodwill, continued:
Impairment is recorded based on an estimate of future discounted cash flows,
as compared to current carrying amounts. For the years ended December 31,
2001, 2002, and 2003 no additional amounts were recorded for impairment under
U.S. GAAP.
Goodwill under U.S. GAAP as of December 31 2001, 2002 and 2003 is summarized
as follows:
For the years ended
December 31,
2001 2002 2003
---- ---- ----
ThCh$ ThCh$ ThCh$
Goodwill 101,902,245 101,902,245 101,902,245
Accumulated amortization (25,202,663) (25,202,663) (25,202,663)
--------------------- ------------------- --------------------
Goodwill, net 76,699,582 76,699,582 76,699,582
===================== =================== ====================
|
The effect of these differences on the net loss and shareholders' equity of
the Company is included in paragraph (i) below.
(d) Derivative instruments:
For the years ended December 31, 2001, 2002 and 2003, the Company continued to
have foreign currency forward exchange contracts for the purpose of
transferring risk from exposure in U.S. dollars to an exposure in Chilean
peso. Under Chilean GAAP, the Company deferred forward contract gains and
losses when the contracts are hedges for future program payments and other
cash out flows to be made in U.S. dollars. The hedging criteria and
documentation requirements under Chilean GAAP are less onerous than U.S. GAAP.
The Company recorded a net asset of ThCh$1,289,006 as of December 31, 2002 and
a net liability of ThCh$4,188,044 as of December 31, 2003. Fair values under
Chilean GAAP have been estimated using the closing spot exchange rate at year
end.
G-37
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(d) Derivative instruments, continued:
Beginning January 1, 2001, under U.S. GAAP, the accounting for derivative
instruments is described in SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and other complementary rules and
amendments. SFAS No. 133, as amended, establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative instrument's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative instrument's
gains or losses to offset against related results on the hedged item in the
income statement, to the extent effective, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting
SFAS No. 133, in part, allows special hedge accounting for "fair value" and
"cash flow" hedges. SFAS No. 133 provides that the gain or loss on a
derivative instrument designated and qualifying as a "fair value" hedging
instrument as well as the offsetting loss or gain on the hedged item
attributable to the hedged risk be recognized currently in earnings in the
same accounting period. While the Company enters into derivatives for the
purpose of mitigating its global financial and commodity risks, these
operations do not meet the documentation requirements to qualify for hedge
accounting under U.S. GAAP. Therefore changes in the respective fair values of
all derivatives are reported in earnings when they occur.
The cumulative effect resulting from the adoption of SFAS No. 133 on January
1, 2001 was a net gain of ThCh$ 619,942. The adjustment is due to the
difference between recording forward contracts at spot exchange rates under
Chilean GAAP and marking the forward contracts to market using forward rates
in according with U.S. GAAP.
The effect of the adjustment between the current market values and the fair
value for the years ended December 31, 2001, 2002 and 2003 is included in
paragraph (i) below
(e) Depreciation:
Under Chilean GAAP, the Company changed the method of depreciation of the
external network from the straight-line method of depreciation to a
progressive method based on the projected number of subscribers per product
line. Under U.S. GAAP, the method of depreciation used has continued to be the
straight-line method.
The effect of accounting for this difference in accordance with U.S. GAAP is
included in the reconciliation of net loss and shareholders' equity in
paragraph (i) below.
G-38
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(f) Investments in marketable securities
Under Chilean GAAP, investments in debt and equity securities are accounted
for at the lower of cost or market value. Under U.S. GAAP investments in debt
and equity securities are accounted for according to the purpose for which
these investments are held. U.S. GAAP defines three distinct purposes for
holding investments:
o Investments held for trading purposes
o Investments available-for-sale
o Investments held to maturity
The Company considers that all of its investments are available-for-sale.
The effect of recording the marketable securities at fair value is not
material and is not included in the effects on shareholders' equity under
paragraph (i) below.
(g) Issuance of shares in subsidiary
During the year ended December 31, 2003 Metropolis Intercom S.A. issued an
additional 3,923,834 shares representing 4.4% of Metropolis Intercom S.A. to
related parties. The Company did not subscribe to any of these shares.
Under Chilean GAAP, as the cash received was greater than the related increase
in minority interest the Company recorded a deferred gain of ThCh$ 1,455,918,
which will be amortized into income in future periods.
Under U.S. GAAP, the transfer would be recorded at the lower of carrying value
or fair value, since the cash received was less than the carrying value of
Metropolis Intercom S.A. under U.S. GAAP. Consequently under U.S. GAAP, the
difference between the cash proceeds and the carrying value has been recorded
as a distribution to shareholders.
The effect of eliminating the income statement impact of this transaction from
net loss as determined under Chilean GAAP and recording this transaction under
U.S. GAAP is included in paragraph (i) below.
(h) Effect of minority interests on U.S. GAAP adjustments
The effects of recording minority interests on U.S. GAAP adjustments are
included in the reconciliation to U.S. GAAP in paragraph (i) below.
G-39
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(i) Effect of conforming net loss and shareholders' equity to U.S. GAAP:
The adjustments required to conform reported net loss to U.S. GAAP are as
follows:
For the year ended December 31,
----------------------------------------------------
2001 2002 2003
ThCh$ ThCh$ ThCh$
Net loss in accordance with Chilean GAAP (14,561,621) (17,131,030) (13,446,519)
Deferred taxes (paragraph b) (2,102,458) (1,974,411) (1,016,653)
Amortization of goodwill (paragraph c) (245,558) 4,165,650 4,184,519
Derivative instruments (paragraph d) 33,760 149,481 (1,127,039)
Depreciation (paragraph e) (1,496,092) (1,224,154) (1,494,484)
Issuance of subsidiaries shares (paragraph g) - - (18,210)
Effect of minority interests on U.S. GAAP adjustments
(paragraph h) - - 301,502
----------------------------------------------------
Net loss and comprehensive loss in accordance with U.S. GAAP
before cumulative effect of change in accounting principles (18,371,969) (16,014,464) (12,616,884)
Effect of change in accounting principles, net of tax benefit of
ThCh$ 4,467 (25,566) - -
----------------------------------------------------
Net loss and comprehensive loss in accordance with U.S. GAAP (18,397,535) (16,014,464) (12,616,884)
====================================================
|
The adjustments required to conform reported shareholders' equity to U.S. GAAP
are as follows:
As of December 31,
----------------------------------------
2002 2003
ThCh$ ThCh$
Shareholders' equity, in accordance with Chilean GAAP 145,701,148 132,254,629
Deferred income taxes (paragraph b) (2,129,871) (3,146,524)
Effect in amortization of goodwill (paragraph c) 11,659,249 15,843,768
Derivative instruments (paragraph d) 153,162 (973,877)
Depreciation (paragraph e) (2,720,245) (4,214,729)
Issuance of subsidiary shares (paragraph g) - (948,612)
Effect of minority interests on U.S. GAAP adjustments
(paragraph h) - 301,502
----------------------------------------
Shareholders' equity, in accordance with U.S. GAAP 152,663,443 139,116,157
========================================
|
G-40
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(i) Effect of conforming net loss and shareholders' equity to U.S. GAAP,
continued:
The following summarizes the changes in shareholders' equity under U.S. GAAP
during the years ended December 31, 2001, 2002 and 2003:
For the year ended December 31,
------------------------------------------------------------
2001 2002 2003
ThCh$ ThCh$ ThCh$
Balance as of January 1 187,075,442 168,677,907 152,663,443
Issuance of subsidiary shares (paragraph g) - - (930,402)
Net loss and comprehensive loss in accordance with U.S. GAAP (18,397,535) (16,014,464) (12,616,884)
------------------------------------------------------------
Balance as of December 31 168,677,907 152,663,443 139,116,157
============================================================
|
G-41
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
II. Additional disclosure requirements
The following additional disclosures are required under U.S. GAAP:
(a) Income taxes:
Deferred tax assets (liabilities) are summarized as follows at December 31
under U.S. GAAP:
2002 2003
---- ----
ThCh$ ThCh$
Deferred Tax Assets
Allowance for doubtful debts 353,442 1,078,606
Goods and services provision 38,406 16,259
Assets provision - 301,306
Unearned revenues 136,709 177,729
Vacation provision 70,824 69,555
Forward contract 24,315 165,559
Tax loss carryforwards 12,286,151 14,395,138
Trademarks 1,629 -
Leasing 51,276 2,365
Accumulated depreciation 466,916 720,044
-------------------- -------------------
Total deferred tax assets 13,429,668 16,926,561
Deferred Tax Liabilities
Forward contracts (26,038) (157,521)
Leasing operations (55,138) (7,675)
Accumulated depreciation (6,068,674) (7,089,567)
Software (173,425) (282,107)
Rented installations (61,275) (125,687)
-------------------- -------------------
Total deferred tax liabilities (6,384,550) (7,662,557)
Net deferred tax asset (liability) before
valuation allowance 7,045,118 9,264,004
-------------------- -------------------
Valuation allowance (4,973,958) (6,206,882)
-------------------- -------------------
Net deferred tax asset (liability) 2,071,160 3,057,122
==================== ===================
|
G-42
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(a) Income taxes, continued:
The classification of the net deferred tax asset before valuation allowance
detailed above is as follows:
2002 2003
---- ----
ThCh$ ThCh$
Short-term 597,658 1,350,187
Long-term 6,447,460 7,913,817
------------------ --------------------
Net deferred tax liabilities 7,045,118 9,264,004
================== ====================
|
The deferred income tax benefit in accordance with U.S. GAAP is as follows:
2001 2002 2003
---- ---- ----
ThCh$ ThCh$ ThCh$
Deferred income tax benefit, Chile GAAP - Note 24 2,148,223 2,389,871 2,038,031
Additional deferred tax adjustment, U.S. GAAP, net (2,102,458) (1,974,411) (1,016,653)
---------------- ----------------- ----------------
Deferred income tax benefit under U.S. GAAP 45,765 415,460 1,021,378
================ ================= ================
|
In accordance with Chilean Law No. 19,753, which was issued on September 28,
2001, the corporate income tax rate increased from 15% to 16% for the year
2002, 16% to 16.5% for the year 2003, and will increase to 17% for the year
2004 and thereafter. The effect of the tax rate increase for the year ended
December 31, 2001 was an increase to income tax expense of ThCh$ 266,032.
(b) Foreign currency forward contract capacity:
The Company's Board of Directors approves policies on risk-management of
forward currency risk through the use of U.F. to U.S. dollar forward
contracts. The Company petitions several Chilean and foreign banks to approve
forward contract limits on a yearly basis, which in the aggregate, total US$
73 million and US$ 50 million at December 31, 2002 and 2003, respectively.
There was US$ 24.8 million and US$ 9.7 million available as of December 31,
2002 and 2003, respectively.
G-43
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(c) Lease agreements:
The Company leases computer equipment and office space by way of capital lease
payable in installments through 2016, with a bargain purchase option at the
end of the lease.
Minimum lease payments under capital leases are as follows:
Capital Lease
ThCh$
------------------
2004 53,444
2005 49,824
2006 31,725
2007 29,081
2008 31,725
Thereafter 224,736
-------------------
Total future minimum lease payments 420,535
Interest (97,174)
-------------------
Present value of net minimum lease payments 323,361
===================
|
(d) Foreign exchange gains and losses:
For U.S. GAAP presentation purposes, the net foreign exchange gains or losses
on transactions in foreign currencies and UF amounted to a loss of ThCh$
1,226,654, ThCh$ 916,991 and ThCh$ 1,341,397 in 2001, 2002 and 2003,
respectively.
(e) Advertising costs:
Advertising costs are expensed as incurred and amounted to ThCh$ 2,583,698,
ThCh$ 2,045,599 and ThCh$ 2,413,556 for the years ended December 31, 2001,
2002 and 2003, respectively.
G-44
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(f) Proforma goodwill amortization:
As described in paragraph I (c) above the Company adopted SFAS 142 as of
January 1, 2002. SFAS 142 applies to all goodwill and identified intangible
assets acquired in a business combination.
The following details net income in accordance with U.S. GAAP for the Company
for the year ended December 31, 2001 excluding goodwill amortization expense
recognized during those years:
(Unaudited)
For the year ended
December 31,
2001
ThCh$
------------------
Reported net loss (18,397,535)
Add back: Goodwill amortization 4,123,225
------------------
Adjusted net loss (14,274,310)
==================
|
(g) Reclassification differences between Chilean GAAP and U.S. GAAP:
The following reclassifications are required to conform the presentation of
Chilean GAAP income statement information to that required under U.S. GAAP for
the years ended December 31, 2001, 2002 and 2003. The reclassification amounts
are determined in accordance with Chilean GAAP.
Year ended December 31, 2001
-------------------------------------------------------
Chilean U.S. GAAP
GAAP Reclassification presentation
ThCh$ ThCh$ ThCh$
-------------------------------------------------------
Operating loss (8,984,138) (5,472,796) (14,456,934)
Non-operating expenses (7,802,003) 5,472,796 (2,329,207)
-------------------------------------------------------
Year ended December 31, 2002
-------------------------------------------------------
U.S. GAAP
Chilean GAAP Reclassification presentation
ThCh$ ThCh$ ThCh$
-------------------------------------------------------
Operating loss (11,357,210) (5,158,030) (16,515,240)
Non-operating expenses (8,250,207) 5,158,030 (3,092,177)
-------------------------------------------------------
Year ended December 31, 2003
-------------------------------------------------------
U.S. GAAP
Chilean GAAP Reclassification presentation
ThCh$ ThCh$ ThCh$
-------------------------------------------------------
Operating loss (7,038,849) (4,774,662) (11,813,511)
Non-operating expenses (8,608,186) 4,774,662 (3,833,524)
-------------------------------------------------------
|
G-45
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(g) Reclassification differences between Chilean GAAP and U.S. GAAP,
continued:
The following reclassifications are required to conform the presentation of
Chilean GAAP balance sheet information to that required under U.S. GAAP for
the years ended December 31, 2002 and 2003. The reclassification amounts are
determined in accordance with Chilean GAAP.
Year ended December 31, 2002
-------------------------------------------------------
U.S. GAAP
Chilean GAAP Reclassification presentation
ThCh$ ThCh$ ThCh$
-------------------------------------------------------
Total current assets 21,395,053 147,365 21,542,418
Total other assets 81,928,919 - 81,928,919
Total current liabilities 16,812,351 147,365 16,959,716
Total long-term liabilities 54,021,350 - 54,021,350
-------------------------------------------------------
Year ended December 31, 2003
-------------------------------------------------------
U.S. GAAP
Chilean GAAP Reclassification presentation
ThCh$ ThCh$ ThCh$
-------------------------------------------------------
Total current assets 14,640,266 926,592 15,566,858
Total other assets 77,632,300 77,632,300
Total current liabilities 24,413,852 926,592 25,340,444
Total long-term liabilities 44,276,688 44,276,688
-------------------------------------------------------
|
(h) Estimated fair value of financial instruments and derivative financial
instruments:
The accompanying tables provide disclosure of the estimated fair value of
financial instruments owned by the Company. Various limitations are inherent
in the presentation, including the following:
- The data excludes non-financial assets and liabilities, such as property,
plant and equipment, and goodwill.
- While the data represents management's best estimates, the data is
subjective and involves significant estimates regarding current economic
and market conditions and risk characteristics.
G-46
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(h) Estimated fair value of financial instruments and derivative financial
instruments, continued;
The methodologies and assumptions used depend on the terms and risk
characteristics of the various instruments and include the following:
- Cash and cash equivalents approximate fair value because of the
short-term maturity of these instruments.
- For current liabilities that are contracted at variable interest rates,
the book value is considered to be equivalent to their fair value.
- For interest-bearing liabilities with an original contractual maturity of
greater than one year, the fair values are calculated by discounting
contractual cash flows at current market origination rates with similar
terms.
The following is a detail of the Company's financial instruments' Chilean GAAP
carrying amount and estimated fair value:
December 31,
2002 2003
----------------------------------- ------------------------------------
Chilean GAAP Chilean GAAP
Carrying Amount Estimated Fair Carrying Amount Estimated Fair
Value Value
------------------ ---------------- ------------------ -----------------
ThCh$ ThCh$
Assets:
Cash and cash equivalents 12,687,480 12,687,480 6,972,416 6,972,416
Short-term accounts receivable 3,739,641 3,739,641 2,517,565 2,517,565
Notes receivable 173,283 173,283 90,392 90,392
Forward contracts 1,289,006 1,442,168 - -
Liabilities:
Short-term bank debt (59,357) (59,357) - -
Current bank debt - - (7,445,646) (7,445,646)
Forward contracts - - (4,188,044) (5,161,921)
Notes payable (207,635) (207,635) (11,837) (11,837)
Long-term bank debt (36,867,508) (36,867,508) (29,508,724) (29,508,724)
Long-term notes payable (16,719,923) (16,719,923) (14,401,629) (14,401,629)
|
G-47
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(i) Cash and cash equivalents
Under Chilean GAAP cash and cash equivalents are considered to be all highly
liquid investments with a remaining maturity of less than 90 days as of the
closing date of the financial statements, whereas, U.S. GAAP considers cash
and cash equivalents to be all highly liquid investments with an original
maturity date of less than 90 days. The difference between the balance under
U.S. GAAP and Chilean GAAP of cash and cash equivalents is not material for
the periods presented.
Supplementary Cash flow information:
2001 2002 2003
-----------------------------------------------------
ThCh$ ThCh$ ThCh$
Assets acquired under capital leases 335,155 - -
Interest paid during the year (521,092) (1,464,029) (1,807,376)
|
G-48
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(j) Recently issued accounting pronouncements:
(i) Accounting for Asset Retirement Obligations
In June 2001 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (SFAS No. 143). This standard requires that
under U.S. GAAP obligations associated with the retirement of tangible
long-lived assets be recorded as liabilities when those obligations
are incurred, with the amount of the liability initially measured at
fair value. Upon initially recognizing a liability for an asset
retirement obligation, an entity must capitalize the cost by
recognizing an increase in the carrying amount of the related
long-lived asset. Over time, this liability is accreted to its present
value, and the capitalized cost is depreciated over the useful life of
the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or
loss upon settlement. The implementation of SFAS No. 143 had no
material impact on the results of operations or financial position of
the Company.
(ii) Accounting for Costs Associated with Exit or Disposal Activities
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when
the liability is incurred, not when it is "planned". The
implementation of SFAS No. 146 had no material impact on the results
of operations or financial position of the Company.
G-49
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(j) Recently issued accounting pronouncements, continued:
(iii) Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45). The
Interpretation significantly changed practice in the accounting for,
and disclosure of, guarantees. In general, the Interpretation applies
to contracts or indemnification agreements that contingently require
the guarantor to make payments to the guaranteed party based on
changes in an underlying that is related to an asset, liability, or an
equity security of the guaranteed party. Guarantees meeting the
characteristics described in the Interpretation, are required to be
initially recorded at fair value, which is different from the general
current practice of recording a liability only when a loss is probable
and reasonably estimable, as those terms are defined in FASB Statement
No. 5, "Accounting for Contingencies". The Interpretation also
requires a guarantor to make significant new disclosures for virtually
all guarantees even when the likelihood of the guarantor's having to
make payments under the guarantee is remote. The Interpretation's
disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002. The
Interpretation's initial recognition and initial measurement
provisions are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantor's
fiscal year-end. The implementation of FIN 45 had no material impact
on the results of operations or financial position of the Company.
(iv) Revenue arrangements with multiple deliverables
On January 23, 2003, the Emerging Issues Taskforce issued EITF 00-21 "
Revenue Arrangements with Multiple Deliverables". This Issue addresses
certain aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities.
Specifically, this Issue addresses how to determine whether an
arrangement involving multiple deliverables contains more than one
unit of accounting. The Issue requires, that revenue arrangements with
multiple deliverables should be divided into separate units of
accounting if the deliverables in the arrangement meet certain
criteria, arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values, and
applicable revenue recognition criteria should be considered
separately for separate units of accounting. The guidance in this
Issue is effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. Alternatively, entities may
elect to report the change in accounting as a cumulative-effect
adjustment. Implementation of EITF 00-21 is required on January 1,
2004 for Cordillera Comunicaciones Holding Limitada. The Company is
currently evaluating the effects of its implementation.
G-50
Cordillera Comunicaciones Holding Limitada and Subsidiaries
Notes to the Consolidated Financial Statements
for the years ended December 31
(Translation of financial statements originally
issued in Spanish - see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant Chilean pesos as of December 31, 2003 except as stated)
Note 28. Differences Between Chilean and United States Generally Accepted
Accounting Principles, continued:
(j) Recently issued accounting pronouncements, continued
(v) Amendment of Statement 133 on Derivative Instruments and Hedging
Activities
In May 2003 the FASB issued Statement No. 149 "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities". This Statement is
effective for contracts entered into or modified after June 30, 2003,
except for hedging relationships designated after June 30, 2003. In
addition, all provisions of this Statement should be applied
prospectively with exceptions. The provisions of this Statement that
relate to Statement 133 Implementation Issues that have been effective
for fiscal quarters that began prior to June 15, 2003, should continue
to be applied in accordance with their respective effective dates. In
addition, paragraphs 7(a) and 23(a) of that Statement, which relate to
forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing
contracts and new contracts entered into after June 30, 2003. The
implementation of SFAS No. 149 had no material impact on the results
of operations or financial position of the Company.
(vi) Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities-an interpretation of ARB 51," to expand
upon and strengthen existing accounting guidance that addresses when a
company should include in its financial statements the assets,
liabilities and activities of another entity. Many variable interest
entities have commonly been referred to as special-purpose entities or
off-balance sheet structures, but the guidance applies to a larger
population of entities. In general, a variable interest entity is a
corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its
activities. The Company must apply Interpretation No. 46 to variable
interest entities created after January 31, 2003. The Company did not
create any variable interest entities after January 31, 2003 and is in
the process of assessing the impact of the Interpretation in relation
to business relationships created before January 31, 2003. The Company
does not expect the implementation of the Interpretation to have a
material impact on the Company's results of operation or financial
position.
G-51
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this annual report on
to be signed on its behalf by the undersigned, thereunto duly
authorized, in Santiago, Chile on June 25, 2004.
CRISTALERIAS DE CHILE S.A.
(GLASSWORKS OF CHILE INC.)
/s/ Cirilo Elton Gonzalez
-------------------------
Chief Executive Officer
|
102
Exhibit 12.1
CERTIFICATION
I, Cirilo Elton Gonzalez, certify that:
1. I have reviewed this annual report on Form 20-F of
Cristalerias de Chile S.A.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The company's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) for the company and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures
to be designed under our supervision, to ensure
that material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the company's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of
the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the
company's internal control over financial reporting
that occurred during the period covered by this
annual report that has materially affected, or is
reasonably likely to materially affect, the
registrant's internal control over financial
reporting.
5. The company's other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company's auditors
and the audit committee of the company's board of directors
(or persons performing the equivalent function):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal
control over financial reporting which are
reasonably likely to adversely affect the company's
ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the company's internal control
over financial reporting.
103
Date: June 30, 2004
/s/ Cirilo Elton Gonzalez
Cirilo Elton Gonzalez
Chief Executive Officer
Cristalerias de Chile S.A.
|
104
Exhibit 12.2
CERTIFICATION
I, Rodrigo Palacios Fitz-Henry, certify that:
1. I have reviewed this annual report on Form 20-F of
Cristalerias de Chile S.A.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The company's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) for the company and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures
to be designed under our supervision, to ensure
that material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the company's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of
the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the
company's internal control over financial reporting
that occurred during the period covered by this
annual report that has materially affected, or is
reasonably likely to materially affect, the
registrant's internal control over financial
reporting.
5. The company's other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company's auditors
and the audit committee of the company's board of directors
(or persons performing the equivalent function):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal
control over financial reporting which are
reasonably likely to adversely affect the company's
ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the company's internal control
over financial reporting.
105
Date: June 30, 2004
/s/ Rodrigo Palacios Fitz-Henry
Rodrigo Palacios Fitz-Henry
Chief Financial Officer
Cristalerias de Chile S.A.
|
106
Exhibit 13.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cristalerias de Chile S.A (the
"Company") on Form 20-F for the fiscal year ended December 31, 2003, as filed
with the U.S. Securities and Exchange Commission on the date hereof (the
"Report"), I, Cirilo Elton Gonzalez, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of the Company.
/s/ CIRILO ELTON GONZALEZ
Cirilo Elton Gonzalez
Chief Executive Officer
Cristalerias de Chile S.A.
Dated: June 30, 2004
|
107
Exhibit 13.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cristalerias de Chile S.A. (the
"Company") on Form 20-F for the fiscal year ended December 31, 2003, as filed
with the U.S. Securities and Exchange Commission on the date hereof (the
"Report"), I, Rodrigo Palacios Fitz-Henry, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of the Company.
/s/ RODRIGO PALACIOS FITZ-HENRY
Rodrigo Palacios Fitz-Henry
Chief Financial Officer
Cristalerias de Chile S.A.
Dated: June 30, 2004
|
108
Exhibit 8.1
List of Cristalerias Subsidiaries
As of December 31, 2003
Company Name Jurisdiction
------------ ------------
Vina Santa Rita Chile
Envases CMF S.A. Chile
Constructora Apoger S.A. Chile
Inmobiliaria Don Alberto S.A. Chile
Cristalchile Comunicaciones S.A. Chile
Cordillera Comunicaciones Holding Ltda. Chile
Cordillera Comunicaciones Ltda. Chile
Metropolis-Intercom S.A. Chile
Comunicacion, Informacion, Entretencion y Cultura S.A. Chile
Red Televisiva Megavision S.A. Chile
Zig-Zag S.A. Chile
Simetral S.A. Chile
Ediciones Chiloe S.A. Chile
Ediciones Financieras S.A. Chile
Cristalchile Inversiones S.A. Chile
Rayen Cura S.A.I.C. Argentina
109
|
Cristalerias
Conduct Ruling for the CEO, CFO, Corporate Controller and Accounting Officer
Cristalerias's Conduct Ruling applies to our CEO, CFO, Corporate Controller
and Accounting Officer.
1. The CEO and each financial officer mentioned above must act with
honesty and integrity, avoiding actual or apparent conflicts of
interest between personal and professional relationships.
2. The CEO and each financial officer mentioned above is responsible for
full, fair, accurate, timely and understandable disclosure in reports
and documents that the Company files with, or submits to, the
Securities and Exchange Commission and in other public communications
made by the Company.
3. The CEO and each financial officer mentioned above must comply with
applicable governmental laws, rules and regulations.
4. The CEO and each financial officer mentioned above shall promptly
report to the Audit Committee any information he or she may have
concerning any violation of this Conduct Ruling.
5. The CEO and each financial officer mentioned above will be held
accountable for adherence to the Conduct Ruling. Accordingly, the
Board of Directors may determine, or designate appropriate persons to
determine, appropriate disciplinary actions to be taken in the event
of violations of this Conduct Ruling by the Company's Chief Executive
or Senior Financial Officers and a procedure for granting any waivers
of this Conduct Ruling.
110
|
|
Next Section
Previous Section