prospecto de colocacion de bonos alsacia
TRANSCRIPT
O F F E R I N G M E M O R A N D U M S T R I C T L Y C O N F I D E N T I A L
U.S.$464,000,000BRT Escrow Corporation SpA
expected to be combined with and into
Inversiones Alsacia S.A.8.00% Senior Secured Notes due 2018
expected to be unconditionally guaranteedby Inversiones Alsacia S.A.’s affiliates,
Express de Santiago Uno S.A.,Inversiones Eco Uno S.A.
andPanamerican Investments Ltd.
BRT Escrow Corporation SpA (the “Initial Temporary Issuer”) is a special purpose company established to facilitate the issuance byInversiones Alsacia S.A., a company holding a concession to provide bus transportation services in the Santiago, Chile metropolitan area (“Alsacia” orthe “Issuer”), of U.S.$464,000,000 aggregate principal amount of 8.00% Senior Secured Notes due 2018 (the “Notes”). Upon consummation of thetransactions described herein (which is expected to occur on or prior to February 28, 2011) Alsacia will assume the Notes and certain of its affiliates willprovide guarantees as described herein. Thereafter, principal will be payable on February 18 and August 18 of each year, beginning on February 18, 2012,and interest on the Notes will be payable on February 18 and August 18 of each year, beginning on August 18, 2011. Unless redeemed or amortized priorthereto, the final payment on the Notes is expected to be made on August 18, 2018. The Issuer will be able to redeem the Notes at any time or from timeto time, in whole or in part, under certain circumstances. See “Description of Notes and Finance Agreements—Redemption—Optional Redemption.” Inaddition, the Notes can be redeemed at any time, in whole (but not in part), at 100% of their principal amount, plus accrued and unpaid interest, if any,and any Additional Amounts (as defined herein) then due and payable if certain events occur involving withholding taxes. The Notes, under certaincircumstances, will also be subject to mandatory redemption of the principal amount of the Notes plus accrued and unpaid interest and AdditionalAmounts, if any. There is no sinking fund for the Notes. See “Description of Notes and Finance Agreements.”
Proceeds from the sale of the Notes by the Initial Temporary Issuer will be held in escrow (the “Escrow”) by The Bank of New York Mellon,as escrow agent (the “Escrow Agent”) as described herein pending (i) the consummation of specified acquisition transactions described under “Use ofProceeds”, (ii) the repayment out of the proceeds from the sale of the Notes of all of the outstanding indebtedness of Alsacia and Express specified herein(the “Existing Indebtedness”), and (iii) the combination of the Initial Temporary Issuer with and into Alsacia, including the assumption by Alsacia of theNotes and certain of its affiliates providing guarantees as described herein. See “Use of Proceeds” and “The Escrow.” The proceeds from the sale of theNotes offered hereby will be used to facilitate the transactions described herein, which will require various actions to be taken subsequent to the datehereof, including the furnishing of prepayment notices to lenders holding the Existing Indebtedness (the “Existing Lenders”), the release of specifieditems of collateral held by the Existing Lenders and certain acquisition transactions, all expected to occur on or prior to February 28, 2011. See“Description of Notes and Finance Agreements.” If the Escrow is not released on or prior to February 28, 2011, then three business days thereafter theEscrow shall be terminated and the Escrow Agent shall use funds on deposit in the Escrow to repay the issue price of the Notes in full, together withaccrued interest and any Additional Amounts payable in respect thereof through and excluding the date of any such repayment. Thereafter, the Notes shallbe deemed to have been repaid in full and no longer be outstanding or having any effect or liability attached thereto.
If transactions described herein are consummated on or prior to February 28, 2011, then the Escrow shall be released and funds shall beused as contemplated under “Use of Proceeds.” In such event, the Initial Temporary Issuer will immediately be combined with and into Alsacia, andthe Notes will become (i) senior secured obligations of Alsacia and (ii) unconditionally guaranteed (the “Guarantees”) on a senior secured basis byAlsacia’s affiliated companies, Express de Santiago Uno S.A. (“Express”), Inversiones Eco Uno S.A. (“Eco Uno”) and Panamerican Investments Ltd.(“Panamerican,” and collectively with Express and Eco Uno, the “Guarantors”). Express, like Alsacia, is a company holding a concession to providebus transportation services in the Santiago, Chile metropolitan area and, following the transactions contemplated under “Use of Proceeds,” will beunder common control with Alsacia by Alsacia’s principal shareholder, Global Public Services “GPS”, S.A. (“GPS Group” or the “PrincipalShareholder”). For a description of our Principal Shareholder, see “Business—Our History—GPS Group.” Eco Uno and Panamerican will at such timebecome intermediate holding companies that will own Express and be under common control by Alsacia’s Principal Shareholder upon completion ofthe acquisition transactions contemplated under “Use of Proceeds.” In addition to the Guarantees of the Guarantors, when the Notes become seniorsecured obligations of Alsacia, the Notes will also become secured on a first-priority basis by pledges, liens, charges and encumbrances on specifieditems of collateral described herein, including pledges of all of the Alsacia and Express shares held by our Principal Shareholder, rights of Alsacia andExpress to payment under their respective concession agreements described herein, the bus fleet and substantially all of the owned real property used inconnection with the concessions and certain transaction accounts to be maintained in connection with the Notes, subject in all cases to certain permittedexceptions, including a pledge of one of our bus terminals to another creditor extending a subordinate loan to us in connection with the issuance of theNotes. Certain other creditors that extend credit to Alsacia or any of the Guarantors after the issuance of the Notes will also be entitled to share in thecollateral for the Notes on an equal basis with the Notes on specified terms and conditions. Alsacia and the Guarantors may also incur subordinatedindebtedness on certain conditions described herein. See “Description of Notes and Finance Agreements—Collateral” and “Description of Notes andFinance Agreements—Collateral Trust Agreement.”
The Notes and Guarantees will rank equally with any other senior secured indebtedness, and senior to any subordinated indebtedness, of theIssuer or the Guarantors existing now or in the future. The Notes and Guarantees will be structurally subordinated to the indebtedness and tradepayables of any of the Issuer’s non-guarantor subsidiaries or affiliates. See “Description of Notes and Finance Agreements.”
See “Risk Factors” beginning on page 58 for a discussion of certain risks that you should consider in connection with an investmentin the Notes.
Issue price: 100% plus accrued interest, if any, from February 18, 2011
The Notes and the Guarantees have not been registered, and the Issuer does not intend to register the Notes or the Guarantees, under theU.S. Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any other jurisdiction. The Notes are being offered only toqualified institutional buyers within the meaning of Rule 144A under the Securities Act, and in offshore transactions to persons other than U.S. personsas defined in Regulation S under the Securities Act. For a description of certain restrictions on transfer of the Notes, see “Transfer Restrictions.”
The Issuer will apply to admit the Notes for listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTFmarket of the Luxembourg Stock Exchange. Currently, there is no public market for the Notes.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securitiesor determined whether this Offering Memorandum is accurate or complete. Any representation to the contrary is a criminal offense. The Notes may notbe offered or sold, directly or indirectly, in Chile or to any resident of Chile, except as permitted by applicable Chilean law.
Delivery of the Notes will be made to investors in book-entry form only through the facilities of The Depository Trust Company for theaccounts of its participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear System, and Clearstream Banking, société anonyme, onor about February 18, 2011.
Joint Book-Running Managers
BofA Merrill Lynch J.P. MorganThe date of this Offering Memorandum is February 14, 2011
—Alsacia and Express together are the largest operator of bus transportation services in the Santiago, Chilemetropolitan area, as measured by their available bus capacity and concession route length.
Collectively, we operate two of the five trunk lines in Transantiago, the rapid transit system ofSantiago managed by the Chilean Government.
—We have a modern fleet of 1,861 buses as of September 30, 2010
—We own or lease nine terminals for dispatching, servicing,inspecting and storing buses as of September 30, 2010
TABLE OF CONTENTS
Page
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
United Kingdom Selling Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Chilean Selling Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Notice to New Hampshire Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Cautionary Statement Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Introductory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Presentation of Financial and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Enforcement of Civil Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Exchange Controls in Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Selected Financial Information of Alsacia on a Consolidated Basis and Express on a Consolidated Basis . . 89
Management’s Discussion and Analysis of Financial Condition and Results of Operations for Alsacia andExpress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Transantiago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
The Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
The Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Exchange Rate Hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Description of Notes and Finance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Certain ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Validity of Notes and Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Appendix A: Significant Differences Between Chilean GAAP and IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B: Alsacia Outstanding Indebtedness to be Repaid In Connection with the Offering of Notes . . . B-1
Appendix C: Express Outstanding Indebtedness to be Repaid In Connection with the Offering of Notes . . . . . C-1
Appendix D: Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
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For the sale of the Notes in the United States, we are relying upon an exemption from registration underthe Securities Act for an offer and sale of securities that do not involve a public offering. By purchasing Notes,you will be deemed to have made certain acknowledgments, representations and agreements as set forth under“Transfer Restrictions.” We are not, and the initial purchasers are not, making an offer to sell the Notes in anyjurisdiction except where an offer or sale is permitted. You should understand that you will be required to bearthe financial risks of your investment for an indefinite period of time.
We have submitted this Offering Memorandum solely to qualified institutional buyers in the UnitedStates and in offshore transactions to persons other than U.S. persons so they can consider a purchase of theNotes. We have not authorized the use of this Offering Memorandum for any other purpose. This OfferingMemorandum may not be copied or reproduced in whole or in part. This Offering Memorandum may bedistributed and its contents disclosed only to prospective investors to whom it is provided and, if you do notpurchase the Notes, or the offering is terminated for any reason, this Offering Memorandum and other relatedoffering materials must be returned to the initial purchasers. This Offering Memorandum is personal to eachofferee and does not constitute an offer to any other person or to the public generally to subscribe for orotherwise acquire the Notes. Distribution of this Offering Memorandum to any person other than the offeree andany person retained to advise an offeree is unauthorized, and any disclosure of any of the contents hereof withoutour prior written consent is prohibited. By accepting delivery of this Offering Memorandum, you agree to theserestrictions. See “Transfer Restrictions.”
This Offering Memorandum is based on information provided by us and other sources that we believe tobe reliable. The initial purchasers and we cannot assure you that the information provided by any other source isaccurate or complete. This Offering Memorandum summarizes certain documents and other information, and werefer you to them for a more complete understanding of what we discuss in this Offering Memorandum. Inmaking an investment decision, you must rely on your own examination of us and the terms of the offering andthe Notes, including the merits and risks involved.
We are not making any representation to any purchaser regarding the legality of an investment in theNotes by that purchaser under any legal investment or similar laws or regulations. You should not consider anyinformation in this Offering Memorandum to be legal, business, tax or other advice. You should consult yourown counsel, accountant, business advisor and tax advisor for legal, tax, business and financial advice regardingany investment in the Notes.
You should rely only on the information contained in this Offering Memorandum. We have not, and theinitial purchasers have not, authorized any person to provide you with different information or to make anyrepresentation not contained in this Offering Memorandum. If anyone provides you with different or inconsistentinformation, you should not rely on it. You should assume that the information contained in this OfferingMemorandum is accurate only as of the date on the front cover of this Offering Memorandum. Our business,financial conditions, results of operations and prospects may have changed since that date.
By purchasing any Notes, you will be deemed to have acknowledged that: (i) you have received a copyof and have reviewed this Offering Memorandum; (ii) you have had an opportunity to review all financial andother information considered by you to be necessary to make your investment decision and to verify the accuracyof, or to supplement, the information contained in this Offering Memorandum and have been offered theopportunity to ask us questions, and received answers, as you deemed necessary in connection with yourinvestment decision; (iii) you have not relied on the initial purchasers or any person affiliated with the initialpurchasers in connection with your investigation of the accuracy of the information or your investment decision;(iv) the initial purchasers are not responsible for, and are not making any representation to you concerning us, ourfuture performance or the accuracy or completeness of this Offering Memorandum; (v) you are relying only onthe information contained in this Offering Memorandum in making your investment decisions; (vi) no person hasbeen authorized to give any information or to make any representation concerning us or the Notes or the offerand sale of the Notes, other than as contained in this Offering Memorandum, and if given or made, any other
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information or representation should not be relied upon as having been authorized by us or the initial purchasers;and (vii) the financial statements included elsewhere in this Offering Memorandum have been prepared asdescribed under “Presentation of Financial and Other Information” in accordance with Chilean generallyaccepted accounting principles and the rules of the SVS (“Chilean GAAP”), which differ in certain significantrespects from International Financial Reporting Standards as adopted by the International Accounting StandardsBoard (“IFRS”), and are subject to Chilean auditing standards and thus are not comparable to the financialstatements of an IFRS reporting company. See Appendix A for a description of the principal differences betweenChilean GAAP and IFRS as they relate to us and our consolidated subsidiaries.
We reserve the right to withdraw this offering of the Notes at any time, and we and the initial purchasersreserve the right to reject any commitment to subscribe for the Notes in whole or in part and to allot to anyprospective investor less than the full amount of Notes sought by that investor. The initial purchasers and certainrelated entities may acquire for their own account a portion of the Notes.
You must comply with all applicable laws and regulations in force in any jurisdiction in connection withthe possession or distribution of this Offering Memorandum and the purchase, offer or sale of the Notes and youmust obtain any consent, approval or permission required of you for the purchase, offer or sale of the Notes underthe laws and regulations applicable to you in force in any jurisdiction to which you are subject or in which youmake the purchase, offer or sale, and neither we nor the initial purchasers will have any responsibility therefor.
This Offering Memorandum has been prepared on the basis that any offer of Notes in any Member Stateof the European Economic Area which has implemented the Prospectus Directive (2003/71/EC) (each, a“Relevant Member State”) will be made pursuant to an exemption under the Prospectus Directive, asimplemented in that Relevant Member State, from the requirement to publish a prospectus for offers of Notes.Accordingly, any person making or intending to make an offer in that Relevant Member State of Notes which aresubject to the offering contemplated in this Offering Memorandum may only do so in circumstances in which noobligation arises for the Issuer, the Guarantors or the initial purchasers to publish a prospectus pursuant to Article3 of the Prospectus Directive in relation to that offer. None of the Issuer, the Guarantors or the initial purchasershas authorized, nor do they authorize, the making of any offer of Notes in circumstances in which an obligationarises for us or the initial purchasers to publish a prospectus for that offer.
The distribution of this Offering Memorandum and the offering and sale of the Notes in certainjurisdictions may be restricted by law. We and the initial purchasers require persons in possession of thisOffering Memorandum to inform themselves about and to observe any applicable restrictions. This OfferingMemorandum does not constitute an offer of, or an invitation to purchase, any of the Notes in any jurisdiction inwhich such offer or invitation would be unlawful.
The contents of Alsacia’s website, Express’s website, the website of Transantiago, and any otherwebsite do not form part of this Offering Memorandum.
This Offering Memorandum contains some of our trademarks, trade names and service marks, includingour logos, “Alsacia” and “Express de Santiago.” Each trademark, trade name or service mark of any companyappearing in this Offering Memorandum belongs to its respective holder.
The Notes will be available initially only in book-entry form. We expect that the Notes will be issued inthe form of one or more registered global notes. The global notes will be deposited with, or on behalf of, TheDepository Trust Company (“DTC”), and registered in our name or in the name of Cede & Co., its nominee.Beneficial interests in the global notes will be shown on, and transfers of beneficial interests in the global noteswill be effected through, records maintained by DTC and its participants. We expect the Regulation S globalnotes, if any, to be deposited with the trustee as custodian for DTC, and beneficial interests in them may be heldthrough the Euroclear System, Clearstream Banking S.A. or other participants. See “Description of Notes andFinance Agreements” for further discussion of these matters.
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ADDITIONAL INFORMATION
We currently do not file information with the United States Securities and Exchange Commission. Wehave agreed that while any Notes remain outstanding and are “restricted securities” as defined in Rule 144(a)(3)under the Securities Act, we will make available, upon request, to any holder or prospective purchaser of Notesthe information required pursuant to Rule 144A(d)(4) under the Securities Act with respect to us, during anyperiod in which we are not subject to Section 13 or 15(d) of the Exchange Act or not exempt by virtue of Rule12g3-2(b) thereunder. Any request should be directed to us at our principal office at Ave. Santa Clara 555 –Huechuraba, Santiago, Chile.
UNITED KINGDOM SELLING RESTRICTION
In the United Kingdom this Offering Memorandum is only being distributed to, and is only directed at,(a) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000(Financial Promotion) Order 2005 (as amended) (the “Order”); and (b) high net worth companies and otherpersons falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevantpersons”). Any person in the United Kingdom that is not a relevant person should not act or rely on this OfferingMemorandum or any of its contents. Any investment or investment activity to which this Offering Memorandumrelates is available in the United Kingdom only to relevant persons, and will be engaged in only with thosepersons.
CHILEAN SELLING RESTRICTION
The Notes may not be offered or sold, directly or indirectly, in the Republic of Chile or to any residentof Chile, except as permitted by applicable Chilean law.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR ANAPPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OFTHE NEW HAMPSHIRE REVISED STATUTES ANNOTATED, 1955, AS AMENDED(“RSA 421-B”), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THATA SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED INTHE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THESECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANYDOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOTMISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT ANEXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR ATRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OFNEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS ORQUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANYPERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, ORCAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER ORCLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OFTHIS PARAGRAPH.
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CAUTIONARY STATEMENT REGARDINGFORWARD-LOOKING STATEMENTS
This Offering Memorandum contains words, such as “believe,” “intend,” “estimate,” “expect,” “could,”“may,” “will,” “plan,” “target,” “project,” “potential,” “predict,” “forecast,” “guideline,” “should,” “anticipate”and similar expressions, that identify forward-looking statements reflecting our views about future events andfinancial performance. Words such as “believe,” “could,” “may,” “will,” “anticipate,” “plan,” “expect,” “intend,”“target,” “estimate,” “project,” “potential,” “predict,” “forecast,” “guideline,” “should” and similar expressionsare intended to identify forward-looking statements, but are not the exclusive means of identifying thesestatements. Statements that are not historical facts, including statements about our strategy, plans, objectives,assumptions, prospects, beliefs and expectations, are forward-looking statements. Forward-looking statementsare not guarantees of future performance and involve inherent risks and uncertainties. These forward-lookingstatements are based on current plans, estimates and projections, and therefore you should not place unduereliance on them. Actual results could differ materially and adversely from those expressed or implied by theforward-looking statements as a result of factors that may be beyond our control, including but not limited to:
• our ability to service our debt, fund our working capital requirements or comply with financialcovenants in our debt instruments;
• our ability to fund and implement our capital expenditure programs;
• our ability to successfully complete acquisitions and disposals; partnerships, existing or future; andour ability to realize expected synergies or cost savings;
• our ability to comply with the terms of the Concession Agreements and related agreements;
• changes in our regulatory environment, including transportation and environmental regulations;
• the maintenance of our relationship with the Ministry;
• the maintenance of our relationships with our employees;
• Passenger Validations and seasonality;
• fluctuation of fuel prices;
• the state of the Chilean and world economies;
• the relative value of the Chilean peso compared to other currencies;
• the effects of inflation;
• the effects from competition; and
• the effects of changes in interest rates.
Some of these factors are discussed under “Risk Factors,” but there may be other risks and uncertaintiesnot discussed under “Risk Factors” or elsewhere in this Offering Memorandum that cause actual results to differmaterially from those in forward-looking statements. In any event, these statements speak only as of their dates,and we do not undertake any obligation to update or revise any of them as a result of new information, futureevents or otherwise.
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INTRODUCTORY NOTE
Since its inception in 2005, Alsacia has been owned by Carlos and Javier Ríos and certain members oftheir family. For over a decade, the Ríos family has been engaged in various businesses related to the provisionof public services, including bus and other transportation services and waste management services in LatinAmerica, principally in Colombia and Chile. In addition to the Ríos family’s ownership of Alsacia, since 2005they have jointly owned Express with Grupo Transportador (“Grupo Transportador”), a group of business entitiesand individuals based in Colombia, as part of their joint interest in participating and developing the passenger bustransportation business in Santiago, Chile.
In 2011, as part of a plan to separate their activities, the Ríos family and Grupo Transportadordetermined that they would restructure their ownership of Alsacia and Express whereby, among other things:
(i) the Ríos family’s direct interests in Alsacia and Express would be transferred to a newly formedholding company, GPS Group;
(ii) GPS Group would acquire Grupo Transportador’s interest in Express as a result of which GPSGroup would own all of the outstanding shares of Alsacia and Express (other than a de minimisnumber of shares required to be held under Chilean law by a second shareholder in order tomaintain a separate corporate existence) through two intermediate holding companies, Eco Unoand Panamerican (both of which exist to maximize operational flexibility and tax efficiency for theRíos family and, subsequently, GPS Group);
(iii) as a result of common ownership by GPS Group, Alsacia and Express would become affiliatedcompanies under common control by the GPS Group; and
(iv) Alsacia and Express would repay all of their Existing Indebtedness held by the Existing Lenders.
Alsacia is issuing the Notes contemplated herein to refinance all of the outstanding ExistingIndebtedness and to facilitate the Acquisition.
However, as a result of (i) the inability of Alsacia and Express to incur additional indebtedness pursuantto the requirements of the Existing Indebtedness and (ii) the request by Existing Lenders, our PrincipalShareholder has caused the incorporation of the Initial Temporary Issuer, a special purpose bankruptcy remoteentity organized under the laws of Chile, to issue the Notes being offered hereby. The Initial Temporary Issuerwill be wholly owned by two corporations formed under the laws of the British Virgin Islands, which in turn arewholly owned by a trust formed under the laws of the British Virgin Islands independent of Alsacia, Express, ourPrincipal Shareholder and their respective affiliates. The purpose of establishing the Initial Temporary Issuer is toallow funds to be raised that will be, among other things, used to repay the Existing Indebtedness, whichotherwise would not be repaid simultaneous with, or out of the proceeds of, the initial issuance of the Notes andwhich is required to be repaid therefor following delivery of specified prepayment notices. As a result, followingthe issuance of the Notes, the proceeds thereof will be placed in the Escrow pending delivery of the aforesaidprepayment notices to the Existing Lenders. See “The Escrow.”
Upon release of the Escrow, (i) Alsacia, Express, Eco Uno and Panamerican will be companies undercommon control by GPS Group, (ii) Alsacia and Express, as the operating companies in Chile controlled by GPSGroup, will be operated as part of a common enterprise controlled by GPS Group and the Notes will have theterms as described under “Description of Notes and Finance Agreements.”
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Information
General
As noted above under “Introductory Note,” the Notes offered in this Offering Memorandum are part of aplan undertaken by GPS Group, Alsacia and Express to reorganize the holding of interests in Alsacia andExpress, refinance their current debt obligations, fund various capital expenditures and expand the role of Alsaciaand Express as principal providers of passenger bus services in the Santiago, Chile metropolitan area. See“Introductory Note.”
As a result of the Acquisition, Alsacia, Express, Eco Uno and Panamerican will become affiliatedcompanies under common control by GPS Group. GPS Group intends to operate Alsacia and Express jointlyunder common management and to develop common operating procedures and sharing of overhead and othercosts in order to maximize efficiencies for both entities. No formal operating agreement has been developed todate.
As a result, this Offering Memorandum presents financial information separately for Alsacia andExpress, which are operating companies, because both will be commonly controlled subsidiaries of GPS Group,but neither will be owned by the other. However, since the Acquisition of the Express shares is not being madeby Alsacia, but rather by the GPS Group itself, and since the GPS Group is not an issuer or Guarantor of theNotes, this Offering Memorandum, consistent with applicable accounting literature and requirements, does notcontain any pro forma financial or other information with respect to the Acquisition or any combined orconsolidating financial statements of either Alsacia or Express. All references herein to “us” or “we” are to thejoint operations of Alsacia and Express unless otherwise noted.
The consolidated financial statements of Express and Alsacia which have been included in this OfferingMemorandum are subject to potential adjustments relating to the net balance of accounts payable to Alsaciarelating to items under dispute mainly arising from expenses incurred in prior years on account of Express inrelation to the joint operations of Express and Alsacia performed up to August 2006. Upon completion of theAcquisition, Grupo Transportador will no longer own any equity interest in Express and Express and Alsacia willcome under common control of the Principal Shareholder. At that time, we expect the Principal Shareholder willcause Alsacia and Express to settle their dispute relating to their accounts payable balances. However, the effectof any settlement on the financial statements and tax position of Express and Alsacia have not yet beendetermined. Any such determination could have an adverse effect on our results of operations, tax liability orfinancial position. See “Risk Factors—Risks Relating to Our Business—The financial statements of Express andAlsacia may be restated in the future based on the settlement of their related party dispute.”
Alsacia
The consolidated financial statements of Alsacia as of and of the years ended December 31, 2007 and2008, which have been prepared in Chilean pesos in accordance with Chilean GAAP and included in thisOffering Memorandum, have been audited by KPMG Auditores Consultores Limitada, Alsacia’s priorindependent auditors, as stated in their report appearing herein.
The consolidated financial statements of Alsacia as of and for the year ended December 31, 2009, whichhave been prepared in Chilean pesos in accordance with Chilean GAAP and included in this OfferingMemorandum, have been audited by Ernst & Young Servicios Profesionales de Auditoria y Asesorias, Alsacia’sindependent auditors, as stated in their report appearing herein.
The interim consolidated financial statements of Alsacia as of and for the nine months endedSeptember 30, 2009 and 2010 have been prepared in Chilean pesos in accordance with Chilean GAAP andincluded in this Offering Memorandum.
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Express
The consolidated financial statements of Express as of and for the years ended December 31, 2007, 2008and 2009, which have been prepared in Chilean pesos in accordance with Chilean GAAP and included in thisOffering Memorandum, have been audited by PricewaterhouseCoopers Consultores, Auditores y CompañíaLimitada, Express’s independent accountants, as stated in their qualified report appearing herein.
The interim consolidated financial statements of Express as of and for the nine months endedSeptember 30, 2009 and 2010, which have been prepared in Chilean pesos in accordance with Chilean GAAPand included in this Offering Memorandum, have been subjected to a limited review by PricewaterhouseCoopersConsultores, Auditores y Compañía Limitada, Express’s independent accountants, as stated in their qualifiedreport appearing herein.
Eco Uno and Panamerican
No financial or operating information is provided in this Offering Memorandum for either Eco Uno orPanamerican, which are additional Guarantors of the Notes. Eco Uno is a holding company with the sole purposeof holding 99.998% of the common shares of Express. Panamerican is a holding company formed for the solepurpose of acquiring and consolidating the ownership of 99.7% of the common shares of Eco Uno through theAcquisition. Both Eco Uno and Panamerican lend or borrow intercompany debt to or from affiliates from time totime, and neither will have any employees or other activities except as described herein. See “Description ofNotes and Finance Agreements—Additional Covenants Related to Panamerican and Eco Uno.” As a result,Alsacia does not believe any information concerning Eco Uno or Panamerican would be material to prospectiveinvestors.
Initial Temporary Issuer
No financial or operating information is provided in this Offering Memorandum for the InitialTemporary Issuer because it has never had, and currently does not have, any assets, liabilities or operations. It isa special purpose company established to facilitate the issuance of the Notes as described under “The Escrow”.
Chilean GAAP vs. IFRS
Under the terms of our Concession Agreements, we must prepare our financial statements in accordancewith IFRS for the year beginning January 1, 2011. IFRS differs in certain significant respects from ChileanGAAP. See Appendix A for a description of the principal differences between Chilean GAAP and IFRS as theyrelate to us and our consolidated subsidiaries.
Currency Information
Our consolidated financial statements and our financial data in this Offering Memorandum have beenpresented in Chilean pesos and references to “pesos” or “Ch$” are to Chilean pesos. Unidades de Fomento areinflation-indexed Chilean peso-denominated units that are linked to, and adjusted daily to reflect changes in, theprevious month’s Chilean consumer price index (“CPI”). References to “UF” are to Unidades de Fomento. As ofFebruary 2, 2011, UF 1.00 was equivalent to Ch$21,478 and U.S.$44.69, as reported by the Chilean CentralBank. References to “$,” “U.S.$,” “U.S. dollars” and “dollars” are to United States dollars.
Industry and Market Data
Some statistical information in this Offering Memorandum is based on governmental publications orother independent sources, including the INE and the Chilean Central Bank. Although we believe these sourcesare reliable, we have not independently verified the information and cannot guarantee its accuracy orcompleteness.
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Other Information
Certain figures included in this Offering Memorandum and in our financial statements have beenrounded for ease of presentation. Percentage figures included in this Offering Memorandum have not in all casesbeen calculated on the basis of the rounded figures but on the basis of the amounts prior to rounding. For thisreason, percentage amounts in this Offering Memorandum may vary from those obtained by performing the samecalculations using the figures in our financial statements. Certain other amounts that appear in this OfferingMemorandum may not sum due to rounding.
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ENFORCEMENT OF CIVIL LIABILITIES
Alsacia and Express are corporations (sociedades anónimas) organized under the laws of Chile. Underthe terms of the Concession Agreements, Alsacia and Express must comply with the rules applicable to Chileanpublicly held corporations (sociedades anónimas abiertas) other than the requirement to file quarterly financialinformation with the SVS. Eco Uno is a corporation (sociedad anónima) organized under the laws of Chile andsubject to the rules applicable to Chilean closed corporations (sociedades anónimas cerradas). Panamerican is acorporation organized under the laws of Bermuda and through its Chilean branch is subject to the laws of Chilewhich are applicable to Chilean branches. BRT Escrow Corporation SpA is a corporation (sociedad poracciones) organized under the laws of Chile and subject to the rules applicable to Chilean corporations, assimplified for sociedades por acciones. In addition, all or substantially all of the officers and directors for thesecompanies reside outside the United States, principally in Chile or Colombia. As a result, except as describedbelow, it may not be possible for investors to effect service of process within the United States upon us, theGuarantors, or our or their respective officers or directors or to enforce against them U.S. court judgmentspredicated upon the civil liability provisions of the U.S. federal securities laws.
We and the Guarantors have appointed Corporation Service Company, Wilmington, Delaware, as ourauthorized agent upon which process may be served in any action arising out of or based upon the Notes, whichmay be instituted in any federal or state court located in the city of New York having subject matter jurisdiction,and we and the Guarantors submit to the jurisdiction thereof.
We have been advised by our Chilean counsel, Bofill Mir & Alvarez Jana, that no treaty exists betweenthe United States and Chile for the reciprocal enforcement of foreign judgments. Chilean courts, however, haveenforced final judgments rendered in the United States, without reviewing the merits of the subject matter of thecase, by virtue of the legal principles of reciprocity and comity, subject to the review in Chile of the UnitedStates judgment in order to ascertain whether certain basic principles of due process and public policy have beenrespected. Nevertheless, we have been advised by Bofill Mir & Alvarez Jana that there is doubt as to theenforceability, in original actions in Chilean courts, of liabilities predicated solely upon the U.S. federalsecurities laws and as to the enforceability in Chilean courts of judgments of U.S. courts obtained in actionspredicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be necessaryfor investors to comply with certain procedures, including payment of stamp tax (currently assessed at a rate ofup to 0.6% of the face value of a debt security), if applicable, in order to file a lawsuit with respect to the Notesin a Chilean court.
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EXCHANGE RATES
Chile has two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) and theInformal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market is comprised of banksand other entities authorized by the Chilean Central Bank. The Informal Exchange Market is comprised ofentities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreignexchange houses and travel agencies, among others. The Chilean Central Bank is empowered to determine thatcertain purchases and sales of foreign currencies be carried out on the Formal Exchange Market.
Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulationsrequire that the Chilean Central Bank be informed of certain transactions and that they be effected through theFormal Exchange Market.
The Observed Exchange Rate (dólar observado), which is reported by the Chilean Central Bank andpublished daily in the Official Gazette of Chile, is computed by taking the weighted average of the previousbusiness day’s transactions on the Formal Exchange Market. Although the Chilean Central Bank is not requiredto follow any exchange rate, it generally uses spot rates for its transactions. Other banks generally carry outauthorized transactions at spot rates also.
The Informal Exchange Market reflects transactions carried out at an informal exchange rate. There areno limits imposed on the extent to which the exchange rate in the Informal Exchange Market can fluctuate aboveor below the Observed Exchange Rate. In recent years, the variation between the Observed Exchange Rate andthe informal exchange rate has not been significant.
The following table sets forth the annual low, high, average and period-end Observed Exchange Rate forU.S. dollars for each year starting in 2005, and for the month of February 2011 (through the date of this OfferingMemorandum), as reported by the Chilean Central Bank.
Observed exchange rates (Ch$ per U.S.$1.00 (1))
High (2) Low (2) Average (3)End ofPeriod
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592.75 509.70 559.86 514.212006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549.63 511.44 530.26 534.432007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548.67 493.14 522.69 495.822008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676.75 431.22 521.79 629.112009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643.87 491.09 559.67 506.432010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549.17 468.37 510.38 468.372011
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499.03 466.05 489.44 483.32February (through February 4, 2011) . . . . . . 484.14 480.50 481.70 481.56
(1) Nominal figures (i.e., not adjusted for inflation).
(2) Exchange rates are the actual high and low, on a day-by-day basis, for each period.
(3) The average rate is calculated as the average of the exchange rates reported on a day-to-day basis duringeach respective period.
Source: Chilean Central Bank
We make no representation that the Chilean peso or the U.S. dollar amounts referred to herein couldhave been or could be converted in U.S. dollars or Chilean pesos, as the case may be, at the rates indicated, at anyparticular rate or at all. The Federal Reserve Bank of New York does not report a noon buying rate for pesos.
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EXCHANGE CONTROLS IN CHILE
Pursuant to Article 39 of Law No. 18,840, the Chilean Central Bank Act, any person or entity mayfreely execute any foreign exchange transaction unless the Chilean Central Bank imposes a restriction orlimitation to such foreign exchange transaction. Currently, there is no filing, registration or approval to be madeor obtained with respect to the bonds to be issued by Alsacia or to the Guarantees to be issued by Express, EcoUno and Panamerican.
Pursuant to the current regulations contained in Chapter XIV of the Compendium of Foreign ExchangeRegulations of the Chilean Central Bank (the “Compendium”), although no prior authorization from the ChileanCentral Bank is required to effect payments in U.S. dollars abroad, such payments are required to be madethrough the Formal Exchange Market and disclosed to the Chilean Central Bank. The participant of the FormalExchange Market involved in the transfer must provide certain information to the Chilean Central Bank. In theevent payments are made by us using foreign currency held abroad, relevant information should be provided byus to the Chilean Central Bank directly or through an entity of the Formal Exchange Market within the first 10days of the month following the date on which the payment was made. As of this date, under Chapter XIV of theCompendium, payments and remittances of funds from Chile are governed by the rules in effect at the time thepayment or remittance is made.
There can be no assurance that we, any Guarantor or any other entity will be able to purchase U.S.dollars in the Informal Exchange Market or in the Formal Exchange Market at the time or in the amountsrequired to effect any payment due pursuant to the Notes.
Any change made to laws and regulations of the Chilean Central Bank after the date hereof may affectforeign investors who have acquired the Notes. We cannot assure you that further Chilean Central Bankregulations or legislative changes to the current foreign exchange control regime in Chile will not restrict orprevent us, any Guarantor or any other entity, from acquiring U.S. dollars or that further restrictions applicable tous, any Guarantor or any other entity will not affect our or its ability to remit U.S. dollars for payment of interestor principal on the Notes.
The above is a summary of the foreign exchange regime applicable with respect to the Notes, as in forceand effect as of the date of this Offering Memorandum. We cannot assure you that restrictions will not beimposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.This summary does not purport to be complete and is qualified in its entirety by reference to the provisions of theCompendium, a copy of which is available from us upon request.
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SUMMARY
The Notes offered in this Offering Memorandum are part of a plan undertaken by GPS Group, Alsaciaand Express to reorganize the holding of interests in Alsacia and Express, refinance their current debtobligations, fund various capital expenditures and expand the role of Alsacia and Express as principal providersof passenger bus services in the Santiago, Chile metropolitan area. See “Introductory Note.”
References in this Offering Memorandum to “we” or “our” or similar words refer to the combinedoperations of both Alsacia and Express, except as discussed in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations for Alsacia and Express” and elsewhere as indicated herein.
Investors should read the following summary together with the information set forth under the heading“Risk Factors” and in the financial statements and accompanying notes appearing elsewhere in this OfferingMemorandum. Financial information for each of the three years ended December 31, 2009 has been restated inconstant Chilean pesos as of December 31, 2009 in accordance with Chilean GAAP. Financial information foreach of the nine months ended September 30, 2009 and 2010 has been restated in constant Chilean pesos as ofSeptember 30, 2010 in accordance with Chilean GAAP. Under the terms of our Concession Agreements, we mustprepare our financial statements in accordance with IFRS for the year beginning January 1, 2011. IFRS differsin certain significant respects from Chilean GAAP. See Appendix A for a description of the principal differencesbetween Chilean GAAP and IFRS as they relate to us and our consolidated subsidiaries.
Our Business
General
Alsacia and Express together are the largest operator of bus transportation services in the Santiago,Chile metropolitan area, as measured by the available bus capacity and scheduled route length of Alsacia andExpress combined. We jointly operate under the Alsacia and Express brands and Concessions to providepassenger bus service within Transantiago, the rapid transit system of Santiago managed by the ChileanGovernment.
As of September 30, 2010, we collectively owned or operated 72 bus routes, 1,861 buses and 9 busterminals and we had 6,038 employees. In the first nine months of 2010, we received an average of 27 millionPassenger Validations per month, which was approximately 28% of the total bus Passenger Validations inTransantiago. Our fleet passenger capacity accounted for 31% and 34% of the total passenger capacity and 21%and 23% of the scheduled route length in Transantiago in 2009 and the first nine months of 2010, respectively.Alsacia and Express had revenue of Ch$66,658 million and Ch$86,065 million and operating (loss) income ofCh$(184) million and Ch$4,429 million for the year ended December 31, 2009, respectively, and revenue ofCh$54,732 million and Ch$70,844 million and operating income (loss) of Ch$3,441 million and Ch$(450)million, respectively, for the nine months ended September 30, 2010.
The Transantiago Concessions
Transantiago is the public transportation system of the Santiago metropolitan area, consisting of thecity’s buses, the Metro subway, an integrated electronic payment system designed to allow passengers to pay busand subway fares with electronic stored value cards, as well as planning and construction functions fortransportation infrastructure. Transantiago was designed and implemented by the Chilean Government in 2003 ina complete overhaul of the then-existing public transportation system in Santiago, which was largely unregulatedand prone to accidents, inefficiency and excessive pollution. Transantiago was implemented in three phasesbetween October 2005 and February 2007 and rerouted the bus lines for more efficient service, consolidated
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approximately 3,500 independent bus operators into 14 concession holders, introduced an integrated electronicpayment system and replaced the majority of buses then in use with a modern standardized fleet. See“Transantiago.”
We hold concessions to operate two of the five trunk bus lines that, together with the Metro subway andthe feeder bus lines, make up Transantiago and provide transit service across Santiago’s 10 metropolitan zones.Under the Concession Agreements, the Ministry grants Alsacia and Express the right to use the roads of Santiagofor the provision of urban passenger transportation services along their assigned routes. Our Concessions wereinitially awarded in 2005 and will expire in October 2018 unless previously terminated. Each respectiveConcession Agreement can be renewed for 18 months if Alsacia or Express does not reach minimum revenuethresholds set forth in its respective Concession Agreement. See “The Concessions.”
In exchange for the provision of our services, Alsacia and Express receive payment from the AFT underthe terms of their Concessions. Substantially all of our revenue is derived from payments under the Concessions,which are based on the aggregate Passenger Validations recorded on our buses as adjusted by formulas set forthin the Concession Agreements. These formulas are driven by the following four main factors:
• Base Revenue: Base Revenue is a predetermined monthly amount that is adjusted for a seasonalitycurve, which is predetermined in the Concession Agreements. Base Revenue is also adjusted eachmonth for changes in the Cost Index described below. Base Revenue comprised 43% and 36% ofAlsacia’s and Express’s respective revenue in 2009.
• Variable Revenue: Variable Revenue is based on a number of factors, including our OperatingPlans, Passenger Validations and the Cost Index. Variable Revenue comprised 57% and 64% ofAlsacia’s and Express’s respective revenue in 2009.
• Service Fulfillment Ratio: Every two weeks, the Ministry determines our Service FulfillmentRatio, which measures our actual operating performance relative to our Operating Plans. TheService Fulfillment Ratio acts as a discount to Base Revenue and Variable Revenue because theService Fulfillment Ratio is multiplied by our Base Revenue and Variable Revenue for each monthto determine our actual revenue earned. By improving the timely and accurate delivery of our busservices, we can maximize our Service Fulfillment Ratio and increase our earned revenue. Since2008, Alsacia has consistently achieved high Service Fulfillment Ratios relative to the otheroperators in Transantiago while Express achieved Service Fullfillment Ratios that were near theaverage of other operators.
• Cost Index: Substantially all of our revenue is adjusted monthly based on a weighted averagespecified in the Concession Agreements of certain macroeconomic and cost factors. Because mostof our operating expenses are also correlated or directly tied to these factors, the Cost Indexsignificantly mitigates the effect of changes in these factors on our operating income or loss.
See “The Concessions—Concession Revenue” for a more complete description of our Concessionrevenue.
Transantiago Payment Sources
Through the revenue and payment formulas set forth in our Concession Agreements, the Ministryregulates the supply and quality of our bus services in coordination with the services provided by other busconcession holders and the Metro. Passengers currently pay a Ch$520 bus fare throughout Transantiago, whichincludes up to two free bus transfers, plus an additional fee of either Ch$20 or Ch$80 to transfer to the Metro
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subway, depending on the time of the day. Payment methods and fares are standardized across the system with anelectronic fare system. The electronic system consists of a prepaid smart card, called the “Bip!” card (a brandname derived from the sound made when a stored value card is passed through an electronic card reader installedat entry points on our buses and at bus stops), with an embedded microchip, which can be purchased fromvending machines, vendors and kiosks throughout Santiago. Transantiago passenger fares are regulated andperiodically set by a panel of experts (Panel de Expertos) appointed by the Ministry.
Although the Ministry is our counterparty under the Concession Agreements, the Ministry itself doesnot pay or guarantee our Concession revenue. Instead, all revenue generated in Transantiago from passengerfares payments is deposited into accounts managed by the AFT, which is responsible for the Bip! card systemand the management of all associated funds on behalf of all Transantiago service providers. The AFT is separatefrom the Ministry and is a private corporation, owned by various Chilean domestic banks and other corporateentities, including Banco del Estado de Chile (the state bank of Chile), Banco de Chile, Banco de Crédito eInversiones, Banco Santander Chile, Promotora CMR Falabella S.A. and Sonda S.A. The AFT was established tocollect and hold all revenue generated by Transantiago in trust for the benefit of the various Transantiago serviceproviders and concessionaires, including Alsacia and Express. This revenue is then distributed, in order ofcontractual priority, first to the Metro, then to the bus concession holders and then to Transantiago’s ancillaryservice providers, including the AFT, in accordance with the terms of their respective concession agreements.
Since 2007, a significant portion of Transantiago’s revenue, and consequently our revenue, has beensubsidized by the Chilean Government through supplemental payments to the AFT, which, in turn, are paid to usand the other bus concessionaires. These supplemental payments are made twice per month, on the sameschedule as our payments under the Concession Agreements, and address shortfalls created by passenger revenuelevels that are lower than anticipated in the initial concession bidding process. The Chilean Governmentsubsidies help maintain the long-term financial stability of Transantiago and help ensure the commercial viabilityof its service providers and operators, including Alsacia and Express. These subsidies thus reflect the criticalnature of Transantiago to everyday life in the Santiago metropolitan area, and the Chilean Government’sdedication to its continuance. Subsidy payments made by the Chilean Government to Transantiago totaledCh$151,960 million from June through December of 2007, Ch$361,092 million in 2008, Ch$359,172 million in2009 and Ch$255,339 million for the nine months ended September 30, 2010, which comprised 42%, 50%, 49%and 45% of the total costs to support Transantiago during those respective periods.
Routes and Operations
We operate 72 bus routes under our Concessions that are defined in our Operating Plans. Routes arecreated and designed according to expected demand for our services in the different areas of Santiago. Each routeschedule specifies the bus type and frequency at specified intervals each day. The average route length (one way)is 20 kilometers for Alsacia and 23 kilometers for Express. For Alsacia, we estimate the financial profitability ofeach route by measuring key operating statistics for each route such as route length, the ratio of in-service toout-of-service kilometers traveled, passenger fare evasion, average speed, fuel consumption, driver timerequirements, and route specific costs. We routinely monitor these operating metrics and adjust our schedulingand other operations to improve them. Our planning and scheduling systems utilize global positioning systemsand scheduling software to maximize the performance of our buses and drivers.
We also regularly consult with the Ministry in order to make changes to our Operating Plans that maybenefit our performance as well as service to our passengers. Our operational performance is measured every twoweeks by the Ministry through the Service Fulfillment Ratio.
We collectively had 1,861 buses as of September 30, 2010, most of which were based on two standardconfigurations incorporating an 18 meter articulated design and a 12 meter low-floor design. We maintain ourbuses regularly to increase their efficiency, safety and life span. See “Business—Property and Equipment.”
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Our drivers receive training that averaged 46 hours for Alsacia drivers and 7.5 hours for Express driversin the first nine months of 2010. The drivers have an average tenure of approximately 3 years with us. Alsacia’sdriver training programs cover topics such as driver skills improvement and job stress management. In additionto providing skills training, Alsacia has developed a career development and coaching plan to support ourdrivers’ long-term advancement and professional development.
Our Business Strategy
Our goal is to be the best operator in Transantiago while operating under the most efficient coststructure, which we believe will allow us to generate the most income under our Concession Agreements and infuture concessions for bus and other services in Chile. We believe that each of the strategies described below canhelp us to achieve our goal.
Improve Timeliness, Frequency and Quality of Our Bus Services
We seek to increase the timeliness, frequency and quality of our bus services which we believe willincrease our overall revenue in three ways. First, if we improve our bus operations relative to our OperatingPlans, then our Service Fulfillment Ratio will increase. Because substantially all of our revenue is affected by ourService Fulfillment Ratio, each percentage point increase in our Service Fulfillment Ratio will result in anapproximate 1% increase in our revenue. Second, improved service frequency and timeliness also increases ourICF and ICR, which minimizes various discounts applied to our revenue under the Concession Agreements.Third, we believe that by maintaining high Service Fulfillment Ratios, ICF and ICR, we can increase the level ofgoodwill we hold with the Ministry and the Chilean Government. We believe that increased goodwill willincrease our ability to obtain new routes, route extensions and modifications that may increase our revenue.
Among the ways that we believe we can improve our operational efficiency is by (i) applying Alsacia’soperating procedures to Express to try to improve Express’s Service Fulfillment Ratio, which we believe hasbeen declining in recent months due to turnover in certain employees and the recent addition of portions of trunkline 3 to Express’s prior routes, and (ii) leveraging key strategic relationships with our outsource partners,Citymovil and BIG Services SpA, whom we believe will provide us with superior service in the areas ofplanning, service fulfillment, quality control and operational information management outsourcing. We alsobelieve our existing strategic relationships with key transportation service and product suppliers such as Brazil’sPetrobras for fuel supply; Instituto de Gestión del Transporte (IGT) for driver training outsourcing; Sweden’sVolvo for buses and spare parts; and Germany’s ZF Friedrichshafen AG for bus transmission systems will helpus to lower our future costs. These outsourced relationships and vendors allow us to focus on our core operationsto improve our performance.
Maximize Synergies from Joint Operating Arrangements with Express
We expect in the near term to achieve a number of cost synergies by jointly coordinating the operationsof Alsacia and Express, including the following:
• Increasing route and terminal densities will allow us to minimize the number of unpaid kilometersdriven by our buses and drivers. These unpaid kilometers primarily include distances drivenbetween the bus terminal and the start of a bus route, along with distances driven to switch busroutes in the middle of a work shift. Reduction of unpaid kilometers will reduce our fuel, labor andbus depreciation and maintenance costs without a corresponding decrease in revenue. We believethat Express in particular will benefit from the use of Alsacia’s Huechuraba and Peñalolenterminals, which are located in the northern and eastern portion of Santiago, respectively, wheremany of Express’s routes are located. See “Business—Property and Equipment—Bus Terminals”for an illustration of our current terminal locations in relation to our bus routes.
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• Increasing the number of drivers and bus terminals will allow us to minimize the distance we travelto shuttle drivers to and from work, resulting in cost savings. We also expect to be able to schedulemore efficient breaks for our drivers by combining the our existing rest stops and eliminatingredundant rest stops. Because some of the rest stops of Alsacia are the closest rest stops to certainroutes of Express, and vice versa, we believe we can achieve improvements in productivity byminimizing the time to travel from a bus route to the nearest rest stop.
• Eliminating redundant general and administrative labor costs between Alsacia and Express,including duplicative finance, accounting, legal, executive management and board functions,resulting in significant cost savings. Along with the reduction in headcount, there will be areduction of the overhead costs for associated office space, computer equipment and othernon-compensatory costs relating to any reduced headcount, allowing us to realize significantsavings from elimination of redundant labor functions.
• Leveraging the size of our combined fleet to increase our purchasing power for buses, tires, spareparts and maintenance supplies and services.
Seek Approval of the Ministry To Allow Joint Management of the Operations of Alsacia and Express,Maximize Revenue and Identify Service Improvements
The current Concession Agreements contain certain restrictions on our ability to share bus routes, busdrivers, or buses between Alsacia and Express. If we are able to remove these contractual restraints, we believewe will be able to realize significant synergies in addition to those described above by cross operating the routesof Alsacia and Express.
The Chilean Government has also announced a number of initiatives that we believe will increasedemand for Transantiago bus services. For example, the Chilean Government plans to implement an urban tollsystem to tax private use of city roads and more stringent regulation of automobile and traffic regulations, whichwe believe will increase the cost of private automobile transport and, as a result, increase bus ridership. Inaddition, the Chilean Government began a campaign to reduce fare evasion, which is currently estimated by theMinistry to occur on approximately 18% of passenger trips, by placing more fare inspectors on buses,implementing new payment zones where passengers pay fares before boarding buses, increasing fines andcreating a master list of people who fraudulently use subsidized fare cards. We also believe that the ChileanGovernment will implement further fare increases.
Build on Our Experience as an Operator To Obtain New Concessions
We intend to leverage our experience in bus operations and concessions to obtain new concessionswithin Transantiago. We believe that there will be significant opportunities to expand our role withinTransantiago in the near term because the feeder line bus concessions are scheduled to end in October 2011. Weexpect the Ministry will solicit new bids to operate the feeder concessions when they expire. Although thesolicitation process has not been established yet, there is no requirement for the Ministry to maintain an openbidding process available to all interested parties. Instead, the Ministry can enter into private negotiations with asingle potential service provider. In the past, the Ministry has reassigned certain bus routes and concessions toother existing concession holders in Transantiago without conducting an open bidding process. We believe ouroperating history in Transantiago will give us an advantage in winning a feeder line concession when and if theyare renewed.
Our experience in Transantiago also gives us valuable expertise in operating and managing publictransportation concessions. We plan to apply this expertise to help us win transportation concessions in other
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major metropolitan areas in the world. We also believe that other concession bidders throughout the world willseek our expertise and prior concession credentials by partnering with us and giving us minority interests in theconcessions with minimal equity investments by us.
Increase Overall Operating Efficiencies and Cost Reductions
We intend to continue initiatives designed to decrease our operating and overhead costs in addition toany synergies we may realize from the joint management of the operations of Alsacia and Express. Our cost-cutting initiatives include improving route designs for added efficiency, investing in better scheduling softwareand equipment, enhancing our information and GPS systems to improve operations, improving bus reliability andavailability, and improving our driver hiring and training programs and other safety initiatives across ouroperations. In addition, we believe the Acquisition will allow us to take advantage of a unified managementstructure to apply operational and managerial best practices across Alsacia and Express. We believe thatknowledge sharing and cross training on best practices will help reduce the operational costs of Alsacia andExpress in addition to the synergies described above.
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THE OFFERING
For a more complete description of the terms of the Notes, see “Description of Notes and FinanceAgreements.”
Initial Temporary Issuer . . . . . . . . . . . . . BRT Escrow Corporation SpA (the “Initial Temporary Issuer”), aspecial purpose company formed in 2011 under the laws of theRepublic of Chile. The Initial Temporary Issuer is owned by twospecial purpose companies formed in 2011 under the laws of theBritish Virgin Islands, which special purpose companies are in turnowned by a trust formed in 2011 under the laws of the British VirginIslands, independent of Alsacia, the Guarantors, the PrincipalShareholders and their affiliates.
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Alsacia S.A. (“Alsacia” or the “Issuer”)
Guarantors . . . . . . . . . . . . . . . . . . . . . . . . Various affiliates of the Issuer, consisting of (i) Express de SantiagoUno S.A. (“Express” and together with Alsacia, the“Concessionaires”), (ii) Eco Uno S.A. (“Eco Uno”) and (iii)Panamerican Investments Ltd. (“Panamerican” and together withExpress and Eco Uno, the “Guarantors”). For a description of therelationship of the Guarantors to the Issuer, see “Business—OurHistory” and Use of Proceeds—The Acquisition.”
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$464,000,000 aggregate principal amount of 8.00% SeniorSecured Notes due 2018 (the “Notes”).
Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . The Initial Temporary Issuer has been established to facilitate theissuance of the Notes by Alsacia. The Notes will be initially issued bythe Initial Temporary Issuer due to restrictions on the part of Alsaciaand Express to incur indebtedness pending the repayment of theindebtedness described in Appendix B and Appendix C of thisOffering Memorandum (the “Existing Indebtedness”) and the releaseof the liens securing the Existing Indebtedness.
In order to address these restrictions, The Bank of New York Mellon,not in its individual capacity, but as escrow agent (the “EscrowAgent”), will hold the proceeds of the issuance of the Notes (the“Note Proceeds”), in escrow in New York (the “Escrow”) pursuant toan escrow agreement or agreements, dated as of the date of thisOffering Memorandum (the “Escrow Agreement”), among the InitialTemporary Issuer, Alsacia, Banco Internacional (“BI”) and theEscrow Agent.
The Initial Temporary Issuer will issue the Notes (the date of suchissuance, the “Note Closing Date”) pursuant to an indenture (assupplemented from time to time, the “Indenture”) by and between theInitial Temporary Issuer and The Bank of New York Mellon, not inits individual capacity, but solely as trustee (the “Trustee”), principalpaying agent, transfer agent and registrar.
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In addition, and as a condition to the closing of the Notes on the NoteClosing Date, the Escrow Agent will receive and hold in EscrowU.S.$12.0 million of net proceeds (the “Loan Proceeds”) from theBus Terminal Loan to the Initial Temporary Issuer from BI and anadditional amount payable by Alsacia in cash of approximatelyU.S.$2.0 million such that the funds in Escrow are in an amountsufficient to (i) redeem in cash the Notes at a redemption price equalto 100.00% of the aggregate issuance price of the Notes, (ii) payinterest on the Notes at the stated rate from and including the NoteClosing Date and to and excluding March 3, 2011 and the relatedAdditional Amounts, (iii) repay the Bus Terminal Loan in full, and(iv) pay interest on the Bus Terminal Loan at the stated rate from andincluding the date it is disbursed into the Escrow and to and excludingMarch 3, 2011 (collectively with the Note Proceeds and the LoanProceeds, the “Escrowed Amounts”).
Upon receipt by the Escrow Agent of the Escrowed Amounts andapproval of the form of all closing documents, irrevocable noticeswill be delivered to the lenders of the Existing Indebtednessindicating the Concessionaires’ intention to repay all of the ExistingIndebtedness owed to such lenders, and related hedging terminationpayments on or before February 28, 2011. On the date scheduled forsuch repayment (the “Escrow Closing Date”), the following will bedeemed to occur simultaneously, as certified by Alsacia and theGuarantors pursuant to an Officers’ Certificate delivered to theEscrow Agent and the Trustee:
(a) Alsacia will acquire 100% of the common stock of the InitialTemporary Issuer, which will result in the automatic dissolution ofthe Initial Temporary Issuer and the assumption by Alsacia of theInitial Temporary Issuer’s obligations under the Notes, the Indenture,the Bus Terminal Loan and the Escrow by operation of Chilean law;
(b) affiliates of Alsacia will consummate the pending acquisition ofExpress and Eco Uno as described under “Use of Proceeds—TheAcquisition” without any provision of the related AcquisitionAgreement having been amended or waived in any manner that wouldbe material and adverse to the Noteholders;
(c) Alsacia and Express will repay the Existing Indebtedness in full;
(d) all liens securing the Existing Indebtedness will be released andterminated and the liens securing the Notes and the Notes HedgeAgreement as part of the Collateral will become effective, subject toperfection as contemplated by “Description of Notes and FinanceAgreements—Affirmative Covenants of the Issuer and theGuarantors—Perfection of Security Interests under Chilean SecurityDocuments”;
(e) Alsacia will expressly assume the Initial Temporary Issuer’sobligations and position under the Notes and the Indenture, and
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Express, Eco Uno and Panamerican will become guarantorsthereunder pursuant to a supplemental indenture (the “SupplementalIndenture”);
(f) Alsacia and the Guarantors will enter into a collateral trustagreement in connection with the Collateral (the “Collateral TrustAgreement”) by and among themselves, Banco Santander Chile, ascollateral trustee with respect to collateral located in or governed bythe laws of Chile (the “Chilean Collateral Agent”) and The Bank ofNew York Mellon, not in its individual capacity, but solely ascollateral trustee for all other collateral (the “U.S. Collateral Agent”and, together with the Chilean Collateral Agent and the Trustee, the“Secured Party Agents”);
(g) Express and Eco Uno will accede to the purchase agreementrelating to the Notes;
(h) Express and Eco Uno will certify to the Escrow Agent that each ofthem has not, between the Note Closing Date and the Escrow ClosingDate, except in connection with the consummation of theTransactions and the Acquisition as described in the OfferingMemorandum: (i) incurred any Debt, (ii) created or, to the best oftheir knowledge, suffered to exist any Liens (except Permitted Liens)on any of its assets or property, (iii) sold, assigned, leased, transferredor otherwise disposed of any interest in its assets or property, (iv)created or acquired any Subsidiaries or made any Investment, (v)consolidated or merged with or into any other Person or sold, leasedor otherwise transferred, directly or indirectly, all or any part of itsassets or property to any other Person, (vi) made any RestrictedPayments, (vii) entered into any Sale and Lease-Back Transaction,(viii) entered into an Affiliate Transaction, (ix) granted any powers ofattorney in connection with its assets or property, (x) incurred orcommitted any CAPEX, except in each case in the ordinary course ofbusiness, on an arm’s-length basis (except Affiliate Transactions thatwould otherwise be permitted by the Indenture), and that could not bereasonably expected to result in a material adverse change in, or amaterial adverse effect on, the financial position, results of operationsor business of Express and Eco Uno, considered as a whole;
(i) Alsacia and Panamerican will certify to the Escrow Agent thateach of them has not, between the Note Closing Date and the EscrowClosing Date, except in connection with the consummation of theTransactions and the Acquisition as described in the OfferingMemorandum: (i) incurred any Debt, (ii) created or, to the best oftheir knowledge, suffered to exist any Liens (except Permitted Liens)on any of its assets or property, (iii) sold, assigned, leased, transferredor otherwise disposed of any interest in its assets or property (exceptthe contribution of the Excluded Depot to Lorena SpA), (iv) createdor acquired any Subsidiaries or made any Investment (except thecontribution of the Excluded Depot to Lorena SpA), (v) consolidatedor merged with or into any other Person or sold, leased or otherwise
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transferred, directly or indirectly, all or any part of its assets orproperty to any other Person, (vi) made any Restricted Payments, (vii)entered into any Sale and Lease-Back Transaction (except thecontribution to Lorena SpA of the Excluded Depot and lease thereofto Alsacia), (viii) entered into an Affiliate Transaction, (ix) grantedany powers of attorney in connection with its assets or property, (x)incurred or committed any CAPEX, except in each case in theordinary course of business, on an arm’s-length basis (except AffiliateTransactions that would otherwise be permitted by the Indenture), andthat could not be reasonably expected to result in a material adversechange in, or a material adverse effect on, the financial position,results of operations or business of Alsacia and Panamerican,considered as a whole; in addition, Alsacia and Panamerican willcertify that (i) they have been in compliance in all material respectsduring the period from the Note Closing Date to the Escrow ClosingDate with all of the provisions of the Indenture, and (ii) that there hasbeen no event or occurrence that as of such date would constitute anEvent of Default or would, with the passage of time or otherwise,constitute an Event of Default had the Indenture been in effect andapplicable to them from and after the Note Closing Date, but subjectto all cure periods provided for in the Indenture, except in each casefor (A) any noncompliance resulting from implementation of any ofthe transactions contemplated in “Use of Proceeds” in the OfferingMemorandum relating to the Acquisition or other matters describedtherein and (B) those reasonably relating to establishment of accountsand related payment priorities, payment provisions and pledges ofcollateral and similar provisions contemplated by the Indenture whichby necessity are to become operative only from and after the EscrowClosing Date;
(j) the Escrow Agent will receive customary opinions from counselsand certificates from officers of Alsacia and the Guarantors;
(k) Alsacia will enter into the Notes Hedge Agreement with the NotesHedge Counterparty;
(l) Lorena SpA will grant a first priority security interest (or theclosest equivalent thereof under applicable Chilean law) on theHuechuraba terminal (the “Excluded Depot”) and Alsacia will grant afirst priority security interest (or the closest equivalent thereof underapplicable Chilean law) on Lorena SpA’s capital stock to secureAlsacia’s obligations under the Bus Terminal Loan (see “Use ofProceeds—Secured Subordinated Bus Terminal Loan”), subject toperfection thereof; and
(m) the Escrow Agent, will distribute the Escrowed Amounts as setforth in “Use of Proceeds” (the foregoing clauses (a) through (m)being referred to as the “Closing Conditions”).
In the event the Closing Conditions cannot be met, the Escrow maybe terminated prior to February 28, 2011 by giving notice to the
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Noteholders, at which time the Escrowed Amounts shall be paid tothe Noteholders three business days thereafter (the “EscrowRedemption Date”). If no notice is given and the Closing Conditionsshall have not been satisfied on or prior to February 28, 2011, theEscrow Redemption Date shall be March 3, 2011. If the EscrowRedemption Date occurs, then the Escrowed Amounts shall be paid tothe Noteholders on a pro rata basis based on the principal amount ofNotes held by such Noteholders (the “Escrow Redemption”) in anamount equal to the initial purchase price therefor together withinterest at the stated rate therefore from and including the date ofinitial issuance and through and excluding the date of any suchredemption, and the Notes shall be deemed to have been repaid in fulland no longer be outstanding or having any effect or liability attachedthereto. In addition, the Bus Terminal Loan will become due andpayable immediately and will be repaid with funds in the Escrow. Inthe event that the other Closing Conditions shall not have beensatisfied on or prior to February 28, 2011, Alsacia and an affiliate ofAlsacia will acquire 100% of the common stock of the InitialTemporary Issuer no later than March 3, 2011.
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . All payments and obligations under the Notes due by the Issuer willbe fully and unconditionally guaranteed on a senior secured basis byeach Guarantor pursuant to a guarantee agreement included in theIndenture (each, a “Guarantee”), as described in “Description ofNotes and Finance Agreements—Note Guarantees”.
Under each Guarantee, each Guarantor, jointly and severally, will paydirectly and unconditionally all amounts due under the Notes, withoutthe need of any presentment, demand of payment, protest or notice tothe Issuer. Each Guarantor will agree to subordinate any right ofsubrogation or similar right under Chilean law arising from anypayments made by such Guarantor to the Trustee under theGuarantee.
Notes Hedge Agreement . . . . . . . . . . . . . The Issuer will enter into the Notes Hedge Agreement with the NotesHedge Counterparty (as defined below) to hedge against changes inthe value of the Chilean peso against the U.S. dollar, as describedunder “Exchange Rate Hedge.”
Expected Final Maturity Date . . . . . . . . . Unless redeemed or amortized prior thereto, the final payment on theNotes is expected to be made on August 18, 2018.
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Principal Amortization . . . . . . . . . . . . . . Principal payments under the Notes (the “Scheduled PrincipalAmounts”) will be made semi-annually on February 18 andAugust 18 of each year (each such date, a “Payment Date”),beginning February 18, 2012, in accordance with the followingschedule (except as provided for under “—Early AmortizationPeriod” below):
Payment DateScheduled Principal
Amount (U.S.$)
August 18, 2011 . . . . . . . . . . . . . . . . . . . . . . —February 18, 2012 . . . . . . . . . . . . . . . . . . . . . 16,000,000August 18, 2012 . . . . . . . . . . . . . . . . . . . . . . 13,900,000February 18, 2013 . . . . . . . . . . . . . . . . . . . . . 29,300,000August 18, 2013 . . . . . . . . . . . . . . . . . . . . . . 21,900,000February 18, 2014 . . . . . . . . . . . . . . . . . . . . . 35,600,000August 18, 2014 . . . . . . . . . . . . . . . . . . . . . . 25,700,000February 18, 2015 . . . . . . . . . . . . . . . . . . . . . 36,100,000August 18, 2015 . . . . . . . . . . . . . . . . . . . . . . 28,000,000February 18, 2016 . . . . . . . . . . . . . . . . . . . . . 39,500,000August 18, 2016 . . . . . . . . . . . . . . . . . . . . . . 29,600,000February 18, 2017 . . . . . . . . . . . . . . . . . . . . . 47,300,000August 18, 2017 . . . . . . . . . . . . . . . . . . . . . . 38,800,000February 18, 2018 . . . . . . . . . . . . . . . . . . . . . 55,400,000August 18, 2018 . . . . . . . . . . . . . . . . . . . . . . 46,900,000
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on the Notes will accrue from the date of issuance at the rateof 8.00% per annum. Interest will be payable in U.S. dollars semi-annually in arrears in cash on each Payment Date beginningAugust 18, 2011. Interest will be calculated on the basis of a 360-dayyear consisting of twelve 30-day months.
Use of Proceeds . . . . . . . . . . . . . . . . . . . . On the Escrow Closing Date, the Issuer will apply the proceeds as setforth under “Use of Proceeds”.
Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . The Notes will be senior obligations of the Issuer, secured by theCollateral. Each Guarantee will be the senior obligations of eachGuarantor, secured by the Collateral.
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . The Notes, the Guarantees and the Notes Hedge Agreement will besecured, equally and ratably, by a first priority perfected securityinterest (or the closest equivalent thereof under applicable Chileanlaw) held by the Chilean Collateral Agent (with respect to collaterallocated in or governed by the laws of Chile) and the U.S. CollateralAgent (with respect to all other collateral) in the rights and interestsof the Issuer and the Guarantors in the following categories ofexisting and after-acquired personal property and assets (all of theforegoing being referred to as the “Collateral”) in each case subject toPermitted Liens:
(a) all the outstanding shares of Express pursuant to one or moreshare pledge agreements (the “Express Share PledgeAgreements”);
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(b) the Concessions and all the Concessionaires’ rights under theConcession Agreements (as defined below) pursuant to one ormore concession pledge agreements (the “Concession PledgeAgreements”) and under the other Operating Agreementspursuant to one or more additional pledge agreements (the“Other Pledge Agreements”);
(c) all buses owned by the Concessionaires (excluding any busesacquired out of the proceeds of any Subordinated Indebtedness(as defined below) and, if so elected by the Issuer and theGuarantors, any buses acquired out of the proceeds of a VendorFinancing (as defined below), in each case incurred after thedate hereof in accordance with the Indenture), pursuant to one ormore asset pledge agreements (the “Asset Pledge Agreements”);
(d) the intercompany notes payable to Alsacia from Panamericanand Express entered into on the Escrow Closing Date pursuant toone or more pledge agreements (the “Intercompany Debt PledgeAgreements”);
(e) all owned bus terminals, owned depot stations (except theExcluded Depot) and other owned real estate assets used by theConcessionaires in connection with the Concessions, includingany buildings, offices and fixtures therein, pursuant to one ormore first priority real property mortgages (the “Mortgages”);
(f) the NY Accounts (as defined below) and the money depositedtherein (and investments thereof) from time to time pursuant toone or more account pledge agreements or as set forth in theIndenture (the “NY Account Pledge Agreements”);
(g) the Chilean Accounts (other than the Transaction CheckingAccounts) and the money deposited therein (and investmentsthereof) from time to time pursuant to one or more moneypledges (the “Chilean Money Pledges”); the Chilean Accounts(other than the Transaction Checking Accounts) will be in thename of the Chilean Collateral Agent; the Transaction CheckingAccounts will be in the name of each Concessionaire;
(h) one or more irrevocable powers of attorney granted by theConcessionaires to the Chilean Collateral Agent, exercisableonly by the Chilean Collateral Agent as instructed by theControlling Party if an Event of Default shall have occurred andis continuing beyond applicable grace periods, for the purpose ofenforcing the Concessionaires’ rights under the OperatingAgreements (as defined below) (the “Powers of Attorney”);
(i) insurance proceeds (only to the extent not deposited in theAccounts, in which case such insurance proceeds will be part ofthe Collateral pursuant to the NY Account Pledge Agreements
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and Chilean Money Pledges) pursuant to one or moreappointments of the U.S. Collateral Agent or the ChileanCollateral Agent, as applicable, as additional insured andbeneficiary (beneficiario) under the insurance policies of (andfor the benefit of) the Concessionaires (and by Panamerican andEco Uno in the event that either of them carries any insurance)(the “Insurance Appointments”, and together with the NYAccount Pledge Agreements, the Chilean Money Pledges, theConcession Pledge Agreements, the Intercompany Debt PledgeAgreements, the Other Pledge Agreements and the Asset PledgeAgreements, the “Pledge Agreements”) (excluding, for theavoidance of doubt, the Excluded Depot and any collateralsecuring Vendor Financings that are not secured by theCollateral); and
(j) all proceeds, products, rents, profits, income, benefits,substitutions and replacements of any and all of the foregoingincluding, without limitation, cash (excluding any release fromthe Collateral in accordance with the Transaction Documents,such as purchases of assets that are not in the categories listed in(a) through (i) above with funds from the Accounts and transfersof funds from the Accounts (other than the TransactionChecking Accounts) to the Transaction Checking Accounts)
Although the Notes and the Notes Hedge Agreement will not beguaranteed by the Issuer’s shareholders, the Notes and the NotesHedge Agreement will be secured by a first priority perfected securityinterest (or the closest equivalent thereof under Chilean law) grantedby the Issuer’s shareholders in all the outstanding shares of the Issuerpursuant to one or more share pledge agreements (together with theExpress Share Pledge Agreements, the “Share Pledge Agreements”).
The Collateral will secure the Noteholders and the Notes HedgeCounterparty equally and ratably on a pari passu basis.
The Issuer and the Guarantors may incur either secured or unsecuredSenior Indebtedness in compliance with the Indenture. If such SeniorIndebtedness is secured, the collateral thereof will secure the Notesand the Notes Hedge Agreement, and such Senior Indebtedness willbe secured by the Collateral, equally and ratably on a pari passu basisin accordance with the Collateral Trust Agreement; provided that ifsuch Senior Indebtedness is a Vendor Financing, the collateralsecuring such Vendor Financing may not secure the Notes and theNotes Hedge Agreement at the election of the Issuer and theGuarantors, in which case the Collateral will not secure such VendorFinancing.
All Liens securing the Notes, the Notes Hedge Agreement and allfuture secured Senior Indebtedness permitted under the Indenture willbe held by the Secured Party Agents and administered pursuant to theCollateral Trust Agreement. See “—Collateral Trust Agreement”.
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For purposes of the foregoing:
“Additional Agreements” means all agreements or contracts (asamended from time to time) entered into by, or the benefits ofwhich run to, the Concessionaires in connection with theConcession Agreements, the AFT Agreement, the CollectionMandate Agreements and the Technology Services Agreements(including, without limitation, each service contract, publicitycontract, supply contract, lease or other agreement contemplatedor permitted by the Operating Agreements), the gross value(measured by either liabilities or receivables at the time suchagreements or contracts are entered into, amended orsupplemented in any manner) of which (either individually or inthe aggregate with any other contracts comprising the sametransaction or series of related transactions) equals or exceedsU.S.$3.0 million per annum.
“AFT Agreement” means the Financial AdministrationComplementary Services Agreement, dated July 28, 2005,between the Administrador Financiero Transantiago S.A.(including any successor entity, the “AFT”) and the Ministerio deTransporte y Telecomunicaciones (the “Ministry ofTransportation”), as amended from time to time.
“Collection Mandate Agreements” means, collectively, theCollection Mandate Agreement, dated October 19, 2005, betweenAlsacia and the AFT, as amended from time to time, and theCollection Mandate Agreement, dated October 19, 2005, betweenExpress and the AFT, as amended from time to time.
“Concession Agreements” means, collectively, the ConcessionAgreement, dated January 28, 2005, between Alsacia and theMinistry of Transportation, as amended from time to time, andthe Concession Agreement, dated January 28, 2005, betweenExpress and the Ministry of Transportation, as amended fromtime to time, and any other similar concession agreementsbetween the Ministry of Transportation or any otherGovernmental Authority (as defined below) and eitherConcessionaire in respect of the operation of public bus servicesin the Transantiago System entered into from time to time inaccordance with the Indenture, in all cases as certified to by theIssuer and the Guarantors.
“Finance Agreements” means, collectively, the Notes, theIndenture, the Supplemental Indenture, the Escrow Agreement,the Notes Hedge Agreement, the Guarantees and the SecurityDocuments.
“Material Adverse Change” means (a) a material adverse changein, or a material adverse effect on, the financial position, resultsof operations or business of the Issuer and the Guarantors, taken
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as a whole, (b) a material adverse change in, or a materialadverse effect on, the ability of the Issuer or any Guarantor toperform their (i) respective non-payment obligations under anyFinance Agreement having due regard to the interest of theNoteholders and (ii) payment obligations under any FinanceAgreement, taking the Issuer and the Guarantors as a whole, (c) amaterial adverse change in, or a material adverse effect on, therights of the Trustee or the Noteholders under any FinanceAgreement, or (d) either (i) any Transaction Document shall nolonger be valid, effective or enforceable, or (ii) the obligation ofthe AFT and/or any Governmental Authority to make paymentsin respect of any subsidies or otherwise as contemplated on thedate hereof in connection with the Concession Agreements, theAFT Agreement, the Collection Mandate Agreements and/or theTechnology Services Agreement shall be changed or affected,provided that either (i) or (ii) results in any of the events in(a) through (c) above.
“Operating Agreements” means, collectively, the ConcessionAgreements, the AFT Agreement, the Collection MandateAgreements, the Technology Services Agreements and all theAdditional Agreements.
“Security Documents” means, collectively, the PledgeAgreements, the Powers of Attorney, the Share PledgeAgreements, the Collateral Trust Agreement and the Mortgages.
“Senior Indebtedness” means all unsubordinated Debt of theIssuer or any Guarantor, including among others, any VendorFinancing.
“Subordinated Indebtedness” means all Debt of the Issuer or anyGuarantor that is subordinate or junior in right of payment to theNotes and any other Senior Indebtedness pursuant to a writtenagreement, provided that such written agreement shall set forththat all cash payments under such Debt shall be made incompliance with the Indenture and will comply (when enteredinto, amended, restated or novated) with any requirements to beconsidered subordinated indebtedness on the terms set forthherein under its governing law.
“Technology Services Agreements” means, collectively, theTechnology Services Agreement, dated March 22, 2006, betweenAlsacia and the AFT, as amended from time to time, and theTechnology Services Agreement, dated March 22, 2006, betweenExpress and the AFT, as amended from time to time.
“Transaction Documents” means, collectively, the FinanceAgreements, the Operating Agreements, any termination andrelease agreements relating to the repayment of the ExistingIndebtedness and the agreement relating to the indirectacquisition of the 55% of the common shares of Express.
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“Vendor Financing” means, collectively, any direct or indirectadvance, loan or other extension of credit from a company toeither Concessionaire which is used by such Concessionaire topurchase, or enter into capital leases in respect of, buses for thebus transportation and related operating systems subject to theConcession Agreements (the “Bus Network”) from suchcompany or an affiliate or related party thereof.
Collateral Trust Agreement . . . . . . . . . . . On the Escrow Closing Date, the Issuer and the Guarantors will enterinto the Collateral Trust Agreement with the Secured Party Agents.The Collateral Trust Agreement will set forth the terms on which theSecured Party Agents will receive, hold, administer, maintain, enforceand distribute the proceeds of all Liens upon the Collateral at anytime held by it, in trust for the benefit of the Noteholders, the NotesHedge Counterparty and, if applicable, the present and future holdersof any other secured Senior Indebtedness. See “—Collateral TrustAgreement”.
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . The Concessionaires will establish and maintain the followingaccounts in the name of the U.S. Collateral Agent and, in the case ofthe Chilean Accounts, in the name of the Chilean Collateral Agent,for the benefit of the Noteholders and the Notes Hedge Counterparty,and, if applicable, the holders of any other secured SeniorIndebtedness:
• a revenue account (the “Revenue Account”) for bothConcessionaires;
• an operations and maintenance account for each Concessionaire(the “O&M Accounts”); and
• an overhaul account for each Concessionaire (the “OverhaulAccounts”).
In addition, the Concessionaires will establish and maintain thefollowing accounts in the name of the U.S. Collateral Agent and, inthe case of the Chilean Accounts, in the name of the ChileanCollateral Agent, for the exclusive benefit of the Noteholders and theNotes Hedge Counterparty but not any holder of any other SeniorIndebtedness:
• a payment account (the “Payment Account”);
• a reserve account (the “Reserve Account”);
• an open market purchases account (the “Open Market PurchasesAccount”); and;
• the Coverage Reserve Account (as defined below).
For purposes of the foregoing:
“Accounts” means collectively the Chilean Accounts, the NYAccounts, the Additional Payment Accounts, the Open MarketPurchases Account and the Additional Reserve Accounts (each asdefined below).
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“Chilean Accounts” means collectively the Revenue Account, theO&M Accounts, the Overhaul Accounts, the Transfer Accountsand the Transaction Checking Accounts.
“NY Accounts” means collectively the Payment Account, theReserve Account, the Open Market Purchases Account and theCoverage Reserve Account.
Panamerican and Eco Uno will establish and maintain an operationsand transfer account for each of themselves (the “Transfer Accounts”)in the name of the Chilean Collateral Agent for the benefit of theNoteholders and the Notes Hedge Counterparty, and, if applicable, theholders of any other secured Senior Indebtedness permitted pursuantto the Indenture. Transfers of funds from the Transfer Accounts willbe limited to transfers to the Revenue Account but no other Personshall be permitted to have any interest therein.
Each Concessionaire will establish and maintain two transactionchecking accounts in its name in respect of its O&M Account (the“O&M Transaction Checking Accounts”) and its Overhaul Account(the “Overhaul Transaction Checking Accounts” and, together withthe O&M Transaction Checking Accounts, the “Transaction CheckingAccounts”).
Funds on deposit in the Accounts may be invested in Permitted U.S.Investments and Permitted Chilean Investments, as applicable, providedthat all funds received in respect of such Investments upon sale orrepayment of such Investments shall be available to be transferred toother Accounts on each Transfer Date or otherwise disbursed as requiredby the Indenture and the other Transaction Documents.
The balance of the Accounts remaining after the Notes and all otheramounts owing in respect of the Indenture, the other TransactionDocuments and, if applicable, any other Senior Indebtedness havebeen paid in full will be released to the Concessionaires.
Distribution of Funds to and from theAccounts:
Revenue Account . . . . . . . . . . . . . . . . . . By irrevocable instructions to the AFT on or before the EscrowClosing Date, the Concessionaires will cause to be deposited directlyinto the Revenue Account all amounts which they are entitled toreceive under, in connection with or pursuant to the OperatingAgreements or ancillary agreements related thereto and, in any event,shall immediately deposit in the Revenue Account any funds that theyshall receive from the AFT in respect of the Concessions. TheConcessionaires shall also cause to be deposited directly into theRevenue Account the funds described in “Description of Notes andFinance Agreements—Treatment of Funds—Deposits of Funds to andDistribution of Funds from the Revenue Account” subject to theexceptions set forth therein. The Revenue Account will be maintainedin Chile by the Concessionaires with the Chilean Collateral Agent.
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Bi-monthly Distributions . . . . . . . . . . . . On the day immediately following the Escrow Closing Date and,thereafter, on the 15th and last day of each month during any periodthat the Notes shall be outstanding (or if any such day is not aBusiness Day, on the following Business Day) (each such date, a“Transfer Date”, and the period from but excluding such TransferDate until and including the next Transfer Date, a “Transfer Period”),the Concessionaires will cause funds in the Revenue Account to bedisbursed in the following order of priority:
• first, into the O&M Accounts, until the balance in such accountsequals the aggregate amount of (i) fees, expenses and any otheramounts due and payable to the Secured Party Agents during thefollowing Transfer Period, plus (ii) O&M Costs then due andpayable or reasonably expected to be due and payable during thefollowing two Transfer Periods, plus (iii) Repair Payments thendue and payable or reasonably expected to be due and payableduring the following two Transfer Periods in an aggregate amountnot to exceed U.S.$3.0 million of Unsettled Claims at any timeoutstanding as set forth under “—Repair Payments” below;provided that no Repair Payments may be made from the O&MAccounts during any Early Amortization Period or Cash TrappingPeriod if, after giving effect thereto, the aggregate amount ofUnsettled Claims outstanding would exceed U.S.$1.5 million as setforth under “—Repair Payments” below;
• second, into the Overhaul Accounts, until the balance in suchaccounts equals the Overhaul Costs (as defined below);
• third, to the Agents and the Rating Agencies (as defined below),the amount of fees and expenses due and payable to each of themduring the following Transfer Period;
• fourth, to the Notes Hedge Counterparty and any other HedgeCounterparty, the aggregate amount of the Hedge Payments inrespect of the Notes and any other Senior Indebtedness,respectively, due and payable to the Notes Hedge Counterparty andsuch Hedge Counterparty during the following Transfer Period;
• fifth, pro rata to (i) the L/C Bank, the aggregate amount of any feesdue and payable to the L/C Bank under the Letter of Credit duringthe following Transfer Period, and (ii) to BI, the aggregate amountof interest and fees due and payable to BI under the Bus TerminalLoan during the following Transfer Period; and
• sixth, into the Transfer Accounts and from the Transfer Accountsinto the Revenue Account as determined by the Concessionaires tobe necessary; provided that, any balance in the Transfer Accountswill be transferred pursuant to “first” to “seventeenth” under“Description of Notes and Finance Agreements—Treatment ofFunds—Deposits of Funds to and Distribution of Funds from theRevenue Account” on each Payment Transfer Date.
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Semi-annual and SpecialDistributions . . . . . . . . . . . . . . . . . . . . On the Transfer Date prior to any (i) Payment Date during any period
that the Notes shall be outstanding (each such date, a “PaymentTransfer Date”, and the period from but excluding such PaymentTransfer Date until and including the next Payment Transfer Date, a“Payment Period”), and (ii) (A) payment date of Repair Payments tobe made pursuant to clause (ii) of “—Semi-annual and SpecialDistributions—eleventh”, (B) payment date of CAPEX Costs incurredor committed pursuant to “Negative Covenants of the Issuer and theGuarantors—CAPEX Costs” and to be made pursuant to clause (ii) of“—Semi-annual and Special Distributions—eleventh” and (C)payment date of any Permitted Investment made pursuant to clause(ii) of “—Semi-annual and Special Distributions—fifteenth” (eachsuch date in clauses (ii)(A) through (ii)(C), a “Special TransferDate”), the Concessionaires will cause funds in the Revenue Accountto be disbursed, after disbursement pursuant to “—first” through“—sixth” above, in the following order of priority:
• seventh, pro rata into (i) the Payment Account, until the balance insuch account equals the amount of (A) the Scheduled PrincipalAmount (or the Early Amortization Principal Amount during anEarly Amortization Period), accrued interest and any other paymentdue under the Notes in the order of priority set forth in theIndenture on the next Payment Date to the Noteholders, plus (B)any Contingent Hedge Payment and Accelerated Hedge Paymentsdue and payable to the Notes Hedge Counterparty during thecurrent Payment Period; and (ii) any other payment account oraccounts pledged for the benefit of the creditors under any otherSenior Indebtedness (the “Additional Payment Accounts”), untilthe balance in such accounts equals the amount of (A) thepayments due under such other Senior Indebtedness on thepayment dates thereof during the current Payment Period, plus (B)any Contingent Hedge Payment due and payable to any HedgeCounterparty in respect of such other Senior Indebtedness duringthe current Payment Period;
• eighth, to any Hedge Counterparty, the aggregate amount of theHedge Payments in the form of put options for the purpose ofoffsetting declines in revenue pursuant to the revenue formulaunder the Concession Agreements that the Concessionairesreasonably expect may exceed the Concessionaires’ reductions inactual fuel expenses due and payable to such Hedge Counterpartyduring the following Transfer Period, in an aggregate amount not toexceed U.S.$2.0 million in any fiscal year;
• ninth, pro rata into (i) the Reserve Account, until the balance insuch account equals the Debt Service Reserve Amount (as definedbelow); and (ii) any other reserve account or accounts pledged forthe benefit of the creditors under any other Senior Indebtedness(the “Additional Reserve Accounts”), until the balance in suchaccounts equals the amount of debt service reserve provided forthereunder;
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• tenth, pro rata to (i) BI, the aggregate amount of principal due andpayable to BI under the Bus Terminal Loan on such Payment Date,and (ii) the L/C Bank, the aggregate amount of interest andprincipal due and payable to the L/C Bank under the Letter ofCredit during the current Payment Period;
• eleventh, as instructed by each Concessionaire, in each case on theconditions set forth under “—Repair Payments” below:
(i) on any Payment Transfer Date, to make Repair Paymentsexceeding the amount permitted pursuant to “—Bi-monthlyDistributions—first” that are then payable or reasonably expectedto be payable during the following Payment Period; and
(ii) on any Special Transfer Date, (A) in the event that the amountdeposited in the Reserve Account and any Additional ReserveAccount pursuant to “—Semi-annual and Special Distributions—ninth” and in the Payment Account and any Additional PaymentAccounts pursuant to “—Semi-annual and Special Distributions—seventh” equals the aggregate amount of payments due from suchaccounts on the next Payment Date, to make Repair Paymentsexceeding the amount permitted pursuant to “—Bi-monthlyDistributions—first” that are payable on such Special TransferDate or reasonably expected to be payable during the followingTransfer Period; and (B) in the event that the amount deposited inthe Reserve Account and any Additional Reserve Accountpursuant to “—Semi-annual and Special Distributions—ninth”equals the aggregate amount of payments due from such accountson the next Payment Date and the amount deposited in thePayment Account and any Additional Payment Accounts pursuantto “—Semi-annual and Special Distributions—seventh” equals theaggregate amount of payments due on the next Payment Date fromsuch accounts, calculated in proportion to the number of dayselapsed in the then-current Payment Period through such SpecialTransfer Date, to make Repair Payments in an aggregate amountnot exceeding U.S.$1.5 million of Unsettled Claims at any timeoutstanding in addition to the Repair Payments made pursuant to“—Bi-monthly Distributions—first”; for the avoidance of doubt,the Concessionaires may make Repair Payments at this level ofpriority as described in the foregoing clause (B) even if thePayment Account and any Additional Payment Accounts, whichare at a higher level of priority, are not fully funded butproportionally funded as described in the “Description of Notesand Finance Agreements”; and
• twelfth, as instructed by each Concessionaire, in each case on theconditions set forth under “—CAPEX Costs” below:
(i) on any Payment Transfer Date, the portion of CAPEX Costsreasonably expected to be due and payable during the followingPayment Period; and
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(ii) on any Special Transfer Date, in the event that the amountdeposited in the Reserve Account and any Additional ReserveAccount pursuant to “—Semi-annual and Special Distributions—ninth” equals the aggregate amount of payments due from suchaccounts on the next Payment Date and the amount deposited inthe Payment Account and any Additional Payment Accountspursuant to “—Semi-annual and Special Distributions—seventh”equals the aggregate amount of payments due on the next PaymentDate from such accounts, calculated in proportion to the number ofdays elapsed in the then-current Payment Period through suchSpecial Transfer Date, to pay the CAPEX Costs due and payableon such Special Transfer Date or during the following TransferPeriod; for the avoidance of doubt, the Concessionaires may payCAPEX Costs at this level of priority as described in the foregoingclause (ii) even if the Payment Account and any AdditionalPayment Accounts, which are at a higher level of priority, are notfully funded but proportionally funded as described in the“Description of Notes and Finance Agreements”
• thirteenth, to the Notes Hedge Counterparty and any other HedgeCounterparty, the aggregate amount of any Excluded ContingentHedge Payments due and payable to the Notes Hedge Counterpartyand such Hedge Counterparty during the current Payment Period;
• fourteenth, pro rata to the holders of any SubordinatedIndebtedness, the aggregate amount due and payable under theSubordinated Indebtedness during the current Payment Periodprovided that any cash payment under such SubordinatedIndebtedness shall be made in compliance with “Description ofNotes and Finance Agreements—Limitations on RestrictedPayments” (all payments due by the Concessionaires under anySubordinated Indebtedness will be subordinated to payments underthe Notes and any other Senior Indebtedness, and, except forintercompany payments between the Issuer and the Guarantorswithin the Revenue Account or pursuant to “Description of Notesand Finance Agreements—Treatment of Funds—Deposits of Fundsto and Distribution of Funds from the Revenue Account-sixth”,will be made only from the Revenue Account according to theforegoing order of priority; no event, request, demand, direction,notice, consent, waiver or other action under any SubordinatedIndebtedness will have any effect or consequence under the Notesor any other Senior Indebtedness);
• fifteenth, as instructed by each Concessionaire:
(i) on any Payment Transfer Date, to use funds to make PermittedInvestments (other than clause (d) of the definition of “PermittedInvestments”, which will be made from the O&M Accounts); and
(ii) on any Special Transfer Date, in the event that the amountdeposited in the Reserve Account and any Additional ReserveAccount pursuant to “—Semi-annual and Special Distributions—
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ninth” and in the Payment Account and any Additional PaymentAccounts pursuant to “—Semi-annual and Special Distributions—seventh” equals the aggregate amount of payments due from suchaccounts on the next Payment Date, to use funds to makePermitted Investments pursuant to clause (j) of the definitionthereof on such Special Transfer Date;
• sixteenth, as instructed by each Concessionaire, into the OpenMarket Purchases Account to effect redemptions of the Notesunder the Indenture (excluding, for the avoidance of doubt,redemptions effected with Permitted Refinancing Indebtedness orpursuant to a defeasance or satisfaction and discharge inaccordance with the Indenture), Open Market Purchases or toconsummate any tender offers for the Notes in accordance with theIndenture during the following Payment Period; and
• seventeenth, subject to “Description of Notes and FinanceAgreements—Limitations on Restricted Payments”, to makepayments in respect of Restricted Payments, in accordance with theConcessionaires’ written instructions, and to make all otherpayments required to be made not payable at a higher level ofpriority set forth hereunder, or deposited into reserves, by theConcessionaires in accordance with the Indenture and the otherTransaction Documents.
Notwithstanding the foregoing, transfers on any Special Transfer Datewill be limited to “—Semi-annual and Special Distributions—first”through “—fifteenth” on the terms set forth therein.
If an Event of Default has occurred and is continuing, theConcessionaires will continue to disburse funds from the Accounts asspecified in the Indenture except to the extent otherwise instructed bythe Trustee acting at the direction of the Controlling Party ascontemplated by the Indenture; provided that such instructions willnot limit or restrict the rights of the Secured Party Agents to receivepayments under the Indenture. During any Early Amortization Periodor Cash Trapping Period, the Concessionaires will disburse fundsfrom the Accounts as specified in “—Early Amortization” and“—Cash Trapping Upon any Event of Default”, respectively, ascontemplated by the Indenture except to the extent otherwiseinstructed by the Trustee acting at the direction of the ControllingParty. The Trustee may instruct the Concessionaires to make suchdisbursements at any time, but only (a) to pay amounts owing inrespect of the Notes and under the Indenture, or (b) in accordancewith the payment priorities set forth in the Indenture.
For purposes of the foregoing:
“Accelerated Hedge Payments” means the present value of thepremiums payable over the remaining life of the Notes HedgeAgreement, net of the present value of any premium paymentspayable to Alsacia, if any, as calculated by the Notes HedgeCounterparty in accordance therewith.
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“Business Day” means any day other than a Saturday, Sundayor other day on which banking institutions in New York City,New York, or Santiago, Chile, are permitted or required byapplicable law to remain closed.
“CAPEX Costs” means the aggregate amount of capitalexpenditures of the Concessionaires for fixed or capital assetsfor the Bus Network or a Permitted Business which, inaccordance with Chilean GAAP, would be classified as capitalexpenditures, to be incurred by the Concessionaires in goodfaith, on an arm’s-length basis and in the ordinary course ofbusiness, but excluding any such expenditures that are RepairPayments or Overhaul Costs.
“Controlling Party” means, as of any date of determination, theNoteholders and the Notes Hedge Counterparty that, in theaggregate, hold more than 50% of the Voting Balances;provided that, with respect to certain waivers and amendments,the consent of each affected Noteholder and affected NotesHedge Counterparty will also be required. Notes held by theIssuer, the Guarantors or any of their respective affiliates areexcluded from this definition.
“GPS International” means GPS International of Panamá(Chile) S.A.
“Hedge Counterparty” means the counterparty to any contract,agreement or arrangement giving rise to Hedging Obligations ineach case in the ordinary course of business for the purpose offixing, hedging or swapping interest rate, foreign currencyexchange rate or fuel cost risk, and not for speculative purposes,and which counterparty is entitled to receive the HedgePayments under such contract, agreement or arrangement.
“Hedge Counterparty Default” means the occurrence of adefault or an event of default (as defined in the relevantcontract, agreement or arrangement giving rise to HedgingObligations) with respect to the relevant Hedge Counterparty,where the relevant Hedge Counterparty is the defaulting party(as defined in such contract, agreement or arrangement) or suchdefault or event of default has been caused by an action oromission of such Hedge Counterparty.
“Hedge Interest Amounts” means, with respect to the Notes andany other Senior Indebtedness, the amounts (if any) specified tobe paid by the Concessionaires to the Hedge Counterparty inaccordance with the Indenture or the agreement related to suchother Senior Indebtedness which are calculated by reference toa rate of interest. For the avoidance of doubt, the term HedgeInterest Amounts does not include any amounts of ContingentHedge Payments.
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“Hedge Payments” means payments (other than ContingentHedge Payments) due by or to Concessionaires under HedgingObligations, in each case in the ordinary course of business forthe purpose of fixing, hedging or swapping interest rate, foreigncurrency exchange rate or fuel cost risk (or to reverse or amendany such agreements previously made for such purposes), andnot for speculative purposes, and that do not increase the Debtof the obligor outstanding at any time other than as a result offluctuations in interest rates, foreign currency exchange rates orfuel cost, or by reason of fees, indemnities and compensationpayable thereunder. For the avoidance of doubt, the term HedgePayments in respect of the Notes and any other SeniorIndebtedness includes Hedge Interest Amounts.
“Hedging Obligations” means, with respect to any specifiedPerson, the obligations of such Person under (i) any interest rateprotection agreement, interest rate future agreement, interestrate option agreement, interest rate swap agreement, interestrate cap agreement, interest rate collar agreement or othersimilar agreement or arrangement; (ii) any commodity forwardcontract, commodity swap agreement, commodity optionagreement or other similar agreement or arrangement; or(iii) any foreign exchange contract, option, currency swapagreement or other similar agreement or arrangement.
“Notes Hedge Agreement” means each Chilean peso-U.S.dollar currency hedge in respect of the Notes.
“Notes Hedge Counterparty” means each Hedge Counterparty,including its successors and assigns, that will enter into a NotesHedge Agreement with the Issuer.
“Notes Hedge Value” means, with respect to any Notes HedgeAgreement on any date of determination, (a) prior to thetermination of such Notes Hedge Agreement, an amount (whichwill be zero if negative) that would be payable by the Companyunder such Notes Hedge Agreement if (i) such Notes HedgeAgreement were being terminated early on such date ofdetermination due to a termination event or event of default, (ii)the Company were the sole affected party or defaulting partyand (iii) the applicable Notes Hedge Counterparty were the soleparty determining such payment amount, and (b) from and afterthe termination of such Notes Hedge Agreement, an amountequal to the Contingent Hedge Payments as of such date ofdetermination (other than any amounts paid prior to such date).In determining the amount of any “Notes Hedge Value”, theTrustee and each Collateral Trustee may conclusively rely uponreasonably detailed good faith calculations supplied by therelevant Notes Hedge Counterparty pursuant to and inaccordance with the Indenture as to the amount of such NotesHedge Value in respect of the Notes Hedge Agreement to which
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such Notes Hedge Counterparty is a party; provided that if therelevant Notes Hedge Counterparty shall have failed to deliversuch good faith calculations within 2 Business Days followingreceipt by the Notes Hedge Counterparty of the Trustee’srequest therefor in accordance with the terms of the Indenture,then such Notes Hedge Values shall be deemed to be zero.
“O&M Costs” means cash operations and maintenance costs,including payments required to be made under the OperatingAgreements (including CAPEX Costs for an aggregate amountnot to exceed U.S.$4.0 million in 2011 and U.S.$3.0 million inany later fiscal year), payments for insurance, employeesalaries, contractors and suppliers, wages and otheremployment-related costs, taxes, administrative expenses, legaland accounting fees, settlement of legal proceedings inconnection with the operation of the Bus Network or anyPermitted Business, professional and consulting services(provided that no more than U.S.$150,000 of such amount inany fiscal year may be paid to an affiliate of theConcessionaires, with any excess thereof being payable from“Description of Notes and Finance Agreements—Treatment ofFunds—Deposits of Funds to and Distribution of Funds fromthe Revenue Account—Semi-annual and SpecialDistributions—seventeenth”) (excluding professional andconsulting services directly related to the Acquisition or theTransactions), consumables, fuel, spare parts, lease’sobligations and other similar costs, in each case incurred andpaid by the Concessionaires in good faith, on an arm’s-lengthbasis and in the ordinary course of business; in addition, O&MCosts will include taxes and administrative expenses ofPanamerican and Eco Uno for an aggregate amount not toexceed U.S.$150,000 in any fiscal year.
“Overhaul Costs” means the aggregate amount required andnecessary for the major maintenance on the gear box, engine ortransmission overhaul of the buses comprising the Bus Networkduring the following six months on a rolling basis to be incurredby the Concessionaires in good faith, on an arm’s-length basisand in the ordinary course of business.
“Permitted Business” means (a) any business conducted orproposed to be conducted (as described in this OfferingMemorandum) by the Concessionaires on the Note ClosingDate, or (b) other businesses (i) reasonably related or ancillarythereto or (ii) which require a concession for rendering publicservices and as permitted by the Concession Agreements(including by waiver or amendment), in each of (i) and (ii) solong as at the time any such Permitted Business is proposed tobe commenced or acquired by either Concessionaire, the assets
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or liabilities associated therewith shall not, on a pro formabasis, exceed 35% of the consolidated assets or liabilities,respectively, of the Concessionaires considered together(except, for the avoidance of doubt, any UnrestrictedSubsidiary).
“Permitted Disposition” means: (a) any Disposition of CapitalStock of the Issuer or any Guarantor pursuant to a publicoffering of securities registered on a recognized stockexchange; or (b) any other Disposition of Capital Stock of theIssuer or any Guarantor that, after giving effect to any suchDisposition, the following conditions as to the transferee andthe Disposition will be satisfied: (i) no Default or Event ofDefault would result from such Disposition; (ii) no violation ofapplicable law or any Transaction Document would result fromsuch Disposition; (iii) the Issuer or any Guarantor would notforfeit any of its material rights under any Operating Documentas a result of such Disposition; and (iv) if such Disposition is ofany Capital Stock pledged pursuant to a Security Document, theproposed transferee will have executed and delivered a pledgeand security agreement in substantially similar form as theStock Pledge Agreements together with an Officers’ Certificatein form and substance reasonably acceptable to the Trustee.
“Permitted Liens” has meaning as defined in “—NegativeCovenants of the Issuer and the Guarantors” under “Descriptionof Notes and Finance Agreements”.
“Repair Payments” means the aggregate amount of fundsrequired to repair property damage to the Bus Network, or toacquire Replacement Assets in respect thereof, or any otherproperty necessary to maintain the operation of the BusNetwork or pay any other claim against the Concessionaires orliability arising in respect thereof, in each case that theConcessionaires reasonably believe to be covered by aninsurance policy in effect.
“Voting Balances” means the sum of (a) the outstandingprincipal amount of the Notes (excluding any Notes held by theCompany, the Guarantors or any of their respective Affiliates)and (b) the sum of Notes Hedge Values. In determining theamount of “Voting Balances”, the Trustee and each CollateralTrustee may conclusively rely upon reasonably detailed goodfaith calculations supplied by the relevant Notes HedgeCounterparty pursuant to and in accordance with the Indentureas to the amount of such Notes Hedge Value in respect of theNotes Hedge Agreement to which such Notes HedgeCounterparty is a party; provided that if the relevant NotesHedge Counterparty shall have failed to deliver such good faith
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calculations within 2 Business Days following receipt by theNotes Hedge Counterparty of the Trustee’s request therefor inaccordance with the terms of the Indenture, then such NotesHedge Values shall be deemed to be zero.
O&M Accounts . . . . . . . . . . . . . . . . . . . . The Concessionaires will deposit or cause to be deposited into theO&M Accounts all amounts required to be transferred thereto fromthe Revenue Account. The O&M Accounts will be maintained inChile by the Concessionaires with the Chilean Collateral Agent. TheConcessionaires will cause funds in each O&M Account to bedisbursed at any time to pay in the following order of priority:
• first, as instructed by each Concessionaire, the aggregate amount offees and expenses due and payable to the Secured Party Agentsduring the current Transfer Period;
• second, as instructed by each Concessionaire, the aggregate amountof O&M Costs due and payable during the current Transfer Period;
• third, as instructed by each Concessionaire, the aggregate amountof Repair Payments payable from the O&M Accounts due andpayable during the current Transfer Period;
• fourth, between the O&M Accounts as determined by theConcessionaires to be necessary; and
• fifth, into the Revenue Account, to the extent any remaining fundsin the O&M Accounts exceed the O&M Costs required to bedeposited therein.
The Concessionaires will not make or direct the Secured Party Agentsto make, and the Secured Party Agents will not make, any withdrawalfrom either O&M Account to the extent that the aggregate amount ofall requested withdrawals from such O&M Account to pay O&MCosts (other than fuel costs to be incurred by the Concessionaires inthe ordinary course of business) in any semi-annual budgetary periodexceeds 115% of the amount budgeted for O&M Costs (other thanfuel costs to be incurred by the Concessionaires in the ordinary courseof business) for such semi-annual budgetary period as set forth in thethen-current semi-annual expense budget applicable to such O&MAccount (the “Expense Budget”) completed by the Concessionairesand submitted to the Secured Party Agents and each Rating Agencyunless such Concessionaire has delivered to the Secured Party Agentsan Officer’s Certificate executed by its respective chief financialofficer and chief executive officer setting forth, in reasonable detail,the purpose and nature of such exceptional O&M Costs (other thanfuel costs to be incurred by the Concessionaires in the ordinary courseof business) and certifying that such exceptional O&M Costs arereasonable and necessary and are required to maintain the safe andeconomic operation of the Bus Network, to satisfy a legal obligationor to avoid a breach of or default under the Operating Agreementsand that such exceptional O&M Costs have been or will be incurredin good faith and on an arm’s-length basis.
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The Concessionaires will not make or direct the Secured Party Agentsto make, and the Secured Party Agents will not make, any withdrawalfrom either O&M Account in respect of Repair Payments payablefrom the O&M Accounts unless such withdrawal is in compliancewith “—Repair Payments” below.
In any case, the Concessionaires will also deliver to the Secured PartyAgents, within ten days after the end of each fiscal quarter, anOfficers’ Certificate certifying all O&M Costs and Repair Paymentspayable from the O&M Accounts incurred and paid during theapplicable fiscal quarter and attaching an account statement.
Unless otherwise instructed by the Controlling Party in a “notice ofacceleration”, the Concessionaires may cause funds in each O&MAccount to be transferred to and from the respective O&MTransaction Checking Account at any time to pay O&M Costs;provided that, the aggregate amount deposited in the O&MTransaction Checking Accounts may not exceed at any time the lesserof (i) U.S.$12.0 million (considered together with the aggregateamount deposited in the Overhaul Transaction Checking Accounts)and (ii) the sum of O&M Costs which will be paid in the followingseven calendar days from the O&M Transaction Checking Accounts,plus any outstanding checks issued from such account that has not yetbeen paid plus U.S.$3.0 million. The Controlling Party may, togetherwith the delivery of a “notice of acceleration” to the Concessionairesand the Trustee in accordance with the Indenture, request the Trusteeto instruct the Chilean Collateral Agent to transfer all amountsdeposited in the O&M Transaction Checking Accounts to the O&MAccounts, at which time the Concessionaires will not make furthertransfers to the O&M Transaction Checking Accounts unless such“notice of acceleration” is rescinded in accordance with the Indenture.The O&M Transaction Checking Accounts will be deemedsub-accounts of the O&M Accounts and subject to the sameaggregate limits, reporting and certification obligations.
Overhaul Accounts . . . . . . . . . . . . . . . . . The Overhaul Accounts will be funded on the Escrow Closing Datewith part of the proceeds from the issuance of the Notes. On theEscrow Closing Date, the Concessionaires will deposit or cause to bedeposited an amount equal to Ch$3,316 million into the OverhaulAccounts, which amount represents the initial Overhaul Costs. Therequired balance of each Overhaul Account will be adjusted on eachTransfer Date thereafter so that such amount at such time will equalthe Overhaul Costs reasonably expected to be expended over the nextsix months following such Transfer Date on a rolling basis. TheOverhaul Accounts will be maintained in Chile by theConcessionaires with the Chilean Collateral Agent. TheConcessionaires will cause funds in each Overhaul Account to bedisbursed at any time to pay in the following order of priority:
• first, as instructed by each Concessionaire, the portion of OverhaulCosts due and payable during the current Transfer Period;
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• second, between the Overhaul Accounts as determined by theConcessionaires to be necessary; and
• third, into the Revenue Account, to the extent any remaining fundsin the Overhaul Accounts exceed the Overhaul Costs required to bedeposited therein.
The Concessionaires will not make or direct the Secured Party Agentsto make, and the Secured Party Agents will not make, any withdrawalfrom either Overhaul Account to the extent that the aggregate amountof all requested withdrawals from such Overhaul Account to payOverhaul Costs in any semi-annual budgetary period exceeds 115%of the then-current semi-annual overhaul budget applicable to eachConcessionaire (the “Overhaul Budget”) completed by theConcessionaires and submitted to the Secured Party Agents and eachRating Agency unless such Concessionaire has delivered to theSecured Party Agents an Officer’s Certificate executed by itsrespective chief financial officer and chief executive officer settingforth, in reasonable detail, the purpose and nature of such exceptionalOverhaul Costs and certifying that such Overhaul Costs arereasonable and necessary and are required to maintain the safe andeconomic operation of the Bus Network or to avoid a breach of ordefault under the Operating Agreements and that such Overhaul Costshave been or will be incurred in good faith and on an arm’s-lengthbasis.
In any case, the Concessionaires will also deliver to the Secured PartyAgents, within ten days after the end of each fiscal quarter, anOfficers’ Certificate certifying all Overhaul Costs incurred and paidduring the applicable fiscal quarter and attaching an accountstatement.
Unless otherwise instructed by the Controlling Party in a “notice ofacceleration”, the Concessionaires may cause funds in each OverhaulAccount to be transferred to and from the respective OverhaulTransaction Checking Account at any time to pay Overhaul Costs;provided that, the aggregate amount deposited in the OverhaulTransaction Checking Accounts may not exceed at any time the lesserof (i) U.S.$12.0 million (considered together with the aggregateamount deposited in the O&M Transaction Checking Accounts) and(ii) the sum of Overhaul Costs which will be paid in the followingseven calendar days from the Overhaul Transaction CheckingAccounts, plus any outstanding checks issued from such account thathas not yet been paid plus U.S.$3.0 million. The Controlling Partymay, together with the delivery of a “notice of acceleration” to theConcessionaires and the Trustee in accordance with the Indenture,request the Trustee to instruct the Chilean Collateral Agent to transferall amounts deposited in the Overhaul Transaction CheckingAccounts to the Overhaul Accounts, at which time theConcessionaires will not make further transfers to the Overhaul
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Transaction Checking Accounts unless such “notice of acceleration”is rescinded in accordance with the Indenture. The OverhaulTransaction Checking Accounts will be deemed sub-accounts of theOverhaul Accounts and subject to the same aggregate limits,reporting and certification obligations.
Payment Account . . . . . . . . . . . . . . . . . . The Concessionaires will deposit or cause to be deposited into thePayment Account all amounts required to be transferred thereto fromthe Revenue Account and payments due by the Notes HedgeCounterparty to the Concessionaires under the Notes HedgeAgreement. The Payment Account will be maintained in New Yorkby the Concessionaires with the U.S. Collateral Agent. TheConcessionaires will instruct the U.S. Collateral Agent to disbursefunds in the Payment Account on each Payment Date (or paymentdates under the Notes Hedge Agreement) in the following order ofpriority:
• first, pro rata to the Noteholders and each Notes HedgeCounterparty, respectively, the aggregate amount (i) of theScheduled Principal Amount (or the Early Amortization PrincipalAmount during an Early Amortization Period), accrued interest andany other payment due and payable under the Notes in the order ofpriority set forth in the Indenture on such Payment Date, and (ii) ofthe Contingent Hedge Payments and Accelerated Hedge Paymentsdue and payable under the Notes Hedge Agreements on theapplicable payment dates; and
• second, into the Revenue Account, to the extent any remainingfunds in the Payment Account exceed the amounts required to bedeposited therein.
Additional Payment Accounts . . . . . . . . . The Concessionaires will deposit or cause to be deposited into anyAdditional Payment Account all amounts required to be transferredthereto from the Revenue Account and payments due by any HedgeCounterparty to the Concessionaires under any foreign exchangecontract, currency swap agreement or other similar agreement orarrangement entered into in connection with any Senior Indebtedness(other than the Notes). The Payment Account will be maintained asprovided for under the applicable instruments. The Concessionaireswill instruct the collateral agent thereunder to disburse funds in theAdditional Payment Account on each applicable payment date in thefollowing order of priority:
• first, pro rata to any Hedge Counterparty and the creditors underany other Senior Indebtedness, the aggregate amount (i) of theContingent Hedge Payment due and payable with respect theretoon the applicable payment date, and (ii) due and payable undersuch other Senior Indebtedness on the applicable payment date; and
• second, into the Revenue Account, to the extent any remainingfunds in the Additional Payment Accounts exceed the amountsrequired to be deposited therein.
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Any such Additional Payment Accounts may not provide for morefavorable benefits or be on more favorable terms to the creditorsunder such other Senior Indebtedness than the Payment Account tothe Noteholders and the Hedge Counterparty, as determined by theboards of directors of the Concessionaires in good faith.
Reserve Account . . . . . . . . . . . . . . . . . . . The Reserve Account will be funded on the Escrow Closing Datewith either or a combination of (a) part of the proceeds from theissuance of the Notes, and/or (b) a Letter of Credit. On the EscrowClosing Date, the Concessionaires will deposit or cause to bedeposited into the Reserve Account an aggregate amount equal toU.S.$22.0 million. The required balance of the Reserve Account willbe adjusted on each Payment Transfer Date and each Special TransferDate thereafter so that such amount at such Payment Transfer Dateand Special Transfer Date, as applicable, will equal the sum of theamount (which amount will be set forth in a schedule to theIndenture) representing the interest, Scheduled Principal Amount andHedge Payments to be paid in respect of the Notes on theimmediately succeeding Payment Date or on the next succeedingPayment Date, whichever sum is the higher (such required amountbeing the “Debt Service Reserve Amount”). The Reserve Accountwill be maintained by the Concessionaires in New York with the U.S.Collateral Agent.
As an alternative to depositing and/or maintaining the Debt ServiceReserve Amount in cash, the Concessionaires may deliver to the U.S.Collateral Agent one or more direct-pay on-demand irrevocableletters of credit for the benefit of the Trustee, the Noteholders and theNotes Hedge Counterparty from a bank (the “L/C Bank”) with aninternational rating of at least “A” by S&P, “A” by Fitch or “A2” byMoody’s, or a Chilean domestic rating of at least “AA” or equivalentby any of such rating agencies (the “Letter of Credit”), in an amountequal to, when combined with any amounts on deposit in the ReserveAccount, the Debt Service Reserve Amount.
All payments due by the Concessionaires to the L/C Bank under theLetter of Credit (other than fees due to the L/C Bank under the Letterof Credit payable pursuant to “Description of Notes and FinanceAgreements—Treatment of Funds—Deposits of Funds to andDistribution of Funds from the Revenue Account—Bi-monthlyDistribution—fifth”) will be subordinated to payments under theNotes and any other Senior Indebtedness as permitted pursuant to theterms of the Indenture and will be made only from the RevenueAccount according to the order of priority set forth above.
On each Payment Date, so long as no Event of Default is continuing,the U.S. Collateral Agent will disburse funds in the Reserve Accountor draw on the Letter of Credit in the following order of priority:
• first, pro rata to the Trustee for the benefit of the Noteholders andto the Notes Hedge Counterparty, to the extent that the Payment
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Account would not be fully funded on such Payment Date (or theEarly Amortization Principal Amount during an EarlyAmortization Period to the extent available in the Reserve Accountand/or Letter of Credit); and
• second, to the Revenue Account, to the extent any remaining fundsin the Reserve Account exceed the Debt Service Reserve Amount(not including drawing on the Letter of Credit).
Additional Reserve Accounts . . . . . . . . . Any other Senior Indebtedness may provide for Additional ReserveAccounts, provided that such Additional Reserve Accounts may notprovide for more favorable benefits or be on more favorable terms tothe creditors under such other Senior Indebtedness than the ReserveAccount to the Noteholders and the Notes Hedge Counterparty, asdetermined by the boards of directors of the Concessionaires in goodfaith.
Open Market Purchases Account . . . . . . The Concessionaires will deposit or cause to be deposited into theOpen Market Purchases Account any amount that they determine attheir sole discretion, which amount may be zero. The Concessionairesmay direct any funds in the Open Market Purchases Account to betransferred to the Revenue Account at any time. The Open MarketPurchases Account will be maintained in New York by theConcessionaires with the U.S. Collateral Agent.
The Concessionaires will instruct the U.S. Collateral Agent todisburse funds in the Open Market Purchases Account on anyTransfer Date as follows:
• first, to effect any redemption of the Notes under the Indenture,Open Market Purchases of the Notes or to consummate any tenderoffer for the Notes in accordance with the Indenture; and
• second, into the Revenue Account, any balance at the end of theapplicable Payment Period.
For the avoidance of doubt, the Concessionaires may make OpenMarket Purchases with funds on deposit in the Open MarketPurchases Account during the applicable Payment Period even if atthe time of such purchases there would not have been funds availableto run through the waterfall at “Semi-annual and SpecialDistributions—sixteenth”.
Repair Payments . . . . . . . . . . . . . . . . . . . When the Concessionaires experience losses they reasonably believeto be covered by an insurance policy in effect (except fordeductibles), they may make Repair Payments subject to thefollowing:
• in the event that any Repair Payment is not reasonably expected toexceed U.S.$1.0 million, the Concessionaires may (i) transfer fundsfrom the Revenue Account to the O&M Accounts and disburse
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funds in the O&M Accounts, subject to the limitations on theamount of Unsettled Claims that may be funded at any timepursuant to “—Distribution of Funds to and from the Accounts—Bi-Monthly Distributions—first”, or (ii) disburse funds in theRevenue Account pursuant to, and subject to the limitations of“—Distribution of Funds to and from the Accounts—Semi-annualand Special Distributions—eleventh” above, as applicable, in eachcase to cover such Repair Payment irrespective of the time that theinsurance proceeds are received in the Revenue Account;
• in the event that any Repair Payment is reasonably expected toexceed U.S.$1.0 million but is not reasonably expected to exceedU.S.$25.0 million, subject to the delivery by the Concessionaires tothe Trustee and the Rating Agencies of an Officers’ Certificatesetting forth, in reasonable detail, the purpose and nature of suchRepair Payment and that it will be used in good faith and on anarm’s-length basis, the Concessionaires may (i) transfer funds fromthe Revenue Account to the O&M Accounts and disburse funds inthe O&M Accounts, subject to the limitations on the amount ofUnsettled Claims that may be funded at any time pursuant to“—Distribution of Funds to and from the Accounts—Bi-MonthlyDistributions–first”, or (ii) disburse funds in the Revenue Accountpursuant to, and subject to the limitations of “—Distribution ofFunds to and from the Accounts—Semi-annual and SpecialDistributions—eleventh” above, as applicable, in each case tocover such Repair Payment irrespective of the time that theinsurance proceeds are received in the Revenue Account;
• in the event that the Repair Payment is reasonably expected toexceed U.S.$25.0 million, the Repair Payment may not be madeprior to the receipt of insurance proceeds except pursuant to thenext bullet below; within 180 days after the receipt of any suchinsurance proceeds in the Revenue Account, the Concessionaireswill apply an amount equal to such proceeds at their option: (i) toinvest, or to enter into a binding agreement to invest within 30days, in Replacement Assets; (ii) to repay any other SeniorIndebtedness and, in the case of any such Senior Indebtednesswhich constitutes a revolving credit facility, to cause the relatedloan commitment (if any) to be permanently reduced in an amountequal to the principal amount so prepaid, repaid or purchased;(iii) to make an offer to purchase Notes at 100% of the principalamount thereof plus accrued interest; or (iv) a combination of(i) through (iii). Any such Repair Payment proceeds so deposited inthe Revenue Account will not be subject to the order of priority setforth under “—Distribution of Funds to and from the Accounts”above, but they will be segregated and applied in due time to thepurposes provided for from (i) through (iv) above subject to thedelivery by the Concessionaires to the Trustee and the RatingAgencies of an Officers’ Certificate setting forth, in reasonabledetail, the purpose and nature of such Repair Payment and that it
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will be used in good faith and on an arm’s-length basis; in addition,any purchase of Replacement Assets with such insurance proceedswill not be subject to the covenant restrictions applicable toCAPEX Costs; and
• irrespective of the amount of the Repair Payment and irrespectiveof any Event of Default, Early Amortization Event or CashTrapping Period, if such Repair Payment has been funded withcommon equity for cash issued by, cash capital contributions madeto or Subordinated Indebtedness incurred by the Concessionaires inanticipation of their receiving insurance proceeds, subject to thedelivery by the applicable Concessionaire to the Trustee and theRating Agencies of an Officers’ Certificate setting forth, inreasonable detail, the purpose and nature of such Repair Paymentand that it has been so funded into the Revenue Account and willbe used in good faith and on an arm’s-length basis, theConcessionaires may disburse funds in the Revenue Account tocover such Repair Payment. Any proceeds so deposited in theRevenue Account will not be subject to the order of priority setforth under “—Distribution of Funds to and from the Accounts”above. Upon receipt of the insurance proceeds corresponding tosuch Repair Payment in the Revenue Account, subject to thedelivery by the Concessionaires to the Trustee of an Officers’Certificate setting forth the purpose and nature of the withdrawal,the Concessionaires may use such funds in the Revenue Account torepay such Subordinated Indebtedness or return such commonequity or cash capital contributions to the extent of the insuranceproceeds received in the Revenue Account for that Repair Payment(which shall not be considered a Restricted Payment), with anyremaining balance payable in accordance with the Indenture andthe order of priority set forth therein; provided that no suchrepayment or return may be made, even after receipt of theinsurance proceeds corresponding to such Repair Payment in theRevenue Account, during the period that an Event of Default, EarlyAmortization Event or Cash Trapping Period is continuing.
In each case, the Concessionaires will deliver to the Trustee, withinten days after the end of each fiscal quarter, an Officers’ Certificatecertifying all such Repair Payments paid during the applicable fiscalquarter and attaching an account statement.
CAPEX Costs . . . . . . . . . . . . . . . . . . . . . The Issuer and the Guarantors will not incur, commit or pay anyCAPEX Costs during the first two Reporting Periods after the date ofthe Indenture, except to the extent permitted to be paid from theO&M Account or with proceeds from common equity issuances forcash, cash capital contributions or Subordinated Indebtedness inaccordance with the Indenture. After the first two Reporting Periods,the Concessionaires will not make or direct the Secured Party Agentsto make, and the Secured Party Agents will not make, any withdrawalfrom the Revenue Account to the extent that the aggregate amount ofall requested withdrawals from the Revenue Account to pay CAPEX
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Costs from the “Description of Notes and Finance Agreements—Treatment of Funds—Deposits of Funds to and Distribution of Fundsfrom the Revenue Account—Semi-annual and SpecialDistributions—eleventh” in any quarterly budgetary period exceeds100% of the amount budgeted for CAPEX Costs for such quarterlybudgetary period (excluding, for the avoidance of doubt, CAPEXCosts paid from the O&M Account in accordance with the Indenture)as set forth in the then-current quarterly CAPEX budget (the “CAPEXBudget”) completed by the Concessionaires and submitted to theSecured Party Agents and each Rating Agency; provided that suchCAPEX Costs will be subject, at the time they are incurred orcommitted, to (a) a backwards looking Debt Service Coverage Ratiorequirement of not less than 1.20:1.00 for each of the twoimmediately preceding Reporting Periods for which consolidatedfinancial statements have been submitted to the Secured Party Agents,(b) a forward looking Debt Service Coverage Ratio requirement of anaverage of 1.20:1.00 for the remaining Reporting Periods until thefinal maturity of the Notes, and (c) a forward looking Debt ServiceCoverage Ratio requirement of a minimum of 1.15:1.00 for each ofthe remaining Reporting Periods until the final maturity of the Notes.
Notwithstanding the foregoing, if the Concessionaires fund anyCAPEX Costs by the issuance of common equity for cash, cashcapital contributions or Subordinated Indebtedness, then such CAPEXCosts will not be subject to any ratios and such funds will not berequired to be deposited into the Revenue Account.
The Concessionaires will deliver to the Secured Party Agents, withinten days after the end of each fiscal quarter, an Officers’ Certificatecertifying all CAPEX Costs incurred and paid during the applicablefiscal quarter and attaching an account statement.
For purposes of the foregoing:
“Debt Service” means, for any period, the sum of all cashprincipal and cash interest payments (including cashwithholding tax payments in connection therewith) and anyfees, expenses, breakage costs, termination costs and otheramounts in respect of all Debt other than SubordinatedIndebtedness, in each case taking into account the actualamount payable or receivable under any Hedging Obligationsrelated thereto for purposes of the foregoing calculation.
“Debt Service Coverage Ratio” means, for any period, the resultobtained by dividing (a) the aggregate amount of fundsdeposited into the Revenue Account (excluding any fundstransferred from the other Accounts to the Revenue Account)minus the aggregate amount of funds transferred pursuant to“first” through “fifth” under “Description of Notes and FinanceAgreements—Treatment of Funds—Deposits of Funds to andDistribution of Funds from the Revenue Account” (other than
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Contingent Hedge Payments and cash withholding taxpayments made in connection with Debt Service), for suchperiod by (b) the total Debt Service for such period, in eachcase as reflected in certifications reasonably acceptable to theTrustee and, in the case of future Reporting Periods, estimatesof such deposits and Debt Service then scheduled to be due andpayable for such future periods, in the forms provided in theIndenture or in the most recent consolidated financialstatements of the Issuer presented in U.S. dollars and submittedto the Trustee pursuant to the provisions of the Indenture.Calculations shall exclude payments of expenses and fees inrespect of the Transactions or the Acquisition.
“Reporting Period” means the last six full months (consideredas one period) most recently ended to any date of determination.
Withholding Taxes . . . . . . . . . . . . . . . . . All payments under the Notes will be made free and clear of, andwithout withholding or deduction for or on account of, any present orfuture taxes, penalties, duties, fines, assessments or othergovernmental charges (or interest on any of the foregoing) ofwhatsoever nature imposed, levied, collected, withheld or assessedby, within or on behalf of any Relevant Taxing Jurisdiction, unlesssuch withholding or deduction is required by law or the interpretationor administration thereof. In such event, subject to certain exceptions,the Issuer or the Guarantors, as applicable, will pay to each holdersuch additional amounts as may be necessary to ensure that theamounts received by the holder of such Note after such withholdingor deduction, including withholding or deduction with respect to suchadditional amounts, equal the amounts of principal and interest andpremium, if any, and additional amounts, if any, that would have beenreceivable in respect of such Note in the absence of such withholdingor deduction. See “Description of Notes and Finance Agreements—Additional Amounts.”
Change of Control . . . . . . . . . . . . . . . . . . If the Issuer or any Guarantor experiences a Change of Control (asdefined in “Description of Notes and Finance Agreements—Changeof Control”), then the Issuer and the Guarantors must offer to redeemthe Notes at 101% of the principal amount of the Notes, plus anyaccrued and unpaid interest to the date of purchase, subject to certainconditions.
Redemption Solely for Tax Reasons . . . . The Issuer and the Guarantors may, at their options, redeem the Notesat 100% of their principal amount, plus accrued and unpaid interest, ifany, to the date of redemption and any Additional Amounts then dueand payable, in the event specified changes in tax law impose certainadditional withholding taxes on amounts payable on such Notes suchthat the total rate of withholding applicable on such Notes is in excessof 4%, being the rate in effect on the date hereof, and, as a result, theIssuer or any Guarantor is required to pay Additional Amounts withrespect to such withholding taxes. See “Description of Notes andFinance Agreements—Redemption Solely for Tax Reasons.”
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Optional Redemption . . . . . . . . . . . . . . . At any time prior to February 18, 2015, the Issuer and the Guarantorsmay on any one or more occasions redeem up to 35% of the originalaggregate amount of Notes and Additional Notes at a redemptionprice of 108.00% of the principal amount, plus accrued and unpaidinterest to the applicable redemption date (subject to the right of theholders of record on the relevant record date to receive interest due onthe relevant interest payment date), with the net cash proceeds of oneor more Equity Offerings; provided that: (i) at least 65% of theaggregate principal amount of Notes remains outstandingimmediately after the occurrence of such redemption (excludingNotes held by the Issuer or any Guarantor); and (ii) the redemptionoccurs within 120 days of the date of the closing of such EquityOffering.
At any time prior to February 18, 2015, the Issuer and the Guarantorsmay redeem all or a part of the Notes at a redemption price equal to100% of the principal amount of the Notes redeemed plus theApplicable Premium as of, and accrued and unpaid interest, if any, tothe applicable redemption date (subject to the rights of holders ofrecord on the relevant record date to receive interest due on therelevant interest payment date).
On or after February 18, 2015, the Issuer and the Guarantors mayredeem all or a part of the Notes on any one or more occasions, at theredemption prices (expressed as percentages of principal amount ofthe Notes to be redeemed) set forth below plus accrued and unpaidinterest on the Notes redeemed, to the applicable redemption date(subject to the rights of holders of record on the relevant record dateto receive interest due on the relevant interest payment date), ifredeemed during the 12-month period beginning on February of eachof the years indicated below:
Year Percentage
2015 . . . . . . . . . . . . . . . . . . . 104.00%2016 . . . . . . . . . . . . . . . . . . . 102.00%2017 and thereafter . . . . . . . 100.00%
For purposes of the foregoing:
“Applicable Premium” means with respect to any Note on anyredemption date, the difference (not to be less than zero) between (a)the present value (compounded on a semi-annual basis) to such dateof the scheduled future principal and interest cash flows from thebeneficial interests in the Notes being redeemed discounted at a perannum rate equal to the then-current bid side yield (as most recentlypublished in the New York edition of The Wall Street Journal) on theU.S. Treasury Note having a maturity date closest to the remainingweighted average life on the Notes calculated at the time of theprepayment, plus 0.75% per annum and (b) the aggregate principalamount of Notes (or portion thereof) to be redeemed.
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“Assigned Receivables” means certain receivables that the Issuerexpects to collect from a dispute with Express and which the Issuerassigned to GPS International pursuant to an agreement datedOctober 12, 2010, in an aggregate amount not to exceed Ch$2,127million, which payment will be subject to “Description of Notes andFinance Agreements—Limitations on Restricted Payments” and willbe made pursuant to “Description of Notes and FinanceAgreements—Treatment of Funds—Deposits of Funds to andDistribution of Funds from the Revenue Account—Semi-annual andSpecial Distributions—seventeenth”.
“Base Case Model” means the financial model, certified as havingbeen prepared in good faith by an Officer of the Issuer in accordancewith the Annual Budget, as set forth in an exhibit to the Indenture, assuch Base Case Model may be revised from time to time pursuant tothe Indenture.
“Capital Stock” means: (i) in the case of a corporation, corporatestock of any class; (ii) in the case of an association or business entity,any and all shares, interests, participations, rights or other equivalents(however designated) of corporate stock; (iii) in the case of apartnership or limited liability company, partnership or membershipinterests (whether general or limited); and (iv) any other interest orparticipation that confers on a person the right to receive a share ofthe profits and losses of, or distributions of assets of, the issuingperson.
“Contingent Hedge Payments” means, with respect to any contract,agreement or arrangement giving rise to Hedging Obligations, anyamounts paid or to be paid by the Concessionaires to the relatedHedge Counterparty as a result of the early termination, breakage ormark-to-market determinations or similar contingent amounts undersuch contract, agreement or arrangement other than ExcludedContingent Hedge Payments. Contingent Hedge Payments do notconstitute a part of any Hedge Payments.
“Disqualified Stock” means, with respect to any person, any CapitalStock that, by its terms (or by the terms of any security into which itis convertible, or for which it is exchangeable, in each case at theoption of the holder of the Capital Stock), or upon the happening ofany event, matures or is mandatorily redeemable, pursuant to asinking fund obligation or otherwise, or redeemable at the option ofthe holder of the Capital Stock, in whole or in part, prior to the datethat is one year after the date on which the Notes mature.Notwithstanding the preceding sentence, any Capital Stock that wouldconstitute Disqualified Stock solely because the holders of the CapitalStock have the right to require the Issuer or any Guarantor torepurchase such Capital Stock upon the occurrence of a change ofcontrol or an asset sale will not constitute Disqualified Stock if theterms of such Capital Stock provide that the Issuer or any Guarantormay not repurchase or redeem any such Capital Stock pursuant to
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such provisions unless such repurchase or redemption complies withthe Restricted Payment test or otherwise requires the prior repaymentin full of the Notes. The term “Disqualified Stock” will also includeany options, warrants or other rights that are convertible intoDisqualified Stock or that are redeemable at the option of the holder,or required to be redeemed, prior to the date that is one year after thedate on which the Notes mature.
“Equity Offerings” means any public or private sale of equitysecurities of the Issuer or any Guarantor (other than DisqualifiedStock) other than: (i) offerings related to equity securities issuableunder any employee benefit plan of the Issuer or any Guarantor; and(2) issuances to any subsidiary of the Issuer or any Guarantor.
“Excluded Contingent Hedge Payments” means, in relation to anycontract, agreement or arrangement giving rise to HedgingObligations that is in effect with respect to the Notes or any otherSenior Indebtedness, an amount equal to the amount of anytermination payment due and payable under such contract, agreementor arrangement to the relevant Hedge Counterparty as a result of aHedge Counterparty Default with respect to such HedgeCounterparty.
Mandatory Redemption . . . . . . . . . . . . . . Subject to the provisions of the Indenture, the Notes will be redeemedprior to maturity, in whole or, to the extent of available funds, in part,upon the occurrence of a Termination Event (as defined below) or anyExpropriatory Action (as defined below), to the extent of theExpropriation Compensation (as defined below) received. In such aredemption, the redemption price of the Notes to be redeemed will beequal to (x) the principal amount of such Notes, plus (y) interest onsuch principal amount accrued through the redemption date, plus (z)Additional Amounts, if any, payable in respect of such Notes.
See “Description of Notes and Finance Agreements—MandatoryRedemption.”
For purposes of the foregoing:
“Expropriatory Action” means any action or series of actionstaken, authorized, ratified or acquiesced in by any GovernmentalAuthority in Chile, or any person purporting to act as aGovernmental Authority in Chile or any governing authoritywhich is in de facto control of part of Chile or arising under anyChilean Law, for the appropriation, confiscation, expropriation,seizure or nationalization (by intervention, condemnation or otherform of taking), whether with or without compensation andwhether under color of law or otherwise (including throughconfiscatory taxation or imposition of confiscatory charges), ofownership or control of the Concession rights, the OperatingAgreements or the Bus Network, or any substantial portionthereof, held by Concessionaires or any substantial portion of theConcessionaires’ economic benefits therefrom.
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“Expropriation Compensation” means all value (whether in theform of money, securities, property or otherwise) paid or payableby any Governmental Authority in Chile, in whole or partialsettlement of claims, whether or not resulting from judicialproceedings and whether paid or payable within or outside Chile,as compensation for or in respect of any Expropriatory Action.
“Governmental Authority” means any government, governmentaldepartment, ministry, commission, board, bureau, agency,regulatory authority, instrumentality of any government (centralor local), judicial, legislative or administrative body, domestic orforeign, federal, state or local, having jurisdiction over the personor matter in question.
“Termination Event” means any of the Operating Agreements isterminated, canceled, repealed, annulled, rescinded or revoked byany Governmental Authority in Chile (whether in whole or inmaterial part) on any ground, in each case as such action couldreasonably be expected to result in a Material Adverse Change.
Certain Covenants . . . . . . . . . . . . . . . . . . The Indenture will contain negative and affirmative covenants of theIssuer and the Guarantors, subject to certain limitations andexceptions:
• limitations on Senior Indebtedness;
• limitations on Restricted Payments (as defined below);
• limitations on liens;
• limitations on sales of assets;
• limitations on sale and lease-back transactions;
• limitations on merger, consolidation, liquidation or dissolution;
• limitations on Affiliate transactions;
• requirement to maintain all operations and undertake maintenanceconsistent with the requirements of the Concessions;
• requirement to provide specified expense budgets and three-yearmaster plans;
• requirement to provide an updated version of the base casefinancial projections;
• limitations on abandonment of the Concessions;
• limitations on assignments;
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• a requirement to use the proceeds of the Notes as described underUse of Proceeds;
• requirements as to the use of cash flow;
• requirement to maintain existence;
• requirement not to engage in any business other than a PermittedBusiness;
• compliance with Concessions;
• compliance with all applicable legal requirements;
• requirement to repay obligations;
• requirement to pay taxes;
• requirement to maintain books and records;
• requirement to maintain properties and insurance;
• requirements as to visitation and third-party inspection of theIssuer’s and the Guarantors’ properties;
• requirement to provide specified notices to the Secured PartyAgents and the holders of the Notes;
• requirement to provide consolidated financial statements andperiod audits; and
• requirement to provide compliance certificates.
In addition, each of Eco Uno and Panamerican will be subject tospecific limitations on their businesses that prohibit any activity otherthan (i) the direct or indirect ownership of shares of the Issuer and/orone or more of the Guarantors held by them on the date of theIndenture or any additional shares provided that the same arepromptly pledged to secure their Guarantees as contemplated in the“Description of Notes and Finance Agreements”, (ii) establishmentand maintenance of the Transfer Accounts, and (iii) as otherwiserequired or contemplated in connection with the Finance Agreementsand intercompany transfers pursuant thereto and, as applicable,intercompany obligations owing to or from the Issuer and/or one ormore of the Guarantors.
Lorena SpA. Alsacia will cause Lorena SpA not to engage in anybusiness activity other than ownership of the Excluded Depot andguarantee of the Bus Terminal Loan, the lease of the Excluded Depot toAlsacia and related administrative activities. In addition, Lorena SpAshall not (i) incur any Debt (except its guarantee of the Bus Terminal
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Loan and intercompany Subordinated Debt payable to Alsacia),(ii) create or suffer to exist any Liens on any of its assets or property(except Permitted Liens), (iii) sell, assign, lease, transfer or otherwisedispose of any interest in its assets or property (except its lease of theExcluded Depot to Alsacia and in connection with any foreclosure on theExcluded Depot), (iv) create or acquire any Subsidiaries or make anyInvestment, (v) consolidate or merge with or into any other Person or sell,lease or otherwise transfer, directly or indirectly, all or any part of itsassets or property to any other Person (except the Issuer or a Guarantor),in each case except as otherwise expressly permitted under the FinanceAgreements. For the avoidance of doubt, the Excluded Depot shall beoperated by Alsacia, and O&M Expenses, Repair Costs and otherpayments in respect of the Excluded Depot and such operations shall bepaid out of the Accounts as Concessionaire payments. Alsacia shalloperate the Excluded Depot in accordance with the covenants of thisIndenture applicable to other operations of Alsacia.
Bus Terminal Loan. Alsacia and any Guarantor will not consent to orotherwise provide for any amendment, supplement, novation orrenewal of the Bus Terminal Loan on terms that are more favorablethan the current terms thereof, nor any such amendment, supplement,novation or renewal will be on terms materially adverse to theNoteholders or the Notes Hedge Counterparty.
For purposes of the foregoing:
“Debt to Equity Ratio” means, as of the date of calculation, theratio of (i) the aggregate outstanding amount of SeniorIndebtedness, without duplication, of the Issuer and theGuarantors, taken as a whole, as of such date to (ii) the aggregateamount of Equity of the Concessionaires, taken as a whole, as ofsuch date.
“Equity” means, as of the date of calculation, the sum of thepresent value (compounded on a semi-annual basis) of theaggregate amount of funds deposited and projected to bedeposited into the Revenue Account (excluding any funds to betransferred from the other Accounts to the Revenue Account)minus the aggregate amount of funds transferred and projected tobe transferred from the Revenue Account pursuant to “first”through “fourteenth” under “—Revenue Account” above until,and including, August 18, 2018, as projected in the Base CaseModel (as defined in “Description of Notes and FinanceAgreements”) as updated to such date of calculation, discountedat a per annum rate equal to 12%.
“Fair Market Value” means, with respect to any asset, the pricewhich could be negotiated in an arm’s length free markettransaction, for cash, between a willing seller and a willingbuyer, neither of which is under compulsion to complete thetransaction, (i) if such asset has a price of at least U.S.$1.0
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million and less than U.S.$10.0 million, as such price isdetermined in good faith by the board of directors of the relevantConcessionaire as evidenced by a resolution of such board ofdirectors; or (ii) if such asset has a price of at least U.S.$10.0million, as such price is determined by an opinion as to thefairness of such price to the Concessionaire from a financial pointof view issued by an investment banking firm of internationalstanding.
“GAAP” means generally accepted accounting principles inChile or IFRS to the extent then applicable, in each case as ineffect on the date of the Indenture.
“Investments” means, with respect to any Person, all direct orindirect investments by such Person in other Persons (includingaffiliates) in the form of loans or other extensions of credit(including guarantees), advances, capital contributions (by meansof any transfer of cash or other property to others or any paymentfor property or services for the account or use of others),purchases or other acquisitions for consideration of Debt, equityinterests or other securities, together with all items that are orwould be classified as investments on a balance sheet prepared inaccordance with GAAP.
“Permitted Chilean Investments” means any of the following,and which may include investments in respect of which theTrustee acts as investment advisor or manager: (i) fixed incomesecurities issued by the Chilean Treasury, the Chilean CentralBank, Chilean banks or corporations with an international ratingof at least “A” by S&P, “A” by Fitch or “A2” by Moody’s, or aChilean domestic rating of at least “AA” or equivalent by any ofsuch rating agencies; (ii) repurchase agreements (A) with any ofthe entities mentioned in (i) above and (B) with respect to whichthe collateral consist of fixed income securities issued by theChilean Treasury, the Chilean Central Bank or any of the entitiesmentioned in (i) above; and (iii) time deposit accounts,certificates of deposit and money market deposits denominatedand payable in Chilean pesos maturing within 180 days of thedate of acquisition thereof issued by Chilean banks mentioned in(i) above.
“Permitted Investments” means (a) cash, Permitted ChileanInvestments and Permitted U.S. Investments; (b) receivables inrespect of Hedge Payments; (c) stock, obligations or securitiesreceived in settlement of (or foreclosure with respect to) debtscreated in the ordinary course of business and owing to eitherConcessionaire or in satisfaction of judgments or compromise ofclaims; (d) payroll, travel and similar advances to cover mattersthat are expected at the time of such advances ultimately to betreated as expenses for accounting purposes and that are made inthe ordinary course of business; (e) guarantees of Senior
44
Indebtedness or Subordinated Indebtedness permitted by theIndenture; (f) Receivables owing to either Concessionaire ifcreated or acquired in the ordinary course of business; (g)Investments in an affiliate of the Issuer and/or any Guarantor,provided that the Issuer and the Guarantors shall have deliveredto the Trustee at least 30 days in advance of making suchInvestment an Officers’ Certificate executed by its respectivechief financial officer and chief executive officer setting forth: (i)that such affiliate will only engage in a business that, ifconducted by either Concessionaire, would be a PermittedBusiness, (ii) that such affiliate will be an UnrestrictedSubsidiary for purposes of the Indenture, (iii) in reasonabledetail, the agreements, contracts and transactions that areexpected to be entered into by and between such affiliate and theIssuer or any Guarantor, (iv) that there will be no other liabilityof any kind or obligation to invest or transfer assets by the Issueror any Guarantor in connection therewith, (v) that anytransactions between such affiliate and the Issuer or anyGuarantor will comply with the “limitations on affiliatetransactions” covenant, (vi) that such Investment in the affiliatewill be funded with a cash common equity or capital contributionto, or Subordinated Indebtedness incurred by, the Issuer or anyGuarantor (which cash common equity or capital contribution orSubordinated Indebtedness proceeds shall not be required to bedeposited into the Revenue Account), and (vii) that the Issuer andthe Guarantors shall deliver to the Trustee within ten days afterthe end of each fiscal quarter an Officers’ Certificate executed byits respective chief financial officer and chief executive officerindicating compliance with clauses (i) through (vi) above; (h) anequity Investment in any Person received by the Issuer or anyGuarantor solely in consideration for provision by theConcessionaires of technical, management or other relatedsupport services to such Person (or its subsidiaries), provided thatthe Issuer and the Guarantors shall have delivered to the Trusteeat least 30 days in advance of making such Investment anOfficers’ Certificate executed by its respective chief financialofficer and chief executive officer to the same effect as clauses(ii) through (vi) of the preceding clause (g) of this definition(whether or not such Person is an affiliate) and in addition settingforth (i) that such Person (and its subsidiaries) will exonerate theIssuer and the Guarantors for any liability in connectiontherewith to the full extent permitted by applicable law, and(ii) that the Issuer and the Guarantors shall deliver to the Trusteewithin ten days after the end of each fiscal quarter an Officers’Certificate executed by its respective chief financial officer andchief executive officer indicating compliance with clauses(ii) through (vi) and (i) above; (i) Investments by the Issuer orany Guarantor in the Issuer or any Guarantor; and (j) additionalInvestments having an aggregate Fair Market Value, takentogether with all other Investments made pursuant to this clause
45
(j) that are at the time outstanding, not to exceed U.S.$1.0 millionat the time of such Investment (with the Fair Market Value ofeach Investment being measured at the time made and withoutgiving effect to subsequent changes in value).
“Permitted U.S. Investments” means any of the following, andwhich may include investments in respect of which the Trustee actsas investment advisor or manager: (i) direct obligations of the UnitedStates of America or any agency thereof or obligations fully andunconditionally guaranteed by the United States of America or anyagency thereof; (ii) time deposit accounts, certificates of deposit andmoney market deposits denominated and payable in U.S. dollarsmaturing within 180 days of the date of acquisition thereof issued bya bank or trust company which is organized under the laws of theUnited States of America, any state thereof or any foreign countryrecognized by the United States of America, and which bank or trustcompany has capital, surplus and undivided profits aggregating inexcess of U.S.$100.0 million (or the foreign currency equivalentthereof) and has outstanding debt which is rated “A” (or such similarequivalent rating) or higher by S&P or Moody’s or any moneymarket fund denominated and payable in U.S. dollars sponsored by aregistered broker dealer or mutual fund distributor; (iii) repurchaseobligations with a term of not more than 30 days for underlyingsecurities of the types described in clause (i) above entered into witha bank meeting the qualifications described in clause (ii) above; (iv)commercial paper denominated and payable in U.S. dollars,maturing not more than 90 days after the date of acquisition, issuedby a corporation (other than an affiliate of the Issuer or theGuarantors) organized and in existence under the laws of the UnitedStates of America or any state thereof with a rating at the time as ofwhich any investment therein is made of “P-1” (or higher) accordingto Moody’s or “A-1” (or higher) according to S&P; (v) securitieswith maturities of six months or less from the date of acquisitionissued or fully and unconditionally guaranteed by any state,commonwealth or territory of the United States of America, or byany political subdivision or taxing authority thereof, and rated atleast “A” by S&P or Moody’s; (vi) Investments in money marketfunds substantially all of whose assets are comprised of securities ofthe types described in clauses (i) through (v) above; (vii) demanddeposit accounts with U.S. banks maintained in the ordinary courseof business.
“Receivables” means all rights of either Concessionaire topayments (whether constituting accounts, chattel paper,instruments, general intangibles or otherwise, and including theright to payment of any interest or finance charges), which rightsare identified in the accounting records of such Concessionaire asaccounts receivable.
“Restricted Payments” means any reduction (excluding reductionsresulting from losses or impairments) or return of capital of the
46
Issuer or any Guarantor; any payment by the Issuer or any Guarantorof any dividends to its respective shareholders (other than in theform of Capital Stock of the Issuer or such Guarantor), except fordividends payable to the Issuer or any Guarantor; the authorizationor making of any other distribution, any payment or delivery by theIssuer or any Guarantor of property or cash to their respectiveshareholders in their capacity as shareholders of the Issuer or suchGuarantor or to such shareholders as permitted under the Indenture;the redemption, retirement, purchase or other acquisition, directly orindirectly, for consideration of any of its Capital Stock now orhereafter outstanding (or any options or warrants issued by the Issueror any Guarantor with respect to their respective Capital Stock) orthe setting aside of any funds for any of the foregoing purposes; orthe making by the Issuer or any Guarantor of any cash paymentswith respect to principal or interest on, or the purchase, redemptionor defeasance of, any Subordinated Indebtedness (except paymentson intercompany Subordinated Indebtedness between the Issuer andany Guarantor or between Guarantors); it being understood that anydividend to a shareholder (or any other person who becomes anowner of Capital Stock of the Issuer or any Guarantor as a result of aPermitted Disposition) immediately then contributed back to theIssuer or such Guarantor will not constitute a Restricted Payment;Investments other than Permitted Investments. Payments made inconnection with and related to the Transactions and Acquisition asdescribed in this Offering Memorandum shall not constituteRestricted Payments.
“Sale and Lease-Back Transaction” means any arrangement withany Person (other than the Issuer or any of the Guarantors), or towhich any such Person is a party, providing for the leasing to theIssuer or a Guarantor for a period of more than three years of anyproperty or assets that have been or are to be sold or transferredby such Issuer or Guarantor to such Person or to any other Person(other than the Issuer or a Guarantor) to which funds have beenor are to be advanced by such Person on the security of the leasedproperty or assets.
See “Description of Notes and Finance Agreements—Covenants.”
Events of Default . . . . . . . . . . . . . . . . . . . The Indenture will provide for acceleration of the Notes and exerciseof other remedies upon events of default, in each case subject tocertain limitations and cure rights (each an “Event of Default”):
• any payment default;
• any failure to perform any of the obligations, including obligationsunder any covenants, provided for under the Indenture;
• the application of any fines or discounts under the ConcessionAgreements which could reasonably be expected to result in aMaterial Adverse Change;
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• any default under any Transaction Document, including any failureto deposit any funds to the extent available as provided therein orwithdrawal, except as expressly permitted thereunder, includingexpress provision for default if any Transaction Document (otherthan Additional Agreements) is terminated, canceled or materiallyamended, and in each case could reasonably be expected to resultin a Material Adverse Change;
• any representation or warranty made by the Issuer or any Guarantorin any Finance Document to which such person is a party or in anyOfficers’ Certificate delivered in connection with the release of theEscrow, is found to be false and misleading in any material respectwhen made, unless, in the case of any false or misleadingrepresentation or warranty as to which the condition giving risethereto is capable of being cured, such condition has been curedand such representation or warranty is no longer false ormisleading in any material respect within 30 days after the Issuer orsuch Guarantor first has knowledge or should have had knowledge,after due inquiry, that such representation or warranty was false ormisleading in such material respect;
• any bankruptcy, insolvency or similar proceedings involving theIssuer or any Guarantor or any of their assets;
• any final, non-appealable judgments, decisions or orders for thepayment of money in an aggregate amount exceeding U.S.$10.0million (or the equivalent in another currency) (to the extent suchjudgments, decisions or orders are not paid or covered by insuranceprovided by a reputable carrier) are entered against the Issuer orany Guarantor and (A) enforcement proceedings are commencedby any creditor upon such judgments, decisions or orders or (B)there is a period of 30 consecutive days during which a stay ofenforcement of such judgments, decisions or orders, by reason of apending appeal or otherwise, is not in effect;
• any Expropriatory Action of the Concessions or any portion,material to the Issuer and the Guarantors considered as a whole, ofthe assets used by the Issuer and/or any Guarantor and theiraffiliates in connection with the operation of the Concessions,except to the extent that an Expropriatory Action results in theimmediate payment to the Trustee of Expropriation Compensationsufficient, in the opinion of the Trustee, to repay the Notes and allamounts then due and payable to the holders of the Notes;
• any suspension, revocation, cancellation, loss or termination of anyof the Operating Agreements and that in each case couldreasonably be expected to result in a Material Adverse Change;
• the holders of the Notes or the Notes Hedge Counterparty cease tohave a perfected first-priority security interest in any Collateral
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having an aggregate Fair Market Value in excess of U.S.$10.0million except as released in accordance with the TransactionDocuments;
• any revocation or withdrawal of any material governmentauthorization that could reasonably be expected to result in aMaterial Adverse Change; or
• default under any mortgage, indenture or instrument under whichthere may be issued or by which there may be secured or evidencedany Senior Indebtedness (other than the Bus Terminal Loan) by theIssuer or any Guarantor (or the payment of which is guaranteed bythe Issuer or any Guarantor) whether such Senior Indebtedness orguarantee now exists, or is created after the issuance of the Notes,if that default: (a) is caused by a failure to make any payment whendue at the final maturity of such Senior Indebtedness (a “PaymentDefault”); or (b) results in the acceleration of such SeniorIndebtedness prior to its express maturity, and, in each case, theamount of any such Senior Indebtedness, together with the amountof any other such Senior Indebtedness under which there has been aPayment Default or the maturity of which has been so accelerated,aggregates U.S.$10.0 million or more.
Early Amortization Period . . . . . . . . . . . During the period (the “Early Amortization Period”) beginning on theday on which an Early Amortization Period is declared to havecommenced or automatically commences pursuant to the provisionsunder “—Early Amortization Events” below, and continuing to andincluding the date on which principal, interest and all other amountsdue under the Notes have been paid in full (or such earlier date as theControlling Party of the Notes so determines), the remaining unpaidprincipal balance under the Notes will be due and payable on eachPayment Date with the Available Funds (as defined below) (the“Early Amortization Principal Amounts”).
During any Early Amortization Period, the Concessionaires willtransfer or cause to be transferred the Available Funds (in addition tofunds for accrued interest and any other payment under the Notes inthe order of priority set forth in the Indenture, and Contingent HedgePayments) from the Revenue Account to the Payment Account oneach Transfer Date for payment of the Early Amortization PrincipalAmounts on the next Payment Date(s). Additionally, during any EarlyAmortization Period, the Concessionaires will transfer funds in theReserve Account and/or under the Letter of Credit to the Trustee forthe benefit of the Noteholders and the Notes Hedge Counterparty onthe next Payment Date, which funds will be applied to the payment ofthe Early Amortization Principal Amounts, accrued interest and anyother payment under the Notes in the order of priority set forth in theIndenture on such Payment Date.
Amounts thus applied to reduce the principal of the Notes will resultin a pro rata reduction of the remaining Scheduled AmortizationAmounts for the Notes.
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For purposes of the foregoing, “Available Funds” means all the fundsavailable on each Transfer Date for transfer from the RevenueAccount to the Payment Account after deduction of the aggregateamount of funds transferred on such Transfer Date from the RevenueAccount pursuant to “—Bi-monthly Distributions—first” through“—fifth”.
Early Amortization Events . . . . . . . . . . . Each of the following will be designated as an “Early AmortizationEvent” for the Notes:
• the occurrence of an Event of Default;
• the occurrence of an early amortization event with respect to anyother Senior Indebtedness of the Issuer or any Guarantor; and
• failure to maintain a minimum Debt Service Coverage Ratio of1.10:1.00 in any Reporting Period (the “Early Amortization DebtService Coverage Ratio”), except for the Reporting Periods throughMarch 31, 2012.
Upon the occurrence of an Early Amortization Event, the ControllingParty, by notice then given in writing to the Issuer, the Guarantorsand the Secured Party Agents, may declare that the EarlyAmortization Period has commenced; provided that, the writtennotice in respect of an Event of Default (other than an Event ofDefault described in clause (h) under “—Events of Default”) must begiven by the Controlling Party to the Issuer, the Guarantors and theSecured Party Agents within six months of the Noteholders receivingnotice of such Event of Default; provided further that, (A) upon theoccurrence of an Event of Default described in clause (h) under“—Events of Default”, an Early Amortization Period willautomatically commence, and (B) the specific event, occurrence oromission that resulted in the Event of Default that caused such EarlyAmortization Event shall not be the basis for declaration of any otherEarly Amortization Events for six months following the end of suchsix-month period.
Coverage Reserve Account . . . . . . . . . . . Notwithstanding anything in the “Description of Notes and FinanceAgreements” to the contrary, upon the occurrence of an EarlyAmortization Event related to the failure to satisfy the EarlyAmortization Debt Service Coverage Ratio, the Issuer and theGuarantors may cure such breach by either:
(a) electing (by written notice to the Secured Party Agents) to have allamounts then and thereafter payable to the Noteholders under theFinance Agreements to be deposited into a segregated trust account inthe United States held by the Secured Party Agents in the name ofSecured Party Agents for the benefit of the Noteholders (the“Coverage Reserve Account”); and/or
(b) depositing, or causing to be deposited, into the Coverage ReserveAccount (which shall be funded by the issuance of common equity for
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cash, cash capital contributions or Subordinated Indebtedness, andwhich shall not be required to be deposited into the RevenueAccount) an amount of U.S. dollars such that, had such amount beenreceived as collections in the Revenue Account during the applicableTransfer Period, such breach would not have occurred (the “CoverageReserve Account Deposit Amount”). If so elected by the Issuer andthe Guarantors, the Issuer and the Guarantors shall deposit, or causeto be deposited, into the Coverage Reserve Account an amount equalto the Coverage Reserve Account Deposit Amount, which must havebeen funded with Subordinated Indebtedness incurred by or cashcapital contributions made to the Issuer or the Guarantors for specificdeposit therein.
If the Coverage Reserve Account is funded as described in the“Description of Notes and Finance Agreements”, notwithstandinganything to the contrary described therein, an Early Amortization Eventrelated to the failure to satisfy any Early Amortization Debt ServiceCoverage Ratio will be deemed not to have occurred (regardless ofwhether the Controlling Party for the Notes has declared that an EarlyAmortization Period has commenced with respect to the failure to meetthe Early Amortization Debt Service Coverage Ratio); provided that ifthe Early Amortization Debt Service Coverage Ratio continues to failto be met for each of the next three respective Reporting Periods, then,notwithstanding the funding of the Coverage Reserve Account, anEarly Amortization Event shall occur.
Pending application in accordance with the Indenture, amounts in theCoverage Reserve Account will be invested by the Secured PartyAgents in U.S. Permitted Investments. The Issuer and the Guarantorsmay exercise such right to cure up to three times through the finalmaturity of the Notes; provided that it may not exercise such rightmore than once during any period of 12 consecutive calendar months.
Amounts in the Coverage Reserve Account will be distributed by theSecured Party Agents as follows:
(a) on each Payment Date occurring after the exercise by the Issuerand the Guarantors of the option to fund the Coverage ReserveAccount, if amounts on deposit in the Payment Account for the Noteson such Payment Date are less than the aggregate amount due andpayable on such date, then the amount of such shortfall will (to theextent available) be transferred from the Coverage Reserve Accountto the Payment Account and then paid to the Noteholders, the NotesHedge Counterparty and other parties entitled to such amounts as setforth in the Indenture; and
(b) if the Early Amortization Debt Service Coverage Ratio for theNotes is met with respect to any two consecutive Reporting Periodsafter such election, then the balance of funds on deposit in theCoverage Reserve Account may be used by the Issuer and theGuarantors to cancel the related Subordinated Indebtedness or return
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the related capital contribution (which, in each case, shall notconstitute a Restricted Payment), with any remaining balance underthe Subordinated Indebtedness or the capital contribution payable inaccordance with the Indenture and the order of priority set forthabove; additional funds need no longer be deposited into theCoverage Reserve Account unless and until the Issuer and theGuarantors exercise such option again.
If a balance remains in the Coverage Reserve Account after all of theNotes have been paid in full, then such balance will be paid at theIssuer’s and the Guarantors’ instructions.
Additional Coverage ReserveAccount . . . . . . . . . . . . . . . . . . . . . . . . Any other Senior Indebtedness may provide for an account to serve
the same purpose as the Coverage Reserve Account (the “AdditionalCoverage Reserve Accounts”), provided that such AdditionalCoverage Reserve Accounts may not provide for better benefits or beon more favorable terms to the creditors under such other SeniorIndebtedness than the Coverage Reserve Account to the holders of theNotes and the Notes Hedge Counterparty, as determined by the boardof directors of the Concessionaires in good faith.
Purchases of Notes . . . . . . . . . . . . . . . . . The Issuer and any Guarantor may at any time, or from time to time,subject to the terms and conditions of the Indenture, purchase Notesthrough Open Market Purchases, by tender or by private agreement;provided, however, that the Issuer and the Guarantors may notpurchase any Notes if they are in default on any payment duepursuant to the Notes. Any purchase by tender by the Issuer and theGuarantors shall be made available to all Noteholders alike. All Notesso purchased shall be cancelled immediately. In determining whetherthe holders of the requisite principal amount of outstanding Noteshave given any request, demand, authorization, direction, consent,notice or waiver under the Indenture, Notes owned by the Issuer andthe Guarantors, by any other obligor upon the Notes or by an affiliateof the Issuer and the Guarantors or of such other obligor shall bedisregarded and deemed not to be outstanding.
For purposes of the foregoing, “Open Market Purchase” means thepurchase of any Notes available for sale in the secondary marketthrough broker-dealers or similar intermediaries, in each case for totalconsideration less than the sum of the principal amount thereof plusaccrued and unpaid interest thereon, provided that any Notes sopurchased are surrendered immediately to the Trustee forcancellation.
Book-Entry; Form and Denomination . . . The Notes will be issued in the form of one or more global noteswithout coupons. The Rule 144A and Regulation S Global Notes willeach be issued in book-entry form and registered in the name of anominee of DTC and deposited on behalf of the purchasers of theNotes represented thereby with a custodian of DTC and will trade in
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DTC’s Same-Day Funds Settlement System. For a description ofcertain factors relating to clearance and settlement, see “Descriptionof Notes and Finance Agreements—Form and Denomination.”
The Notes will be issued in minimum denominations of U.S.$150,000and integral multiples of $1,000 in excess thereof. Owners ofbeneficial interests in Notes held in book-entry form will not beentitled to receive physical delivery of certificated Notes except incertain limited circumstances. See “Description of Notes and FinanceAgreements—Form and Denomination.”
Governing Law . . . . . . . . . . . . . . . . . . . . The Issuer’s and Guarantors’ capacity and corporate authorization toexecute and deliver the Transaction Documents are governed byapplicable Chilean laws. The Mortgages, the Asset PledgeAgreements, the Concession Pledge Agreements, the Chilean MoneyPledges, the Intercompany Debt Pledge Agreements and the SharePledge Agreements will be governed by, and construed in accordancewith, the laws of Chile. The Notes, the Indenture and the NY AccountPledge Agreements will be governed by, and construed in accordancewith, the laws of the State of New York.
Transfer Restrictions . . . . . . . . . . . . . . . . The Notes have not been registered and will not be registered with theU.S. Securities and Exchange Commission under the Securities Act.The Notes are subject to certain restrictions on transfer and may notbe offered, transferred or resold except as permitted under theSecurities Act and applicable state laws pursuant to registration orexemption therefrom. See “Transfer Restrictions.”
Exchange Controls in Chile . . . . . . . . . . . Under current Chilean Central Bank regulations, the Issuer and theGuarantors will have access to either the Formal Exchange Market orthe Informal Exchange Market for the purchase of U.S. dollarsnecessary to make payments under the Notes or the Guarantees. See“Exchange Controls in Chile.”
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank of New York Mellon
Principal Paying Agent, Transfer Agentand Registrar . . . . . . . . . . . . . . . . . . . . The Trustee acting in such capacities.
U.S. Collateral Agent . . . . . . . . . . . . . . . The Trustee acting in such capacity.
Chilean Collateral Agent . . . . . . . . . . . . . Banco Santander Chile
Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . The Issuer and the Guarantors will apply to list the Notes on theOfficial List of the Luxembourg Stock Exchange and to trade them onthe Euro MTF Market of that exchange.
Rating Agencies . . . . . . . . . . . . . . . . . . . Fitch, Inc. and Moody’s Investors Service, Inc. (the “RatingAgencies”)
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . You should carefully consider the risk factors discussed under thecaption “Risk Factors” before purchasing any Notes.
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SUMMARY SELECTEDFINANCIAL AND OPERATING INFORMATION
As discussed herein, concurrently with this offering, Alsacia, Express, Eco Uno and Panamerican willbecome affiliated companies under common control by GPS Group, and GPS Group intends to operate Alsaciaand Express jointly under common management and to develop common operating procedures and sharing ofoverhead and other costs in order to maximize efficiencies for both entities. However, because Alsacia is notacquiring any interest in Express in the Acquisition, those entities cannot be presented together on a pro formabasis in this Offering Memorandum. See “Introductory Note.”
The following tables present summary selected financial information and other data as of or for theyears ended December 31, 2007, 2008 and 2009 and as of or for the nine months ended September 30, 2009 and2010 for each of Alsacia and Express on a consolidated basis. These summary selected financial data presentedbelow are qualified in their entirety by reference to, and should be read in conjunction with, the financialstatements and notes thereto for each of Alsacia and Express included elsewhere in this Offering Memorandum.The following data as of or for each of the years ended December 31, 2007, 2008 and 2009 have been derivedfrom the audited financial statements for each of Alsacia and Express, which have been prepared in Chileanpesos in accordance with Chilean GAAP. The data as of or for the nine months ended September 30, 2009 and2010 have been derived from the unaudited interim financial statements for each of Alsacia and Express and havebeen prepared in Chilean pesos in accordance with Chilean GAAP. See “Presentation of Financial and OtherInformation” and “Appendix A—Significant Differences Between Chilean GAAP and IFRS.”
The unaudited information for the nine months ended September 30, 2009 and 2010 includes alladjustments, consisting of only normal recurring adjustments, which in the opinion of management for each ofAlsacia and Express are necessary for the fair presentation of the information. The results of operations for thenine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the yearending December 31, 2010.
Financial information for each of the three years ended December 31, 2009 has been restated in constantChilean pesos as of December 31, 2009 in accordance with Chilean GAAP. Financial information for each of thenine months ended September 30, 2009 and 2010 has been restated in constant Chilean pesos as of September 30,2010 in accordance with Chilean GAAP.
No financial or operating information is provided in this Offering Memorandum for either Eco Uno orPanamerican, which are additional Guarantors of the Notes. Eco Uno is a holding company with the sole purposeof holding 99.998% of the equity of Express. Panamerican is a holding company formed for the sole purpose ofacquiring and consolidating the ownership of 99.7% of the equity of Eco Uno through the Acquisition. Both EcoUno and Panamerican lend or borrow intercompany debt to or from affiliates from time to time, and neither willhave any employees or other activities except as described herein. See “Description of Notes and FinanceAgreements—.” As a result, Alsacia does not believe any information concerning Eco Uno or Panamericanwould be material to prospective investors.
No financial or operating information is provided in this Offering Memorandum for the InitialTemporary Issuer because it has never had, and currently does not have, any assets, liabilities or operations. It isa special purpose company established to facilitate the issuance of the Notes as described under “The Escrow”.
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HISTORICAL FINANCIAL INFORMATION
Alsacia Express
As of or for the Year EndedAs of or for the Nine
Months Ended As of or for the Year EndedAs of or for the Nine
Months EndedDec. 31,
2007Dec. 31,
2008Dec. 31,
2009Sept. 30,
2009Sept. 30,
2010Dec. 31,
2007Dec. 31,
2008Dec. 31,
2009Sept. 30,
2009Sept. 30,
2010(Millions of constant Ch$as of December 31, 2009)
(Millions of constant Ch$as of September 30, 2010)
(Millions of constant Ch$as of December 31, 2009)
(Millions of constant Ch$as of September 30, 2010)
(unaudited) (unaudited)Income Statement Data
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,918 70,866 66,658 50,311 54,732 66,924 91,183 86,065 63,290 70,844Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,159 9,348 (184) 414 3,441 1,673 5,970 4,429 1,865 (450)
Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,345 (15,972) 8,739 4,332 185 15,129 (1,444) (9,252) (8,576) (3,772)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 14,504 (6,623) 8,555 4,746 3,627 16,802 4,526 (4,823) (6,711) (4,222)Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,895) 1,084 (1,990) (1,604) (772) (3,085) (707) 872 1,231 474
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,609 (5,539) 6,565 3,142 2,855 13,717 3,819 (3,951) (5,480) (3,748)
Profit (loss) investment in related companies (1) . . . . . . . . 2,031 491 404 (721) (553) — — — — —
Balance Sheet DataCash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 354 312 3,876 728 33 3,562 3,323 25 963 74Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,994 17,263 19,663 16,955 17,574 48,010 52,860 32,716 33,199 32,954Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,306 66,574 60,800 64,218 60,720 88,144 85,975 77,782 81,029 72,345Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,776 108,140 101,382 102,824 97,665 191,243 196,181 148,142 153,631 141,038Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,377 29,550 34,381 36,451 28,718 32,742 45,067 27,198 27,637 30,682Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 63,704 80,434 62,280 65,110 61,276 125,944 114,740 88,521 94,381 81,033Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . 3,696 (1,843) 4,722 1,262 7,670 32,556 36,374 32,423 31,613 29,323
Cash Flow DataNet cash flow from (used in) operating activities . . . . . . . . . . . . 4,725 4,848 9,431 7,057 2,840 7,557 19,719 27,954 2,251 6,454Net cash flow from (used in) financing activities . . . . . . . . . . . . 7,232 8,038 (2,321) (3,466) (5,760) 12,563 (5,222) (8,483) (8,451) (8,276)Net cash flow from (used in) investing activities . . . . . . . . . . . . (11,776) (12,957) (3,538) (3,181) (1,156) (16,880) (14,465) (22,827) 3,709 2,637Reconciliation of Operating Income to Adjusted EBITDA
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,159 9,348 (184) 414 3,441 1,673 5,970 4,429 1,865 (450)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,316 7,578 8,256 6,313 6,470 7,275 12,598 13,205 10,068 10,230Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063 1,574 2,401 1,944 1,247 3,560 3,939 3,843 3,752 2,934
Adjusted EBITDA (2) . . . . . . . . . . . . . . . . . . . . . . . . . 12,538 18,501 10,473 8,671 11,158 12,508 22,507 21,477 15,685 12,714
(1) Relates solely to Alsacia’s investment in 16% of the equity of Eco Uno, which is a holding company that owns 99.998% of Express. Changes in the value of this investment primarilyreflect Express’s financial performance over the same period. These changes are presented net of any interest expense recognized by Eco Uno on certain intercompany debt to its parentcompany during the period.
(2) We calculate Adjusted EBITDA by adding Depreciation and Amortization to Operating Income. Because our calculation of Adjusted EBITDA begins with Operating Income, AdjustedEBITDA also does not include several non-cash expenses that are deducted from Net income under Chilean GAAP such as Price-level restatements and Foreign exchange ratedifferences. Adjusted EBITDA also does not include our Interest expenses or Income Taxes, which are also deducted from our Net income. Adjusted EBITDA is a not a recognizedfinancial measure under Chilean GAAP or IFRS and does not have a standardized meaning. As such, Adjusted EBITDA as presented herein may not be comparable to similarly titledmeasures provided by other companies. We disclose Adjusted EBITDA because we believe that certain investors use it as an indicator of a company’s ability to meet debt service andcapital expenditure requirements. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income or operating income as indicators of operating performance.
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HISTORICAL OPERATING DATA
We track a number of non-financial performance measures about our business and the industry,including the following (1):
As of or for the YearEnded December 31,
As of or for the Nine MonthsEnded September 30,
2007 2008 2009 2009 2010
Bus Passenger Validations (in millions) (2)Alsacia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.4 133.3 130.9 96.2 100.6Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.7 208.2 204.1 151.0 142.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186.1 341.5 335.0 247.2 243.5Transantiago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638 1,159 1,205 886 881
Alsacia and Express as a Percentage of Transantiago . . . . . . 29.2% 29.5% 27.8% 27.9% 27.6%
Scheduled Route Distance (in millions of kilometers) (3)Alsacia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.7 42.7 44.4 32.7 35.3Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.7 65.6 65.2 48.2 52.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.4 108.3 109.6 80.9 88.2Transantiago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367.8 480.0 515.9 357.9 385.6
Alsacia and Express as a Percentage of Transantiago . . . . . . 22.7% 22.6% 21.2% 22.6% 22.9%
Number of Bus Drivers (4)Alsacia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,729 1,751 1,751 1,695 1,685Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,115 2,175 2,227 2,253 2,354
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,844 3,926 3,978 3,948 4,039
Passenger Capacity of Bus Fleet (rounded to the nearestthousand) (5)
Alsacia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.4 68.8 68.7 68.7 73.4Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.4 117.0 116.9 116.9 136.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178.8 185.8 185.6 185.6 209.8Transantiago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559.3 585.7 593.1 590.2 616.8
Alsacia and Express as a Percentage of Transantiago . . . . . . 32.0% 31.7% 31.3% 31.5% 34.0%
Service Fulfillment Ratio (6)Alsacia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.4% 97.9% 96.7% 97.5% 96.8%Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.8% 96.2% 96.4% 97.8% 93.6%
(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations for Alsaciaand Express” for a discussion of the reasons for the changes in these figures over the periods presented.
(2) Total Passenger Validations received on buses during the applicable period (Validaciones). For discussionof Passenger Vaildations, see “The Concessions—Concession Revenue—Revenue Formulas,” “TheConcessions—AFT Payments—Responsibilities of the AFT” and “Business—Overview—General.”
(3) Aggregate scheduled route distance in Operating Plans during the applicable period (Kilómetros delPrograma de Operación). For a discussion of Operating Plans, see “The Concessions—Operating Plans.”
(4) Full-time and part-time bus drivers employed at the end of the applicable period (Personal de Conducción).For a discussion of our driving personnel, see “Business—Our Operations—Our Employees.”
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(5) Aggregate passenger capacity of all buses, as registered with the Ministry, at the end of the applicableperiod (Plazas). For a discussion of our fleet passenger capacity, see “Business—Overview—General.”
(6) Ratio of actual passenger capacity and route distance serviced compared to the scheduled passenger capacityand route distance in Operating Plans during the applicable period (Índice de Cumplimiento Plaza KilómetroHora). Prior to October 2009, the calculation of this ratio did not include distance (kilómetros) and wasknown as Índice de Cumplimiento Plaza Hora. The Ministry added distance (kilómetros) to the ratio inOctober 2009 and renamed it Índice de Cumplimiento Plaza Kilómetro Hora. The Ministry reports apreliminary Service Fulfillment Ratio to each concessionaire on a semi-monthly basis. Each concessionairecan then review the preliminary Service Fulfillment Ratio and propose adjustments to it to reflect serviceinterruptions or delays that are outside of the concessionaire’s control, such as road construction or trafficaccidents along its routes. Once the proposed adjustments are reviewed and accepted by the Ministry, theMinistry publicly reports the adjusted Service Fulfillment Ratios for a period starting on the sixth day ofeach calendar month and ending on the fifth day of the following calendar month. Alsacia and Express alsoseparately calculate the adjusted Service Fulfillment Ratio for each calendar month for their internalreporting purposes. All Service Fulfillment Ratios used in this Offering Memorandum refer to the internal,adjusted Service Fulfillment Ratios calculated by Alsacia and Express. For a more complete description ofthe Service Fulfillment Ratio, see “The Concessions—Concession Revenue—Revenue Formulas” and“Business—Overview—The Concessions.”
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RISK FACTORS
The following risks could affect our business, results of operations and financial condition and, as aresult, the Notes and our ability to fulfill our obligations under the Notes. You should consider carefully all theinformation contained in this Offering Memorandum, including the risk factors set forth below, before decidingto invest in the Notes. You should note that the risks described below may not be the only risks to which we areexposed. There may be other risks that are not presently known to us or that we do not presently consider to bematerial that could affect our ability to fulfill our obligations under the Notes.
Risks Relating to the Escrow and the Initial Temporary Issuer
The initial issuance of the Notes is by a special purpose vehicle, whose assets will be limited to initial issuanceprice of, and certain interest payment under, the Notes.
The Notes are initially being issued by the Initial Temporary Issuer, which is a special purpose vehiclethat will place the proceeds thereof in an escrow for a period lasting up to March 3, 2011. On or prior toFebruary 28, 2011, Alsacia and Express are expected to enter into arrangements to repay certain indebtednesscurrently held by various international and Chilean banks, after which the Initial Temporary Issuer will becombined with and into Alsacia and the escrowed funds will be used to, among other things, repay such thirdparty indebtedness. See “The Escrow” and “Use of Proceeds.” Although the Initial Temporary Issuer has beenestablished to be a bankruptcy remote entity, the existence of the Initial Temporary Issuer and the varioustransactions that have been designed to combine the Initial Temporary Issuer into Alsacia and have Alsacia andthe Guarantors become obligors in respect of the Notes, involve a number of actions that are substantially morecomplicated than would otherwise be the case if the Notes were issued by Alsacia.
In addition, the only assets of the Initial Temporary Issuer will be the amounts deposited in escrowconsisting of the net proceeds from the offering of the Notes, plus cash amounts deposited by Alsacia, amongother things, to ensure at the date the escrow if established there are sufficient funds, in addition to the netproceeds from the offering of the Notes, to repay (i) the full issuance price of the Notes, (ii) interest at the statedrate for 15 calendar days and (iii) all other amounts then due on the Notes, including any additional amounts inrespect of taxes or otherwise. If, for whatever reason, the transactions contemplated in this OfferingMemorandum are not consummated, there will be no other assets to collect any additional claims or recourseagainst any other person than the Initial Temporary Issuer.
The repayment by us of Existing Indebtedness is required to obtain releases of collateral to be pledged toholders of Notes as described herein.
The Notes are to be secured by various types of collateral as described herein. See “Description of Notesand Finance Agreements.” Certain of these types of collateral, including terminals, buses and the shares issuedby Alsacia and Express, are currently pledged to the holders of Existing Indebtedness that we intend to repay inconnection with the issuance of the Notes. It is a condition to the effectiveness of the release of the escrowdescribed herein and the Notes becoming obligations of Alsacia and the Guarantors that the releases be filedpublicly in Chile, and in some cases it will be necessary subsequent thereto to file documentation with variouspublic officials to remove the pledges and the banks as secured parties therefor, a process that can take severalmonths. While Alsacia and Express have obtained advice of counsel that the agreements to release any suchcollateral will be binding and effective against all parties, implementation of such releases and updating of thepublic records in order to register the collateral to secure the Notes could result in significant delays in givingeffect to the same. During any such period, the Secured Party Agents could experience difficulties in enforcingany pledge, mortgage or security interest on any affected type of collateral as a result of the foregoing.
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If the conditions to the Escrow Closing Date are not met by the Escrow Termination Date, then the Notes shallbe accelerated and repaid without any premium thereon.
If, for any reason, the Acquisition and the Escrow Closing Date are not consummated on or prior toFebruary 28, 2011, then on the Escrow Termination Date, (i) the Escrow shall be terminated; (ii) the Notes shallwithout any action required be deemed to have been redeemed by the Initial Temporary Issuer; (iii) funds ondeposit shall be used by the Escrow Agent to repay the initial issuance price of the Notes together with interestthereon at the stated rate from and including the date of issuance through and excluding the Escrow TerminationDate; and (iv) the Initial Temporary Issuer shall thereafter be liquidated and Alsacia shall be liable, to the extentrequired under applicable law, for any filing fees, liquidation fees, taxes or other amounts due and owing to anyBritish Virgin Islands, Chilean or other governmental authority as a result thereof. In such an event, there will beno premium paid to redeem the Notes.
We are dependent on third parties to meet the conditions to the Escrow Closing Date, including our ExistingLenders who may have competing interests from us and who are outside or our control.
One of the conditions to the Escrow Closing Date is that we negotiate and agree upon prepayment fees,penalties and termination payments with our Existing Lenders relating to the early payment of our ExistingIndebtedness. These Existing Lenders have conflicts of interest with us, and may not agree to accept prepaymentfees, penalties and termination payments on reasonable terms, if at all. They may also extend their negotiations ofthese amounts beyond the Escrow Termination Date. In such an event, the Notes will be repaid without anypremium.
The bankruptcy or insolvency of Alsacia or any Guarantor while the Escrow is in place could delay or reducepayments on the Notes from the Escrow.
As described herein, the Initial Temporary Issuer is a special purpose company formed in 2011 underthe laws of Chile, independent of Alsacia or the Guarantors. However, it was established to facilitate atransaction in which Alsacia and the Guarantors are participants. As a result, a court could disregard, or a creditorof Alsacia could seek to disregard, the independence of the Initial Temporary Issuer or the Escrow structure inthe event that Alsacia or any other Guarantors became involved in bankruptcy, insolvency or similar proceedings.In that case, the Initial Temporary Issuer or the Escrow (and funds contained therein) could be consolidated withAlsacia for financial reporting or other purposes in the bankruptcy, insolvency or other proceedings, which couldreduce or delay payments on the Notes from the Escrow.
Alsacia and/or the Guarantors could take actions, or fail to take actions, during the Escrow period that wouldbe prohibited or required by the Indenture after the Escrow Closing Date.
Only the Initial Temporary Issuer will be subject to the Indenture and the terms of the Notes during thependency of Escrow. Only at the Escrow Closing Date will Alsacia and the Guarantors be bound by the Indentureand be subject to the Notes. Prior to that time and during the pendency of the Escrow, Alsacia and the Guarantorscould take actions, or fail to take actions, that would have been prohibited or required by the Indenture had itbeen in effect from and after the initial issuance of the Notes.
Inasmuch as many of the Indenture’s terms cannot be implemented until it is effective against Alsaciaand the Guarantors, such as the collateral arrangements, it will not be possible for Alsacia and the Guarantors tocertify at the time the Escrow is released that they have been in compliance with the Indenture as if it had been ineffect from the initial issuance of the Notes.
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Risks Relating to Our Business
Alsacia and Express have limited operating histories.
Alsacia and Express both began operation in 2005 and have had limited operating histories. As a result,we are subject to many of the risks common to new enterprises, including potential undercapitalization, cashshortages and limitations with respect to personnel, financial and other resources. We may not have the financial,technical and other resources to operate profitably, or at all, in the future.
We may not achieve the expected benefits from the joint operation of Alsacia and Express, and the Acquisitionand joint operation of Alsacia and Express could disrupt our operations and/or be unsuccessful.
Organizational, union-related, market, supplier, planning and/or other issues may prevent us fromobtaining all of the expected benefits from the joint operation of Alsacia and Express, including the synergiesdiscussed herein. See “Business—Our Business Strategy” for a discussion of expected synergies. Some jointoperating benefits may require the prior approval of various authorities or the amendment of certain contracts andwe cannot assure that these approvals or contract amendments will be obtained. In addition, upon completion ofthe Acquisition, we may be subject to unknown liabilities that could have a material adverse effect on us, ourassets and our business.
Alsacia and its affiliates must pay significant transaction-related expenses in connection with theAcquisition, including substantial legal, accounting and financial advisory fees and other similar expenses.Moreover, our day-to-day operations may be disrupted due to the substantial time and effort our managementmust devote to completing the Acquisition and implementing the joint operation of Alsacia and Express.
For these reasons and potentially others, the Acquisition, as well as the acquisition of additionalbusinesses in the future as and to the extent permitted under the Transaction Documents, may be unsuccessfuland the integration of our existing businesses and any additional businesses (which implies the use of ourexecutives and of our resources) may disrupt our operations.
The Acquisition Agreement for Express contains provisions that limit the recourse of Alsacia and the holdersof the Notes to Express and the sellers of Express under the Acquisition Agreement. Prior to the Acquisition,we will not have control of the operations, assets or liabilities of Eco Uno or Express.
The Acquisition Agreement for Express includes provisions that the sellers shall not be held responsiblein any way, directly or indirectly, for any statements, omissions, or misrepresentations made in connection withthis offering and acknowledges that the sellers have not participated in or approved any aspect of this offering.After the closing of the Acquisition, we will not have any recourse to the sellers under the AcquisitionAgreement for any breach of representation or warranty or otherwise.
Although we have a shareholders’ agreement and board representation at Express, until theconsummation of the Acquisition, we will not have day-to-day operational control over Eco Uno or Express ortheir assets, liabilities or actions. Until the Acquisition is consummated with the proceeds of this offering whenreleased from escrow, the Notes will not be guaranteed by Express and there will be no recourse to Express. GPSGroup has agreed to indemnify members of Grupo Transportador for claims against them arising out of thisoffering or relating to the time period prior to the consummation of the Acquisition Agreement.
Passenger revenue and volume depend on factors beyond our control.
Our revenue depends in part on the number of passengers we transport. Our revenue also depends on thenumber of passengers transported by Transantiago as a whole. Several factors determine the volume ofpassengers that will use our buses, as well as Transantiago as a whole, in the future, many of which are beyondour control. Some of these factors include demographic changes, Chilean Government macroeconomic policies,
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prevailing economic conditions in Chile, fare rates (including the amount and frequency of fare increases),taxation, inflation, interest rates, fuel prices, infrastructure development (including the quality, proximity and useof alternative methods of transportation), social stability and other factors prevalent in the Santiago metropolitanarea and in Chile as a whole.
In addition to the factors listed above, an increase in the accessibility or convenience of privatetransportation could reduce the number of passengers that use our buses and Transantiago generally. Forexample, a change in fuel taxes, vehicle importation taxes, auto loans, transportation infrastructure, toll roads orparking policies could decrease the number of passengers who choose to use our buses.
For the above reasons, the number of passengers traveling on our buses or on Transantiago in generalmay decrease, or may not remain stable or increase, and any reduction in the level of passengers on our buses oron Transantiago in general may have an adverse effect on us and our affiliates.
We may need to seek additional capital in the future.
Ongoing repair and maintenance of our buses and facilities will require substantial capital. If our plansor assumptions change, if our assumptions prove to be inaccurate, or if we experience unanticipated costs orcompetitive pressures, we may be required to seek additional capital. The Notes restrict the terms upon which wemay incur additional debt. We may not be able to raise any necessary additional capital on satisfactory terms, ifat all. If we decide to raise additional funds through the incurrence of debt, we may become subject to additionalor more restrictive financial covenants and our interest obligations will increase. If we are unable to obtainadditional capital or to obtain it on acceptable terms, we may be unable to meet our obligations under theConcession Agreements, which could lead to termination of the Concession Agreements.
We have entered into certain transactions with related parties that may potentially create conflicts of interest.
We have entered into transactions with related parties described in “Related Party Transactions” andmay continue to do so in the future. Although we believe the terms of these transactions are consistent withmarket transactions with unaffiliated parties, our relationships with the counterparties to these transactions couldpotentially create conflicts of interest.
The financial statements of Express and Alsacia may be restated in the future based on the settlement of theirrelated party dispute.
The consolidated financial statements of Express and Alsacia which have been included in this offeringmemorandum are subject to potential adjustments relating to the net balance of accounts payable to Alsaciarelating to items under dispute mainly arising from expenses incurred in prior years on account of Express inrelation to the joint operations of Express and Alsacia performed up to August 2006. The analysis of the differentitems which make up this related party accounts payable, and the determination of which adjustments are to berecorded, in order to properly recognize in the financial statements the effect of expenses jointly incurred during2005 and 2006, are still pending. As a result of this dispute, the consolidated financial statements of Express as ofand for the years ended December 31, 2007, 2008 and 2009 received a qualified audit opinion, and the interimconsolidated financial statements of Express as of and for the nine months ended September 30, 2009 and 2010received a qualified review opinion from PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada,Express’s independent accountants. See Note 5 to the consolidated financial statements of Express as of and forthe years ended December 31, 2008 and 2009 and Note 6 to the interim consolidated financial statements ofExpress as of and for the nine months ended September 30, 2009 and 2010.
On October 12, 2010, Alsacia sold its rights in connection with certain of these receivables fromExpress, which have a book value estimated by Alsacia of between U.S.$4.4 million and U.S.$5.0 million, toGPS International of Panamá (Chile) S.A. (“GPS International”), a company under common control with Alsaciaby GPS Group. In connection with the purchase of these rights, GPS International agreed to pay AlsaciaU.S.$50,000, plus one percent of any amount recovered from Express.
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Upon the completion of the Acquisition, Grupo Transportador will no longer own any equity interest inExpress and Express and Alsacia will come under common control of the Principal Shareholder. At that time, weexpect the Principal Shareholder will cause Alsacia and Express to settle their dispute relating to their accountspayable balances. However, the effect of any settlement on the financial statements and tax position of Expressand Alsacia have not yet been determined. Any such determination could have an adverse effect on our results ofoperations, tax liability or financial position.
We are dependent on certain outsourced services provided by third parties, and failure to properly managethese relationships could adversely impact our results of operations.
We are dependent on third-party providers for certain planning, service fulfillment, control andoperational information management, which we outsource to Citymovil and BIG Services SpA. Although wehave contracts with these providers, we have no assurance that business interruptions will not occur or that thesethird parties will meet the needs of our business. If we are unable to properly manage the relationships with thesethird-party providers, our revenue and income may be adversely affected. Similarly, if our third-party providersdo not comply with their contractual obligations or do not perform their services to our advantage, our operationsmay be harmed causing our revenue and results of operations to be adversely impacted.
We have no effective means to ensure that these third parties will continue to perform these services toour satisfaction, in a manner satisfactory to us or the Ministry, or on commercially reasonable terms. We couldbecome dissatisfied with the service providers or their cost levels and refuse to utilize them in the future. If aservice provider is not able to provide the agreed services at the level of quality we require, we may not be ableto replace such service provider on short notice, which may have a material adverse effect on our business.
Our business could suffer as a result of current or future litigation.
We are and/or may in the future be subject to various legal proceedings, including claims involvingarbitration. Under Chilean law, disputes with the Chilean Government, including the enforcement of anyindemnification obligations, must be resolved by ordinary Chilean courts, which generally require a long time toreach resolutions. We may face litigation arising from a number of sources, including road accidents, generaldamages, wrongful death claims, personal injury claims and/or labor disputes. It is inherently difficult to assessthe outcome of litigation matters, and we may not prevail in any litigation. Any litigation could result insubstantial costs and diversion of our efforts, which by itself could have a material adverse effect on our financialcondition and operating results. Further, adverse determinations in litigation could result in loss of our assets orsubject us to significant liabilities to third parties.
We provide a broadly used public service that is subject to intense public scrutiny, especially in the case ofdisruption.
The majority of people in the Santiago metropolitan area use public transportation as their primarymeans of transportation. As a result, the Santiago public depends on public transportation providers, includingAlsacia and Express, for consistent, uninterrupted service, and the activities of these public transportationproviders are under constant and intense public scrutiny. Due to this scrutiny, any disruption in our services,regardless of the cause, may create negative public sentiment toward us and therefore could have an adverseeffect on us beyond that caused directly by the disruption.
Labor problems and catastrophic events beyond our control may affect our operations.
The operation of business could be disrupted by labor disputes or by catastrophic events such as floods,earthquakes, fires in our bus terminals or other similar events that could damage or destroy our buses and otherassets, or a material portion thereof, all of which could significantly reduce our revenue or significantly increasethe expense of operating, maintaining or restoring buses. Any insurance we have is subject to customarydeductible and coverage limits. Accordingly, any insurance proceeds, together with any other available funds,
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may not be sufficient to provide for the repair or replacement of any damaged or destroyed assets, and ourinsurance may not remain on commercially reasonable terms or at all. Although we maintain businessinterruption insurance, operational interruptions could adversely affect our revenue from operation or even resultin termination of the Concessions.
Although the major earthquake of 2010 in Chile did not materially impact Santiago or our operations,future earthquakes or other natural disasters or conditions could negatively affect our operations.
Potential changes in labor legislation may increase our labor expenses.
The Chilean Ministries of Labor, Finance and Treasury are currently considering changes to thestatutory obligations related to employee severance payments. Existing Chilean law requires employers to makeseverance payments to employees who (i) have worked for longer than one year under an open-term employmentcontract and (ii) are terminated for “corporate needs,” which essentially equates to downsizing due tomodernization, reductions in productivity or changes in market or economic conditions. The proposed changes,which are still under discussion and have not yet been drafted into a bill, would require severance paymentsregardless of the length of employment or the cause of termination.
In addition, the Chilean Senate’s Labor Commission is currently considering an amendment to the legaldefinition of “Company” for the purposes of labor regulations. The proposed amendment would group holdingentities and related company groups together with employer companies in the context of collective labor rights,including rights related to the formation of unions and collective bargaining, as well as individual labor rights,including the calculation of employer revenue for the purposes of bonus or gratification payment obligations.
If adopted, each of these changes could increase our labor expenses and have an adverse effect on ourresults of operations.
Expansion of the Metro subway could negatively affect us by reducing the number of passengers who use ourbuses.
To the extent our bus routes overlap with the Metro subway lines, we may compete with the Metro forpassengers. Therefore, expansion of the Metro subway in the areas we service may decrease the number ofpassengers who use our buses. In response to any such decrease in passengers, the Ministry could redesign oralter our routes and services, thereby changing the scheduled route distances and passenger capacity under ourOperating Plans. Because our revenue depends in part on the number of passengers who use our buses, as well asour scheduled route distances and passenger capacity, the expansion of the Metro subway in the areas we servicecould have an adverse effect on our results of operations.
In early 2010, Line 1 of the Metro subway was extended to the Los Dominicos station in easternSantiago. This extension encroached on the areas serviced by Express and decreased the number of passengers oncertain of Express’s routes. In addition, Line 5 of the Metro subway has been extended to the Plaza de Maipústation in southwestern Santiago, and extensions of Lines 3 and 6 of the Metro subway have recently beenannounced. Each of these extensions is expected to encroach on areas serviced by both Alsacia and Express.
While our Concession Agreements give us the right to be compensated for reductions in our revenuecaused by the expansion of public transportation, and the Ministry has partially compensated us for the actual andanticipated decreases in passengers caused by the extensions of Lines 1 and 5 by granting us five of the busroutes formerly serviced by Trunk Line 3 (Troncal Tres) of Transantiago, the degree and timing of compensationrequired by the Concession Agreements is unclear. As a result, we cannot assure you that any such compensationby the Ministry will be adequate, complete or timely.
We are awaiting final approval of the required permits to operate some of our terminals.
Currently, partial or provisional authorizations have been issued for four of Alsacia’s five required busterminals (namely, Huechuraba, Renca, Puente Alto and Peñalolén) and for all four of Express’s required bus
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terminals (namely, Pudahuel, Pajaritos, Maipú and La Reina). For Alsacia’s Maipú terminal, the authorizationsare currently pending. Partial or provisional authorizations do not meet the requirements of the ConcessionAgreements, and, therefore, we could be fined up to UF 200 for every 30 days during which we operate withoutfinal and full authorizations. Under Chilean law, such fines may be enforced for up to six months from the dateof the infraction. In addition to generating potential financial liability, the lack of permits could give the Ministrythe right to terminate the Concessions if we accumulate UF 6,000 in fines within a 12 month period.
As of the date of this Offering Memorandum, we have never been fined based on the lack of final andfull authorizations in connection with our terminals. Moreover, the amendments to our Concession Agreements,dated March 5, 2010, include a provision that would make partial or provisional authorizations sufficient underthe Concession Agreements. Nevertheless, these amendments have not yet received the requisite approval andare therefore not currently in force. See “Risk Factors—Risks Relating to the Concessions—The most recentamendment to the Concession Agreements has not yet received the necessary approval from the GeneralComptroller of the Republic.” and “The Concessions—March 2010 Concession Amendments.”
Accidents and vandalism to our assets could affect us.
Our assets, including primarily our buses and bus terminals, play an integral part in our business. Asthey travel throughout the Santiago metropolitan area, our buses may be damaged by accidents or vandalism.Such accidents or vandalism may lead to downtime for affected buses and require us to repair any damages,which may require cash expenditures given that many of these repairs may not be covered by our customaryinsurance policies or may be subject to deductibles, all of which could adversely affect us.
Changes to certain liability laws or insurance cost increases could have a material adverse impact on us.
As an operator of buses, we are exposed to claims for personal injury or death and property damage as aresult of accidents. We currently maintain liability insurance within the standards required under applicable lawand the Concession Agreements. Chilean regulations require that each bus operating in Chile have minimumthird party liability insurance coverage and coverage for injuries suffered by our employees, including thosearising out of assault and other wrongdoings. In the fiscal year 2009, expenses relating to insurance accounted for0.9% and 1.3% of Alsacia’s and Express’s operating expenses, respectively. The implementation of stricter lawsand regulations, or different or stricter interpretation of existing laws or regulations, may impose new liabilitieson us or require us to contract insurance at greater expense.
The amount of our insurance coverage may need to be increased, bus insurers may reduce their coverageor increase their premiums significantly, and we may be forced to bear substantial losses from accidents thatexceed our coverage.
Our liability insurance may be insufficient to cover a judgment against us in a claim for personal injury ordeath.
Damages in claims for personal injury or death are not subject to statutory caps in Chile. As a result, ajudgment against us for a claim of personal injury or death may exceed the coverage of our liability insuranceand could subject us to substantial, or even catastrophic, financial liability.
Our taxes paid to the Chilean Government could increase.
We pay the general income tax of 17%, which is applicable to all corporations. As part of the measurestaken by the Chilean Government to deal with effects caused by the earthquake, which took place in February2010, a legislative bill was recently passed that temporarily increased this tax rate for the years 2011 and 2012 to20% and 18.5%, respectively. These temporary tax increases adversely affect us, as could any additional taxincreases in the future.
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We are required to change our accounting standards from Chilean GAAP to IFRS and, as a result, some ofour financial statements will not be easily comparable from period to period.
Pursuant to the terms of our Concession Agreements and current SVS regulations, we must adopt IFRSaccounting standards, as adopted by the International Accounting Standards Board, for the period beginningJanuary 1, 2011. Currently we prepare our financial statements in Chilean pesos in accordance with ChileanGAAP, as required by Chilean regulations. We expect that out results reported under IFRS will be in Chileanpesos. IFRS differs in certain significant respects from Chilean GAAP. See Appendix A for a description of theprincipal differences between Chilean GAAP and IFRS as they relate to us and our consolidated subsidiaries. Thelack of comparability of our financial statements for future periods may make it difficult to gain a full andaccurate understanding of our operations and financial position.
Risks Relating to the Concessions
Transantiago has experienced serious problems in the past and continues to experience problems that couldthreaten the long-term viability of the system.
A series of problems with the planning, design and implementation of Transantiago initially led to longpassenger delays, a lack of sufficient routes and buses, overcrowding of bus stops and the Metro subway andfailings of the passenger payments system. These factors, as well as the Chilean Government’s failure toeffectively communicate with the public regarding changes in routes and the system in general, led to a poorinitial reception of Transantiago. In addition, Transantiago has run at a financial deficit since its implementationdue to, among other things, initially underpriced fares, unsubsidized student discounts and systemic passengerfare evasion. While many of the system’s original problems have been resolved or mitigated, Transantiagocontinues to run at a significant deficit and public approval remains relatively low. To the extent they are notoffset by Chilean Government subsidies or other funding, Transantiago’s deficits have a direct negative impacton our revenue, and low public approval of Transantiago could lead to legislative changes that alter our rightsunder the Concession Agreements and/or modify the transportation system as a whole, either of which could alsoadversely affect us.
Our revenue under the Concession Agreements is limited to funds received by the AFT.
Our Concession Agreements contain revenue formulas that are used by the AFT to calculate our revenueon a monthly basis. However, our right to payment under the Concession Agreements is limited to the fundsreceived by the AFT and held for the benefit of the Transantiago bus concessionaires. In the case of shortfallsbetween the amount due under our Concession Agreements and the amount held for payment to us by the AFT,we are limited to the amount held by the AFT and have no recourse to recover any deficiency. See “TheConcessions—AFT Payments—Flow of Funds and Payment Priority.”
Transantiago relies on a subsidy from the Chilean Government.
Since 2007, a significant portion of Transantiago’s revenue, and consequently our revenue, has beensubsidized by the Chilean Government through supplemental payments to the AFT, which, in turn, are paid to usand the other bus concessionaires. Subsidy payments made by the Chilean Government to Transantiago totaledCh$151,960 million from June through December of 2007, Ch$361,092 million in 2008, Ch$359,172 million in2009 and Ch$255,339 million for the nine months ended September 30, 2010, which comprised 42%, 50%, 49%and 45% of the total costs to support Transantiago during those respective periods. Without these subsidies, thecash flows into the AFT from passenger fares alone would be insufficient to pay all amounts owed to us underour Concession Agreements.
In September 2009, the Chilean Government passed Law No. 20,378, which created a subsidy to correctthe operating deficit in Transantiago. Under this law, the Chilean Government is authorized to pay up toCh$115,000 million per year into Transantiago to cover any shortfalls. In addition, from 2010 to 2014, in the
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event of annual shortfalls exceeding Ch$115,000 million, the Chilean Government is authorized to pay anadditional subsidy of up to a total over the five years of Ch$549,598 million, with each year having a differentcap amount. In addition, in November 2010, the Chilean Government passed Law No. 20,468, which amendsLaw No. 20,378 to increase the available subsidy for Transantiago from 2011 through 2014, adding an additionalCh$61,997 million for each of the years 2011 through 2013 and an additional Ch$30,998 million for 2014.Nevertheless, while these laws set forth the parameters of future subsidies to Transantiago, the Chilean Congressmust still approve the inclusion of the subsidies in its annual budget each year.
Apart from Laws Number 20,378 and 20,468, we have no legal right or title to subsidies in the future.The fact that the Chilean Government has subsidized Transantiago in the past does not mean it will do so in thefuture, and even the current subsidies under Laws Number 20,378 and 20,468 could be amended or revoked bythe Chilean Congress.
The most recent amendment to the Concession Agreements has not received the necessary approval from theGeneral Comptroller of the Republic.
The March 5, 2010 amendments to the Concession Agreements have been agreed upon and approved byus and the Ministry. However, the consent given by the Ministry is subject to legal review by the GeneralComptroller of the Republic of Chile (the “General Comptroller of the Republic”) and, therefore, it is notenforceable until such approval is received. Despite the over 10 months that have passed since we and theMinistry executed the March 5, 2010 amendments, the General Comptroller of the Republic has not yet approvedthese amendments and we have not received any indication regarding a timetable for the General Comptroller’sreview or approval. The General Comptroller of the Republic has the authority to object to the Ministry’sapproval if the Ministry did not meet all of the legal requirements governing the decision. If the GeneralComptroller of the Republic objects to the amendment, the amendment cannot be enforced until it is corrected inaccordance with the instructions of the General Comptroller of the Republic and we would not receive thebenefits provided by such amendment. In addition, the terms of a corrected amendment may be substantiallydifferent than the terms of the current amendment, and any such differences could negatively affect our futurerevenue.
The Chilean Government regulates the price of Transantiago passenger fares.
We do not control the ultimate pricing of our services to passengers. Transantiago passenger fares areregulated and periodically set by a panel of experts (Panel de Expertos) appointed by the Ministry. The panel ofexperts most recently changed the price of Transantiago passenger fares on January 14, 2011, increasing thebasic bus fare from Ch$500 to Ch$520. This increase and any future fare increases may reduce the number ofpassengers that travel on our buses. In addition, an increase in fare prices may increase the percentage of evasion,or riding without validation, on our buses. For these reasons, our inability to regulate our prices could adverselyaffect us.
The Ministry has the authority to make certain changes to the services we provide and the measurement of ourperformance under the Concession Agreements, and a change in the leadership of the Ministry makes it moredifficult for us to predict how the Ministry will exercise its authority in the future.
The Concession Agreements authorize the Ministry to unilaterally make certain changes to the serviceswe provide under the Concession Agreements, and the recent appointment of a new Minister of Transportationand Telecommunications, Pedro Pablo Errázuriz, on January 16, 2011 makes it more difficult for us to predicthow the Ministry will exercise its discretionary authority in the future. Although we are entitled to compensationunder the Concession Agreements for such changes, the compensation may be insufficient to offset increasedcosts. The Ministry may, among other things:
• modify the permitted passenger capacities and frequency of our bus services;
• temporarily modify operating schedules by requiring additional daily services;
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• require additional bus departures under certain circumstances;
• modify the bus routes of the trunk lines by changing or eliminating existing routes within theassigned trunk lines, or, in exceptional circumstances, creating additional routes outside of theassigned trunk lines; and/or
• require us to use certain types of buses within our fleet for specific routes.
In addition, pursuant to Article 3 of Law No. 20,378, the Ministry has regulatory authority to modify thecalculation of our performance under the Concession Agreements, specifically with respect to the ServiceFulfillment Ratio, which directly affects our revenue. In December 2010, the Ministry modified the calculation ofthe Service Fulfillment Ratio, which calculates performance for each half hour of bus service, to eliminate theoffsetting of deficient performance during a half-hour period on any route with excessive performance at othertimes or on other routes. This modification has made and may continue to make the Service Fulfillment Ratio amore stringent measure of performance, and it, as well as any future modifications by the Ministry, may have anegative effect on our revenue if we are unable to adjust our performance accordingly.
Changes to the legal framework of Transantiago, including changes to the authority of the ChileanGovernment to terminate the Concession Agreements, could reduce or eliminate our rights under theConcession Agreements.
Currently, there is a bill before the Chilean Congress that is intended to modify and improve the legalframework of public transportation subject to concessions, including Transantiago. Among the proposedmodifications applicable to Transantiago are the following: a general increase in the Ministry’s surveillancepowers in connection with the concessionaires’ performance; an increase in the Chilean Government’s powers inconnection with the concessionaires’ agreements with the Ministry, particularly in terms of their unilateralmodification; the establishment and regulation of bankruptcy as grounds for the termination of concessions; andthe implementation of grounds and methods of appointing a provisional administrator of any concessionaire inorder to assure the continuity of service.
The bill also provides that the Ministry may unilaterally terminate the Concession Agreements for aperiod of three years following the date of the proposed law’s publication in the Official Gazette of Chile. Whilethe bill acknowledges that such termination would be an expropriation requiring compensation by the ChileanGovernment, any such compensation may be insufficient to offset the loss of our Concessions. The ChileanSenate approved this bill on January 11, 2011 and forwarded it to the House of Representatives for furtherreview.
Our business relies on certain Chilean Government-managed services and infrastructure that may not beavailable as expected.
Our future financial performance will depend on the performance of the obligations under theConcession Agreements by the Ministry and other participants in Transantiago that are responsible forinfrastructure improvements intended to maximize the use of the bus fleets. Specifically we are relying on:
• a support system for fleet management that controls buses and monitors traffic to be put into placein the coming years;
• the gradual completion of infrastructure improvements in Santiago by 2013 including dedicated buslanes and bus stops; and
• the provision, by the Ministry, of a system for the effective prosecution of fare evasion bypassengers.
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We are subject to a wide range of governmental regulation and we cannot predict how the specific regulationsgoverning our business will be applied.
We are subject to a wide range of national, provincial and municipal regulation, as well as supervisiongenerally applicable to companies engaged in business in Chile, including laws and regulations pertaining totaxation, labor, social security, public health, consumer protection, competition, and the environment. Withrespect to the environment, we are specifically subject to laws and regulations regarding emissions from ourbuses, the handling of diesel fuel and the cleanup of fuel spills. In addition, although we are not a publicly heldcompany, the Concession Agreements require our subjection to the rules applicable to Chilean publicly heldcorporations (sociedades anónimas abiertas) and the oversight of and specific regulations issued by the SVS,including the obligation to provide regular information to the SVS regarding our business.
Many of the laws, regulations and instruments that regulate our business were adopted or becameeffective during the last five years. Therefore, there is only a limited history that would allow us to predict theimpact of these legal requirements on our operations. In addition, although Chilean law sets forth ranges ofsanctions that might be imposed should we fail to comply with the terms of the Concession Agreements, Chileantransportation regulations, or any other applicable law, we cannot predict the actual sanctions that are likely to beassessed for a given violation. We may encounter difficulties in complying with these laws, regulations andinstruments. Moreover, the laws and regulations governing our business, or the interpretation or application ofsuch laws and regulations, may change in the future.
The existing laws and regulations, or stricter laws and regulations in the future, or different or stricterinterpretation of existing laws or regulations, may require us to make material expenditures or impose newliabilities on us, thereby having an adverse effect on us and affecting our ability to meet our obligations under theNotes.
Our Concession Agreements expire on October 22, 2018 and may not be extended without the consent of theMinistry.
The term of our Concession Agreements is scheduled to expire on October 22, 2018, subject to anextension of up to 18 months, as determined under the terms of the Concession Agreements, if expected revenue,as defined in the Concession Agreements (Valor Actualizado de los Ingresos Esperados), is not achieved. Suchan extension would require an amendment of the Concession Agreements and would be subject to legal reviewbefore the General Comptroller of the Republic. Without the approval of the General Comptroller of the Republicfor such an amendment, our Concessions would end.
The Concession Agreements can be terminated prior to expiration by the Chilean Government in certaincircumstances.
Our principal asset is our contractual right under the Concession Agreements to operate two of the fivemain trunk lines of Transantiago, which together run across the 10 zones in Santiago. The Chilean Governmentmay unilaterally terminate the Concessions prior to expiration in certain circumstances under the ConcessionAgreements, including, among others, poor performance by us relative to predetermined performance objectives,default under our performance bonds, accumulation of more than UF 6,000 in fines paid in a period of 12months, or submission of inaccurate records when such action affects the economic or operating conditions of theConcession. In the case of the termination of the Concession Agreements as a result of our default under theterms of such agreements and the expiration of any applicable notice and cure periods, we would be obligated tocontinue operating under the Concessions at the discretion of the Ministry for up to 18 months, during whichperiod we would be compensated under the terms of the Concession Agreements and the performance bondsgranted by us pursuant to the Bidding Guidelines would remain unexecuted. However, thereafter, we would notbe entitled to compensation from the Chilean Government or otherwise, other than payment for our buses,terminals and equipment by any successor concessionaire, and the performance bonds granted by us pursuant to
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the Bidding Guidelines would be executed as matter of liquidated damages. For a discussion of the performancebonds required by the Bidding Guidelines, see “The Concessions—Performance Bonds.” Because under thesecircumstances we would no longer receive revenue, we would be unable to meet our payment obligations underthe Notes.
The Ministry has the power to apply discounts and fines to our payments if we fail to fully perform under theConcession Agreements.
The Ministry is authorized to apply discounts and/or fines to our payments under the ConcessionAgreements and/or the subsidy if we fail to fully perform under the Concession Agreements and relatedOperating Plans. Any discounts and/or fines imposed on us by the Ministry could adversely affect us and affectour ability to meet our obligations under the Notes. The Concession Agreements allow the Ministry to makediscounts for the portion the Service Fulfillment Ratio, which measures our performance under the ConcessionAgreements, that is below 100%. The detailed methodology of calculation of the Service Fulfillment Ratio haschanged over time as the Ministry has improved its technological capacity to more accurately measure operators’service fulfillment, and the Ministry has the right to introduce additional changes in the future. Although we havebeen able to adapt to measurement changes in the Service Fulfillment Ratio in the past, we may be unable toadapt to future changes, and such changes could negatively affect our financial performance. See “TheConcessions—Concession Revenue—Revenue Formulas” historical Service Fulfillment Ratios and a descriptionof how the Service Fulfillment Ratio applies to our revenue.
The Concession Agreements also provide for discounts related to other two service quality indices, theICF and the ICR, for which our revenue is regularly discounted. In addition, the Ministry may impose fines on usunder the Concession Agreements for other service quality tests, such as bus cleanliness. The number andamount of such discounts and fines imposed on us could increase in the future, and any such increase couldadversely affect us.
Our business is subject to seasonal fluctuations.
The Chilean urban bus transportation industry is seasonal in nature and generally follows the pattern ofcommercial activity as a whole in Chile, with peaks during the months of October and November, and loweractivity during the summer months of January and February and on holidays, most notably Chilean IndependenceDay in September. Therefore, an event that adversely affects ridership during any of these peak periods couldhave a material adverse effect on us. The day of the week on which certain holidays occur, the length of certainholiday periods, and the date on which certain holidays occur within a fiscal quarter will also affect our quarterlyresults of operations and the comparison of our quarterly results.
Risks Relating to Chile
Our growth and profitability depend on political and economic stability in Chile.
All of our revenue is derived from our operations in Chile. Accordingly, our results of operations andgeneral financial condition depend in part on Chilean markets for labor and certain materials and equipment, andon factors relating to Chilean political and economic stability generally. Future developments in or affectingChile’s political or economic stability, including economic or political instability in other emerging markets, mayresult in material and adverse effects on our business, financial condition or results of operations and in themarket value of the Notes. Our financial condition and results of operations could also be affected by regulatorychanges in administrative practices, changes in economic or other policies of the Chilean Government or otherpolitical or economic developments in or affecting Chile, over which we have no control.
Our business performance is subject to changes in the value of the Chilean peso.
Substantially all of our revenue and operating expenses have been denominated in Chilean pesos, exceptfor our existing debt, most of which is denominated in U.S. dollars. Because of the denomination of our assets
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and liabilities, historically, a decrease in the Chilean peso/U.S. dollar exchange rate resulted in foreign exchangerate differences that were gains on our income statement. Conversely, increases in the exchange rate resulted inforeign exchange rate differences that were losses on our income statement. We expect to repay our existing debtreferred to above with the proceeds of the Notes offered hereby, which will also be payable in U.S. dollars. Inconjunction with this offering, we intend to purchase certain call options on U.S. dollars, which will be designedto hedge against future appreciation of the U.S. dollar against the Chilean peso. See discussion below under“Management’s Discussion and Analysis of Financial Condition and Results of Operations for Alsacia andExpress—Quantitative and Qualitative Disclosures About Market and Operating Risks—Exchange Rate Hedge.”
In addition, our Concession revenue is adjusted based on changes in the Cost Index, which is a weightedaverage of several macroeconomic indicators and commodity prices, including the Chilean peso/U.S. dollar exchangerate, which comprises 11% and 2.2% of the Cost Index for Alsacia and Express, respectively. As a result, we expectthat changes in the Chilean peso/U.S. dollar exchange rate will cause our revenue to change in a similar proportion.
The Chilean peso/U.S. dollar exchange rate has been subject to significant fluctuations in the past and itmay continue to be subject to similar fluctuations in the future. In the three-year period ended December 31,2010, the value of the Chilean peso relative to the U.S. dollar has fluctuated between a low of Ch$431 perU.S.$1.00 and a high of Ch$677 per U.S.$1.00, based on Observed Exchange Rates. During the twelve monthsended December 31, 2010, the value of the Chilean peso relative to the U.S. dollar appreciated approximately8.1%, in real terms. See “Exchange Rates.”
Our business performance is subject to the effects of inflation.
High levels of inflation or deflation in Chile could adversely affect the Chilean economy and have anadverse effect on us. We were required under Chilean GAAP to restate non-monetary assets and liabilities,Unidades de Fomento (a daily indexed Chilean peso-denominated monetary unit that takes into account the effectof the Chilean inflation rate), foreign currency-denominated monetary assets and liabilities, shareholders’ equityand income and expense accounts to reflect the effect of variations in the purchasing power of the Chilean pesoduring each accounting period. Chilean peso-denominated monetary assets and liabilities were not restatedbecause they were presented at their purchasing power as of the date of the balance sheet. The net effect of theincrease or decrease in net purchasing power, calculated as described above, is included in our financialstatements under price-level restatements, which is included in net income.
Historically, substantially all of our revenue, expenses, assets and liabilities have been denominated inChilean pesos, other than our U.S. dollar denominated debt. As a result, inflation in the value of the Chilean pesohas generally resulted in price-level restatements that are gains on our income statement, while deflation in thevalue of the Chilean peso has generally resulted in price-level restatements that are losses on our incomestatement. Beginning on January 1, 2011, we will report our financial statements in accordance with IFRS ratherthan Chilean GAAP. Under IFRS, we will no longer restate our financial statements to reflect variations in thepurchasing power of the Chilean peso and we will no longer recognize price-level restatements. See Appendix Afor a description of the principal differences between Chilean GAAP and IFRS as they relate to us and ourconsolidated subsidiaries.
Although we will no longer recognize these variations in our financial statements, inflation or deflationof the Chilean peso will have a real impact on the purchasing power of our net assets. Chile has experienced highlevels of inflation in the past, which could materially and adversely affect the Chilean economy or our business ifcontinued in the future. The rate of inflation as measured by changes in the official consumer price index isreported by the INE. Inflation for 2007 and 2008 were 7.8% and 7.1%, respectively. In 2009, Chile experienceddeflation of 1.4%. Accumulated inflation for the first nine months of 2010 was 2.2%.
Our Concession revenue formulas are also partially dependent on the level of inflation or deflation inChile. The cost indices applied to the revenue formulas of Alsacia and Express are based 18% and 27%,respectively, on changes in the level of inflation or deflation in the Chilean peso. As a result, our revenue andoverall performance could be affected by inflation of the Chilean peso.
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Chile has corporate disclosure and accounting standards that differ from what holders may be familiar withinthe United States.
The accounting, financial reporting and securities disclosure requirements in Chile differ from those inthe United States. Accordingly, the information about us available to you will not be the same as the informationavailable to investors in a U.S. company. Pursuant to the terms of our Concession Agreements, we are required toreport our consolidated financial statements in accordance with IFRS for the fiscal year beginning January 1,2011 and subsequent fiscal years thereafter. See Appendix A for a description of the principal differencesbetween Chilean GAAP and IFRS as they relate to us and our consolidated subsidiaries
The securities laws of Chile have as a principal objective promoting disclosure of all material corporateinformation to the public. Chilean disclosure requirements, however, differ from those in the United States insome important respects. In addition, although Chilean law imposes restrictions on insider trading and pricemanipulation, applicable Chilean laws are different from those in the United States and in certain respects theChilean securities markets are not as highly regulated and supervised as the U.S. securities markets.
Risks Relating to the Notes after the Escrow Closing Date
We may not be able to generate sufficient cash flows to meet our debt service obligations, and our high level ofindebtedness could adversely affect our financial condition and impair our ability to fulfill our obligationsunder the Notes.
We are highly leveraged and have virtually no equity. Our ability to make payments on ourindebtedness, including the Notes, to fund the Accounts and to fund planned capital expenditures will depend onour ability to generate cash from our operations in the future. This, to a certain extent, is subject to generaleconomic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Ourbusiness may not generate sufficient cash flows from operations and future sources of financing may not beavailable to us in an amount sufficient to enable us to pay our indebtedness, including the Notes, or to fund ourother liquidity needs. Upon completion of this offering, Alsacia and Express will have Ch$224,414 million andCh$95,600 of indebtedness, respectively, on an as adjusted basis as of September 30, 2011, and during the firstyear following this offering, we do not expect to have excess cash flows available to pay any unanticipatedobligations. See “Capitalization.”
Our level of indebtedness may have important negative effects on our future operations, including:
• impairing our ability to obtain additional financing in the future (or to obtain financing onacceptable terms) for working capital, capital expenditures, acquisitions or other general corporatepurposes or to repurchase the Notes from you upon a change of control;
• making it difficult for us to refinance or restructure our indebtedness on commercially reasonableterms, or at all;
• requiring us to dedicate a substantial portion of our cash flow to the payment of principal andinterest on our indebtedness, which reduces the availability of our cash flow to fund workingcapital, capital expenditures, acquisitions and other general corporate purposes;
• increasing the possibility of an event of default under the financial and operating covenantscontained in our debt instruments; and
• limiting our ability to adjust to rapidly changing market conditions, reducing our ability towithstand competitive pressures and making us more vulnerable to a downturn in general economicconditions or our business than our competitors with less debt.
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If we are unable to generate sufficient cash flow from operations in the future to service our debt, wemay be required to refinance all or a portion of our debt, including the Notes, or to obtain additional financing.However, refinancing may not be possible and any additional financing may not be obtainable. If we cannotservice our indebtedness, we may have to take actions such as selling assets, seeking additional equity orreducing or delaying capital expenditures and investments. We may not be able to take these actions, ifnecessary, on commercially reasonable terms, or at all. In these circumstances, and due to our high levels ofindebtedness, there may not be interested acquirers for the pledged shares upon foreclosure.
We and the Guarantors may incur more debt, which could exacerbate the risks associated with ourindebtedness.
Although the Indenture governing the Notes contains restrictions on the incurrence of additional senior,unsubordinated debt, these restrictions are subject to a number of qualifications and exceptions, and theindebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictions do notprevent us or the Guarantors from incurring obligations that do not constitute “debt” as defined in the Indenture.If new debt is added to the current indebtedness levels, the related risks that we now face could intensify.
We will make all determinations and calculations under the Indenture and there will be no third independentparty to review or verify them.
Pursuant to the Indenture, there will be no third party engineer to confirm the calculations made by us orto analyze and check the estimations required thereunder. For example, we are required to prepare differentbudgets relating to O&M Costs, Overhaul Costs and CAPEX Costs and furnish a copy thereof to the Trustee andthe holders of Notes. However, no third independent party will analyze the estimations and forecasts used by usin the preparation thereof. In addition, we are required to calculate certain forward looking DSCR ratios to incurSenior Indebtedness and make Restricted Payments, which will not be verified by a third independent party.Therefore, such calculations, estimates and forecasts will lack a third independent party verification.
Certain funds will not be required to be deposited in the Revenue Account and/or will not be subject to theorder of priority set forth in the Indenture.
We will cause to be deposited directly into the Revenue Account all amounts that we are entitled toreceive under, in connection with or pursuant to the Operating Agreements or ancillary agreements relatedthereto and, in any event, shall immediately deposit in the Revenue Account any funds we shall receive from theAFT in respect of the Concessions. However, certain funds will not be required to be deposited in the RevenueAccount and/or will not be subject to the order of priority set forth in the Indenture. For example, cash proceedsfrom any Debt permitted to be incurred under the Indenture in connection with Vendor Financings will beapplied to purchase buses for the Bus Network and Permitted Investments funded with SubordinatedIndebtedness incurred by the Issuer or any Guarantor as contemplated in clause (g) of the definition of“Permitted Investments” will be applied as set forth therein. See “Description of Notes and FinanceAgreements—Treatment of Funds—Deposits of Funds to and Distribution of Funds from the Revenue Account.”Since these and other funds will not be required to be deposited in the Revenue Account and/or will not besubject to the order of priority set forth in the Indenture, there could be less funds available to repay the Notes ormake designated payments under the Indenture.
Restrictive covenants in the Indenture governing the Notes may restrict the manner in which we can operateour business.
The Indenture governing the Notes requires us and our subsidiaries to meet certain financial ratios andtests and contains covenants limiting, among other things, our ability and the ability of certain of our restrictedsubsidiaries to:
• incur additional senior, pari passu or subordinated indebtedness;
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• pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinatedindebtedness;
• make restricted payments;
• guarantee debts;
• create liens;
• create any consensual limitation on the ability of our restricted subsidiaries to pay dividends, makeloans or transfers property to us;
• engage in sale-leaseback transactions;
• engage in transactions with affiliates;
• sell assets, including capital stock of our subsidiaries; and
• consolidate, merge or transfer assets.
These restrictions could impair our ability to respond to certain business opportunities or to makecertain investments. See “Description of Notes and Finance Agreements—Negative Covenants of the Issuer andthe Guarantors.” Instruments governing any other debt that we may obtain will likely also contain affirmativeand negative covenants.
The instruments governing our debt, including the Notes offered hereby, contain cross-default provisions thatmay cause all of the debt issued under those instruments to become immediately due and payable as a result ofa default under an unrelated debt instrument.
Our failure to comply with the obligations contained in the indenture or other instruments governing ourindebtedness or to obtain certain waivers could result in an event of default under the applicable instrument,which could result in the related debt and the debt issued under other instruments becoming immediately due andpayable. In that event, we would need to raise funds from alternative sources, which may not be available to uson favorable terms, on a timely basis or at all. Alternatively, a default could require us to sell our assets andotherwise curtail operations in order to pay our creditors.
We may not have the ability to repurchase the Notes upon a change of control as required by the indenture.
Upon the occurrence of a “change of control” (as defined in the indenture), we will be required to offerto purchase all outstanding Notes at 101% of their principal amount plus accrued and unpaid interest andAdditional Interest, if any, to the date of repurchase. We may not have sufficient funds to repurchase all of theNotes. In addition, we may be prohibited by future debt facilities from repurchasing any of the Notes unless thelenders thereunder consent to the repurchase. Our failure to repurchase the Notes would be a default under theindenture governing the Notes. A default under the indenture could result in an event of default under our otherindebtedness if the default relates to a payment default or the holders of the Notes were to accelerate the debtunder our Notes. If the foregoing occurs, we may not have enough assets or liquidity to satisfy all obligationsunder the indenture governing the Notes and any other indebtedness that is accelerated.
Upon the occurrence of a termination event or occurrence of any expropriatory action, the Notes will beredeemed.
Upon the occurrence of a Termination Event or any Expropriatory Action, to the extent of theExpropriation Compensation received, we will be required to redeem the Notes prior to maturity, in whole or, to
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the extent of available funds, in part, at an amount equal to the principal amount of such Notes, plus interest onsuch principal amount accrued through the redemption date, plus Additional Amounts, if any, payable in respectof such Notes. Upon such a redemption, you may not be able to reinvest the proceeds from the redemption in aninvestment that yields comparable returns. Moreover, you may suffer a loss on your investment if you purchasethe Notes at a price greater than the redemption amount of the Notes. See “Description of Notes and FinanceAgreements—Redemption—Mandatory Redemption.”
The Notes are denominated in U.S. Dollars, while payments received under the Concessions denominated inChilean pesos, which could expose us to foreign currency risks.
We will be exposed to fluctuation and volatility in the Chilean peso/U.S. dollar exchange rate becauseour payment obligations under the Notes will be denominated in U.S. dollars while our receipts under theConcession Agreements will be denominated in Chilean pesos. Our service of U.S. dollar denominated debt ispartially protected from exchange rate fluctuation by the revenue formula contained in the ConcessionAgreements, which adjusts our Concession revenues based in part on the Chilean peso/U.S. dollar exchange rate,as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations forAlsacia and Express—Quantitative and Qualitative Disclosures About Market and Operating Risks—Market andOperating Risks” and “The Concessions—Concession Revenue—Revenue Formulas.”
As an additional mitigant, on the Escrow Closing Date, Alsacia expects to enter into the Capped CallOptions described under “Management’s Discussion and Analysis of Financial Condition and Results ofOperations for Alsacia and Express—Quantitative and Qualitative Disclosures About Market and OperatingRisks—Exchange Rate Hedge.” However, the Capped Call Options will not provide a complete hedge againstChilean peso/U.S. dollar exchange rate fluctuations, and could fail to provide us with sufficient protection in theevent of large movements in the Chilean peso/U.S. dollar exchange rate. If the Chilean peso/U.S. dollar exchangerate is less than the strike price of the options, the Capped Call Options will provide no protection fromfluctuation in the exchange rate until it exceeds the strike price. If the Chilean peso/U.S. dollar exchange rateexceeds the cap rate of the Capped Call Options, then the payments received by Alsacia under the Capped CallOptions would be insufficient to protect us completely from fluctuations in the Chilean peso/U.S. dollarexchange rate. If the Hedge Counterparty under the Capped Call Options fails to meet its payment obligationsthereunder in a timely manner or at all, then we may have insufficient funds to make payments due under theNotes in a timely manner or at all. Accordingly, the Capped Call Options will not fully protect us from anyadverse effects of fluctuation and volatility in Chilean peso/U.S. dollar exchange rate, which historically hasexperienced periods of significant volatility.
If we fail to make timely payments of amounts due under the Capped Call Options (subject to anyapplicable grace period), or if any other event of default or termination event occurs thereunder, the Capped CallOptions may be terminated. There are a number of other circumstances in which the Capped Call Options mayterminate. Further, Hedge Counterparty is only obliged to make payments to Alsacia under the Capped Call Optionsas long as and to the extent that Alsacia complies with its obligations (subject to any applicable grace periods) underthe Capped Call Options (and no other event of default or termination event under the Capped Call Options hasoccurred and is continuing with respect to us). If either (i) the Capped Call Options terminate, (ii) the HedgeCounterparty is not obliged to make payments under the Capped Call Option or (iii) the Hedge Counterpartydefaults in its obligations to make payments of amounts in U.S. dollars equal to the full amount to be paid to Alsaciaon each payment date under the Capped Call Option, we will have greater exposure to changes in the Chilean Peso/U.S. dollar exchange rate. Following the termination of the Capped Call Options, unless a replacement hedgingtransaction is entered into, Alsacia may have insufficient funds to make payments under the Notes.
If the Capped Call Options terminate, there can be no assurance that Alsacia will be able to find areplacement hedge provider which has sufficiently high ratings as may be required by any of the Rating Agenciesand which agrees to enter into a replacement hedge arrangement. Consequently, we will be fully exposed tofluctuations in the Chilean peso/U.S. dollar exchange rate and our ability to make payments under the Notes maybe adversely affected.
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We may not be able to make payments in U.S. dollars.
Under current Chilean laws and Chilean Central Bank regulations, international bond issuances are nolonger required to be registered with the Chilean Central Bank and, therefore, we will not have guaranteed accessto the Formal Exchange Market for payment of interest and principal on the Notes in U.S. dollars. However, weare permitted to purchase U.S. dollars or use any U.S. dollar reserves we may have to make payments of interestand principal on the Notes. While the Chilean Government does not currently restrict the ability of Chilean orforeign persons or entities to convert Chilean pesos to foreign currencies, or to U.S. dollars in particular, it coulddo so in the future. Any restrictive exchange control policy could prevent or restrict our access to U.S. dollars tomeet our U.S. dollar obligations and could also have a material adverse effect on us. We cannot predict theimpact of any such restrictive measures on the Chilean economy.
The Notes are a new issue of securities for which there is currently no public market and you may be unableto sell your Notes if a trading market for the Notes does not develop.
The Notes have not been and will not be registered with the SEC and are being offered and sold only toqualified institutional buyers within the meaning of Rule 144A under the Securities Act and in offshoretransactions to persons other than U.S. persons pursuant to Regulation S under the Securities Act. The Notes willconstitute a new issue of securities with no established trading market and will be subject to the restrictions ontransfer described under “Notice to Investors.” In addition, the Notes have not been registered with the SVS andmay not be offered or sold publicly, or otherwise be the subject of brokerage activities in Chile. We have appliedto list the Notes on the Official List of the Luxembourg Stock Exchange and to trade on the Euro MTF market ofthe Luxembourg Stock Exchange. However, there is a possibility that the application may not be accepted and anactive trading market for the Notes may not develop or be sustained. If a trading market does not develop or isnot maintained, the value of the Notes may be adversely affected and holders of the Notes may experiencedifficulty in reselling the Notes or may be unable to sell them at all.
The liquidity of any market for the Notes will depend on the number of holders of the Notes, the interestof securities dealers in making a market in the Notes, prevailing interest rates, our operating results, prospects forother companies in our industry, the market for similar securities, risks associated with Chilean issuers of similarsecurities and other factors. If an active trading market does not develop, the market price and liquidity of theNotes may be adversely affected. If the Notes are traded, they may trade at a discount from their initial offeringprice depending upon prevailing interest rates, the market for similar securities, general economic conditions, ourperformance and business prospects and other factors.
The Notes are subject to certain transfer restrictions.
The Notes are being offered in reliance upon an exemption from registration under the Securities Act.Therefore, the Notes may be transferred or resold only in a transaction registered under or exempt from theregistration requirements of the Securities Act and in compliance with any other applicable securities law. See“Transfer Restrictions.”
We may form subsidiaries which will not guarantee the Notes, and claims under the Notes will be structurallysubordinated to claims of creditors of such subsidiaries.
Under the Indenture governing the Notes and subject to certain limitations, we can form subsidiarieswith equity or Subordinated Debt proceeds as a Permitted Investment, which subsidiaries will not guarantee theNotes. Such subsidiaries may be granted concessions by the Chilean Government or carry out services inconnection with our concessions, and their operations may be subject to substantial risks. In the event of abankruptcy, liquidation or reorganization of any of such subsidiaries, holders of their indebtedness and their tradecreditors will generally be entitled to payment of their claims from the assets of those subsidiaries before anyassets are made available for distribution to us.
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The market valuation of the Notes may be exposed to substantial volatility and may be affected bydevelopments in emerging markets other than Chile.
A real or perceived economic downturn or higher interest rates could cause a decline in the trading valueof the Notes, and of debt instruments generally, and thereby negatively impact the market for debt instruments,and more specifically, the Notes. Because the Notes may be thinly traded, it may be more difficult to sell andaccurately value the Notes. In addition, as has been evident of late in the recent turmoil in the global financialmarkets, the present economic slowdown and the uncertainty over its breadth, depth and duration, the entire bondmarket can experience sudden and sharp price swings, which could be exacerbated by large or sustained sales bymajor investors in the Notes, a high-profile default by another issuer, movements in indices tied to debt securitiesor other related securities or investments, or simply a change in the market’s perspective regarding debtsecurities. Moreover, if one of the major rating agencies lowers our credit rating or the rating for the Notes, themarket price of the Notes will likely decline.
In addition, the market value of securities of other Chilean companies has, to varying degrees, beenaffected by economic and market conditions in other Latin American countries and emerging market economiesin other parts of the world. Although economic conditions in those countries may differ significantly fromeconomic conditions in Chile, investors’ reactions to developments in any of these other countries may have amaterial adverse effect on the market value of the Notes.
The obligations under the Notes will be subordinated to certain statutory liabilities.
Under Chilean bankruptcy law, the obligations under the Notes are subordinated to certain statutorypreferences. In the event of liquidation, the statutory preferences, including claims for salaries, wages, securedobligations, social security, taxes and court fees and expenses, will have preference over any other claims,including claims by any investor with respect to the Notes.
Holders of Notes may find it difficult to enforce civil liabilities against us or our directors, officers andcontrolling persons.
We are organized under the laws of Chile and our principal place of business (domicilio social) is inSantiago, Chile. Most of our directors, officers and controlling persons reside outside the United States. Inaddition, all or a substantial portion of our assets are located outside the United States. As a result, it may bedifficult for holders of Notes to effect service of process within the United States on those persons or to enforcejudgments against them, including in any action based on civil liabilities under the U.S. federal securities laws.Based on the opinion of our Chilean counsel, there is doubt as to the enforceability against those persons inChile, whether in original actions or in actions to enforce judgments of U.S. courts, of liabilities based solely onthe U.S. federal securities laws. See “Enforcement of Civil Liabilities.”
Payments of interest or premium, if any, under the Notes by the Issuer are subject to withholding taxes andmay also be subject to certain additional tax in Chile.
Under current Chilean law and regulations, payments of interest or premium, if any, to holders of theNotes that are not residents of Chile for purposes of Chilean taxation generally will be subject to a Chileanwithholding tax at a rate of 4.0%. Subject to certain exceptions, we will pay Additional Amounts so that theamount received by the holder after the Chilean withholding tax will equal the amount that would have beenreceived if the withholding taxes had not been applicable.
The interest or premium, if any, paid on the Notes may also be subject to a special additional tax inChile equal to the difference between the withholding tax paid and a 35% tax rate to the extent paid on theportion of our indebtedness considered to be “excessive.” Our indebtedness will be considered to be “excessive”when in the commercial year in which the Notes are issued we have an indebtedness with entities related to usqualifying for the 4% withholding tax rate that exceeds three times our “net worth,” as calculated for Chilean tax
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purposes. Based on advice from our tax advisor, we believe that the lender or creditor with respect to the Notesfor this purpose is the holder of record of the Global Note, and as a result, the interest or premium paid on theNotes should not be subject to this special additional tax. However, since there have been no rulings on the issue,there is no assurance that the taxing authorities would agree with our position. If our position is successfullychallenged by taxing authorities, payments in respect of the Notes could become subject to the special additionaltax described above, which could have a materially adverse impact on our ability to make payments under theNotes.
If certain changes to tax law were to occur, we would have the option to redeem the Notes.
The Notes are redeemable at our option in whole (but not in part), at any time at the principal amountthereof plus accrued and unpaid interest and any Additional Amounts due thereon if, as a result of changes in thelaws or regulations after the date of this prospectus affecting Chilean taxation, we become obligated to payAdditional Amounts with respect to interest on the Notes such that the total rate of withholding or deductionapplicable on such Notes is in excess of 4.0%. We are unable to determine whether an increase in thewithholding tax rate will ultimately be presented to or enacted by the Chilean Congress. See “Description ofNotes and Finance Agreements—Redemption—Redemption Solely for Tax Reasons.”
Our equityholder may take actions that conflict with your interests.
Upon completion of the Escrow Closing Date, the sole equityholder of Alsacia will be GPS Group. Atthat time, GPS Group will have the right to designate members of Alsacia’s board of directors and/or its officers.See “Business—Our History—Restructuring,” “Management” and “Principal Shareholders.” Our board ofdirectors has the authority, subject to the terms of our debt, to issue additional indebtedness or equity, implementequity repurchase programs, declare dividends and make other such decisions about our equity.
In addition, the interests of GPS Group could conflict with your interests. For example, if we encounterfinancial difficulties or are unable to pay our debts as they mature, the interests of GPS Group might conflict withyour interests as a holder of the Notes. GPS Group may also have an interest in pursuing acquisitions,divestitures, financings or other transactions that, in its judgment, could enhance its equity investments, eventhough such transactions might involve risks to you, as holders of the Notes.
Credit ratings may not reflect all risks, are not recommendations to buy or hold securities and may be subjectto revision, suspension or withdrawal at any time.
One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings maynot reflect the potential impact of all risks related to structure, market, additional factors discussed above andother factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or holdsecurities and may be revised or withdrawn by the rating agency at any time. Changes in credit ratings issued bynationally recognized statistical rating organizations could adversely affect us and have an adverse effect on themarket price of the Notes.
Risks Relating to the Collateral
Impediments exist to any foreclosure on the collateral, which may adversely affect the proceeds of anyforeclosure.
Substantially all of the documents that create liens on the collateral for the benefit of the Notes whichwe refer to as the “Collateral Documents,” will be governed by the laws of Chile, and substantially all of thecollateral is located in Chile. Any foreclosure would therefore be required to comply with Chilean legal andprocedural requirements, which require that foreclosure only be permitted upon receipt of a judicial order andcarried out by public auction before the same court, and differ substantially from those in the United States. Inparticular, Chilean law does not allow for self-executing mechanisms or expedited foreclosure proceedings with
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respect to these types of liens. Any proceeding against the collateral in Chile would be required to be initiated ina Chilean court, and could involve significant delays. In order to foreclose the collateral as a consequence of anevent of default under the Indenture, a Chilean court will require a final and conclusive judgment for the paymentof money rendered from a U.S. court and the courts of Chile will enforce such final and conclusive foreignjudgment for the payment of money rendered by the U.S. court referred to above in accordance with theexequatur procedure contemplated for the enforcement of foreign judgments (including, among other things, theissuance of letters rogatory) in the Chilean Civil Procedure Code without any retrial or re-examination of themerits of the original action. We may also have available to us defenses under Chilean law not available underU.S. law to any foreclosure proceeding. In addition, foreclosure proceedings would need to be brought underU.S. law with respect to certain of the collateral. These delays could result in a deterioration of the collateral anda decrease in the value that would otherwise be realizable upon foreclosure. During this period, the cash proceedsfrom any sales of assets that we are not required to hold in a segregated account with the trustee, if any, maybecome commingled with our other cash assets and therefore not be identifiable.
Although we have agreed as described herein to cause perfection of certain mortgages and pledgeswithin 30 days after the merger of the SPV into Alsacia and the Notes being operational as against Alsacia andthe Guarantors, there can be no assurance that the registration and publication of such pledges and mortgages willbe properly or timely made. In particular, mortgages on real property will be perfected and enforceable againstthird parties only after the mortgages are registered in the applicable public registries of property and pledgesover the buses will be perfected and enforceable against third parties only after registration of the pledge in theRegistro de Prenda sin Desplazamiento and the Motorized Vehicle Registry.
With respect to moneys held in accounts maintained in Chile by Chilean banks, on the merger date andeach time that the AFT deposits funds in the Revenue Account and on any other date funds in excess of U.S.$1.0million are deposited in any Chilean Account (other than the Transaction Checking Accounts), the ChileanCollateral Agent will create and perfect a money pledge. The time periods for registration and publication varybetween public registries, and we can provide no assurance as to our ability to perfect first-priority securityinterests on our and the Guarantors real property, buses and other assets. In the absence of such registration, theliens on such collateral in Chile would not be enforceable against third parties.
In addition, please be aware that Article 445 No. 17 of the Chilean Civil Procedure Code sets forth thatthe assets that are part of a service that may not be stopped without harming the transit or the public hygienecannot be seized or attached. Therefore this provision affects assets that are part of the Collateral, such as busesand terminals. However, they may be pledged or mortgaged since it is authorized to seize or attach the moneythat they produce (i.e. any insurance indemnity).
A bankruptcy may limit the ability of the collateral agent to realize value from the collateral.
The right of the trustee to foreclose on the collateral upon the occurrence of an event of default underthe Indenture is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding wereto be commenced by or against us before the trustee could foreclose on the collateral.
Under Chilean bankruptcy law (Ley de Quiebras), the trustee may be prevented from foreclosing orselling all or any part of the collateral prior to our liquidation. Under Chilean bankruptcy law, the bankruptcydeclaration of the mortgagor or pledgor does not suspend the right of the mortgagee or pledgee to separatelyforeclose the collateral before the bankruptcy court. However, the mortgagee or pledgee must guarantee, to thesatisfaction of the receiver (síndico), payment to statutorily preferred creditors, in case the proceeds obtainedfrom the sale of non-encumbered assets are not sufficient to make full payment of their credits. Under Chileanlaw, Statutory Priorities are claims in Chile for: (i) withholding taxes or similar charges, (ii) employee benefitsand social security contributions, (iii) judicial expenses incurred for the benefit of creditors generally and otherbankruptcy expenses, and (iv) other preferences which are of similar nature. Each security interest created underChilean law shall be in all aspects superior in right to any other liens (except for Statutory Priorities) andenforceable against the grantor and third parties, any receiver and any attaching creditor or third party, provided
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however, that under Chilean bankruptcy law, a secured creditor is barred from foreclosing in, among others, thefollowing special circumstances during a bankruptcy proceeding: (w) creditors holding at least two thirds ofoutstanding claims with right to vote decide that the debtor in bankruptcy should continue carrying on business, asecured creditor which voted for the continuation of the business (continuación del giro) would be barred fromforeclosing on the assets securing its credit if contemplated in the business continuation; (x) if creditors holdingmore than one half of the outstanding claims decide that all or a portion of the assets of the debtor in bankruptcyshall be sold as an economic unit (enajenación como unidad económica) and such unit encompasses assetscovered by a mortgage, pledge or another security interest, a secured creditor cannot separately foreclose thereon.Instead, such secured creditor would have a first priority claim against the proceeds of the sale of the assetsconcerned (subject to the Statutory Priorities); (y) if creditors holding more than 50% of the outstanding claimssupport a proposal for the reorganization of the business of the debtor concerned, secured creditors would bebarred from foreclosing for a period of 90 days from the date on which the order of the bankruptcy courtsummoning all creditors to a creditors meeting to discuss the proposal is notified; and (z) if a secured creditorvotes in a creditors meeting approving any type of compositions (convenio judiciales).
In addition, significant uncertainties are inherent in a Chilean bankruptcy proceeding that may result infurther delays that could adversely impact the value of the collateral. Delays in proceedings, the inadequacy ofavailable remedies and the inability of the receiver to exercise available remedies could result in a substantialdeterioration of the collateral during the pendency of any such proceeding.
Similar and additional factors may limit the ability of the collateral agent to realize value from thecollateral under applicable U.S. federal bankruptcy law.
The value of the collateral securing the Notes may not be sufficient to satisfy our obligations under the Notes.
Except for statutory priorities, the Notes will be secured by first-priority liens on the collateral (asdefined under “Description of Notes and Finance Agreements—Collateral”), some of which will be in place atthe time Alsacia acquires the shares of the Initial Temporary Issuer and the Notes being operational as againstAlsacia and the Guarantors and some of which will be created and perfected thereafter. In the event of aforeclosure on the collateral, we would be required to pay certain fees and other amounts prior to distribution ofany amount with respect to the Notes and the other obligations secured by the collateral, which amounts wouldthen be shared on a pro rata basis among the Notes and such other secured obligations. In addition, certain otherpermitted liens may exist on the collateral which may have priority over the liens securing the Notes. The amountthat would be distributed in respect of the Notes upon any foreclosure or otherwise, or that would arise from theproceeds from the sale of the collateral may not be sufficient to satisfy our obligations under the Notes.
The value of the collateral and any amount to be received at foreclosure will depend upon many factorsincluding, among others, the condition of the collateral, changes in our industry, the ability to sell the collateral inan orderly sale, the availability of buyers, the flexibility given by the Chilean courts to sell the collateral, ourability to create and perfect first-priority liens on our existing and future real estate or other existing and futurecollateral after the closing of this offering, the condition of the Chilean and U.S. economies and exchange rates.No appraisal of any of the collateral has been prepared by us or on our behalf in connection with the offering andsale of the Notes or is expected to be prepared while the Notes are outstanding. Given our competitive position inthe Chilean market, there may not be any buyer willing and able to purchase a significant portion of our assets inthe event of foreclosure.
In addition, since we are not pledging all of our assets, it may not be possible to sell our business as agoing concern upon foreclosure. The collateral consists of a substantial majority, but not all, of our tangibleassets (including permits necessary to conduct our business); in particular, certain of our transportation and otherequipment and our accounts receivable do not form part of the collateral or they had been granted collateralunder loan agreements. Furthermore, the Concessions, our principal assets, are pledged as collateral, but may notbe effectively sold or foreclosed because transfer of the Concessions require the prior consent of the Ministry. Inlight of the fact that the collateral is closely related to assets that are not pledged as collateral, or pledged but
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requiring consent for transfer, the ability of the trustee to sell the collateral as a going concern may be limited.Each of the factors described above could reduce the likelihood of a foreclosure as well as reduce the amount ofany proceeds in the event of foreclosure and thus the amount of cash available to holders of the Notes.
The value of the collateral may decrease because of obsolescence, impairment or certain casualty events.
The value of the collateral may be adversely affected by obsolescence, changes in the technology in ourindustry, other changes in equipment or certain casualty events. Although we will be obligated under theCollateral Documents to maintain insurance with respect to the collateral, the proceeds of such insurance may notbe sufficient to repurchase adequate replacement collateral or will equal the fair market value of the damagedcollateral. Our insurance policies also do not cover all events that may result in damage to the collateral.Additionally, we may not be required under the Collateral Documents to purchase any title insurance insuring thetrustee’s lien on the collateral. A loss arising from a title defect with respect to the collateral may adversely affectthe value of the collateral.
After-acquired property may not be subject to the security interest securing the Notes.
Applicable laws require that certain property and rights acquired after the grant of a general securityinterest can only be perfected at the time the property and rights are acquired and identified. The trustee andcollateral trustee may not monitor the future acquisition of property and rights that constitute collateral, andnecessary action may not be taken to properly perfect the security interest in such after-acquired collateral. Thecollateral trustee has no obligation to monitor the acquisition of additional property or rights that constitutecollateral or the perfection of any security interest in favor of the Notes against third parties. Such failure mayresult in the loss of the security interest therein or the priority of the security interest in favor of the Notes againstthird parties.
The interest of the holders of Notes in certain collateral securing the Notes may have to be shared undercertain circumstances and the imposition of certain permitted liens will dilute the value of such assets ascollateral for the Notes.
The collateral securing the Notes will also secure our obligations under the Notes Hedge Agreements.The Indenture will also permit us to incur additional debt up to the applicable maximum debt threshold amountspursuant to the Indenture that may be secured by a first priority lien on the collateral securing the Notes to theextent permitted by the Indenture and the applicable security documents. Any additional debt secured by thecollateral pursuant to the Indenture would dilute the value of the rights the holders of the Notes have in thecollateral.
In addition, the Indenture permits liens in favor of third parties to secure purchase money indebtednessand capital lease obligations, subject to certain limitations, among other permitted liens, and any assets subject tosuch liens will be automatically excluded from the collateral securing the Notes. See “Description of Notes andFinance Agreements—Collateral.” If an event of default occurs and the Notes are accelerated, the Notes and theGuarantees will rank equally with other unsubordinated and unsecured indebtedness of the relevant entity withrespect to such excluded property.
There are circumstances other than repayment or discharge of the Notes under which the collateral securingthe Notes will be released automatically, without your consent or the consent of the collateral trustee.
The Issuer and the Guarantors will be entitled to the release of property and other assets constitutingCollateral for the Liens securing the Notes and the Note Guarantees under any one or more of the circumstancesdescribed under the heading “Description of Notes and Finance Agreements—Collateral Trust Agreement—Release of Liens on Collateral under the Collateral Trust Agreement” and “Description of Notes and FinanceAgreements—Collateral Trust Agreement—Release of Liens in Respect of Notes and Notes Hedge Agreementsunder the Indenture and the Collateral Trust Agreement.”
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If any Collateral is released before the Notes are repaid or discharged, it could adversely effect yourability to be repaid under the Notes.
You may be limited in your ability to influence the exercise of rights and remedies under the securitydocuments.
Under the terms of the Collateral Trust Agreement, the Secured Party Agents will act only upon thedirection of the holders of more than 50% of the sum of : (i) the aggregate outstanding principal amount (or inthe case of the Notes and the Notes Hedge Agreement considered together, the Voting Balances thereof) of theNotes, the Notes Hedge Agreement and any other secured Senior Indebtedness incurred in accordance with theIndenture (including outstanding letters of credit whether or not then available or drawn), the holders of whichhave acceded to the collateral trust agreement. Therefore, the holders of the Notes may be unable to influence theexercise of rights and remedies under the security documents.
We have significant obligations after the closing of this offering related to the creation and perfection ofsecurity interests in our assets and addition of insurance beneficiaries for the benefit of the Notes.
Certain security interests will not be in place by the issue date of the Notes or will not be perfected onthe issue date of the Notes. We have agreed to create and perfect non-possessory pledges on the buses of Alsaciaand Express within 30 days after the acquisition of the Initial Temporary Issuer by Alsacia and the Notes beingoperational as against Alsacia and the Guarantors. We have also agreed to create mortgages on all of our and theGuarantors’ real property within 30 days after the acquisition of the Initial Temporary Issuer by Alsacia and theNotes being operational as against Alsacia and the Guarantors and to use our reasonable best efforts to perfectsuch mortgages within such 30-day period. In order to be perfected and enforceable against third parties, thenon-possessory pledges on the buses in Chile will require registration of the pledge deed in the Registro dePrenda sin Desplazamiento and the Motorized Vehicle Registry; and the mortgages on real property will requireregistration in the public registry of property in Chile where the real property is located. In addition, the pledgesover the Operating Agreements require (i) the appearance of the counterparty of Alsacia and Express in each ofthose agreements in the pledge deed, (ii) the judicial notification of each counterparty or (iii) acceptance by eachcounterparty. In order to perfect the pledge over the Concessions, the Ministry must be judicially notifiedregarding the creation of the pledge. Security interests and other types of transactions entered into before filingfor bankruptcy are subject to judicial review and they may be declared void or voidable if they were executed toharm creditor of the debtor.
We have also agreed to appoint the U.S. Collateral Agent or the Chilean Collateral Agent, as applicable,as additional insured and beneficiary (beneficiario) under the insurance policies of (and for the benefit of) theConcessionaires (and by Panamerican and Eco Uno in the event that either of them carries any insurance). Theseappointments may occur after the Escrow Closing Date due to administrative delays. Until such appointments areeffective, holders of Notes will not be fully protected from losses otherwise covered by our insurance.
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USE OF PROCEEDS
The Initial Temporary Issuer will place the proceeds from this offering, together with approximatelyU.S.$2.0 million (the “Alsacia Escrow Deposit”), representing an amount equal to interest on the Notes to andexcluding March 3, 2011 and the related Additional Amounts, in escrow pending consummation of the EscrowClosing Date. In the event the Closing Conditions cannot be met, the Escrow may be terminated prior toFebruary 28, 2011 by giving notice to the Noteholders, at which time the Escrowed Amounts shall be paid to theNoteholders three business days thereafter (the “Escrow Redemption Date”). If no notice is given and the ClosingConditions shall have not been satisfied on or prior to February 28, 2011, the Escrow Redemption Date shall beMarch 3, 2011. If the Escrow Redemption Date occurs, then the Escrowed Amounts shall be paid to theNoteholders on a pro rata basis based on the principal amount of Notes held by such Noteholders in an amountequal to the initial purchase price therefor together with interest at the stated rate therefor from and including thedate of initial issuance and through and excluding the date of any such redemption.
If the Acquisition and the Escrow Closing Date are consummated, we estimate that the net proceedsfrom the offering and sale of the Notes will be approximately U.S.$448 million after deduction of discounts andexpenses associated with the offering. In addition, the Transactions (and in particular the Reserve Accountsecuring the Notes) will be funded in part with U.S.$12.0 million of net proceeds from the Bus Terminal Loan toAlsacia from Banco Internacional in Santiago, Chile, as described below under “—Secured Subordinated BusTerminal Loan.” Collectively, the gross proceeds from the offering of Notes and the Bus Terminal Loan will beused to:
• repay U.S.$148.3 million in existing debt owed by Alsacia, including principal, accrued interest andany prepayment penalties, as described in Appendix B, which is net of $18.1 million in paymentreserves that Alsacia has paid on the existing debt that will be released upon its repayment;
• repay U.S.$179.1 million in existing debt owed by Express, including principal, accrued interestand any prepayment penalties, as described in Appendix C, which is net of $28.0 million inpayment reserves that Express has paid on the existing debt that will be released upon itsrepayment;
• pay U.S.$18.9 million to settle and terminate two U.S.$/Ch$ currency swap agreements held byExpress which are used to hedge currency risk relating to Express’ existing debt which will berepaid above;
• pay U.S.$0.6 million in other fees in connection with the early repayment of certain debt owed byAlsacia and Express, as described in footnote 7 to Appendix B and footnote 5 to Appendix C.
• make a U.S.$80 million intercompany loan to Panamerican to pay the purchase price to acquire the55% of Express that is not currently owned by Alsacia’s affiliates and partially repay certain debt inorder to facilitate equity transfers related to the Acquisition, as described below under “—TheAcquisition”;
• pay Banco Internacional U.S.$0.5 million in fees and expenses relating to the Bus Terminal Loan;
• fund U.S.$36.7 million into the Reserve Account, O&M Revenue Account and Overhaul Account,as required in connection with the Notes as described under “Description of Notes and FinanceAgreements—Treatment of Funds”; and
• pay other fees and expenses incurred in connection with the Transactions and the Acquisition,including discounts, fees and expenses payable to the initial purchasers and their counsels.
If and to the extent any of the foregoing uses of proceeds is less than indicated above, we expect to usethe remaining proceeds for general corporate purposes. If the Escrow is released, Alsacia will be paid the AlsaciaEscrow Deposit and will repay any borrowings made to fund it.
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The Acquisition
On February 3, 2011, the controlling shareholders of GPS Group entered into an agreement (the“Acquisition Agreement”) with members of Grupo Transportador and other related persons and entities toacquire the 55% of Express that is not currently beneficially owned by affiliates of Alsacia and to separate theother business interests of GPS Group and Grupo Transportador. Pursuant to the Acquisition Agreement,affiliates of GPS Group will pay an aggregate of U.S.$70.5 million in cash to members of Grupo Transportadorand their affiliates. We expect that the Acquisition will be completed upon the Escrow Release.
Pursuant to the terms of the Acquisition Agreement, GPS Group and its affiliates will acquire 100% ofoutstanding shares of Eco Uno, which currently owns 99.998% of Express (Carlos Ríos currently owns theremaining 0.002% of Express). In order to effect the acquisition of Eco Uno, the following transactions will becarried out pursuant to the Acquisition Agreement:
(i) Panamerican, through its Chilean branch, will pay U.S.$27,000,000 to Express del Futuro S.A., acompany that will be wholly owned by members of Grupo Transportador following theAcquisition, to acquire all of the shares of Eco Uno currently owned by Express del Futuro S.A.,which constitute 60% of the total outstanding shares of Eco Uno;
(ii) Panamerican and other affiliates of GPS Group will pay all taxes associated with theU.S.$27,000,000 payment to Express del Futuro S.A. described above, which we currently estimatewill total U.S.$2,274,182;
(iii) Panamerican will pay U.S.$26,850,000 to Grupo Transportador S.A., a member of GrupoTransportador, to acquire 100% of the shares of Ferroaluminios Limitada Panamá S.A., whichcurrently owns 10% of the total outstanding shares of Eco Uno, as well as other assets; and
(iv) Panamerican will pay U.S.$3,000,000 to Santa Ana Corporación Humanitaria S.A., a member ofGrupo Transportador, to acquire 100% of the shares of Ursus Corporation Inc., which currentlyowns 2.0% of the total outstanding shares of Eco Uno, as well as other assets.
GPS Group currently owns 100% of (i) Alsacia, which owns 16% of the outstanding shares of Eco Unoand (ii) EDTM Konsultores E.U., which, through its wholly owned Chilean branch, owns 11.7% of the totaloutstanding shares of Eco Uno. Carlos Ríos currently owns the remaining 0.3% of Eco Uno.
The following transactions will also be carried out pursuant to the Acquisition Agreement:
(i) Additional cash payments by Panamerican:
1. Panamerican will pay U.S.$330,000 to Bariloche International Corporation in order to cancelan obligation assumed by affiliates of GPS Group to pay interest to Bariloche InternationalCorporation under a promissory note from Eco Uno; and
2. Panamerican will pay U.S.$11,020,500 to Bariloche International Corporation in order tosettle certain obligations of the controlling shareholders of GPS Group in connection with aprior acquisition agreement, which was entered into, but never consummated, in October 2009by the controlling shareholders of GPS Group and members of Grupo Transportador, whosubsequently assigned their interests therein to Bariloche International Corporation.
(ii) Transfer of assets by affiliates of GPS group:
1. Express del Futuro S.A. will pay 1,780 million Colombian pesos, less Colombian foreigncompany withholding taxes of 249.2 million Colombian pesos, to TDC Group Corp., anaffiliate of GPS Group, to reacquire 445 shares of Express del Futuro S.A. currently owned byTDC Group Corp., which represent 15.71% of the total outstanding shares of Express delFuturo S.A.; and
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2. Express del Futuro S.A. will pay 1,464 million Colombian pesos to EDTM Konsultores E.U.to reacquire 366 shares of Express del Futuro S.A. currently owned by EDTM KonsultoresE.U., which represent 12.92% of the total outstanding shares of Express del Futuro S.A.
In order to facilitate these transfers of shares of Express del Futuro S.A., Panamerican will payU.S.$7,885,000 to Carlos Ibarcena Valdivia, to partially cancel a debt owed by the Controlling Shareholders ofGPS Group and guaranteed by certain rights of TDC Group Corp. and EDTM Konsultores E.U. in connectionwith their shares of Express del Futuro S.A. This transaction is not controlled by the Acquisition Agreement andwill be effected separately by Panamerican and Carlos Ibarcena Valdivia.
If and to the extent any of the foregoing payments relating to the Acquisition are less than indicatedabove, we expect to use the remaining proceeds for general corporate purposes.
In addition to the transactions described above, other de minimis payments and transfers will be madeunder the Acquisition Agreement in order to separate the business interests of GPS Group and GrupoTransportador.
The Acquisition Agreement contains the following key features and provisions:
• With the exception of Panamerican, none of the Issuer or Guarantors is party to the AcquisitionAgreement.
• Panamerican’s obligations under the Acquisition Agreement are expressly terminated upon theclosing of the Acquisition.
• The relevant parties have given representations and warranties regarding the ownership andtransferability of the shares to be transferred under the Acquisition Agreement.
• From the date of the Acquisition Agreement until the closing of the Acquisition, the parties agreenot to authorize Express to acquire additional debt or make any payments outside the ordinarycourse of business, except those expressly provided for as of the date of the Acquisition Agreement.
• The Acquisition Agreement provides that the members of Grupo Transportador shall not be heldresponsible in any way, directly or indirectly, for any statements, omissions, ormisrepresentations made in connection with this offering, and acknowledges that the members ofGrupo Transportador have not had access to, have not participated in or approved any aspect of thisoffering. After the closing of the Acquisition, GPS Group and its affiliates will not have anyrecourse to the members of Grupo Transportador under the Acquisition Agreement for any breachof representation or warranty or otherwise. The Notes will not be guaranteed by Express, and therewill be no recourse to Express, until the consummation of the Acquisition with the proceeds of thisoffering when released from escrow. EDTM Konsultores E.U., Yolima Esperanza VenegasHernandez, TDC Group Corp., Carlos Mario Ríos Velilla, Francisco Javier Ríos Velilla andInversiones Licitación 5 TM S.A., all affiliates or owners of GPS Group, have agreed to indemnifythe members of Grupo Transportador for claims against them arising out of this offering or relatingto the time period prior to the consummation of the Acquisition Agreement.
• Grupo Transportador S.A. agrees to retain responsibility for all obligations and liabilities of, orclaims, investigations or legal proceedings against, Ferroaluminios Limitada Panamá S.A.
• Santa Ana Corporación Humanitaria S.A. agrees to retain responsibility for all obligations andliabilities of, or claims, investigations or legal proceedings against, Ursus Corporation Inc.
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The current relationship of the Issuer, the Guarantors, GPS Group and Grupo Transportador is shown inthe diagram below.
Grupo Ríos(Colombia)
Grupo Transportador(Colombia)
Grupo Trarr nsportrr ador(Colombia)
Grupo Transportador(Colombia)
Ferro Aluminio Ltda. (“Ferro”)
(Panamá)
Ursus CorporationInc. (“Ursus”)
(Panamá)
Ursrr us Corporarr tionInc. (“(( Ursrr us”ss)
(Panamámm)
Ursus CorporationInc. (“Ursus”)
(Panamá)
Express de Santiago Uno S.A.(“Express”)
(Chile)
100%100%
100%
99.998%
2% 10% 11.7% 0.3%
71.37% 28.63% 100%
60%EDTM Branch(Chile)
0.002%
EDTM KonsultoresEU.
(“EDTM”)(Colombia)
100%
PanamericanInvestment(Bermuda)
100%
Inv. Alsacia S.A.(“Alsacia”)
(Chile)
Eco Uno S.A.(“Eco Uno”)
(Chile)
Express del FuturoS.A.
(“EXPF”)(Colombia)
16%
Upon completion of the Acquisition and the Escrow Closing Date, the relationship of the Issuer, theGuarantors and GPS Group will be as shown in the diagram below.
Eco Uno(Chile)
GUARANTOR
Eco Uno(Chile)
GUARANTOR
Express(Chile)
GUARANTOR
Express(Chile)
GUARANTOR
99.998%
11.7%
0.002%
Ursus(Panamá)
Ferro(Panamá)
%01%2
60%
EDTM (ChileanBranch)
EDTM (ChileanBranch)
GPS Group(Panama)
GPS Group(Panamá)
Panamerican(Bermuda)GUARANTOR
Panamerican(Bermuda)GUARANTOR
EDTM(Colombia)
%001%001
100%
Alsacia(Chile)ISSUER
100%100%
0.3%16%
Panamerican(ChileanBranch)
Panamerican(ChileanBranch)
100% 100%
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Secured Subordinated Bus Terminal Loan
The Transactions (and in particular the Reserve Account securing the Notes) will be funded in part withU.S.$12.0 million of net proceeds from the U.S.$12.5 million Bus Terminal Loan from Banco Internacional inSantiago, Chile to the Initial Temporary Issuer which we expect will be assumed by Alsacia and guaranteed on asubordinated basis by the Guarantors upon the Escrow Closing Date. Principal and interest on the Bus TerminalLoan will be payable in Chilean pesos in accordance with its equivalent Unidad de Fomento, which adjust eachpayment amount by an index measured by the inflation rate in Chile as of the payment date. Between the NoteClosing Date and the Escrow Closing Date, the Bus Terminal Loan will be secured by Alsacia’s Huechurabaterminal (the “Huechuraba Terminal”) under a second priority mortgage which will be subordinate to a firstpriority mortgage which is currently in effect under the Existing Indebtedness. Upon the Escrow Closing Date,the Existing Indebtedness will be repaid and the mortgage in favor of the Bus Terminal Loan will become thefirst priority mortgage. In addition, at that time, the Huechuraba Terminal will be contributed by Alsacia to aspecial purpose subsidiary (“Lorena SpA”) and leased back to Alsacia. The shares of Lorena SpA will also bepledged by Alsacia to secure the Bus Terminal Loan. Lorena SpA will own no other assets other than theHuechuraba Terminal, incur no liabilities other than to Alsacia through the lease, and conduct no business otherthan leasing the Huechuraba Terminal to Alsacia. The Bus Terminal Loan will initially be funded into theEscrow along with the Notes prior to the Note Closing Date, and will be repaid out of the Escrow if the EscrowClosing Date does not occur.
The Bus Terminal Loan will bear interest at 7.05%, payable on the Payment Dates for the Notes out ofthe waterfall described under “Description of Notes—Treatment of Funds—Bi-Monthly Distributions—fifth”,and will finally mature in August 2018, unless prepaid sooner or pursuant to the agreed principal amortizationschedule. Principal then due on the Bus Terminal Loan is repayable out of the waterfall with the cash availablepursuant to “Description of Notes—Treatment of Funds—Semi-Annual and Special Distributions—tenth”beginning with an annual installment of 1/6 of the initial loan amount on the Payment Date in August 2012,followed by semi-annual installments of $2.0 million beginning on the Payment Date in August 2013 until theBus Terminal Loan is fully paid. If there are insufficient funds in the waterfall to pay principal on the BusTerminal Loan on any Payment Date, the principal payment will be deferred to the next Payment Date on whichfunds are available, but no later than the final maturity date of the Bus Terminal Loan. If there is a Change ofControl (as defined in the Indenture), or if there is an event of default under loan, a portion of the cash availableat the “tenth” level of the waterfall must be used to repay the Bus Terminal Loan pro rata with any repaymentsmade to the L/C Bank. Upon the occurrence of an Expropriatory Action on the Concessions or a termination ofany Concession Agreement, the Bus Terminal Loan will become pari passu with Notes and become immediatelydue and payable and the Huechuraba Terminal will be transferred to Banco Internacional as payment in kind forthe Bus Terminal Loan.
If Alsacia fails to pay interest on the Bus Terminal Loan on any Payment Date, or if Alsacia fails to payprincipal when due out of available funds in the waterfall “-tenth”, Banco Internacional may, following a graceperiod of 10 days for interest only, foreclose on the Huechuraba Terminal, and the stock of Lorena SpA. To theextent the proceeds received by Banco Internacional in any disposition of the Huechuraba Terminal areinsufficient to repay the Bus Terminal Loan, any deficiency will be subordinated to the prior payment in full ofthe Notes and any other then-outstanding Senior Indebtedness of Alsacia and the Guarantors in cash.
Other than foreclosure on the Huechuraba Terminal and the stock of Lorena SpA, Banco Internacionaldoes not have any other remedies against Alsacia or any Guarantor (including acceleration of the Bus TerminalLoan) until after the Notes have been paid in full in cash; provided that, if the Company’s payment obligations onthe Notes are accelerated following an Event of Default under the Indenture or a Termination Event with respectto the Concession, or if there is a bankruptcy Event of Default as provided in the Indenture, Banco Internacionalmay foreclose on the Huechuraba Terminal and accelerate the Bus Terminal Loan, subject to the subordinationprovisions discussed above. Banco Internacional has agreed not to take actions to initiate any bankruptcyproceedings against the Company or any Guarantor.
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Alsacia’s lease of the Huechuraba Terminal from Lorena SpA will accrue rent at the rate of 674.1Unidad de Fomento per month (plus applicable taxes), which will be deferred by Alsacia until January 2, 2018when the deferred rent will be due and payable in cash on a subordinated basis to the Notes. The lease will beterminated on foreclosure on the Huechuraba Terminal by the Banco Internacional.
The Bus Terminal Loan will include covenants of Alsacia not to increase the interest rate on the Notesabove the rates (including default interest) contemplated by the Indenture, not to amend the waterfall priorities inthe Indenture in any manner materially adverse to the Bus Terminal Loan lender, and not to reduce the DebtService Coverage Ratio requirements in the Indenture that would permit Alsacia to incur additional SeniorIndebtedness.
The subordination provisions of the Bus Terminal Loan, which have been agreed by BancoInternacional on the basis of the “fifth” payment priority for semi-annual interest described above, will expire bytheir terms when the Notes have been paid in full in cash, and Banco Internacional will become pari passu inright of payment with any Senior Indebtedness that is outstanding at that time, and will share Collateral pro ratawith any Permitted Refinancing Indebtedness incurred to refinance all then outstanding Notes in their entirety. Inaddition, Alsacia and the Guarantors will agree not to grant Liens (other than Permitted Liens) to secureIndebtedness incurred after repayment in full of the Notes unless the Bus Terminal Loan is equally and ratablysecured.
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CAPITALIZATION
The following table sets forth, on a consolidated basis, the capitalization as of September 30, 2010 for(i) each of Alsacia and Express on a historical, unaudited basis, and (ii) each of Alsacia and Express on a proforma, as adjusted basis after giving effect to the issuance and sale of the Notes and the use of the proceeds ascontemplated under “Use of Proceeds” and assume that the Notes are assumed by Alsacia from the InitialTemporary Issuer upon completion of the Escrow Closing Date. See “The Escrow.”
This table should be read in conjunction with “Use of Proceeds,” “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and the consolidated financial statements for each ofExpress and Alsacia, including the related notes, appearing elsewhere in this Offering Memorandum. The tablehas been prepared in Chilean pesos.
Alsacia ExpressAs of
September 30,2010
Adjustment(1)
As Adjusted(1)
As ofSeptember 30,
2010Adjustment
(1)As Adjusted
(1)(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
(Millions of constant Ch$ as of September 30, 2010)
Short-term debtShort-term bank loans . . . . . . . . . . . . 8,367 (8,367) — 7,772 (7,772) —Current portion of other long-term
bank loans . . . . . . . . . . . . . . . . . . . 9,977 (9,977) — 11,409 (11,409) —Current portion of Notes offered
hereby . . . . . . . . . . . . . . . . . . . . . . — — — — — —
Total short-term debt . . . . . . . 18,344 (18,344) — 19,181 (19,181) —
Long-term debtLong-term bank loans . . . . . . . . . . . . 47,583 (47,583) — 68,450 (68,450) —Derivative contracts (2) . . . . . . . . . . — — — 7,969 (7,969) —Notes offered hereby . . . . . . . . . . . . — 224,414 224,414 — — —Notes and accounts payable to
related companies . . . . . . . . . . . . . — — — — 95,600 95,600
Total long-term debt . . . . . . . . 47,583 176,831 224,414 76,419 19,181 95,600
Shareholders’ equityShare capital . . . . . . . . . . . . . . . . . . . 10,308 — 10,308 21,355 — 21,355Capital revaluation reserve . . . . . . . . 205 — 205 425 — 425Retained earnings (loss) . . . . . . . . . . (2,843) 600 (2,243) 7,543 — 7,543
Total shareholders’ equity . . . 7,670 — 8,270 29,323 — 29,323
Total capitalization . . . . . 73,597 158,487 232,684 124,923 — 124,923
(1) In connection with this offering, we expect to pay off all existing debt of Alsacia and Express in full. See“Use of Proceeds.” The historical amounts are therefore being eliminated in the adjustment column.
(2) Amounts exclude any impact from the expected entry into the Notes Hedge Agreement, which is describedunder “Exchange Rate Hedge.”
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SELECTED FINANCIAL INFORMATION OFALSACIA ON A CONSOLIDATED BASIS AND
EXPRESS ON A CONSOLIDATED BASIS
As discussed herein, concurrently with this offering, Alsacia, Express, Eco Uno and Panamerican willbecome affiliated companies under common control by GPS Group and GPS Group intends to operate Alsaciaand Express jointly under common management and to develop common operating procedures and sharing ofoverhead and other costs in order to maximize efficiencies for both entities. However, because Alsacia is notacquiring any interest in Express in the Acquisition, those entities cannot be presented together on a pro formabasis in this Offering Memorandum. See “Introductory Note.”
The following tables present summary selected financial information and other data as of or for theyears ended December 31, 2007, 2008 and 2009 and as of or for the nine months ended September 30, 2009 and2010 for each of Alsacia on a consolidated basis with its subsidiary and Express on a consolidated basis with itssubsidiary. These summary selected financial data presented below are qualified in their entirety by reference to,and should be read in conjunction with, the financial statements and notes thereto for each of Alsacia and Expressincluded elsewhere in this Offering Memorandum. The following data as of and for each of the years endedDecember 31, 2007, 2008 and 2009 have been derived from the audited financial statements for each of Alsaciaand Express, which have been prepared in Chilean pesos in accordance with Chilean GAAP. The data as of or forthe nine months ended September 30, 2009 and 2010 have been derived from the unaudited interim financialstatements for each of Alsacia and Express and have been prepared in Chilean pesos in accordance with ChileanGAAP. See “Presentation of Financial and Other Information” and “Appendix A—Significant DifferencesBetween Chilean GAAP and IFRS.”
The unaudited information for the nine months ended September 30, 2009 and 2010 includes alladjustments, consisting of only normal recurring adjustments, which in the opinion of management for each ofAlsacia and Express are necessary for the fair presentation of the information. The results of operations for thenine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the yearending December 31, 2010.
Financial information for each of the three years ended December 31, 2009 has been restated to constantChilean pesos as of December 31, 2009 in accordance with Chilean GAAP. Financial information for each of thenine months ended September 30, 2009 and 2010 has been restated to constant Chilean pesos as of September 30,2010 in accordance with Chilean GAAP.
No financial or operating information is provided in this Offering Memorandum for either Eco Uno orPanamerican, which are additional Guarantors of the Notes. Eco Uno is a holding company with the sole purposeof holding 99.998% of the equity of Express. Panamerican is a holding company formed for the sole purpose ofacquiring and consolidating the ownership of 99.7% of the equity of Eco Uno through the Acquisition. Both EcoUno and Panamerican lend or borrow intercompany debt to or from affiliates from time to time, and neither willhave any employees or other activities except as described herein. See “Description of Notes and FinanceAgreements—Additional Covenants Related to Panamerican and Eco Uno.” As a result, Alsacia does not believeany information concerning Eco Uno or Panamerican would be material to prospective investors.
No financial or operating information is provided in this Offering Memorandum for the InitialTemporary Issuer because it has never had, and currently does not have, any assets, liabilities or operations. It isa special purpose company established to facilitate the issuance of the Notes as described under “The Escrow”.
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Alsacia ExpressAs of or for the Year Ended
December 31,As of or for the Year Ended
December 31,2007 2008 2009 2007 2008 2009(Millions of constant Ch$ as of
December 31, 2009, except ratios)(Millions of constant Ch$ as of
December 31, 2009, except ratios)
Income Statement DataOperating income
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,918 70,866 66,658 66,924 91,183 86,065Operating expenses . . . . . . . . . . . . . . . . . . . . (38,558) (56,528) (60,230) (59,270) (79,578) (75,172)
Gross margin . . . . . . . . . . . . . . . . . . . . . 11,360 14,337 6,429 7,654 11,605 10,893Administrative and selling expenses . . . . . . . (4,201) (4,989) (6,613) (5,981) (5,635) (6,464)
Operating income . . . . . . . . . . . . . . . . . . 7,159 9,348 (184) 1,673 5,970 4,429
Non-operating income (expenses)Interest income . . . . . . . . . . . . . . . . . . . . . . . . 821 692 170 2,005 2,058 623Profit (loss) investment in related
companies . . . . . . . . . . . . . . . . . . . . . . . . . 2,031 491 (404) — — —Other non-operating income . . . . . . . . . . . . . 59 306 193 10,525 156 40Interest expenses . . . . . . . . . . . . . . . . . . . . . . (4,197) (6,001) (4,164) (8,436) (10,116) (6,005)Other non-operating expenses . . . . . . . . . . . . (287) (437) (582) (1,241) (348) (219)Price-level restatements . . . . . . . . . . . . . . . . . 5,062 6,390 (1,975) 6,882 (157) (1,344)Foreign exchange rate differences . . . . . . . . . 3,856 (17,413) 15,501 5,394 6,963 (2,347)
Non-operating income . . . . . . . . . . . . . . 7,345 (15,972) 8,739 15,129 (1,444) (9,252)
Income before income taxes . . . . . . . . . 14,504 (6,623) 8,555 16,802 4,526 (4,823)Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (1,895) 1,084 (1,990) (3,085) (707) 872
Net (loss) income . . . . . . . . . . . . . . 12,609 (5,539) 6,565 13,717 3,819 (3,951)
Balance Sheet DataCash and cash equivalents . . . . . . . . . . . . . . . . . . . 354 312 3,876 3,562 3,323 25Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 13,994 17,263 19,663 48,010 52,860 32,716Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . 61,306 66,574 60,800 88,144 85,975 77,782Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,776 108,140 101,382 191,243 196,181 148,142Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 31,377 29,550 34,381 32,742 45,067 27,198Total long-term liabilities . . . . . . . . . . . . . . . . . . . 63,704 80,434 62,280 125,944 114,740 88,521Total shareholders’ equity . . . . . . . . . . . . . . . . . . . 3,696 (1,843) 4,722 32,556 36,374 32,423
Cash Flow DataNet cash flow from operating activities . . . . . . . . . 4,725 4,848 9,431 7,557 19,719 27,954Net cash flow from (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,232 8,038 (2,321) 12,563 (5,222) (8,483)Net cash flow used in investing activities . . . . . . . (11,776) (12,957) (3,538) (16,880) (14,465) (22,827)
Other Financial DataCapital expenditures (1) . . . . . . . . . . . . . . . . . . . . . 5,736 2,307 1,867 16,052 10,222 5,141Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,316 7,578 8,256 7,275 12,598 13,205Adjusted EBITDA (2) . . . . . . . . . . . . . . . . . . . . . . 12,538 18,501 10,473 12,508 22,507 21,477Interest coverage ratio (3) . . . . . . . . . . . . . . . . . . . 2.99 3.08 2.52 1.48 2.22 3.58Adjusted EBITDA/net sales . . . . . . . . . . . . . . . . . . 25.12% 26.11% 15.71% 18.69% 24.68% 24.95%Total debt (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,298 96,035 75,185 118,239 127,637 99,866Total debt/capitalization (5) . . . . . . . . . . . . . . . . . . 95.26% 101.96% 94.09% 76.47% 77.82% 75.49%Total debt/shareholders’ equity . . . . . . . . . . . . . . . 2,010.3% — % 1,592.2% 325.06% 305.90% 308.01%
(1) Paid during the period.
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(2) We calculate Adjusted EBITDA by adding Depreciation and Amortization to Operating Income. Becauseour calculation of Adjusted EBITDA begins with Operating Income, Adjusted EBITDA also does notinclude several non-cash expenses that are deducted from Net income under Chilean GAAP such as Price-level restatements and Foreign exchange rate differences. Adjusted EBITDA also does not include ourInterest expenses or Income Taxes, which are also deducted from our Net income. Adjusted EBITDA is anot a recognized financial measure under Chilean GAAP or IFRS and does not have a standardizedmeaning. As such, Adjusted EBITDA as presented herein may not be comparable to similarly titledmeasures provided by other companies. We disclose Adjusted EBITDA because we believe that certaininvestors use it as an indicator of a company’s ability to meet debt service and capital expenditurerequirements. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income oroperating income as indicators of operating performance. The following table shows a reconciliation of ourAdjusted EBITDA to operating income for the periods indicated:
Alsacia ExpressAs of or for the Year Ended
December 31,As of or for the Year Ended
December 31,2007 2008 2009 2007 2008 2009
(Millions of constant Ch$ asof December 31, 2009, except
ratios)
(Millions of constant Ch$ asof December 31, 2009, except
ratios)
Reconciliation of Operating Income toAdjusted EBITDA
Operating income . . . . . . . . . . . . . . . . . . . . . . . 7,159 9,348 (184) 1,673 5,970 4,429Depreciation . . . . . . . . . . . . . . . . . . . . . . . 4,316 7,578 8,256 7,275 12,598 13,205Amortization . . . . . . . . . . . . . . . . . . . . . . . 1,063 1,574 2,401 3,560 3,939 3,843
Adjusted EBITDA . . . . . . . . . . . . . . . 12,538 18,501 10,473 12,508 22,507 21,447
(3) Interest coverage ratio is calculated as Adjusted EBITDA over gross interest expense, which includes thenet effect of swaps.
(4) Total debt is calculated as total financial debt, including accrued interest, which includes the net effect ofswaps.
(5) Capitalization is calculated as total debt plus total shareholders’ equity.
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Alsacia ExpressAs of or for the
Nine Months EndedSeptember 30,
As of or for theNine Months Ended
September 30,2009 2010 2009 2010
(Millions of Ch$ as of September 30, 2010)(unaudited) (unaudited) (unaudited) (unaudited)
Income Statement DataOperating income
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,311 54,732 63,290 70,844Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,304) (46,739) (56,604) (66,663)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,008 7,994 6,686 4,181Administrative and selling expenses . . . . . . . . . . . . . . . . . . . (4,593) (4,552) (4,821) (4,631)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 3,441 1,865 (450)
Non-operating income (expenses)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 150 620 72Profit (loss) investment in related companies . . . . . . . . . . . . (721) (553) — —Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . 87 383 83 585Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,701) (3,136) (4,929) (3,861)Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . (47) (140) (173) (157)Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,445) 1,312 (3,042) (806)Foreign exchange rate differences . . . . . . . . . . . . . . . . . . . . . 10,991 2,170 (1,135) 394
Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 4,332 186 (8,576) (3,772)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . 4,746 3,627 (6,711) (4,222)Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,604) (772) 1,231 474
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 2,855 (5,480) (3,748)
Balance Sheet DataCash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728 33 963 74Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,955 17,574 33,199 32,954Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,218 60,720 81,029 72,345Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,824 97,665 153,631 141,038Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,451 28,718 27,637 30,682Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,110 61,276 94,381 81,033Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,262 7,670 31,613 29,323
Cash Flow DataNet cash flow from operating activities . . . . . . . . . . . . . . . . . . . . 7,057 2,840 2,251 6,454Net cash flow from (used in) financing activities . . . . . . . . . . . . . (3,466) (5,760) (8,451) (8,276)Net cash flow used in investing activities . . . . . . . . . . . . . . . . . . . (3,181) (1,156) 3,709 2,637
Other Financial DataCapital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,711 2,659 3,953 1,027Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,313 6,470 10,068 10,230Adjusted EBITDA (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,671 11,158 15,685 12,714Interest coverage ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.34 3.56 3.18 3.29Adjusted EBITDA/net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.23% 20.39% 24.78% 17.95%Total debt (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,002 65,927 108,683 87,630Total debt/capitalization (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.99 0.90 0.77 0.75Total debt/shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.35 8.91 3.44 2.99
(1) Paid in the period.
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(2) We calculate Adjusted EBITDA by adding Depreciation and Amortization to Operating Income. Becauseour calculation of Adjusted EBITDA begins with Operating Income, Adjusted EBITDA also does notinclude several non-cash expenses that are deducted from Net income under Chilean GAAP such as Price-level restatements and Foreign exchange rate differences. Adjusted EBITDA also does not include ourInterest expenses or Income Taxes, which are also deducted from our Net income. Adjusted EBITDA is anot a recognized financial measure under Chilean GAAP or IFRS and does not have a standardizedmeaning. As such, Adjusted EBITDA as presented herein may not be comparable to similarly titledmeasures provided by other companies. We disclose Adjusted EBITDA because we believe that certaininvestors use it as an indicator of a company’s ability to meet debt service and capital expenditurerequirements. Adjusted EBITDA should not be considered in isolation, or as a substitute for net income oroperating income as indicators of operating performance. The following table shows a reconciliation of ourAdjusted EBITDA to operating income for the periods indicated:
Alsacia ExpressAs of or for the
Nine Months EndedSeptember 30,
As of or for theNine Months Ended
September 30,2009 2010 2009 2010(Millions of Ch$ as of September 30, 2010)
(unaudited)
Reconciliation of Operating Income to Adjusted EBITDAOperating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 3,441 1,865 (450)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,313 6,470 10,068 10,230Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,944 1,247 3,752 2,934
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,671 11,158 15,685 12,714
(3) Interest coverage ratio is calculated as Adjusted EBITDA over gross interest expense, which includes thenet effect of swaps.
(4) Total debt is calculated as total financial debt, including accrued interest, which includes the net effect ofswaps.
(5) Capitalization is calculated as total debt plus total shareholders’ equity.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS FOR ALSACIA AND EXPRESS
The following discussion is based on the financial statements for Alsacia on a consolidated basis withits subsidiary and Express on a consolidated basis with its subsidiary. It should be read in conjunction with thefinancial statements and notes thereto included elsewhere in this Offering Memorandum, as well as the data setforth in “Selected Financial and Operating Information of Alsacia on a Consolidated Basis and Express on aConsolidated Basis.” The audited consolidated financial statements for each of Alsacia and Express as ofDecember 31, 2008 and 2009, and for each of the years ended December 31, 2007, 2008 and 2009 have beenprepared in constant Chilean pesos as of December 31, 2009 in accordance with Chilean GAAP. The unauditedinterim consolidated financial statements for each of Alsacia and Express as of and for the nine months endedSeptember 30, 2009 and 2010 included herein are also prepared in constant Chilean pesos as of September 30,2010, in accordance with Chilean GAAP. Chilean GAAP differs in certain significant respects from IFRS, asdescribed in Appendix A to the extent applicable to us.
Overview
General
Alsacia and Express together are the largest operator of bus transportation services in the Santiago,Chile metropolitan area, as measured by the available bus capacity and scheduled route length of Alsacia andExpress combined. We jointly operate under the Alsacia and Express brands and Concessions to providepassenger bus service within Transantiago, the rapid transit system of Santiago managed by the ChileanGovernment.
As of September 30, 2010, we collectively owned or operated 72 bus routes, 1,861 buses and 9 busterminals and we had 6,038 employees. In the first nine months of 2010, we received an average of 27 millionPassenger Validations per month, which was approximately 28% of the total bus Passenger Validations inTransantiago. Our fleet passenger capacity accounted for 31% and 34% of the total passenger capacity and 21%and 23% of the scheduled route length in Transantiago in 2009 and the first nine months of 2010, respectively.Alsacia and Express had revenue of Ch$66,658 million and Ch$86,065 million and operating (loss) income ofCh$(184) million and Ch$4,429 million for the year ended December 31, 2009, respectively, and revenue ofCh$54,732 million and Ch$70,844 million and operating income (loss) of Ch$3,441 million and Ch$(450)million, respectively, for the nine months ended September 30, 2010.
Transantiago is the public transportation system of the Santiago metropolitan area, consisting of thecity’s buses, the Metro subway, an integrated electronic payment system designed to allow passengers to pay busand subway fares with electronic stored value cards, as well as planning and construction functions fortransportation infrastructure. Transantiago was designed and implemented by the Chilean Government in 2003 ina complete overhaul of the then-existing public transportation system in Santiago, which was largely unregulatedand prone to accidents, inefficiency and excessive pollution. Transantiago was implemented in three phasesbetween October 2005 and February 2007 and rerouted the bus lines for more efficient service, consolidatedapproximately 3,500 independent bus operators into 14 concession holders, introduced an integrated electronicpayment system and replaced the majority of buses then in use with a modern standardized fleet. See“Transantiago.”
We hold concessions to operate two of the five trunk bus lines that, together with the Metro subway andthe feeder bus lines, make up Transantiago and provide transit service across Santiago’s 10 metropolitan zones.Under the Concession Agreements, the Ministry grants Alsacia and Express the right to use the roads of Santiagofor the provision of urban passenger transportation services along their assigned routes. Our Concessions wereinitially awarded in 2005 and will expire in October 2018 unless previously terminated. Each respectiveConcession Agreement can be renewed for 18 months if Alsacia or Express does not reach minimum revenuethresholds set forth in its respective Concession Agreement. See “The Concessions.”
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Revenue
We generate substantially all of our revenue under the Concessions. Our Concession revenue is based onformulas set forth in the Concession Agreements that are driven by four main factors: the Cost Index, BaseRevenue, Variable Revenue and the Service Fulfillment Ratio. See “The Concessions—Concession Revenue” fora more complete description of each of these factors and our Concession revenue. In addition to Concessionrevenue, Alsacia and Express generated 0.3% and 0.6%, respectively, of their total 2009 revenue from the sale ofadvertising on buses.
Operating Expenses
The main components of our operating expenses include labor, fuel, depreciation and amortization,spare parts and maintenance, and administrative and selling expenses. The primary factors affecting ouroperating expenses are the scale of our operations and the efficiency of our bus fleet. Labor expenses aredependent on changes in the CPI, bonuses related to the completion of operational objectives and the size of ourworkforce. Fuel expenses are dependent on the number of kilometers traveled by our buses, the price of dieselfuel in Chile and the efficiency of our bus fleet. Depreciation and amortization expenses are dependent on thevalue of our fixed assets and our capital expenditures. Spare parts and maintenance expenses are dependent onthe number of kilometers traveled by our buses, the number of accidents in which are buses are involved, theaging of our buses and seasonal changes in climate. Administrative and selling expenses are dependent on thesize of our business generally.
Because our Concession revenue is adjusted for changes in the Cost Index, changes in our expensesrelating to inflation of the Chilean peso, the Chilean peso/U.S. dollar exchange rate and the cost of fuel and laborare partially offset by corresponding increases in our revenue.
Seasonality
Demand for public transportation in Santiago is seasonal in nature and generally follows the pattern ofcommercial activity of the city, with decreased revenue during the Chilean summer months of January andFebruary and during the Chilean Independence Day in September. Our Concession Agreements reflect thisseasonality through monthly adjustments to Base Revenue and the projected number of monthly PassengerValidations. Although our revenue is seasonal, many of our expenses are fixed in nature, resulting in seasonalchanges to income when our revenue changes. The following graph illustrates these trends:
28.233.3 35.0 36.9
29.233.2 33.7 34.712.1
20.8 21.4
15.017.2 17.3
16.6
17.2
0
10
20
30
40
50
60
70
80
4Q3Q1Q
-
5.0
10.0
15.0
20.0
25.0
Passenger Validations 20082Q
Revenue 2008 Revenue 2009
(Revenue in thousands of millions of Ch$; Passenger Validations in millions)
Alsacia Revenue and Passenger Validations
Passenger Validations 2009
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Express Revenue and Passenger Validations
25.0
20.0
15.0
10.0
5.0
27.6
24.3
53.157.5
51.753.651.952.347.544.7
18.1
15.7
22.625.4
21.522.1
30.0120
100
80
60
40
20
0
1Q 2Q 3Q 4Q
-
(Revenue in thousands of millions of Ch$; Passenger Validations in millions)
Passenger Validations 2008
Revenue 2008 Revenue 2009
Passenger Validations 2009
Passenger Validations and Passenger Fares
As discussed above, our Base Revenue, which comprised 43% and 36% of 2009 revenue for Alsacia andExpress, respectively, is not directly dependent on Passenger Validations. On the other hand, our VariableRevenue, which comprised 57% and 64% of 2009 revenue for Alsacia and Express, respectively, is largelydependent on Passenger Validations.
In addition, our Concession revenue is not calculated based on passenger fares set by the Ministry forTransantiago passengers, and ridership on our buses appears to have been unaffected by past changes inpassenger fares. Since January 2009, the Ministry has raised Transantiago fares from Ch$380 to Ch$520, andduring this period we have not been able to identify any change in our Passenger Validation volume that could beattributed to fare increases. In addition, the Ministry has publicly committed to freeze fares during the currentpresidential term, and this commitment is supported by the recent increase in subsidies available to Transantiago.See “The Concessions—The Subsidy.” Nevertheless, any increases in passenger fares in the future could affectour revenue indirectly over the long term by changing passenger demand for our services, which would changeour Variable Revenue.
Currency Fluctuations
Foreign exchange rate differences are caused by the net effect of revaluing our liabilities that aredenominated in U.S. dollars using the prevailing exchange rate at the end of each period. Substantially all of ourrevenue and operating expenses have been denominated in Chilean pesos, except for payments under our existingdebt, most of which are denominated in U.S. dollars. Because of this difference between the denominations ofour assets and liabilities, decreases in the Chilean peso/U.S. dollar exchange rate have historically resulted inforeign exchange rate differences that were treated as gains on our income statement. Conversely, increases inthe exchange rate have historically resulted in foreign exchange rate differences that were treated as losses on ourincome statement. While we expect to refinance our existing debt with the proceeds of the Notes offered hereby,the Notes will also be payable in U.S. dollars. In conjunction with this offering, we intend to purchase U.S.dollars derivatives, which will be designed to hedge against future appreciation of the U.S. dollar against theChilean peso. See discussion below under “—Quantitative and Qualitative Disclosures About Market andOperating Risks—Exchange Rate Hedge.”
However, our Concession revenue is adjusted based on changes in the Cost Index, which is a weightedaverage of several macroeconomic measures and commodity prices, including the Chilean peso/U.S. dollarexchange rate, which comprises 11% and 2.2% of the Cost Index for Alsacia and Express, respectively. As aresult, we expect that changes in the Chilean peso/U.S. dollar exchange rate will be somewhat offset byadjustments to our revenue.
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The Chilean peso/U.S. dollar exchange rate has fluctuated significantly in the past and it may continueto fluctuate similarly in the future. In the three-year period ended September 30, 2010, the value of the Chileanpeso relative to the U.S. dollar has fluctuated between a low of Ch$431 per U.S.$1.00 and a high of Ch$677 perU.S.$1.00, according to the Chilean Central Bank. During the nine months ended September 30, 2010, the valueof the Chilean peso relative to the U.S. dollar appreciated approximately 4.6%, in real terms. See “ExchangeRates.”
Impact of Inflation and Price-Level Restatement
We are required under Chilean GAAP to restate non-monetary assets and liabilities, Unidades deFomento (a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of theChilean inflation rate), foreign currency-denominated monetary assets and liabilities, shareholders’ equity andincome and expense accounts to reflect the effect of variations in the purchasing power of the Chilean pesoduring each accounting period. Chilean peso-denominated monetary assets and liabilities were not restatedbecause they were presented at their purchasing power as of the date of the balance sheet. The net effect of theincrease or decrease in net purchasing power, calculated as described above, is included in our financialstatements under price-level restatements, which is included in net income.
Historically, substantially all of our revenue, expenses, assets and liabilities have been denominated inChilean pesos, other than our U.S. dollar denominated debt. As a result, inflation in the value of the Chilean pesohas generally resulted in price-level restatements that are gains on our income statement while deflation in thevalue of the Chilean peso has generally resulted in price-level restatements that are losses on our incomestatement.
Beginning on January 1, 2011, we will begin reporting our financial statements in accordance withIFRS, rather than Chilean GAAP. IFRS does not require inflationary adjustments for companies in countries, likeChile, that are not hyperinflationary. Therefore, under IFRS, we will not adjust our financial statements forinflation.
Although we will no longer recognize these variations in our financial statements, inflation or deflationof the Chilean peso will continue to have a real impact on the purchasing power of our net assets. Chile hasexperienced high levels of inflation in the past, although Chilean inflation has been more moderate in recentyears. High levels of inflation in Chile could materially and adversely affect the Chilean economy or ourbusiness. Inflation for 2007 and 2008 were 7.8% and 7.1%, respectively, as reported by the INE. In 2009, Chileexperienced deflation of 1.4%, and accumulated inflation for the first nine months of 2010 was 2.2%, as reportedby the INE.
The impact of inflation on our revenue is partially offset by our Concession revenue formula, whichadjusts our revenue based on changes in the Cost Index. 18% and 27% of the Cost Index for Alsacia and Express,respectively, are based on changes in the level of inflation or deflation in the Chilean peso. As a result, we expectthat the impact of inflation will be somewhat offset by adjustments to our revenue.
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Results of Operations
Alsacia—Comparison of the Nine Months Ended September 30, 2009, to the Nine Months EndedSeptember 30, 2010
Revenue. Alsacia’s total revenue increased 8.8% to Ch$54,732 million in the first nine months of 2010compared to Ch$50,311 million in the first nine months of 2009 as shown below.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Revenue from passenger transportationservices . . . . . . . . . . . . . . . . . . . . . . . . . 50,219 54,544 8.6%
Advertising revenue . . . . . . . . . . . . . . . . . 92 188 104.3%
Total revenue . . . . . . . . . . . . . . . . . . . . . . . 50,311 54,732 8.8%
Revenue from Passenger Transportation. Alsacia’s revenue from passenger transportation servicesincreased 8.6% to Ch$54,544 million in the first nine months of 2010 compared to Ch$50,219 million in the firstnine months of 2009. The table below summarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010
Base Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 19,985 21,093 5.5%Variable Revenue . . . . . . . . . . . . . . . . . . . . . . . 25,717 29,909 16.3%
Potential revenue . . . . . . . . . . . . . . . . . . . . . . . 45,702 51,002 11.6%Service Fulfillment Ratio . . . . . . . . . . . . . . . . . 97.5% 96.8% -0.8%
Realized revenue after Service FulfillmentRatio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,605 49,342 10.7%
Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,118) (424) -62.1%Reimbursement for Transantiago expenses . . . 4,975 5,112 2.8%Revenue Price-level restatements and other
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 1,757 514 -70.7%
Total Revenue from passenger transportationservices (Millions of constant Ch$ as ofSeptember 30, 2010) . . . . . . . . . . . . . . . . . . . 50,219 54,544 8.6%
Alsacia’s Base Revenue increased 5.5% to Ch$21,093 million in the first nine months of 2010 comparedto Ch$19,985 million in the first nine months of 2009, as a result of a 5.2% increase in Alsacia’s average CostIndex between these two periods.
Alsacia’s Variable Revenue increased 16.3% to Ch$29,909 million in the first nine months of 2010compared to Ch$25,717 million in the first nine months of 2009. The main reasons for this increase were: (i) anincrease in average payment per passenger (Pago por Pasajero Transportado, or PPT) of 11% to Ch$296 in thefirst nine months of 2010 compared to Ch$267 in the first nine months of 2009 and (ii) an increase in PassengerValidations of 4.6% to 101 million in the first nine months of 2010 compared to 96 million in the first ninemonths of 2009. The 11% increase in average PPT was substantially explained by the variation of the followingcomponents within its formula: an 8.1% increase in scheduled route distance under Alsacia’s Operating Plans, a5.5% increase in the average Cost Index, and a 1.3% increase in average Fleet Capacity. The increase in
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Passenger Validations could be explained by the better economic conditions and the impact of the Ministry’scampaign to fight fare evasion during the first nine months of 2010. Better economic conditions in Chile aredemonstrated by an improvement in GDP and a reduction in unemployment in the twelve-month period endedSeptember 30, 2010. The monthly economic activity index (Indicador Mensual de Actividad Económica), whichis prepared by the Chilean Central Bank as a measure of the Chilean GDP, increased 5.8% from 118.8 as ofSeptember 2009 to 125.7 as of September 2010. As of September 30, 2009 there were 298,000 peopleunemployed in Santiago compared to 234,000 as of September 30, 2010.
The increase in Alsacia’s average Cost Index was due to changes in the Cost Index’s underlyingmacroeconomic variables (including, among others, the CPI, the cost of fuel and labor and the Ch$/U.S.$Exchange Rate), all of which are measured based on indices prepared by the INE and the Chilean Central Bank.
Service Fulfillment Ratio, which adjusts Base Revenue and Variable Revenue, decreased 0.8% to anaverage of 96.8% in the first nine months of 2010 compared to an average of 97.5% in the first nine months of2009. In May 2009, calculation of the Service Fulfillment Ratio was modified to exclude any buses that did notboard a new passenger for 30 minutes from Alsacia’s actual performance figures in order to include only busesmoving in commercial service. This modification generally decreased Alsacia’s Service Fulfillment Ratio, evenwith no change in its operational performance. Beginning in October 2009, the Ministry introduced anothermodification in the calculation of the Service Fulfillment Ratio, adding a distance (kilómetro) measurement foreach half hour of bus service. As a result of the October 2009 modification, the Service Fulfillment Ratio becameknown as Índice de Cumplimiento Plaza Kilómetro Hora, or ICPKH, rather than Índice de Cumplimiento PlazaHora, or ICPH. These modifications made the Service Fulfillment Ratio more demanding and largely explain thedecrease in Alsacia’s average Service Fulfillment Ratio in the first nine months of 2010 compared to the firstnine months of 2009.
Alsacia’s revenue from passenger transportation services is reduced by discounts applied by theMinistry using the ICF and the ICR, which totaled Ch$424 million in the first nine months of 2010 and Ch$1,118million in the first nine months of 2009.
All Transantiago service providers are required to pay Transantiago expenses in proportion to theirindividual revenue, including, among others, the 2.0% AFT fee and the fees for the Transantiago UserInformation System (Sistema de Información al Usuario de Transantiago). Alsacia’s share of Transantiagoexpenses totaled Ch$5,112 million in the first nine months of 2010 and Ch$4,975 million in the first nine monthsof 2009. However, pursuant to its agreements with Alsacia and the Ministry, the AFT pays all Transantiagoexpenses owed by Alsacia. Alsacia accounts for payments by the AFT on its behalf as revenue under“reimbursement for Transantiago expenses” and recognizes an equivalent offsetting amount under “other”operating expenses.
Advertising Revenue. Alsacia’s advertising revenue increased 104.3% to Ch$188 million in the first ninemonths of 2010 compared to Ch$92 million in the first nine months of 2009. This increase was substantiallyexplained by the effects of the macroeconomic crisis in 2009.
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Operating Expenses. Alsacia’s operating expenses increased 3.2% to Ch$46,739 million during the firstnine months of 2010 compared to Ch$45,304 million in the first nine months of 2009. The table belowsummarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Operating expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 12,810 14,804 15.6%Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 8,386 10,084 20.2%Depreciation and amortization . . . . . 6,764 6,899 2.0%Spare parts and maintenance . . . . . . . 6,291 5,526 -12.2%Other . . . . . . . . . . . . . . . . . . . . . . . . . 11,053 9,426 -14.7%
Total operating expenses . . . . . . . . . . 45,304 46,739 3.2%
Labor expenses increased 15.6% to Ch$14,804 million in the first nine months of 2010 compared toCh$12,810 million in the first nine months of 2009. This increase was largely explained by (i) an increase ofCh$1,550 million in employee bonuses, (ii) an increase of Ch$1,131 million in overtime pay, (iii) an increase ofCh$895 million in employee benefits due to changes in social laws, (iv) a payment of a Ch$128 million bonus toemployees as a closing condition to negotiations with unions, (v) an increase of Ch$221 million in trainingexpenses, and (vi) an increase of Ch$257 million in severance indemnification payments, all of which totaledCh$4,182 million.
Fuel expenses increased 20.2% to Ch$10,084 million during the first nine months of 2010 compared toCh$8,386 million in the first nine months of 2009. During this period, the kilometers traveled by Alsacia’s busesincreased 12%, leading to an increase in diesel fuel consumption of 5.3%, which, combined with a 15% increasein the price of diesel fuel during the same period, explains the increase in fuel expenses. Alsacia implemented afuel savings program in 2010, which explains the lower fuel consumption per kilometer traveled by Alsacia’sbuses.
Depreciation and amortization expenses from operating assets increased 2.0% to Ch$6,899 million inthe first nine months of 2010 compared to Ch$6,764 million in the first nine months of 2009. This small increasewas due to an increase in the value of Alsacia’s depreciable assets.
Spare parts and maintenance expenses decreased 12.2% to Ch$5,526 million in the first nine months of2010 compared to Ch$6,291 million in the first nine months of 2009. This decrease was due primarily toAlsacia’s investment in the updating of its buses during 2009, which required more maintenance and spare partsin 2009 compared to 2010.
Other expenses decreased 14.7% to Ch$9,426 million in the first nine months of 2010 compared toCh$11,053 million in the first nine months of 2009. This decrease was primarily a result of a Ch$878 milliondecrease in Alsacia’s overhaul provision in the first nine months of 2010 compared to the first nine months of2009. Alsacia began accounting for overhaul provision in 2009, and during 2009 it was unusually high as itaccounted for expenses that would have been accounted for in prior periods had there been such a provision.During 2010, Alsacia decreased its overhaul provision due to a reassessment of the wear and tear on key buscomponents and a reduction in expected overhaul expenses based on the identification of better overhaulingservice alternatives. The remaining difference in other expenses was mainly explained by a decrease in expensesfrom third-party services.
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Administrative and Selling Expenses. Alsacia’s administrative and selling expenses decreased 0.9% toCh$4,552 million in the first nine months of 2010 compared to Ch$4,593 million in the first nine months of2009. The table below summarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Administrative and selling expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 2,327 1,830 -21.4%Depreciation and amortization . . . . . 989 817 -17.4%Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,277 1,905 49.2%
Total administrative and sellingexpenses . . . . . . . . . . . . . . . . . . . . 4,593 4,552 -0.9%
Labor expenses decreased 21.4% to Ch$1,830 million in the first nine months of 2010 compared toCh$2,327 million in the first nine months of 2009. This decrease was principally due to a decrease in the numberof administrative employees, resulting primarily from Alsacia’s outsourcing of certain planning functions to athird party, BIG Services SpA, in 2010, and a decrease in severance payments, which were higher in the first ninemonths of 2009 because certain executives left the Alsacia during that period.
Depreciation and amortization expenses from administrative and selling assets decreased 17.4% toCh$817 million in the first nine months of 2010 compared to Ch$989 million in the first nine months of 2009.This decrease was substantially explained by less amortization of expenses related to IASA de Colombia S.A., anaffiliate of Alsacia, and fewer software amortizations.
Other expenses increased 49.2% to Ch$1,905 million in the first nine months of 2010 compared toCh$1,277 million in the first nine months of 2009. This increase was primarily the result of an increase in generalexpenses for services from third parties, due principally to Alsacia’s outsourcing of certain planning functions toBIG Services SpA in 2010 and an increase in the lease expense of Alsacia’s Maipú Terminal due to a contractualramp up in the amount of monthly lease payments.
Non-operating Income (Loss). Alsacia’s non-operating income decreased 95.7% to Ch$186 million inthe first nine months of 2010 compared to Ch$4,332 million in the first nine months of 2009. The table belowsummarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Non-operating incomeInterest expenses . . . . . . . . . . . . . . . . (3,533) (2,986) -15.5%Other non-operating income . . . . . . . 40 243 507.5%Price-level restatements . . . . . . . . . . (2,445) 1,312 153.6%Foreign exchange rate differences . . 10,991 2,171 -80.2%
Loss from investment in relatedcompany . . . . . . . . . . . . . . . . . . . . (721) (552) 23.4%
Total non-operating income . . . . . . . 4,332 186 -95.7%
The decrease in interest expenses in the first nine months of 2010 compared to the first nine months of2009 was a result of a decrease in Alsacia’s outstanding debt, a decrease in the prevailing interest rate onAlsacia’s floating interest rate debt and a decrease in the Chilean peso/U.S. dollar exchange rate.
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The fluctuation in price-level restatements is discussed above under “—Overview—Impact of inflationand price-level restatement.” The fluctuation in foreign exchange rate differences is discussed above under“—Overview—Currency fluctuations.”
Loss from investment in related company relates solely to Alsacia’s investment in 16% of the equity ofEco Uno, which is a holding company that owns 99.998% of Express. Changes in the value of this investmentprimarily reflect Express’s financial performance over the same period, which is discussed below. These changesare presented net of any interest expenses recognized by Eco Uno on certain intercompany debt to its parentcompany during the period.
Income Tax and Asset Tax. The statutory Chilean corporate income tax rate was 17% in September 2010and 2009. In the first nine months of 2009 and in the first nine months of 2010, the company did not recognizeany expenses related to taxes, given that the company had losses for both periods.
The losses during the nine months ended September 30, 2009 and 2010 created deferred tax benefits,given that Alsacia generated tax losses in prior years that were carried forward to these periods. In accordancewith Chilean tax law, losses may be carried forward and back indefinitely. Tax losses are non-transferable andmay be used only by the taxpayer that incurred the losses.
Express—Comparison of the Nine Months Ended September 30, 2009, to the Nine Months EndedSeptember 30, 2010
Revenue. Express’s total revenue increased 11.9% to Ch$70,844 million in the first nine months of 2010compared to Ch$63,290 million in the first nine months of 2009 as shown below.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Revenue from passenger transportationservices . . . . . . . . . . . . . . . . . . . . . . . . . 62,987 70,334 11.7%
Advertising revenue . . . . . . . . . . . . . . . . . 303 510 68.3%
Total revenue . . . . . . . . . . . . . . . . . . . . . . . 63,290 70,844 11.9%
Revenue from Passenger Transportation. Express’s revenue from passenger transportation servicesincreased 11.7% to Ch$70,334 million in the first nine months of 2010 compared to Ch$62,987 million in thefirst nine months of 2009. The table below summarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010
Base Revenue . . . . . . . . . . . . . . . . . . . . . . . . . 22,869 24,383 6.6%Variable Revenue . . . . . . . . . . . . . . . . . . . . . . 39,920 48,158 20.6%
Potential revenue . . . . . . . . . . . . . . . . . . . . . . . 62,789 72,541 15.5%Service Fulfillment Ratio . . . . . . . . . . . . . . . . 97.8% 93.6% -4.3%
Realized revenue after Service FulfillmentRatio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,399 67,881 10.6%
Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0.0%Reimbursement for Transantiago expenses . . . 0 0 0.0%Revenue Price-level restatements and other
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 1,891 2,963 56.7%
Total revenue from passenger transportationservices (Millions of constant Ch$ as ofSeptember 30, 2010) . . . . . . . . . . . . . . . . . . 62,987 70,334 11.7%
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Express’s Base Revenue increased 6.6% to Ch$24,383 million in the first nine months of 2010compared to Ch$22,869 million in the first nine months of 2009. This increase was substantially explained by a5.9% increase in the average Cost Index between these two periods.
Express’s Variable Revenue increased 20.6% to Ch$48,158 million in the first nine months of 2010compared to Ch$39,920 million in the first nine months of 2009. This increase was substantially explained bytwo opposite movements: (i) an increase in average PPT of 22% to Ch$321 in the first nine months of 2010compared to Ch$263 in the first nine months of 2009 and (ii) a decrease in Passenger Validations of 5.7% to143 million in the first nine months of 2010 compared to 151 million in the first nine months of 2009. The 22%increase in average PPT was substantially explained by the variation of the following components within itsformula: a 6.9% increase in scheduled route distance under Express’s Operating Plans; a 132% increase in theaverage Cost Index to 4.2 in the first nine months of 2010 compared to -13 in the first nine months of 2009; a17% increase in bus passenger capacity; and the 5.7% decrease in Passenger Validations, which have an inverseeffect on PPT and led to an increase of 5.4% in average PPT. The decrease in Passenger Validations resultedfollowing the extension of Line 1 of the Metro subway, which overlaps, and therefore competes, with some ofExpress’s services.
The increase in Express’s average Cost Index was due to changes in the Cost Index’s underlyingmacroeconomic variables (including, among others, the CPI, the cost of fuel and labor and the Ch$/U.S.$Exchange Rate), all of which are measured based on indices prepared by the INE and the Chilean Central Bank.
The Service Fulfillment Ratio, which adjusts Base Revenue and Variable Revenue, decreased 4.3% toan average of 93.6% in the first nine months of 2010 compared to an average of 97.8% in the first nine months of2009. In May 2009, calculation of the Service Fulfillment Ratio was modified to exclude any buses that did notboard a new passenger for 30 minutes from Express’s actual performance figures in order to include only busesmoving in commercial service. This modification generally decreased Express’s Service Fulfillment Ratio, evenwith no change in its operational performance. Beginning in October 2009, the Ministry introduced anothermodification in the calculation of the Service Fulfillment Ratio, adding a distance (kilómetro) measurement foreach half hour of bus service. These modifications made the Service Fulfillment Ratio more demanding andlargely explain the decrease in Express’s average Service Fulfillment Ratio in the first nine months of 2010compared to the first nine months of 2009.
Express accounts for discounts under its Concession as expenses, rather than reductions in revenue.Therefore, Express does not show any discounts in the table above.
As with Alsacia, the AFT pays all Transantiago expenses on behalf of Express. However, unlikeAlsacia, Express accounts for payments by the AFT and the expenses owed to Transantiago in a single, offsettingaccount. Therefore, Express does not show any reimbursement for Transantiago expenses in the table above.
Advertising Revenue. Express’s advertising revenue increased 68.3% to Ch$510 million in the first ninemonths of 2010 compared to Ch$303 million in the first nine months of 2009. This increase was substantiallyexplained by the effects of the macroeconomic crisis in 2009.
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Operating Expenses. Express’s operating expenses increased 17.8% to Ch$66,663 million in the firstnine months of 2010 compared to Ch$56,604 million in the first nine months of 2009. The table belowsummarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Operating expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 15,888 16,660 4.9%Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 11,648 13,816 18.6%Depreciation and amortization . . . . . 12,744 12,855 0.8%Spare parts and maintenance . . . . . . . 8,624 10,519 22.0%Other . . . . . . . . . . . . . . . . . . . . . . . . . 7,700 12,813 66.4%
Total operating expenses . . . . . . . . . . 56,604 66,663 17.8%
Labor expenses increased 4.9% to Ch$16,660 million in the first nine months of 2010 compared toCh$15,888 million in the first nine months of 2009. This increase was substantially explained by an increase of11% in the number of employees between these periods, resulting primarily from an increase in operation controlpersonnel in the streets, who monitor the timing of buses, increased maintenance personnel, as Expressinternalized certain processes, and additional bus drivers for new services.
Fuel expenses increased 18.6% to Ch$13,816 million in the first nine months of 2010 compared toCh$11,648 million in the first nine months of 2009. During this period, the kilometers traveled by Express’sbuses increased 3.9%, leading to an increase in diesel fuel consumption of 2.0%, which, combined with the 15%increase in the price of diesel fuel during the same period, largely explains the increase in fuel expenses. Expressimplemented a fuel savings program in 2010, which explains the lower fuel consumption per kilometer traveledby Express’s buses.
Depreciation and amortization expenses from operating assets increased 0.8% to Ch$12,855 million inthe first nine months of 2010 compared to Ch$12,744 million in the first nine months of 2009. This smallincrease was mainly due to an increase in the value of Express’s depreciable assets.
Spare parts and maintenance expenses increased 22.0% to Ch$10,519 million in the first nine months of2010 compared to Ch$8,624 million in the first nine months of 2009. This increase was mainly due to a 3.9%increase in the number of kilometers traveled by Express’s buses, as required by changes in Express’s OperatingPlans, and Express’s updating of its bus maintenance program during 2010 to meet the needs of its aging buses.
Other expenses increased 66.4% to Ch$12,813 million in the first nine months of 2010 compared toCh$7,700 million in the first nine months of 2009. This increase was primarily due to Express’s decision toaccount for the portion of the Service Fulfillment Ratio discount associated with the distance component, whichwas added in October 2009 and which totaled Ch$3,321 million in the first nine months of 2010, as an expenseduring the first nine months of 2010.
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Administrative and Selling Expenses. Express’s administrative and selling expenses decreased 3.9% toCh$4,631 million in the first nine months of 2010 compared to Ch$4,821 million in the first nine months of2009. The table below summarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Administrative and selling expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 2,318 2,105 -9.2%Depreciation and amortization . . . . . 268 308 14.9%Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,235 2,218 -0.7%
Total administrative and sellingexpenses . . . . . . . . . . . . . . . . . . . . 4,821 4,631 -3.9%
Labor expenses decreased 9.2% to Ch$2,105 million in the first nine months of 2010 compared toCh$2,318 million in the first nine months of 2009. This decrease was a result of a decrease in Express’scontributions to workers unions and the resignation of Express’s CEO in 2010, which decreased Express’s salaryobligations.
Other expenses decreased 0.7% to Ch$2,218 million in the first nine months of 2010 compared toCh$2,235 million in the first nine months of 2009. This decrease was a mainly due to a decrease in Express’sfacility rental expenses.
Depreciation and amortization expenses from administrative and selling assets increased 14.9% toCh$308 million in the first nine months of 2010 compared to Ch$268 million in the first nine months of 2009.This increase was mainly due to an increase in the value of Express’s depreciable assets.
Non-Operating Income (Loss). Express’s non-operating income (loss) increased 56.0% to a loss ofCh$3,772 million in the first nine months of 2010 compared to a loss of Ch$8,576 million in the first ninemonths of 2009. The table below summarizes the major components of this change.
Nine Months EndedSeptember 30, %
Change2009 2010(Millions of constant Ch$as of September 30, 2010)
Non-operating lossInterest expenses . . . . . . . . . . . . . . . . . . . . (4,309) (3,790) -12.0%
Other non-operating income(expenses) . . . . . . . . . . . . . . . . . . . (90) 430 577.8%
Price-level restatements . . . . . . . . . . (3,042) (806) -73.5%Foreign exchange rate differences . . (1,135) 394 134.7%
Total non-operating loss . . . . . . . . . . (8,576) (3,772) 56.0%
The decrease in interest expenses in the first nine months of 2010 compared to the first nine months of2009 was a result of a decrease in Express’s outstanding debt, a decrease in the prevailing interest rate onExpress’s floating interest rate debt and a decrease in the Chilean peso/U.S. dollar exchange rate.
The increase in other non-operating income (expenses) to income of Ch$430 million in the first ninemonths of 2010 compared to an expense of Ch$90 million in the first nine months of 2009 was due to the
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reimbursement of Express by the AFT for operating expenses incurred by Express in the previous years due tothe Ministry’s failure to implement fleet control systems as required by the Concession Agreements.
The fluctuation in price-level restatements is discussed above under “—Overview—Impact of inflationand price-level restatement.” The fluctuation in foreign exchange rate differences is discussed above under“—Overview—Currency fluctuations.”
Alsacia—Comparison of the Year Ended December 31, 2008, to the Year Ended December 31, 2009
Revenue. Alsacia’s total revenue decreased 5.9% to Ch$66,658 million in 2009 compared to Ch$70,866million in 2008 as shown below.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Revenue from passenger transportationservices . . . . . . . . . . . . . . . . . . . . . . . . . 70,691 66,470 -6.0%
Advertising revenue . . . . . . . . . . . . . . . . . 175 188 7.4%
Total revenue . . . . . . . . . . . . . . . . . . . . . . . 70,866 66,658 -5.9%
Revenue from Passenger Transportation. Alsacia’s Revenue from passenger transportation servicesdecreased 6.0% to Ch$66,470 million in 2009 compared to Ch$70,691 million in 2008. The table belowsummarizes the major components of this change.
Year endedDecember 31, %
Change2008 2009
Base Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 19,036 27,619 45.1%Variable Revenue . . . . . . . . . . . . . . . . . . . . . . . 45,941 35,988 -21.7%
Potential revenue . . . . . . . . . . . . . . . . . . . . . . . 64,977 63,607 -2.1%Service Fulfillment Ratio . . . . . . . . . . . . . . . . . 97.9% 96.7% -1.2%
Realized revenue after Service FulfillmentRatio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,607 61,495 -3.3%
Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (363) (1,361) 274.9%Reimbursement for Transantiago expenses . . . 5,553 6,055 9.0%Revenue Price-level restatements and other
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 1,884 281 -85.1%
Total revenue from passenger transportationservices (Millions of constant Ch$ as ofDecember 31, 2009) . . . . . . . . . . . . . . . . . . . 70,691 66,470 -6.0%
Alsacia’s Base Revenue increased 45.1% to Ch$27,619 million in 2009 compared to Ch$19,036 millionin 2008. This increase was the result of an amendment to Alsacia’s Concession Agreement, partially offset by adecrease in Alsacia’s Cost Index. On November 9, 2007, the Ministry and Alsacia entered into an amendment toAlsacia’s Concession Agreement that, effective June 22, 2008, shifted a portion of Variable Revenue into BaseRevenue in the Concession revenue formula. Prior to adjustment for the Cost Index or seasonality, monthly BaseRevenue under this amendment was increased from Ch$390 million prior to June 22, 2008 to Ch$2,724 millionon or after June 22, 2008. Before application of the Cost Index, this caused total Base Revenue to increase 45%to Ch$27,617 million in 2009 compared to Ch$19,036 million in 2008. The Ministry and Alsacia agreed to this
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amendment to maintain Alsacia’s expected revenue under the Concession Agreement, given that ridership waslower than anticipated. Similar amendments were made to the concession agreements of the other trunk line busconcession holders. The effects of this amendment were partially offset by a 32% decrease in Alsacia’s averageCost Index in 2009 compared to 2008.
Alsacia’s Variable Revenue decreased 21.7% to Ch$35,988 million in 2009 compared to Ch$45,941million in 2008. The main reasons for this decrease were (i) the November 9, 2007 amendment to the ConcessionAgreement mentioned above, which significantly reduced the ratio of Variable Revenue to Base Revenuethrough a one-time 35% decrease in PPT on July 1, 2008 (the first payment date after June 22, 2008, the effectivedate of the amendment), which affected all subsequent PPTs, given that each month’s PPT is calculated based onPPT from the previous month, and resulted in a 21% decrease in average PPT in 2009 compared to 2008, and(ii) a 1.8% decrease in actual Passenger Validations to 131 million in 2009 compared to 133 million in 2008.This decrease in Passenger Validations was primarily due to the macroeconomic recession in 2009.
Alsacia’s Cost Index decreased 12% in December 2009 compared to December 2008, and Alsacia’saverage Cost Index decreased 6.9% in 2009 compared to 2008. The decrease in the Cost Index, at the end of theyear and on average, limited the increase in Base Revenue and contributed to the decrease in Variable Revenue in2009 compared to 2008. The decrease in the Cost Index was a direct result of decreases in its underlyingmacroeconomic variables in 2009 compared to 2008, including the CPI (-2.3% in 2009 compared to +8.9% in2009), fuel costs (-32% in 2009 compared to +31% in 2008), labor costs (5.8% in 2009 compared to 7.4% in2008) and the Ch$/U.S.$ exchange rate (-25% in 2009 compared to +28% in 2008).
The Service Fulfillment Ratio, which adjusts Base Revenue and Variable Revenue, decreased 1.2% toan average of 96.7% in 2009 compared to an average of 97.9% in 2008. In May 2009, calculation of the ServiceFulfillment Ratio was modified to exclude any buses that did not board a new passenger for 30 minutes fromAlsacia’s actual performance figures in order to include only buses moving in commercial service. Thismodification generally decreased Alsacia’s Service Fulfillment Ratio, even with no change in Alsacia’soperational performance. Beginning in October 2009, the Ministry introduced another modification in thecalculation of the Service Fulfillment Ratio, adding a distance (kilómetro) measurement for each half hour of busservice. These modifications made the Service Fulfillment Ratio more demanding and largely explain thedecrease in Alsacia’s average Service Fulfillment Ratio in 2009 compared to 2008.
Alsacia’s revenue from passenger transportation services is reduced by discounts applied by theMinistry using the ICF and the ICR, which totaled Ch$1,361 million in 2009 and Ch$363 million in 2008.
All Transantiago service providers are required to pay Transantiago expenses in proportion to theirindividual revenue, including, among others, the 2.0% AFT fee and the fees for the Transantiago UserInformation System. Alsacia’s share of Transantiago expenses totaled Ch$6,055 in 2009 and Ch$5,553 in 2008.Nevertheless, as discussed above, the Transantiago expenses owed by Alsacia are offset by equal payments fromthe AFT, which Alsacia accounts for as revenue under “reimbursement for Transantiago expenses.”
Advertising Revenue. Alsacia’s advertising revenue increased 7.4% to Ch$188 million in 2009compared to Ch$175 million in 2008.
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Operating Expenses. Alsacia’s operating expenses increased 6.5% to Ch$60,230 million in 2009compared to Ch$56,528 million in 2008. The table below summarizes the major components of this change.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Operating expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 15,920 16,959 6.5%Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 15,970 11,401 -28.6%Depreciation and amortization . . . . . 8,697 8,890 2.2%Spare parts and maintenance . . . . . . . 4,795 7,708 60.8%Other . . . . . . . . . . . . . . . . . . . . . . . . . 11,146 15,272 37.0%
Total operating expenses . . . . . . . . . . 56,528 60,230 6.5%
Labor expenses increased 6.5% to Ch$16,959 million in 2009 from Ch$15,920 million in 2008. Thisincrease was a result of (i) a 5.6% increase in the average number of operating employees to 2,235 in 2009compared to 2,116 in 2008 and (ii) an increase in average employee salary of 0.9% to Ch$632 thousand permonth in 2009 compared to Ch$629 thousand per month in 2008.
Depreciation and amortization expenses from operating assets increased 2.2% to Ch$8,890 million in2009 compared to Ch$8,697 million in 2008. This increase was a result of Alsacia’s investment in newdepreciable assets in 2009, primarily buses, and an increase in amortization expenses in 2009 related to Alsacia’scontribution to the Operating Technical Reserve. Alsacia ties the amortization of its contribution to the OperatingTechnical Reserve in each period to that period’s revenue. Accordingly, any increase in revenue, like thatbetween 2008 and 2009, is accompanied by an increase in amortization expense related to the contribution to theOperating Technical Reserve.
Spare parts and maintenance expenses increased 60.8% to Ch$7,708 million in 2009 compared toCh$4,795 million in 2008. This increase was substantially explained by (i) an increase in the kilometers traveledby Alsacia’s buses of 7.5% to 51 million in 2009 compared to 48 million in 2008, (ii) Alsacia’s implementationof a preventive maintenance program in 2009 and (iii) Alsacia’s updating of its bus maintenance program during2009.
Other expenses increased 37.0% to Ch$15,272 million in 2009 compared to Ch$11,146 million in 2008.This increase was primarily due to a Ch$3,604 million increase in Alsacia’s overhaul provision to Ch$2,546million in 2009 compared to negative Ch$1,118 million in 2008. Alsacia increased its overhaul provision as aresult of an updated assessment of this provision in 2009. Increases in other general expenses, partially offset bydecreases in insurance expenses, explain the remaining Ch$522 million increase in other expenses.
Fuel expenses decreased 28.6% to Ch$11,401 million in 2009 compared to Ch$15,970 million in 2008due to a decrease in average diesel fuel prices of 32% to Ch$383 per liter in 2009 compared to Ch$563 per literin 2008. The effect of the decrease in average diesel prices was partially offset by a 7.5% increase in kilometerstraveled by Alsacia’s buses, which led an 8.8% increase in fuel consumption.
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Administrative and Selling Expenses. Alsacia’s administrative and selling expenses increased 32.6% toCh$6,613 million in 2009 compared to Ch$4,989 million in 2008. The table below summarizes the majorcomponents of this change.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Administrative and selling expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 2,187 3,196 46.1%Depreciation and amortization . . . . . 909 1,234 35.8%Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,893 2,183 15.3%
Total administrative and sellingexpenses . . . . . . . . . . . . . . . . . . . . 4,989 6,613 32.6%
Labor expenses for Alsacia’s administrative staff increased 46.1% to Ch$3,196 million in 2009compared to Ch$2,187 million in 2008. This increase was substantially due to (i) a 7.8% increase in the averagenumber of administrative employees to 153 in 2009 compared to 142 in 2008, which was due to the requirementsof the new bus terminals that started service in 2009, (ii) an increase in average administrative employee salaryof 46% to Ch$1,746 thousand per month in 2009 compared to Ch$1,287 thousand per month in 2008 due tocontractual obligations to match changes in the CPI, which increased 1.5% in 2009 compared to 2008 and(iii) increases in bonus and employee severance expenses.
Depreciation and amortization expenses from administrative and selling assets increased 35.8% toCh$1,234 million in 2009 compared to Ch$909 million in 2008. This increase was due to increases in softwareamortization and amortization of expenses related to affiliated companies in 2009.
Other expenses increased 15.3% to Ch$2,183 million in 2009 compared to Ch$1,893 million in 2008.This increase was primarily due to modifications to Alsacia’s Concession Agreement and related laws in 2009,which required Alsacia to increase expenditures related to external consultant and legal fees.
Non-operating Income (Loss). Alsacia’s non-operating income (loss) increased 154.7% to income ofCh$8,739 million in 2009 compared to a loss of Ch$15,972 million in 2008
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Non-operating income (loss)Interest expenses . . . . . . . . . . . . . . . . (5,309) (3,993) -24.8%Other non-operating expenses . . . . . . (131) (389) 196.9%Price-level restatements . . . . . . . . . . 6,390 (1,975) -130.9%Foreign exchange rate differences . . (17,413) 15,501 189.0%Profit (loss) from Investment in
related company . . . . . . . . . . . . . . 491 (404) -182.3%
Total non-operating income (loss) . . (15,972) 8,739 154.7%
The decrease in interest expenses in 2009 compared to 2008 was a result of a decrease in Alsacia’soutstanding debt, a decrease in the prevailing interest rate on Alsacia’s floating interest rate debt and a decreasein the Chilean peso/U.S. dollar exchange rate.
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The fluctuation in price-level restatements is discussed above under “—Overview—Impact of inflationand price-level restatement.” The fluctuation in foreign exchange rate differences is discussed above under“—Overview—Currency fluctuations.”
Profit (loss) from investment in related company relates solely to Alsacia’s investment in 16% of theequity of Eco Uno, which is a holding company that owns 99.998% of Express. Changes in the value of thisinvestment primarily reflect Express’s financial performance over the same period, which is discussed below.These changes are presented net of any interest expenses recognized by Eco Uno on certain intercompany debt toits parent company during the period.
Express—Comparison of the Year Ended December 31, 2008, to the Year Ended December 31, 2009
Revenue. Express’s total revenue decreased 5.6% to Ch$86,065 million in 2009 compared to Ch$91,183million in 2008 as shown below.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Revenue from passenger transportationservices . . . . . . . . . . . . . . . . . . . . . . . . . 90,720 85,560 -5.7%
Advertising and other revenue . . . . . 463 505 9.1%
Total Revenue . . . . . . . . . . . . . . . . . . 91,183 86,065 -5.6%
Revenue from Passenger Transportation. The decrease in Express’s total revenue to Ch$86,065 millionin 2009 compared to Ch$91,183 million in 2008 was primarily due to a reduction in Express’s Cost Index in2009, which resulted from decreases in oil prices and inflation in 2009 compared to 2008. During 2008 therewere also changes in Express’s Base Revenue and Variable Revenue mix that mostly offset each other.
Express’s revenue from passenger transportation services decreased 5.7% to Ch$85,560 million in 2009compared to Ch$90,720 million in 2008. The table below summarizes the major components of this change.
Year endedDecember 31, %
Change2008 2009
Base Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 22,118 31,670 43.2%Variable Revenue . . . . . . . . . . . . . . . . . . . . . . . 70,746 55,770 -21.2%
Potential revenue . . . . . . . . . . . . . . . . . . . . . . . 92,864 87,440 -5.8%Service Fulfillment Ratio . . . . . . . . . . . . . . . . . 96.2% 96.4% 0.1%
Realized revenue after Service FulfillmentRatio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,374 84,278 -5.7%
Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0.0%Reimbursement for Transantiago expenses . . . 0 0 0.0%Revenue Price-level restatements and other
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 1,346 1,282 -4.8%
Total revenue from passenger transportationservices (Millions of constant Ch$ as ofDecember 31, 2009) . . . . . . . . . . . . . . . . . . . 90,720 85,560 -5.7%
Express’s Base Revenue increased 43.2% to Ch$31,670 million in 2009 compared to Ch$22,118 millionin 2008. This increase was the result of an amendment to Express’s Concession Agreement, partially offset by adecrease in Express’s Cost Index. On November 13, 2007, the Ministry and Express entered into an amendment
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to Express’s Concession Agreement that, effective June 22, 2008, shifted a portion of Variable Revenue intoBase Revenue in the Concession revenue formula. Prior to adjustment for the Cost Index or seasonality, monthlyBase Revenue under this amendment was increased from Ch$462 million prior to June 22, 2008 to Ch$3,179million on or after June 22, 2008. Before application of the Cost Index, this caused total Base Revenue toincrease 74% to Ch$38 million in 2009 compared to Ch$21 million in 2008. The Ministry and Express agreed tothis amendment to maintain Express’s expected revenue under the Concession Agreement, given that ridershipwas lower than anticipated. Similar amendments were made to the concession agreements of the other trunk linebus concession holders. The effects of this amendment were partially offset by 8.8% decrease in Express’saverage Cost Index in 2009 compared to 2008, from decreases in oil prices and inflation in 2009 compared to2008.
Express’s Variable Revenue decreased 21.2% to Ch$55,770 million in 2009 compared to Ch$70,746million in 2008. The main reasons for this decline were (i) the November 13, 2007 amendment to the ConcessionAgreement mentioned above, which significantly reduced the ratio of Variable Revenue to Base Revenuethrough a one time 30% decrease in PPT on July 1, 2008 (the first payment date after June 22, 2008, the effectivedate of the amendment), which affected all subsequent PPTs, given that each month’s PPT is calculated based onPTT from the previous month, and resulted in a 21% decrease in average PPT in 2009 compared to 2008, and(ii) a 1.9% decrease in actual Passenger Validations to 204 million in 2009 compared to 208 million in 2008.This decrease in Passenger Validations was primarily due to the macroeconomic recession in 2009.
Express’s Cost Index decreased 8.8% to 112 in December 2009 compared to 125 in December 2008,and Express’s average Cost Index decreased 8.1% in 2009 compared to 2008. The decrease in the Cost Index, atthe end of the year and on average, limited the increase in Base Revenue and contributed to the decrease inVariable Revenue in 2009 compared to 2008. The decrease in the Cost Index was a direct result of decreases inits underlying macroeconomic variables in 2009 compared to 2008, including the CPI (-2.3% in 2009 comparedto +8.9% in 2009), fuel costs (-32% in 2009 compared to +31% in 2008), labor costs (5.8% in 2009 compared to7.4% in 2008) and the Ch$/U.S.$ exchange rate (-25% in 2009 compared to +28% in 2008).
The Service Fulfillment Ratio, which adjusts Base Revenue and Variable Revenue, increased 0.1% to anaverage of 96.4% in 2009 compared to an average of 96.2% in 2008. In May 2009, calculation of the ServiceFulfillment Ratio was modified to exclude any buses that did not board a new passenger for 30 minutes fromExpress’s actual performance figures in order to include only buses moving in commercial service. Thismodification generally decreased Express’s Service Fulfillment Ratio, even with no change in Express’soperational performance. Beginning in October 2009, the Ministry introduced another modification in thecalculation of the Service Fulfillment Ratio, adding a distance (kilómetro) measurement for each half hour of busservice. These modifications made the Service Fulfillment Ratio more demanding and limited the increase inExpress’s average Service Fulfillment Ratio 2009 compared to 2008, despite Express’s improved performancebetween these periods.
As discussed above, Express accounts for discounts as expenses, rather than reductions to revenue, andincludes all Transantiago expenses in a single, offsetting account with the equal payments from the AFT.Therefore, no discounts or reimbursement for Transantiago expenses are shown in the table above.
Advertising Revenue. Express’s advertising revenue increased 9.1% to Ch$505 million in 2009compared to Ch$463 million in 2008. Express changed its marketing company in 2008, and advertising saleshave subsequently increased.
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Operating Expenses. Express’s operating expenses decreased 5.5% to Ch$75,172 million in 2009compared to Ch$79,578 million in 2008. The table below summarizes the major components of this change.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Operating expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 18,809 20,957 11.4%Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 21,855 15,934 -27.1%Depreciation and amortization . . . . . 16,254 16,684 2.6%Spare parts and maintenance . . . . . . . 11,770 9,934 -15.6%Other . . . . . . . . . . . . . . . . . . . . . . . . . 10,890 11,663 7.1%
Total operating expenses . . . . . . . . . . 79,578 75,172 -5.5%
Labor expenses increased 11.4% to Ch$20,957 million in 2009 compared to Ch$18,809 million in 2008.This increase was mainly a result of (i) a 7.6% increase in the average number of operating employees to 3,160 in2009 compared to 2,936 in 2008, which was primarily due to the requirements of increased scheduled routedistance and additional en-route operational execution control, and (ii) an increase in average employee salary of3.5% to Ch$553 thousand per month in 2009 compared to Ch$534 thousand per month in 2008.
Fuel expenses decreased 27.1% to Ch$15,934 million in 2009 compared to Ch$21,855 million in 2008largely due to a decrease in average diesel fuel prices of 32% to Ch$383 per liter in 2009 compared to Ch$563per liter in 2008. The decrease in average diesel fuel prices was partially offset by a 7.3% increase in kilometerstraveled by Express’s buses, which caused a 9.3% increase in diesel consumption in 2009 compared to 2008.
Spare parts and maintenance expenses decreased 15.6% to Ch$9,934 million in 2009 compared toCh$11,770 million in 2008 due mainly to the reversal of a Ch$1,843 million maintenance allowance in 2009.
Other expenses increased 7.1% to Ch$11,663 million in 2009 compared to Ch$10,890 million in 2008primarily due to a Ch$1,418 million increase in the discounts applied under Express’s Concession Agreement,which Express accounts for as expense rather than reductions in revenue, in 2009 compared to 2008, partiallyoffset by decreases in general and third-party service expenses.
Depreciation and amortization expenses from operating assets increased 2.6% to Ch$16,684 million in2009 compared to Ch$16,254 million in 2008 primarily due to Express’s investment in new depreciable assets in2009, primarily buses, and an increase in 2009 of amortization expenses related to Express’s contribution to theOperating Technical Reserve. Express, like Alsacia, ties the amortization of its contribution to the OperatingTechnical Reserve in each period to that period’s revenue. Accordingly, any increase in revenue, like thatbetween 2008 and 2009, is accompanied by an increase in amortization expenses related to the contribution to theOperating Technical Reserve.
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Administrative and Selling Expenses. Express’s administrative and selling expenses increased 14.7% toCh$6,464 million in 2009 compared to Ch$5,635 million in 2008. The table below summarizes the majorcomponents of this change.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Administrative and selling expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 2,402 3,167 31.8%Depreciation and amortization . . . . . 275 364 32.4%Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,958 2,933 -0.8%
Total administrative and sellingexpenses . . . . . . . . . . . . . . . . . . . . 5,635 6,464 14.7%
Labor expenses increased 31.8% to Ch$3,167 million in 2009 compared to Ch$2,402 million in 2008.This increase was principally caused by contributions paid to the workers union, an 5.9% increase in the averagenumber of employees and an inflationary restatement of wages in 2009.
Depreciation and amortization expenses from administrative and selling assets increased 32.4% toCh$364 million in 2009 compared to Ch$275 million in 2008 due to Express’s acquisition of new depreciableadministrative and selling assets in 2009.
Other expenses decreased 0.8% to Ch$2,933 million in 2009 compared to Ch$2,958 million in 2008.
Non-operating Income (Loss). Express’s non-operating loss increased 540.7% to Ch$9,252 million in2009 compared to Ch$1,444 million in 2008. The table below summarizes the major components of this change.
Year endedDecember 31, %
Change2008 2009(Millions of constant Ch$as of December 31, 2009)
Non-operating lossInterest expenses . . . . . . . . . . . . . . . . (8,058) (5,382) -33.2%Other non-operating expenses . . . . . . (192) (179) -6.8%Price-level restatements . . . . . . . . . . (157) (1,344) -756.1%Foreign exchange rate differences . . 6,963 (2,347) -133.7%
Total non-operating loss . . . . . . . . . . (1,444) (9,252) 540.7%
The decrease in interest expenses in 2009 compared to 2008 was caused by a decrease in Express’soutstanding debt, a decrease in the prevailing interest rate on Express’s floating interest rate debt and a decreasein the Chilean peso/U.S. dollar exchange rate.
The fluctuation in price-level restatements is discussed above under “—Overview—Impact of inflationand price-level restatement.” The fluctuation in foreign exchange rate differences is discussed above under“—Overview—Currency fluctuations.”
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Alsacia—Comparison of the Year Ended December 31, 2007, to the Year Ended December 31, 2008
Revenue. Alsacia’s total revenue increased 42.0% to Ch$70,866 million in 2008 compared to Ch$49,918million in 2007 as shown below.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Revenue from passenger transportationservices . . . . . . . . . . . . . . . . . . . . . . . . . 49,687 70,691 42.3%
Advertising revenue . . . . . . . . . . . . . . . . . 231 175 -24.2%
Total Revenue . . . . . . . . . . . . . . . . . . . . . . 49,918 70,866 42.0%
Alsacia’s revenue from passenger transportation services increased 42.3% to Ch$70,691 million in 2008compared to Ch$49,687 million in 2007.
A significant portion of the increase in Alsacia’s revenue was explained by an increase in the Cost Indexand in the scale of Alsacia’s operations during 2008. The Cost Index was first applied to Alsacia’s revenueformula in July 2007.
During 2007 there were significant changes to Alsacia’s revenue formula under its ConcessionAgreement that made 2007 and 2008 revenue not fully comparable. The most significant of these changes arelisted below.
• Prior to February 8, 2007, Alsacia’s Concession revenue was composed of direct fares collectedfrom passengers, in cash, on board Alsacia’s buses. The price of these passenger fares wasdetermined by the Ministry.
• Starting on February 9, 2007 Alsacia stopped collecting cash on its buses as the Transantiagoelectronic payment system became operational. Since February 9, 2007, Alsacia’s revenue has notbeen directly related to the fares that Alsacia’s passengers pay, which are managed by the AFT, butrather to the Concession revenue formula. The revenue formula is based on Base Revenue plusVariable Revenue, adjusted by the Service Fulfillment Ratio, minus any discounts. VariableRevenue is based on PPT multiplied by the number of Passenger Validations received on Alsacia’sbuses. PPT is adjusted by the Cost Index, the scheduled route distances set forth in Operating Plans,the passenger capacity of Alsacia’s bus fleet and inversely to Passenger Validations.
• Due to initial limitations in the information provided by the electronic payment system, betweenFebruary 9, 2007 and June 30, 2007, Alsacia was paid according to reference Passenger Validationsset forth in the Concession Agreement and not according to actual Passenger Validations.
• Beginning on July 1, 2007, the following were integrated into the Concession revenue formula:actual Passenger Validations, as recorded by the electronic payment system; the Cost Index; and theService Fulfillment Ratio.
In addition to the 2007 changes to the Concession revenue formula, beginning on June 22, 2008, due tothe November 9, 2007 amendment to the Concession Agreement, Base Revenue was increased as a component oftotal revenue, increasing from 6.9% to over 45% of total revenue between June 2008 and July 2008.
Advertising Revenue. Alsacia’s advertising revenue decreased 24.2% to Ch$175 million in 2008compared to Ch$231 million in 2007 largely due to approximately two months without sales of advertising in2008.
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Operating Expenses. Alsacia’s operating expenses increased 46.6% to Ch$56,528 million in 2008compared to Ch$38,557 million in 2007 due to a significant increase in the scale of Alsacia’s operations. Thetable below summarizes the major components of this change.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Operating expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 13,278 15,920 19.9%Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 10,129 15,970 57.7%Depreciation and amortization . . . . . 5,201 8,697 67.2%Spare parts and maintenance . . . . . . . 3,849 4,795 24.6%Other . . . . . . . . . . . . . . . . . . . . . . . . . 6,100 11,146 82.7%
Total operating expenses . . . . . . . . . . 38,557 56,528 46.6%
Labor expenses increased 19.9% to Ch$15,920 million in 2008 compared to Ch$13,278 million in 2007.This increase was primarily due to (i) a 6.7% increase in the number of operating employees to 2,258 onDecember 31, 2008 compared to 2,116 on December 31, 2007 and (ii) an increase in average employee salaryresulting from new union contracts.
Fuel expenses increased 57.7% to Ch$15,970 million in 2008 compared to Ch$10,129 million in 2007.This increase was due to (i) a 31% increase in the average price of diesel fuel in 2008 compared to 2007 and (ii) a35% increase in the kilometers traveled by Alsacia’s buses to 48 million 2008 compared to 36 million in 2007,which led to an increase of 31% in diesel fuel consumption.
Depreciation and amortization expenses from operating assets increased 67.2% to Ch$8,697 million in2008 compared to Ch$5,201 million in 2007. Alsacia carried out a technical study of its buses in 2008, as a resultof which Alsacia reduced the remaining useful life of its buses from 13 years to 9 years. The effect of thisreduction in useful life was a Ch$1,867 million increase in depreciation expenses in 2008. Additionally, Alsaciaacquired 41 buses in 2008, which increased depreciation expenses by Ch$538 million in 2008 compared to 2007,and had increased amortization expenses in 2008 related to its contribution to the Operating Technical Reserve.The remaining increase in depreciation and amortization expenses was explained mainly by the start ofoperations of a new plant and the purchase of additional equipment and buses.
Spare parts and maintenance expenses increased 24.6% to Ch$4,795 million in 2008 compared toCh$3,849 million in 2007 mainly due to a 25% increase in the kilometers traveled by Alsacia’s buses to48 million in 2008 compared to 36 million in 2007.
Other expenses increased 82.7% to Ch$11,146 million in 2008 compared to Ch$6,100 million in 2007due mainly to an increase in the scale of Alsacia’s operations.
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Administrative and Selling Expenses. Alsacia’s administrative and selling expenses increased 18.8% toCh$4,989 million in 2008 compared to Ch$4,201 million in 2007 due to an increase in the scale of Alsacia’soperations. The table below summarizes the major components of this change.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Administrative and selling expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 2,159 2,187 1.3%Depreciation and amortization . . . . . 379 777 105.0%Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,663 2,025 21.8%
Total administrative and sellingexpenses . . . . . . . . . . . . . . . . . . . . 4,201 4,989 18.8%
Labor expenses increased 1.3% to Ch$2,187 in 2008 compared to $2,159 in 2007 due to an increase inAlsacia’s workforce in response to the increase in its scale of its operations—scheduled route distances inAlsacia’s Operating Plans increased 30% between 2007 and 2008.
Depreciation and amortization expenses from administrative and selling assets increased 105.0% fromCh$379 million in 2007 to Ch$777 million in 2008 due primarily to an increase in deferred expenses related tothe financing of IASA de Colombia S.A., Alsacia’s subsidiary.
Other expenses increased 21.8% to Ch$2,025 million in 2008 compared to Ch$1,663 million in 2007due to an increase in general expenses of 142% to Ch$1,630 million in 2008 compared to Ch$673 million in2007, offset by decreases in other expenses. The increase in general expenses was primarily due to modificationsto Alsacia’s Concession Agreement and related laws in 2009, which required Alsacia to increase expendituresrelated to external consultant and legal fees.
Non-operating Income (Loss). Alsacia’s non-operating income (loss) decreased 317.5% to a loss ofCh$15,972 million in 2008 compared to income of Ch$7,345 million in 2007. The table below summarizes themajor components of this change.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Non-operating income (loss)Interest expenses . . . . . . . . . . . . . . . . (4,197) (5,309) 26.5%Other non-operating income
(expenses) . . . . . . . . . . . . . . . . . . . 593 (131) -122.1%Price-level restatements . . . . . . . . . . 5,062 6,390 26.2%Foreign exchange rate differences . . 3,856 (17,413) -551.6%Profit from investment in related
company . . . . . . . . . . . . . . . . . . . . 2,031 491 -75.8%
Total non-operating income (loss) . . 7,345 (15,972) -317.5%
The increase in interest expense in 2008 compared to 2007 was caused by an increase in Alsacia’soutstanding debt, an increase in the prevailing interest rate on Alsacia’s floating interest rate debt and an increasein the Chilean peso/U.S. dollar exchange rate.
The fluctuation in price-level restatements is discussed above under “—Overview—Impact of inflationand price-level restatement.” The fluctuation in foreign exchange rate differences is discussed above under“—Overview—Currency fluctuations.”
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The profit from investment in related company relates solely to Alsacia’s investment in 16% of theequity of Eco Uno, which is a holding company that owns 99.998% of Express. Changes in the value of thisinvestment primarily reflect Express’s financial performance over the same period, which is discussedbelow. These changes are presented net of any interest expenses recognized by Eco Uno on certain intercompanydebt to its parent company during the same period.
Express—Comparison of the Year Ended December 31, 2007, to the Year Ended December 31, 2008
Revenue. Alsacia’s total revenue increased 36.2% to Ch$91,183 million in 2008 compared to Ch$66,924million in 2007 as shown below.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Revenue from passenger transportationservices . . . . . . . . . . . . . . . . . . . . . . . . . 66,300 90,720 36.8%
Advertising and other revenue . . . . . . . . . 624 463 -25.8%
Total revenue . . . . . . . . . . . . . . . . . . . . . . . 66,924 91,183 36.2%
Express’s Revenue from passenger transportation services increased 36.8% to Ch$90,720 million in2008 compared to Ch$66,300 million in 2007.
A significant portion of the increase in Express’s revenue was explained by an increase in the CostIndex and in the scale of operations during 2008. The Cost Index was first applied to Express’s revenue formulain July 2007.
During 2007 there were significant changes to Express’s revenue formula under its ConcessionAgreement that made 2007 and 2008 revenue not fully comparable. The most significant of these changes arelisted below.
• Prior to February 8, 2007, Express’s Concession revenue was composed of direct fares collectedfrom passengers, in cash, on board Express’s buses. The price of these passenger fares wasdetermined by the Ministry.
• Starting on February 9, 2007 Express stopped collecting cash on its buses as the Transantiagoelectronic payment system became operational. Since February 9, 2007, Express’s revenue has notbeen directly related to the fares that Express passengers pay, which are managed by the AFT, butrather to the Concession revenue formula. The revenue formula is based on Base Revenue plusVariable Revenue, adjusted by the Service Fulfillment Ratio. Variable Revenue is based on PPTmultiplied by the number of Passenger Validations received on Express’s buses. PPT is adjusted bythe Cost Index, the scheduled route distances set forth in Operating Plans, the passenger capacity ofExpress’s bus fleet and inversely to Passenger Validations.
• Due to initial limitations in the information provided by the electronic payment system, betweenFebruary 9, 2007 and June 30, 2007, Express was paid according to reference Passenger Validationsset forth in the Concession Agreement and not according to actual Passenger Validations.
• Beginning on July 1, 2007, the following were integrated into the Concession revenue formula:actual Passenger Validations, as recorded by the electronic payment system; the Cost Index; and theService Fulfillment Ratio.
In addition to the 2007 changes to the Concession revenue formula, beginning on June 22, 2008, due tothe November 13, 2007 amendment to the Concession Agreement, Base Revenue was increased as a componentof total revenue, increasing from 6.1% to over 36% of total revenue between June 2008 and July 2008.
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Advertising Revenue. Express’s advertising revenue decreased 25.8% to Ch$463 million in 2008compared to Ch$624 million in 2007. A change in Express’s marketing company in 2008 was followed bydecreased advertising sales during that year.
Operating Expenses. Express’s operating expenses increased 34.3% to Ch$79,578 million in 2008compared to Ch$59,270 million in 2007 due to a significant increase in the scale of Express’s operations. Thetable below summarizes the major components of this change.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Operating expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 15,673 18,809 20.0%Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 14,062 21,855 55.4%Depreciation and amortization . . . . . 10,511 16,254 54.6%Spare parts and maintenance . . . . . . . 9,065 11,770 29.8%Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,959 10,890 9.3%
Total operating expenses . . . . . . . . . . 59,270 79,578 34.3%
Fuel expenses increased 55.4% to Ch$21,855 million in 2008 compared to Ch$14,062 million in 2007.This increase resulted from a 31% increase in the average price of diesel fuel and an increase in the kilometerstraveled by Express’s buses, resulting from increased scheduled route distances in Express’s Operating Plans,which led to a 33% increase in diesel fuel consumption in 2008.
Labor expenses increased 20.0% to Ch$18,809 million in 2008 compared to Ch$15,673 million in 2007.This increase resulted from (i) an 18% increase in the average number of operating employees to 2,936 in 2008compared to 2,494 in 2007 and (ii) an increase in average employee salary resulting from new union contracts.
Depreciation and amortization expenses from operating assets increased 54.6% to Ch$16,254 million in2008 compared to Ch$10,511 million in 2007. This increase resulted from an increase in the value of Express’sdepreciable assets between 2007 and 2008, including the acquisition of 252 new buses in March 2007.
Spare parts and maintenance expenses increased 29.8% to Ch$11,770 million in 2008 compared toCh$9,065 million in 2007 mainly due to (i) a maintenance provision of Ch$1,843 million accounted for in 2008,(ii) an increase in the number the number of buses in Express’s fleet and (iii) an increase in the scale of Express’soperations.
Other expenses increased 9.3% to Ch$10,890 million in 2008 compared to Ch$9,959 million in 2007mainly due to the increase in the scale of Express’s operations, which led to an increase expenses related to,among other things, guard services and bus and facility leasing.
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Administrative and Selling Expenses. Express’s administrative and selling expenses decreased 5.8% toCh$5,635 million in 2008 compared to Ch$5,981 million in 2007. The table below summarizes the majorcomponents of this change.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Administrative and selling expensesLabor . . . . . . . . . . . . . . . . . . . . . . . . . 2,404 2,402 -0.1%Depreciation and amortization . . . . . 371 275 -25.9%Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,206 2,958 -7.7%
Total administrative and sellingexpenses . . . . . . . . . . . . . . . . . . . . 5,981 5,635 -5.8%
Labor expenses remained nearly flat, decreasing 0.1% to Ch$2,402 million in 2008 compared toCh$2,404 million in 2007.
Depreciation and amortization expenses from administrative and selling assets decreased 25.9% toCh$275 million in 2008 compared to Ch$371 million in 2007. In 2007, Express recognized an extraordinaryamortization to account for the deterioration of pavements in its terminals, while 2008 had the normal ratesaccording to Express’s amortization and depreciation schedule.
Other expenses decreased 7.7% to Ch$2,958 million in 2008 compared to Ch$3,206 million in 2007 dueto a decrease in expenses related to services from third parties.
Non-operating Income (Loss). Express’s non-operating income (loss) decreased 109.5% to a loss ofCh$1,444 million in 2008 compared to income of Ch$15,129 million in 2007. The table below summarizes themajor components of this change.
Year endedDecember 31, %
Change2007 2008(Millions of constant Ch$as of December 31, 2009)
Non-operating income (loss)Interest expenses . . . . . . . . . . . . . . . . (6,430) (8,058) 25.3%Other non-operating income
(expenses) . . . . . . . . . . . . . . . . . . . 9,283 (192) -102.1%Price-level restatements . . . . . . . . . . 6,882 (157) -102.3%Foreign exchange rate differences . . 5,394 6,963 29.1%
Total non-operating income (loss) . . 15,129 (1,444) -109.5%
The increase in interest expense in 2008 compared to 2007 was caused by an increase Express’soutstanding debt, an increase in the prevailing interest rate on Express’s floating interest rate debt and an increasein the Chilean peso/U.S. dollar exchange rate.
The fluctuation in price-level restatements is discussed above under “—Overview—Impact of inflationand price-level restatement.” The fluctuation in foreign exchange rate differences is discussed above under“—Overview—Currency fluctuations.”
Accounting Differences Between Alsacia and Express
Alsacia and Express apply different accounting treatment to certain items within their financialstatements, including Concession discounts and Transantiago expenses. Following the Acquisition, we expect to
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eliminate all such differences. However, as of the date of this Offering Memorandum, we have not yetdetermined which treatment we will apply to each item. A description of the critical accounting policies for eachof Alsacia and Express appear below.
Critical Accounting Policies and Practices for Alsacia
General
The preparation of Alsacia’s financial statements requires estimates and assumptions that affect (i) thereported amounts of Alsacia’s assets and liabilities and (ii) the reported amounts of revenue and expenses duringthe reporting period. Alsacia bases its estimates and judgments on its historical experience and on various otherreasonable factors, which together form the basis for making judgments about the carrying values of its assetsand liabilities. Alsacia’s actual results may differ from these estimates under different assumptions or conditions.Alsacia evaluates its estimates and judgments on an ongoing basis. Alsacia’s significant accounting policies aredescribed in Note 2 to its financial statements. Alsacia believes that its most critical accounting policies thatrequire the application of estimates and judgments are as follows:
Fixed Assets
The fixed assets are mainly buses for passenger public transportation, which are valued at theirhistorical cost adjusted by inflation, including all incremental costs incurred up to the date on which they areavailable for use.
Other Assets
Expenditures corresponding to the purchase of software packages are recorded at their purchase price,adjusted by inflation, and amortized in a three-year period.
Goods in leaseback are recorded as the fixed assets; obligations are accounted for under long and short-term liabilities.
Fixed Asset Depreciation
The fiscal year depreciation has been estimated according to the linear method, considering theremaining estimated useful life. For buses, useful life has been limited to the term of the Concession.
During the third quarter of 2008, Alsacia carried out a technical inspection of its buses in order todetermine the deterioration to which they been exposed under the operating conditions at that time. As a result ofthis inspection, Alsacia reviewed the years of remaining useful life of its buses and decided to reduce of theuseful life from 13 years (the original useful life, which was equivalent to the duration of the Concession) to 9years.
Operating Revenue
The operating revenue during Transantiago’s transition period, October 24, 2005 to February 9, 2007,corresponding to the public transportation ticket value and the earnings for the right of use of roads underconcession to yellow buses, which are buses that remain from the previous transportation system, are recognizedon a received basis. The income coming from static and dynamic advertising are recognized in the financialstatements once the services have been provided.
The regime period began on February 10, 2007 and from this date onward Alsacia’s earnings have beencalculated in accordance with the revenue formula set forth in its Concession Agreement. See “TheConcessions—Concession Revenue” for a complete discussion of how revenue is calculated under theConcession Agreements.
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The revenue from static and dynamic advertising on buses is generated through the rental of advertisingspace in the buses.
Operating Technical Reserve
See the definition of Operating Technical Reserve in Appendix D. Amounts paid and due by Alsacia tothe AFT for the Operating Technical Reserve are recorded as a deferred asset, which will be amortized againstoperating revenue during the operating period of the Concession on the basis of projected revenue over the life ofthe Concession.
Up-Front Interest Expenses of the Initial Borrowings
In accordance with the ordinary official letter No 11,808, dated October 31, 2006, the SVS authorizedAlsacia to defer and amortize the capital expenditures directly associated with its bank obligations related to thepurchase of its bus fleet. For this purpose the distribution method has been applied based on the actual earningsobtained, considering the total earnings projected. These expenditures are capitalized under item other long-termassets.
In 2005, Alsacia and Express collectively purchased 629 new Volvo B9 SALF buses at a price ofU.S.$249,000 each and 510 new Volvo B7RLE buses at a price of U.S.$130,000 each. In 2007, Alsacia andExpress purchased an additional 40 Volvo B9 SALF buses at a price of U.S.$275,000 each, 59 B7RLE buses at aprice of U.S.$155,000 each and 25 B7RLE buses at a price of U.S.$164,000 each. Under the purchaseagreements for these buses, Volvo provided its standard warranties. The purchase agreements also containedprovisions for training of Alsacia and Express mechanics in maintenance standards for the B9 SALF and B7RLEchassis. In 2007, Alsacia also purchased 10 used Mercedes-Benz buses model OH 1420 51 at a price of Ch$8.0million each.
Critical Accounting Policies and Practices for Express
General
Express prepares its financial statements in accordance with Chilean GAAP and the instructions of theSVS. In the event of any differences, the SVS regulations prevail.
For comparison purposes, Express’s financial statements for 2008 and the notes thereto have beenrestated off the books by -2.3%.
Express’s financial statements include assets, liabilities, income, cash flows of its parent company andits subsidiary. Intercompany transactions or balances have been eliminated. The shareholding of minorityinvestors in the balance sheet and statement of income is shown as Minority Interest.
Shareholding2009 2008
RUT Company Direct Indirect Total Total% % % %
0-E . . . . . . . . . . . . . . . . . . . . . . . . . . EXPS de Colombia Ltda. 99.9900 0.0000 99.9900 99.9900
Price-Level Restatements
Express’s financial statements have been restated to reflect the effect of price-level changes in thepurchasing power of the Chilean peso during the respective years, in accordance with Chilean GAAP. Theserestatements have been determined on the basis of the percentage change in the official consumer price index,which showed a negative change of 2.3% from January to December in 2009 (positive change of 8.9% in 2008).
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Translation of the Subsidiary’s Financial Statements
The financial statements of Express’s foreign subsidiary have been translated to Chilean pesos as set outin Technical Bulletin N° 64 of the Chilean Institute of Accountants and official letters and circulars issued by theSVS on foreign investments.
Basis of Translation
At each year end, assets and liabilities in foreign currency and UF have been translated into Chileanpesos at the following exchange rates:
2009 2008Ch$ per unit Ch$ per unit
United States dollar . . . . . . . . 507.10 636.45Unidad de Fomento (UF) . . . . 20,942.88 21,452.57
Time Deposits
Investment in time deposits is shown at the value of the initial investment plus interests accrued at eachyear end.
Marketable Securities
Investment in marketable securities refers to mutual fund quotas shown at the value of the respectivequota at the year end.
Allowance for Doubtful Accounts
Express’s policy is to make provisions for those doubtfully recoverable balances, which are determinedon the basis of the ageing of balances and reports from legal and commercial advisors of Express. Theseprovisions are shown net of trade receivables, notes receivable and other receivables, as appropriate.
Inventories
Inventories of fuels and spare parts necessary for the operation of buses are valued at restatedacquisition cost and shown in other current assets, net of the provision for obsolescence of spare parts withoutturnover, which has been made over those items exceeding one year.
Prepaid Expenses
The cost of insurance policies is included in the prepaid expenses account. This cost is amortized overthe term of the policy.
Other Current Assets
This caption basically includes the deposits and transactions under repurchase agreement, both withrestrictions, since they are intended to guarantee the payment of interests and capital installments for the loansgranted by the HSBC Bank, as described in Note 14 and short-term forward contracts in 2008, which hedgeagainst foreign exchange risk. These contracts have been valued and accounted for as set forth in TechnicalBulletin N° 57 of the Chilean Institute of Accountants.
Fixed Assets
Fixed assets basically refer to buses for the public transport of passengers and are valued at restatedacquisition cost, which includes all the expenses incurred until the date on which said assets are available for useand are shown in machinery and equipment. The other fixed assets are shown at restated acquisition cost.
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Buildings and infrastructure includes bus terminals, which in essence have been completely finished,and those work in process corresponding to bus terminals not completely finished yet.
The disbursements for the acquisition of computer software packages are shown at restated acquisitioncost and amortized over a four-year period.
Leased assets refer to lease contracts of movable property with the characteristics of a finance lease.They are recorded as purchases of fixed assets, recognizing the total obligation and interests on accrual basis.These assets are not the legal property of Express until it exercises the purchase option and it may not, therefore,freely dispose of them.
As a policy, Express charges to net income for the year the preventive and corrective maintenanceperformed to its fleet.
The maintenance provision recorded as December 31, 2008 was made as a result of the postponement ofcash disbursements which had to be made in the fleet in 2008, and which were actually carried out during 2009.
The amount charged to income in 2009 corresponding to fleet maintenance was Ch$2,219,734(Ch$1,886,634 in 2008).
Fixed Asset Depreciation
Depreciation for the year has been calculated using the straight-line method in accordance with theremaining useful lives of the respective assets.
Depreciation of buses has been estimated at nine years in accordance with a technical study performeddetermine the wear and tear of such vehicles.
Other Assets—Other
This caption basically includes the following items:
Operating Technical Reserve
See the definition of Operating Technical Reserve in Appendix D. Amounts paid to the AFT for theOperating Technical Reserve by Express are recorded as a deferred asset that will be amortized with a charge tooperating income, during the Concession’s operating period, based on projected income to be obtained fromproviding transportation services.
Unpaid amounts due for the Operating Technical Reserve are reflected in the short and long-termliabilities, and as of December 31, 2008 the balance due is included in other current liabilities.
Derivatives contracts
Express maintains contracts to hedge against risks of fluctuation in both the exchange and interest rates.These contracts have been valued and recorded as set forth in Technical Bulletin N° 57 of the Chilean Institute ofAccountants.
Income Taxes and Deferred Taxes
Express has recorded income taxes on the basis of the net taxable income, determined in accordancewith the regulations contained in the Income Tax Law.
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Deferred taxes arising from temporary differences are shown in accordance with Technical BulletinsN° 60 and N° 71 of the Chilean Institute of Accountants and the regulations contained in Circular N° 1,466 of theSVS.
Provision for Employee Vacations
Express recognizes the cost of employee vacation and benefits on an accrual basis at the year end.
Operating Income
The income from the public transport fare is included in the operating income account. Income comingfrom bus rental, billboard and dynamic advertising are included in the financial statements once services havebeen rendered.
Statement of Cash Flows
Express’s policy is to consider as cash equivalent all highly liquid financial investments and maturing in90 days or less, and with minimum risk of loss in value. Cash flows from operating activities include allbusiness-related cash flows, as well as paid interest, interest income and, in general, all cash flows not defined asfrom financing or investment activities. The operating concept used in this statement is more comprehensive thanthat used in the consolidated statement of income.
Changes in Accounting Standards
Under the terms of our Concession Agreements, we must prepare our financial statements in accordancewith IFRS for the year beginning January 1, 2011. IFRS differs in certain significant respects from ChileanGAAP. See Appendix A for a description of the principal differences between Chilean GAAP and IFRS as theyrelate to us and our consolidated subsidiaries.
Liquidity and Capital Resources
General
Historically, our main cash flows have consisted of an initial capital investment by our shareholders andborrowings from bank loans and lines of credit to fund our initial capital expenditures for buses and terminals.Upon commencement of operations, we used our cash flow from operations and borrowed additional amountsfrom bank financing sources and our equipment vendors to finance additional capital expenditures for morebuses and terminals, deposits in the Operating Technical Reserve as required under the terms of our ConcessionAgreements and working capital.
At December 31, 2009 and September 30, 2010, Alsacia had Ch$3,876 million and Ch$33 million ofcash and cash equivalents, respectively, and Express had Ch$25 million and Ch$74 million of cash and cashequivalents, respectively, measured in constant Chilean pesos as of such dates. We believe our working capitalcombined with the proceeds of the offering of Notes and our expected cash flow from operations will besufficient to meet our capital requirements within the next twelve months.
We expect that substantially all of our cash flow from operations over the next 24 months will beallocated to service our debt, make payments under the Notes Hedge Agreement and for our basic operatingrequirements, including budgeted operations and maintenance and scheduled bus overhauls. As a result, we donot expect to have any cash flow for discretionary spending or investments during that period. We also do notexpect any of our cash flow from operations to fund any material additions to the Reserve Account during thisinitial 24 month period.
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Alsacia Operating Activities
In the first three quarters of 2010, as measured in constant Chilean pesos as of September 30, 2010,Alsacia generated Ch$2,840 million in net cash from operating activities principally reflecting Alsacia’sAdjusted EBITDA of Ch$11,154 plus non-cash write-offs and provisions of Ch$1,541 million, offset by netchanges in accounts receivable, inventories, other assets, and accounts payable related to operating income ofCh$5,681 million and interest paid net of interest received of Ch$2,918 million. In 2009 and 2008, as measuredin constant Chilean pesos as of December 31, 2009, Alsacia generated Ch$9,431 million and Ch$4,848 million innet cash from operating activities, respectively. The cash generated in 2009 principally reflected Alsacia’sAdjusted EBITDA of Ch$10,473 million plus Ch$3,899 million in non-cash write-offs and provisions plus netchanges in accounts receivable, inventories, other assets, and accounts payable related to operating income ofCh$2,781 million, minus Ch$4,772 million in interest paid net of interest received, minus Ch$550 million inpayments made to the Operating Technical Reserve, minus value added taxes and other taxes paid of Ch$807million. The cash generated in 2008 principally reflected Alsacia’s Adjusted EBITDA of Ch$18,501 millionminus net changes in accounts receivable, inventories, other assets and accounts payable related to operatingincome of Ch$1,166 million, minus interest paid net of interest received of Ch$3,131 million, minus paymentsmade to the Operating Technical Reserve of $7,541 million, minus Ch$1,118 million of non-cash operatingincome.
Alsacia Investing Activities
In the first three quarters of 2010, as measured in constant Chilean pesos as of September 30, 2010,Alsacia used Ch$1,156 million in net cash for investing activities, mainly for the purchase of leaseholdimprovements for the Maipú terminal and certain machinery and equipment totaling Ch$2,659 million. In 2009and 2008, as measured in constant Chilean pesos as of December 31, 2009, Alsacia used Ch$3,538 million andCh$12,957 million in net cash from investing activities, respectively, which were mainly for the purchase ofproperty, plant and equipment of Ch$1,867 million and Ch$12,842 million, respectively. The main capitalinvestments made by Alsacia has been the purchase of buses and investments in bus terminals. Theseinvestments were essential for compliance with the requirements of the Concession Agreements and fulfillmentof Alsacia’s operational needs. The following table sets forth Alsacia’s historical capital expenditures by type ofinvestment for the periods indicated.
Year endedDecember 31, Nine Months Ended
September 30, 2010Investment Category 2008 2009(Ch$ million)
Buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,322 0 3,675Bus terminals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,935 2,139 0
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,257 2,139 3,675
Alsacia purchased 43 new buses in June 2010, for an amount of U.S.$8.5 million to replace older busesthat were on lease from third parties. This investment was financed by a long-term export credit agreement,negotiated through the bus supplier.
In addition to the capital expenditures discussed above in each period, as required under the terms ofcertain of its bank loans and lines of credit, Alsacia makes monthly prepayment deposits representing monthlyamortization of its debt which are offset by the semiannual return of prior deposits upon the scheduled repaymentof debt. These amounts generally offset each other each period.
Alsacia Financing Activities
In the first three quarters of 2010, as measured in constant Chilean pesos as of September 30, 2010,Alsacia used Ch$5,760 million for financing activities, reflecting Ch$6,973 million of proceeds from long-term
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debt, payments of Ch$12,543 million of long-term debt and payments of Ch$190 million of related party debt. In2009 and 2008, as measured in constant Chilean pesos as of December 31, 2009, Alsacia used Ch$2,321 millionand generated Ch$8,038 million in net cash from financing activities, respectively. The cash used in 2009 wasprimarily for the repayment of Ch$23,242 million in loans offset by the incurrence of Ch$16,820 million in newloans and Ch$4,100 in new related party loans. The cash generated in 2008 was primarily due to the Ch$19,323million in new loan proceeds offset by Ch$11,100 million of loan repayments during the year.
Express Operating Activities
In the first three quarters of 2010, as measured in constant Chilean pesos as of September 30, 2010,Express generated Ch$6,454 million in net cash from operating activities principally reflecting Ch$12,714million of Adjusted EBITDA minus net changes in trade receivables, other assets, and accounts payable relatedto operating income of Ch$581 million, minus interest paid net of interest received of $3,661 million, minusCh$447 million for value added taxes and other taxes paid. In 2009 and 2008, as measured in constant Chileanpesos as of December 31, 2009, Express generated Ch$27,954 million and Ch$19,719 million in net cash fromoperating activities, respectively. The cash generated in 2009 principally reflected Ch$21,477 of AdjustedEBITDA, plus net changes in trade receivables, other assets, and accounts payable related to operating income ofCh$12,578 million, plus non-cash write-offs and provisions of Ch$1,569 million, minus Ch$5,480 million ofinterest paid net of interest received. The cash generated in 2008 principally reflected Ch$22,507 million ofAdjusted EBITDA, plus net changes in trade receivables, other assets, and accounts payable related to operatingincome of Ch$800 million, plus Ch$2,087 million in other non-cash write-offs and provisions, minus Ch$5,038million in interest paid net of interest received.
Express Investing Activities
In the first three quarters of 2010, as measured in constant Chilean pesos as of September 30, 2010,Express generated Ch$2,637 million in net cash for investing activities, mainly from the sale of Ch$3,654 millionof other investments offset by the purchase of fixed assets of Ch$1,027 million. In 2009 and 2008, as measuredin constant Chilean pesos as of December 31, 2009, Express used Ch$22,827 million and Ch$14,465 million innet cash from investing activities, respectively. Cash used in 2009 principally reflected Ch$17,774 million inpayments to the Operating Technical Reserve and Ch$5,141 million in purchases of fixed assets. Cash used in2008 principally reflected Ch$10,222 million in purchases of fixed assets and Ch$4,243 million in investments infinancial instruments. The main capital investments made by Express have been the purchase of buses andinvestments in bus terminals. These investments were essential for compliance with the requirements ofExpress’s Concession Agreement and fulfillment of Express’s operational needs. The following table sets forthExpress’s historical capital expenditures by type of investment for the periods indicated.
Year endedDecember 31, Nine Months Ended
September 30, 2010Investment Category 2008 2009(Ch$ million)
Buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,924 0 0Bus terminals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,217 3,366 594
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,141 3.366 594
Express took delivery of 193 new buses in the year 2011, for an amount of U.S.$35 million, to replaceits old buses. This purchase was financed through existing credit lines that will be repaid with the proceeds ofthis Notes offering. Express also expects to invest Ch$840 million for the construction of new bus terminals forthe operation of these new buses, plus Ch$514 million to complete committed investments in existing terminals.
In addition to the capital expenditures discussed above in each period, as required under the terms ofcertain of its bank loans and lines of credit, Express makes monthly prepayment deposits representing monthly
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amortization of its debt which are offset by the semiannual return of prior deposits upon the scheduled repaymentof debt. These amounts generally offset each other each period.
Express Financing Activities
In the first three quarters of 2010, as measured in constant Chilean pesos as of September 30, 2010,Express used Ch$8,276 million for financing activities, reflecting Ch$2,125 million of proceeds from long-termdebt and payments of Ch$10,402 million of long-term debt. In 2009 and 2008, as measured in constant Chileanpesos as of December 31, 2009, Express used Ch$8,483 million and Ch$5,222 million in net cash from financingactivities, respectively. The cash used in 2009 was primarily for the repayment of loans. The cash used in 2008was primarily due to the Ch$2,212 million in new loan proceeds offset by Ch$7,434 million of loan repaymentsduring the year.
Off-balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Quantitative and Qualitative Disclosures About Market and Operating Risks
The following discussion includes forward-looking statements that involve risks and uncertainties.Actual results could differ materially from those projected in such forward-looking statements. See “CautionaryStatement Regarding Forward-Looking Statements.”
Market and Operating Risks
We are exposed to risks arising from changes in various inputs into our revenue formula under ourConcessionns, including the number of passenger validations on our buses, the consumer price index, theexchange rate for U.S dollars and Chilean pesos, diesel fuel index, the labor cost index, the passenger capacity onour buses, and the scheduled route distance of our bus fleet under our Operating Plans. The table below illustratesthe estimated effect of a 10% increase or decrease in each of these factors on hypothetical revenue for Alsaciaand Express in 2011, assuming that all other factors remain constant and assuming baseline, hypothetical revenueof Ch$70,023 million for Alsacia and Ch$92,526 million for Express in 2011. The hypothetical amounts in thetable below are illustrative only and do not reflect actual or expected inputs or revenue.
Alsacia ExpressEffect on Base
Revenue assuming achange in the BaseAssumption of the
Input of
Effect on BaseRevenue assuming achange in the BaseAssumption of the
Input of
InputBase
Assumption10%
Increase10%
DecreaseBase
Assumption10%
Increase10%
Decrease
Passenger validations on our buses . . . . . . . . . 137.5million
2.1% -2.1% 189.8million
2.3% -2.3%
Consumer Price Index(Índice de Precios al Consumidor) . . . . . . . . 102.0 1.8% -1.8% 102.0 2.7% -2.7%
Exchange Rate (Chilean pesos/U.S. dollars) . . . 518.6 1.1% -1.1% 518.6 0.2% -0.2%Diesel Fuel Index . . . . . . . . . . . . . . . . . . . . . . . 455.7 3.5% -3.5% 455.7 3.6% -3.6%Labor Cost Index
(Índice de Costo de Mano de Obra) . . . . . . . 130.8 2.8% -2.8% 130.8 2.7% -2.7%Passenger capacity on our buses . . . . . . . . . . . . 69,107 5.8% -5.8% 128,571 to
116,9306.3% -6.3%
Scheduled route distance under Alsacia’sOperating Plans . . . . . . . . . . . . . . . . . . . . . . .
47.2million
kilometers
3.4% -3.4% 67.3million
kilometers
3.5% -3.5%
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Many of the revenue inputs above also impact our operating costs in proportion to our revenue. As aresult, the net impact of changes on the inputs on our revenue and operating costs in less than the gross impact ofthese changes on our revenue alone.
As shown in the table above, we expect that a 10% increase in fuel prices increases our revenue beapproximately 3.5% to 3.6%. Historically, our fuel costs as a percentage of revenue from passengertransportation services was 17.2% and 18.5% for Alsacia for 2009 and for the nine months ended September 30,2010, and 18.6% and 19.6% for Express during the same periods. As a result, we estimate that a 10% increase infuel prices would cause our revenue to increase by a greater amount than our fuel expense, causing our operatingincome to increase.
From time to time we assess our exposure and monitor opportunities to manage these risks above,including entering into derivative contracts. In the normal course of business, we also face risks that are eithernon-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk and arenot represented in the information above.
Exchange Rate Hedge
On the Escrow Closing Date, Alsacia expects to enter into one or more derivatives transactions pursuantto which it will acquire series of call options that will allow it to purchase U.S. dollars at a strike price rangingfrom 570 to 585 Chilean pesos per U.S. dollar. The options will be subject to a cap rate of 750 Chilean pesos perU.S. dollar or, if the options are not subject to a cap, Alsacia will sell a series of call options obligating it to sellU.S. dollars at a price of 750 Chilean pesos per U.S. dollar in the same quantities (effectively capping the calloptions bought by Alsacia), except that the options will be capped (or effectively capped) at 685 Chilean pesosper U.S. dollar during the final period. The call options will have semiannual terms which match the scheduledamortization of the Notes so that their net effect is to hedge the exchange rate risk associated with scheduledprincipal and interest payments under the U.S. dollar denominated Notes in the event the U.S. dollar / Chileanpeso exchange rate increases between the strike prices and the cap rates specified above. If the exchange rateincreases above 750 Chilean pesos / U.S. dollar (or, during the final period, 685 Chilean pesos / U.S. dollar), thecall options will act as a partial hedge to reduce our exchange rate risk by up to 180 Chilean pesos / U.S. dollar,which is the difference between the strike price of the call options and either the cap rate or the exercise price ofthe call options sold by Alsacia, as applicable.
Based on current exchange rates, Alsacia expects to pay a total of approximately U.S.$39.4 million topurchase the call options, of which approximately U.S.$4.6 million is expected to be paid in the first year afterthe offering. The foregoing amounts exclude any amounts that Alsacia would get as a result of exercising the calloptions.
Contractual Obligations
The tables below summarize the outstanding contractual obligations of Alsacia and Express as ofDecember 31, 2009.
Payments Due by Period2010 2011 2012 2013 2014 Thereafter Total
Alsacia (in millions of Ch$)
Long-Term Debt Obligations (1) . . . . . . . . . 19,889 17,450 13,756 10,331 10,041 25,999 97,466Capital Lease Obligations (2) . . . . . . . . . . . . 126 132 24 — — — 282Operating Lease Obligations (3) . . . . . . . . . 1,878 558 550 531 531 2,105 6,153Purchase Obligations (4) . . . . . . . . . . . . . . . 14,134 14,468 14,029 — — — 42,631
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,027 32,608 28,359 10,862 10,572 28,104 146,532
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Payments Due by PeriodExpress 2010 2011 2012 2013 2014 Thereafter Total
(in million of Ch$)
Long-Term Debt Obligations (1) . . . . . . . . . 13,271 15,591 15,280 14,741 14,164 33,537 106,583Capital Lease Obligations (2) . . . . . . . . . . . . 24 54 9 — — — 87Operating Lease Obligations (3) . . . . . . . . . 11,231 6,369 161 70 70 282 18,183Purchase Obligations (4) . . . . . . . . . . . . . . . 18,590 23,150 — — — — 41,740
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,116 45,164 15,450 14,811 14,234 33,819 166,593
(1) Amounts relate to scheduled principal and interest payments on Alsacia’s and Express’ long term debtoutstanding as of December 31, 2009, which will be repaid out of the proceeds of the offering of the Notes.
(2) Represents amounts payable under capital leases for equipment.
(3) Represents amounts payable under operating leases for our leased terminals and driver transition areas aswell as certain buses leased under operating leases.
(4) Relates to estimated minimum amounts payable for 2,500 cubic meters of diesel fuel per month underAlsacia’s fuel contract with Petrobras and 4,000 cubic meters of diesel fuel per month under Express’ fuelcontract with Copec, which are described under “Our Business—Our Operations—Fuel.”
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TRANSANTIAGO
General
Transantiago is the trade name of the public transportation system of the Santiago, Chile metropolitanarea, consisting of the city’s buses, the Metro subway, an integrated electronic payment system, as well asplanning and construction functions for transportation infrastructure. It is a critical part of the lives of a largesegment of Santiago residents, who rely on it for their daily commuting needs. Approximately 1,810 millionpassenger trips were taken on Transantiago in 2009, of which approximately 1,205 million, or 67%, were bustrips. Of those bus trips, approximately 11% and 17% were on the buses of Alsacia’s Trunk Line 1 and Express’sTrunk Line 4, respectively, compared to approximately 16%, 8.4% and 11% on the buses of Trunk Lines 2, 3 and5, respectively.
Transantiago is administered by the Ministry through a series of contracts and is not a separate legalentity. It was designed and implemented by the Chilean Government in 2003 as a complete overhaul of thethen-existing public transportation system in Santiago. Since its implementation, Transantiago, along with itsoperators, has gradually replaced the city’s buses with a modern standardized fleet, rerouted the bus lines formore efficient service, consolidated approximately 3,500 independent bus operators into 14 bus concessionholders, including Alsacia and Express, and introduced an integrated electronic payment system.
History
Bus rapid transit systems originated in Latin America in the 1970’s in response to the transportationproblems related to urban growth. Bus rapid transit systems offer several of the benefits of undergroundtransportation systems in terms of efficiency and quality of service but at a fraction of the investment. Thesepractical and economic benefits have led to the adoption of bus rapid transit systems in a number of cities indeveloping countries. In addition to bus rapid transit systems, many cities have also adopted integrated urbantransportation systems that include both underground and surface services with coordinated planning andcommon payment systems.
Prior to the implementation of Transantiago, the bus transportation system in Santiago was largelyinformal and decentralized, had consistently high accident rates and caused high levels of pollution. The systemconsisted of approximately 8,000 buses operated by approximately 3,500 operators. Bus drivers in the systemworked more than 12 hours per day and their salaries were based on passenger tickets received.
Transantiago was introduced as a response to the problems of the previous system and was implementedin three phases between October 2005 and February 2007. The initial implementation of Transantiago wasproblematic for the public and the system’s operators due to a number of factors including (i) delayeddevelopment of infrastructure for dedicated bus lanes, electronic payment machines, and GPS bus locators;(ii) poor communication and public preparedness for new routes; (iii) the elimination of cash payments; (iv) aninsufficient number of buses; (v) initial fares that were underpriced; and (vi) a poorly designed incentivestructure for concessionaires. Most of these transition issues have been resolved and public perceptions ofTransantiago have generally improved over time.
Transantiago offers significant improvements over its predecessor. For example, according to theMinistry, bus accidents were reduced by nearly 50% from 6,386 in 2005 to 3,291 in 2008. In addition, there hasbeen a significant reduction in bus pollution due to improved emissions (85% of all buses in Transantiago nowmeet Euro III emission standards, an emission standard implemented by the European Union in 2000 and sinceadopted in other areas of the world) and fewer buses (there are approximately 19% fewer buses in service todaythan under the old bus system). Transantiago’s integrated electronic payment system is also a significantimprovement over the variety of payment methods and fares prices among operators in the previous system.
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The Ministry continues to focus on further improving the system by, among other things, implementingan anti-evasion campaign, which will increase the number of inspectors on the street and the amount of finesapplied to passengers that do not comply with the rules. The Ministry is also coordinating with operators toindentify ways to improve their services without decreasing efficiency or quality. In addition, the ChileanGovernment created a panel of experts (Panel de Expertos) in 2009 that examines and revises fares on a monthlybasis to maximize the long-term financial stability of Transantiago.
Bus Lines
Transantiago bus lines are divided into trunk lines and feeder lines. The trunk lines complement theMetro subway and travel longer distances with fewer stops between different zones of the city. Trunk buses oftentravel on dedicated bus-only lanes across the city. The trunk lines are divided into five business units that areeach individually operated by a bus concession holder, including each of Alsacia and Express. Feeder lines travelshorter distances with more frequent stops within each of 10 zones in the city, which correspond to variousmunicipalities within the Santiago metropolitan area. The feeder lines are divided into nine business units that areoperated by six bus concession holders. The trunk and feeder business units are shown in the map below, whichillustrates the trunk business units with the actual trunk bus lines and the feeder business units with the zonesthey service.
As of September 30, 2010, there were approximately 3,800 trunk buses in Transantiago, with anaggregate passenger capacity of approximately 445,000, and approximately 2,700 feeder buses with an aggregatepassenger capacity of approximately 172,000. Together, Alsacia and Express owned and operated 1,861 buseswith an aggregate passenger capacity of approximately 210,000 (670 buses with an aggregate passenger capacity
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of approximately 73,000 through Alsacia and 1,191 buses with an aggregate passenger capacity of approximately136,000 through Express), representing approximately 47% of the total trunk buses and approximately 47% ofthe total trunk line passenger capacity.
In the nine months ending September 30, 2010, the trunk buses within Transantiago had received totalPassenger Validations of approximately 552 million, while the feeder buses had received total PassengerValidations of approximately 329 million. By contrast, the entire Metro subway system received approximately457 million total Passenger Validations over the same period. Together, Alsacia and Express received totalPassenger Validations of approximately 244 million during this period, representing 44% of all PassengerValidations on trunk buses.
In the nine months ending September 30, 2010, the total scheduled route distance for trunk buses withinTransantiago was approximately 217 million kilometers, while the total scheduled route distance for feeder buseswas approximately 169 million. The total scheduled route distance for Alsacia and Express together wasapproximately 88 million, representing approximately 41% of the scheduled route distance for trunk buses.
Competition
Bus concession holders compete with each other within Transantiago to a limited extent. The trunk linebus concession holders, including Alsacia and Express, compete more directly with each other than with thefeeder line bus concession holders. Some of the routes of the three trunk line bus concession holders other thanAlsacia and Express run parallel or overlap with our routes, or provide service to the same areas that our routescover. As a result, a passenger could take several routes and combinations of buses to travel from one point toanother in the Santiago metropolitan area and bypass our routes entirely. In some cases, these alternative routesmay be faster, involve fewer transfers, or be less expensive, than taking our buses.
Bus concession holders also compete with the Metro for passengers. The Metro subway has fiveoperating lines and is currently under expansion. Extensions of the Metro subway’s Line 1 were concluded in2010 and extensions of Line 5 were concluded in early 2011. Also, the addition of new Lines 3 and 6 have beenannounced.
In addition to buses and the Metro subway, the prevalent forms of urban transportation available inSantiago include private automobiles, private motorcycles, taxis and bicycles. According to the 2009 ChileanTransportation and Communications Almanac (AnuaRíos de Transporte y Comunicaciones 2009, INE), therewere approximately 1.3 million automobiles, including motorcycles (approximately 58,000) and taxis(approximately 41,000), in the Santiago metropolitan area. Consequently, of the city’s 6.9 million inhabitants,only a minority use private transportation as their primary mode of transportation. In addition, while the networkof roads in Santiago is generally well developed, these roads are often overwhelmed by traffic, making privatetransportation many times less practical than the public transportation offered by Transantiago.
Passenger Fares
Since 2009, Transantiago passenger fares have been set by the panel of experts appointed by theMinistry, which was established by the same law that created the original Transantiago subsidy. See “TheConcessions—The Subsidy.” The panel of experts determines, on a monthly basis and in light of availablesubsidies, the price of fares that will be charged to bus passengers based on methodology established by theMinistry.
The current bus fare on Transantiago buses is Ch$520, which includes up to two free bus transfers, plusan additional fee of either Ch$20 or Ch$80 to transfer to the Metro subway, depending on the time of the day.Payment methods and fares are standardized across the system with an electronic fare system. The electronicsystem consists of a prepaid smart card with an embedded microchip called the “Bip!” card, which can bepurchased from vending machines, vendors and kiosks throughout the city. The card automatically recognizes
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passengers who transfer buses or subway trains and passengers who are entitled to reduced fares. The paymentsystem is operated by the AFT, which is a private company that contracted with the Ministry to manageTransantiago’s payment systems and cash flows, including Passenger Validation revenue and ChileanGovernment subsidies. The AFT is responsible for all aspects of the Transantiago payment system, including theimplementation and maintenance of the electronic payment systems and the collection and distribution of fundsfrom passengers and the Chilean Government to the bus concession holders and the Metro. See “TheConcessions—AFT Payments—Responsibilities of the AFT.”
The Transantiago Subsidy
Passenger fares have historically been, and currently are, insufficient to cover Transantiago’s costs,including the amounts owed to bus concession holders. Therefore, Transantiago has relied on, and currentlyrelies on, Chilean Government subsidies to cover the costs. Subsidies from the Chilean Government are paid tothe AFT twice per month, on the same schedule as our payments under the Concession Agreements, andcombined with funds received from passenger fares to pay Transantiago’s concession holders, including Alsaciaand Express, pursuant to the terms of their respective concession agreements.
In September 2009, the Chilean Congress approved Law No. 20,378 (the “Subsidy Law”), whichprovides for a subsidy to be paid by the Chilean Government to the AFT on behalf of Transantiago (the“Subsidy”). Under the Subsidy Law, the Chilean Government has budgeted to pay a maximum Subsidy of up toCh$115,000 million annually into Transantiago, with the maximum amount adjusted annually for inflation. In theevent of shortfalls exceeding the maximum Subsidy, the Subsidy Law provides for an additional Subsidy of up toan aggregate of Ch$549,598 million to be paid into Transantiago between 2009 and 2014, with caps ofCh$133,349 million, Ch$29,641 million, Ch$9,283 million and Ch$3.654 million in the remaining years of 2011,2012, 2013 and 2014, respectively.
In November 2010, the Chilean Congress approved Law No. 20,468, which amends the Subsidy Law toincrease the Subsidy by Ch$61,997 million for each of the years 2011 through 2013 and Ch$30,998 million for2014, with all amounts subject to inflationary adjustment based on the CPI.
Nevertheless, while the Subsidy Law, as amended, sets forth the parameters of the Subsidy in futureyears, the Chilean Congress must still approve the inclusion of the Subsidy in its annual budget each year.
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THE CONCESSIONS
Bids for Concessions Solicited in 2003
In 2003, the Ministry publicly solicited bids for the right to operate the five trunk bus lines, or businessunits, and the nine feeder bus lines that would exist within Transantiago. Following the bidding process inJanuary 2005, Alsacia was awarded the concession to operate Trunk Line 1 (Troncal Uno) and Express wasawarded the concession to operate Trunk Line 4 (Troncal Cuatro).
Concession Agreements Executed in 2005
On January 28, 2005, Alsacia and Express entered into Concession Agreements with the Ministry forthe operation of these business units within Transantiago. Since that time, our Concession Agreements have eachbeen amended more than 15 times in attempts to improve the structure and services provided thereunder. Underthe Concession Agreements, as amended, the Ministry grants Alsacia and Express the right to use the roads of thecity of Santiago for the provision of urban passenger transportation services within the scope of their respectivebusiness units. In exchange for the provision of these services, the Alsacia an Express receive payment from theAFT.
Concession Agreements Amended in March 2010
On March 5, 2010, we agreed to new amendments to our Concession Agreements with the Ministry(together, the “March 2010 Concession Amendments”). The March 2010 Concession Amendments modify anumber of important provisions of the Concession Agreements, including the formula that controls our revenue.However, the March 2010 Concession Amendments are currently under review by the General Comptroller ofthe Republic and they will not be effective, if ever, until the review is completed and the objections, if any, of theGeneral Comptroller of the Republic are resolved. See “Risk Factors—The most recent amendment to theConcession Agreements has not received the necessary approval from the General Comptroller of the Republic.”If and when the March 2010 Concession Amendments become effective, their terms will be effectiveretroactively to August 2009. At such time, we will be entitled to receive from the AFT the difference betweenwhat our revenue would have been under the March 2010 Concession Amendments and our actual revenueduring the period beginning in August 2009.
Addendums to Concession Agreements in 2010
In the beginning of 2010, Line 1 of the Metro subway was extended to the Los Domincos station ineastern Santiago, and Line 5 of the Metro subway is currently under construction as it is being extended to thePlaza de Maipú station in southwestern Santiago. In addition, extensions to Lines 3 and 6 of the Metro subwayhave recently been announced. These extensions of the Metro subway reach into the areas we service. Becausewe at times compete with the Metro for passengers in the areas where our services overlap, the extension of theMetro subway has decreased the number of passengers who use certain of our routes already and couldpotentially decrease the number of passengers who use our buses in the future, thereby reducing our revenue.Under the Bidding Guidelines (Bases de Licitación), which were used in the public bidding process forconcessions and which establish the parameters of our Concessions, the Ministry is obligated to compensate usfor any reductions in revenue greater than 3.0% caused by increases in the availability of mass transportationservices other than buses, like the Metro subway.
In order to partially compensate us for the actual and anticipated losses caused the extensions of Lines 1and 5, the Ministry has granted us five additional bus routes, which were formerly part of the concession ofTrunk Line 3 (Troncal Tres) of Transantiago. The Ministry granted us these additional routes through addendumsto our Concession Agreements, dated July 30 and August 5, 2010, for Express and Alsacia, respectively
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(together, the “2010 Addendums”). In addition to adding new bus routes to our Concessions, the 2010Addendums (i) increase our required fleet passenger capacity to ensure we are able to meet the increased routeand passenger demands and (ii) increase reference Passenger Validations, which, as described below in “TheConcessions—Concession Revenue,” increases our overall revenue.
Unlike the March 2010 Concession Amendments, the 2010 Addendums are not subject to the legalreview of the General Comptroller and therefore became effective upon their execution.
Operating Plans
Our obligations under the Concession Agreements are limited solely to the provision of transportationservices as set forth in our Operating Plans, which dictate routes for bus service, frequency of service, departuretimes, stop locations and the types of buses that will be used for specific services on weekdays, weekends andholidays. After over five years of operating in Transantiago and working with the Ministry, the terms of ourOperating Plans have stabilized and the approval process has become a routine, though still very important, partof our business.
Alsacia and Express each have an account executive (éjecutivo de cuenta) at the Ministry, who isresponsible for negotiating with us regarding, and ultimately approving, the terms of our Operating Plans. Wemaintain frequent contact with our account executives in order to ensure that our Operating Plans meet publicdemand and match our capabilities. During periodic meetings at the offices of the Ministry and through frequenttelephone and email communications, we discuss all aspects of our Operating Plans with our account executives,including, most importantly, our levels of Passenger Validations.
Sixty days prior to the beginning of each fiscal quarter, Alsacia and Express each sends its accountexecutive a proposal for that quarter’s Operating Plan. Within 21 days after the submission of our proposals, ouraccount executives respond to us with observations and objections to our proposals. Thereafter, we have 20 daysto submit revised proposals. After receiving our revised proposals, our account executives approve our OperatingPlans by posting them to the Ministry’s website and sending us approval letters generally at least 10 days prior tothe start of the quarter.
Concession Revenue
Collection of Funds and Payments to Us
Other than permitting the AFT access to our buses to install and maintain Passenger Validationmachines, we do not participate in the setting of fare prices or the collection of fares from passengers. Instead apanel of experts (Panel de Expertos) appointed by the Ministry sets fare prices, and fares are paid by passengersto the AFT. The AFT, which is responsible for all funds in Transantiago, makes Concession payments to us intwo monthly installments. These Concession payments are based on revenue formulas in the ConcessionAgreements, with funds derived from two primary sources, passenger fares and a Chilean Government subsidy.
The AFT uses the Concession revenue formulas to calculate our revenue. Nevertheless, under theConcession Agreements, we are only entitled to funds that are paid into Transantiago, including passenger faresand Chilean Government subsidies. See “The Concessions—AFT Payments.” While Chilean Governmentsubsidies have covered Transantiago’s shortfalls in the past, and are scheduled to do so in the future, there is nocontractual mechanism under the Concession Agreements, or otherwise, to compensate us for shortfalls in thefunds held by the AFT compared to the amounts owed to us under the our respective Concession revenueformulas.
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Revenue Formulas
The Concession revenue formulas of Alsacia and Express have two primary components: Base Revenue,which comprised 43% and 36% of Alsacia’s and Express’s respective revenue in 2009; and Variable Revenue,which comprised 57% and 64% of Alsacia’s and Express’s respective revenue in 2009. Base Revenue andVariable Revenue are adjusted, based on our performance, by the Service Fulfillment Ratio and discounts,though Express accounts for discounts as expenses, rather than adjustments to its revenue. The diagram belowshows the basic revenue formula for each of Alsacia and Express, and descriptions of the four major componentsof the formula follow.
= + X - Discounts(Alsacia)
BaseRevenue
VariableRevenue
ServiceFulfillment
RatioTotal Revenue
• Base Revenue = Base Payment * Cost Index * Seasonal Adjustment Factor
• Base Payment = Base Revenue from the previous month, with the initial Base Payment set inJuly 2008 at Ch$2,724 million for Alsacia and Ch$3,179 million for Express.
• Cost Index accounts for changes over the previous month in several indices set forth in theConcession Agreements. The specific weight given to each index is set forth in each ConcessionAgreement and is tied to the types of buses in Alsacia’s and Express’s fleet.
• Alsacia Cost Index = (Δ CPI * 17.6%) + (Δ VPS * 1.1%) + (Δ Labor Cost Index * 27.9%) +(Δ Diesel Cost Index * 34.2%) + (Δ Lubricant Cost Index * 1.1%) + (Δ Tire Cost Index *7.0%) + (Δ Ch$/U.S.$ Exchange Rate * 11.2%)
The table below shows the number of each type of bus in Alsacia’s fleet, the weight given by Alsacia’sConcession Agreement to each variable in the Cost Index formula based on the type of bus and the total weightgiven to each variable in Alsacia’s revenue formula.
ALSACIACost Index Weights
Bus Type
Bus Fleetas of
September 30, 2010
Percentage ofBus Type in
FleetΔ
CPIΔ
VPS
ΔLaborCostIndex
ΔDieselCostIndex
ΔLubricant
CostIndex
ΔTireCostIndex
ΔCh$/U.S.$Exchange
Rate
Volvo B7RLE (1) . . . . . 436 65.1% 17.0% 1.0% 29.8% 33.0% 1.1% 6.6% 11.5%Volvo B9 SALF (2) . . . 173 25.8% 15.6% 1.2% 22.0% 37.6% 1.2% 8.1% 14.3%Remnant (3) . . . . . . . . . 61 9.1% 27.5% 1.0% 30.6% 33.2% 1.0% 6.7% 0.0%Weighted Average of
Cost IndexWeights . . . . . . . . . . . 17.6% 1.1% 27.9% 34.2% 1.1% 7.0% 11.2%
(1) The Volvo B7RLE is a bus chassis designed for urban use; it has a 7-liter rear engine on a 4x2 configurationand is equipped with a BEA2 bus electronic architecture, which gives the driver computer access toinformation on the engine, brakes, suspension, external lights, operational data and failure diagnosis.
(2) The Volvo B9 SALF is an articulated (or tandem) low-floor bus chassis; it has a 360-hp sidewardmid-mounted engine and is equipped with an integrated electronic system with onboard computer.
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(3) The “Remnant” buses are those buses from the pre-Transantiago transportation system that remain in use.These include a variety of different models and brands. Alsacia plans to retire all “Remnant” buses from itsfleet during 2011.
• Express Cost Index = (Δ CPI * 24.4%) + (Δ VPS * 1.1%) + (Δ Labor Cost Index * 26.9%) +( Δ Diesel Cost Index * 35.0%) + (Δ Lubricant Cost Index * 1.1%) + (Δ Tire Cost Index *7.3%) + (Δ Ch$/U.S.$ Exchange Rate * 4.2%)
The table below shows the number of each type of bus in Express’s fleet, the weight given by Express’sConcession Agreement to each variable in the Cost Index formula based on the type of bus and the total weightgiven to each variable in Express’s revenue formula.
EXPRESSCost Index Weights
Bus Type
Current Bus Fleetas of
September 30, 2010
Percentage ofBus Type in
FleetΔ
CPIΔ
VPS
ΔLaborCostIndex
ΔDieselCostIndex
ΔLubricant
CostIndex
ΔTireCostIndex
ΔCh$/U.S.$Exchange
Rate
Volvo B7RLE (1) . . . . . . . . . . . . . . 195 16.4% 28.5% 1.0% 29.8% 33.0% 1.1% 6.6% 0.0%Volvo B9 SALF (2) . . . . . . . . . . . . 496 41.6% 29.9% 1.2% 22.0% 37.6% 1.2% 8.1% 0.0%Remnant (3) . . . . . . . . . . . . . . . . . . 500 42.0% 17.4% 1.0% 30.6% 33.2% 1.0% 6.7% 10.1%Weighted Average of Cost Index
Weights . . . . . . . . . . . . . . . . . . . 24.4% 1.1% 26.9% 35.0% 1.1% 7.3% 4.2%
(1) The Volvo B7RLE is a bus chassis designed for urban use; it has a 7-liter rear engine on a 4x2 configurationand is equipped with a BEA2 bus electronic architecture, which gives the driver computer access toinformation on the engine, brakes, suspension, external lights, operational data and failure diagnosis.
(2) The Volvo B9 SALF is an articulated (or tandem) low-floor bus chassis; it has a 360-hp sidewardmid-mounted engine and is equipped with an integrated electronic system with onboard computer.
(3) The “Remnant” buses are those buses from the pre-Transantiago transportation system that remain in use.These include a variety of different models and brands. Express plans to retire all “Remnant” buses from itsfleet during 2011.
• Δ CPI: Percentage variation in the CPI, as estimated by the INE.
• Δ VPS: Percentage variation in the price of insurance policies, technical services and vehicleregistration, as estimated by the INE.
• Δ Labor Cost Index: Percentage variation in labor costs for the Santiago metropolitan area,as estimated by the INE.
• Δ Diesel Cost Index: Percentage variation in distribution fuel prices, as estimated by theINE.
• Δ Lubricant Cost Index: Percentage variation in the INE’s published value of lubricantprices.
• Δ Tire Cost Index: Percentage variation in the INE’s published value of new tire prices.
• Δ Ch$/U.S.$ Exchange Rate: Percentage variation in the monthly average of daily observedCh$/U.S.$ exchange rate (Dólar Observado), as published by the Chilean Central Bank.
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• The Seasonal Adjustment Factor: A percentage adjustment to a base month (July 2007) basedon historical seasonal demand; ranges from 63% in our slowest month of February to 116% inour peak month of October. The table below shows the Seasonal Adjustment Factor for eachcalendar month; these numbers are the same for both Alsacia and Express.
Month
SeasonalAdjustment
Factor
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.8%February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.8%March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.5%April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.3%May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.1%June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.5%July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.9%August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.8%September . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.1%October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.3%November . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.0%December . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.8%
• Variable Revenue = Payment per Passenger (Pago por Pasajero Transportado, or PPT) *Passenger Validations
• PPT(t) = PPT(t-1) * Cost Index * Revenue Adjustment Mechanism (Mecanismo de Ajuste porIngresos, or MAI) * Capacity Fulfillment Ratio (Mecanismo de Ajuste por Variación de Plazasy Kilómetros, or MAPK)
• PPT(t-1): PPT from the previous month, with the base amount set in July 2007 at Ch$194 forAlsacia and Ch$208 for Express.
• Cost Index: As calculated for each of Alsacia and Express for Base Revenue above.
• MAI = ((Adjusted Reference Passenger Validations(t) * 65%) + (Actual PassengerValidations(t-1) * 35%)) / Actual Passenger Validations(t-1)
• Adjusted Reference Passenger Validations(t) = (Reference Passenger Validations(t-1)/Reference Passenger Validations(t-2)) * Actual Passenger Validations(t-2)
• Reference Passenger Validations: estimated number of Passenger Validations set forth inthe Bidding Guidelines with an annual growth rate of 1.7%.
• Actual Passenger Validations(t-1): Passenger Validations recorded during the previousmonth.
• MAPK = (Fleet Passenger Capacity(t)/Fleet Passenger Capacity(t-1)) * 40% + (FleetPassenger Capacity(t)/Fleet Passenger Capacity(t-1)) * (Scheduled Route Distance per Bus(t-1)/Scheduled Route Distance per Bus(t-2)) * 60% + Additional Route Distance * 60%
• Fleet Passenger Capacity: fleet passenger capacity registered with the Ministry at thebeginning of the month.
• Scheduled Route Distance per Bus: scheduled route distance set forth in the OperatingPlans, divided by the number of buses registered with the Ministry at the beginning of themonth.
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• Additional Route Distance: route distance serviced at the request of the Ministry outsideof our normal routes and schedules.
• Passenger Validations: Aggregate number of Passenger Validations received on all buses ofeach of Alsacia and Express during the month.
• The Service Fulfillment Ratio is an index of our actual passenger capacity and the route distanceserviced by our buses measured every two weeks by the Ministry against the numbers agreed uponin our Operating Plans. If we perform exactly as set forth under our Operating Plans, the ServiceFulfillment Ratio would equal 100%. Deviations from our Operating Plans cause the ServiceFulfillment Ratio to decline. This index is used to reduce revenue for underperformance, but doesnot provide any benefit for outperforming Operating Plans.
The table below shows the average Service Fulfillment Ratio for each of Alsacia and Express for theyears ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2009 and 2010.
Service Fulfillment Ratio
For theYear Ended December 31,
For theNine Months Ended
September 30,2007 2008 2009 2009 2010
Alsacia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98.2% 97.5% 97.1% 97.6% 96.9%Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96.0% 97.6% 96.6% 97.8% 93.5%
The Ministry reports a preliminary Service Fulfillment Ratio to each bus concessionaire on a semi-monthly basis. Each bus concessionaire can then review the preliminary Service Fulfillment Ratio and proposeadjustments to it for service interruptions or delays that are outside of the concessionaire’s control, such as roadconstruction or traffic accidents along its routes. Once the proposed adjustments are reviewed and accepted bythe Ministry, the Ministry publicly reports the adjusted Service Fulfillment Ratios for a period starting on thesixth day of each calendar month and ending on the fifth day of the following calendar month. Alsacia andExpress also separately calculate the adjusted Service Fulfillment Ratio for each calendar month for their internalreporting purposes. All Service Fulfillment Ratios used in this Offering Memorandum refer to the internal,adjusted Service Fulfillment Ratios calculated by Alsacia and Express. For a more complete description of theService Fulfillment Ratio, see “The Concessions—Concession Revenue—Revenue Formulas.”
• Discounts are based on deviations from bus time and frequency schedules agreed upon in ourOperating Plans and measured by the ICF and the ICR. These discounts can be as great as UF 200,depending on the degree of deviation. While Alsacia accounts for discounts as reductions inrevenue, Express accounts for discounts as an expense. Therefore, Express does not includediscounts in its revenue formula.
Fines
The Concession Agreements also include a schedule of fines for detrimental conduct, such as failure tomaintain the cleanliness of buses, lack of uniforms for employees, failure to maintain accident insurance,alteration of routes and exceeding the maximum capacity restrictions. Fines under the Concession Agreementsrange from UF 10 to UF 10,000, depending on the seriousness of the conduct, and the accumulation of more thanUF 6,000 in fines paid in a period of 12 months by Alsacia or Express gives the Ministry the right to terminatethat party’s Concession Agreement. These fines are treated like expenses, rather than deductions to revenue, andare therefore not included in the revenue formulas.
Alsacia paid fines of UF 230 in 2005, UF 630 in 2006, UF 810 in 2007, UF 690 in 2008, UF 1580 in2009 and UF 280 in the first nine months of 2010. Express paid fines of UF 960 in 2007, UF 1200 in 2008, UF1240 in 2009 and UF 1790 in the first nine months of 2010.
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Impact of March 2010 Concession Amendments and 2010 Addendums on Revenue
If approved, the March 2010 Concession Amendments will modify a number of significant componentsof Alsacia’s and Express’s revenue formulas, including Base Payment, Cost Index, Seasonal Adjustment Factorand PPT. Based on our calculations, we believe the changes made by the March 2010 Concession Amendmentswould have an overall positive effect on our revenue.
The 2010 Addendums do not change Alsacia’s or Express’s revenue formula.
Passenger Payments to the AFT
Transantiago passengers pay all fares using Bip! cards. While cash payments were accepted on buses inthe past, Bip! cards are now the exclusive form of payment accepted on Transantiago buses and the Metrosubway. Bip! cards are issued and managed by the AFT, which is responsible for the operation of the Bip! cardsystem and the management of all funds received from Passenger Validations.
There are various types of Bip! cards, including the standard Bip! card, which is a bearer card with nopersonalization; personalized Bip! cards, which include the passenger’s name and photo; multifunction Bip!cards, which are debit cards that can also be used as Bip! cards; and student passes, which allow students to payreduced fares during the school year.
Passengers purchase Bip! cards, charge them with an amount between Ch$1,000 (or Ch$400 in the caseof student passes) and Ch$25,500, and then use them to pay fares by passing the cards by electronic card readerswhen boarding buses or the Metro subway. Bip! cards can be purchased, at a cost of Ch$1,250 for standard cardsand Ch$2,300 for personalized cards, and refilled at AFT vending machines in Transantiago subway stations andat various vendors and kiosks throughout the city. They can also be refilled online or by telephone. When a Bip!card is refilled, the funds are credited to the Bip! card and held by the AFT. When a Bip! card is passed by anelectronic card reader, the appropriate fare amount is deducted from the card and transferred by the AFT to anaccount used to make payments under all of Transantiago’s concession agreements, including the agreementswith Alsacia, Express, the Metro and the other bus operators. See “—AFT Payments.”
AFT Payments
Responsibilities of the AFT
The AFT is a private corporation, owned by various Chilean banks and other corporate entities,including Banco del Estado de Chile, Banco de Chile, Banco de Crédito e Inversiones, Banco Santander Chile,Promotora CMR Falabella S.A. and Sonda S.A., that acts as the sole collector and custodian of funds forTransantiago. The AFT has entered into separate agreements with the Ministry, Alsacia and Express for thecollection and management of all revenue from Passenger Validations and Chilean Government subsidies thatcome into Transantiago. Under the terms of these agreements, the AFT:
• issues, manages and maintains the operation of Bip! cards;
• provides, installs and maintains payment equipment and systems for buses;
• manages and consolidates information regarding Passenger Validations on buses;
• collects, manages and distributes the funds of Transantiago through designated bank accounts; and
• pays suppliers of ancillary services (the “Ancillary Service Providers”), which are responsible forproviding non-transportation services within Transantiago, such as the AFT itself, the Transantiago
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User Information System (Sistema de Información al Usuario de Transantiago), which gathers anddistributes information regarding Transantiago to passengers, and the companies responsible forTransantiago’s infrastructure and bus schedule alert system.
Flow of Funds and Payment Priority
Funds paid for Bip! cards are deposited into the first of two accounts managed by the AFT for thebenefit of the Transantiago service providers (“Account Number 1”). Funds from Account Number 1 are firstused to pay the Metro. Once the Metro has been paid in full, remaining funds in Account Number 1 aretransferred to a second AFT account (“Account Number 2”). Other funds contributed to the system, most notablyChilean Government subsidies, are also deposited into Account Number 2. All funds entered into AccountNumber 2 are the property of the Transantiago service providers and may not be commingled with other funds ofthe AFT. Because funds in Account Number 2 are not the property of the AFT, they would not available toAFT’s creditors in the event of AFT’s bankruptcy or otherwise.
Twice per month, the AFT makes the concession payments by transferring funds from Account Number2 to a third AFT account, which includes subaccounts for each bus concession holder. Under the ConcessionAgreements and the agreements we have with the AFT, we are entitled to receive only the funds deposited intoAccount Number 2. However, if in any given period the funds in Account Number 2 are insufficient to make allpayments owed to the service providers of Transantiago, available funds are distributed by the AFT with thefollowing priority:
• The bus concession holders are entitled to receive 85% of the amounts owed under their respectiveconcession agreements before payment is made to any other party. If the funds in Account Number2 are insufficient to pay 85% of the amounts owed to the bus concession holders, the funds inAccount Number 2 are distributed pro rata , based on the amount owed, to the bus concessionholders, and no other payment is made.
• After payment of 85% of the amounts owed to the bus concession holders, the remaining 15% ofthe amounts owed to the bus concession holders is pooled with the amounts owed to the AncillaryService Providers and these amounts are paid pro rata, based on the amount owed.
Once the Metro, the bus concession holders and the Ancillary Service Providers have been paid in full,any remaining funds are used to pay any unpaid amounts from previous periods in the same order of preference,or, if there are no unpaid amounts outstanding, any remaining funds are used to pay any future deficits.
Audit Rights and Other Protections
We have the right to audit the accounts and operations of the AFT in order to monitor the AFT’scompliance with the terms of its contracts with us. In addition, the AFT has provided the Ministry with UF760,000 in bank guarantees that the Ministry may collect if the AFT does not thoroughly perform its contractualobligations, including if the contract between the AFT and Ministry is terminated early due to the fault of theAFT, whether due to the AFT’s declaration of bankruptcy, failure to make payments, or otherwise. Under itsagreement with the AFT, the Ministry is required to use funds from these guarantees to pay amounts owed to theTransantiago service providers. In the case of both the AFT’s contract with the Ministry and its contracts with us,early termination due to the fault of the AFT would also result in a penalty for the AFT in the amount of UF600,000. Any such penalty would also be paid to the Transantiago service providers.
The Transantiago Subsidy
As explained above under “Transantiago—The Transantiago Subsidy,” passenger fares paid intoTransantiago are insufficient to cover the system’s costs, including amounts owed to bus concession holders.
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Therefore, Alsacia and Express rely on subsidies from the Chilean Government for full payment of revenueearned under their respective Concession Agreements. While subsidies have been approved through 2014, thepayment of these subsidies must be approved each year by the Chilean Government.
As explained above, Subsidy funds are transferred by the Ministry to the AFT and are used, togetherwith passenger fares, to pay us. We are eligible to receive the Subsidy funds if we are in compliance with ourrespective Concession Agreements.
Performance Bonds
Each of Alsacia and Express is required under the Bidding Guidelines to provide the Ministry with aperformance bond each year that guarantees the faithful performance of its obligations under its respectiveConcession Agreement. Each performance bond must have a term of at least 12 months and, during theremaining years of the Concessions, must be in the amount of UF 30,000 in the case of Alsacia and UF 167,000in the case of Express—the difference in bond amount is based on a difference in the type of buses each plannedto use during the initial bidding process. Alsacia and Express must each provide a new performance bond at least30 days prior to the expiration of the previous bond during each year of its Concession.
Operational Requirements
The Concession Agreements require that we use buses with specific engine types, chassis, passengercapacities, seat placement and location, as well as emission and sound levels. In addition, the ConcessionAgreements set forth maintenance requirements and useful life (vida útil) limitations, measured in kilometers, forall our buses. The Concession Agreements do not, however, contain any restrictions on the financing of our busesgenerally or the selection of suppliers, including suppliers of buses, parts and fuel.
Duration of the Concessions
Term and Extensions
The current term of each Concession Agreement expires in October 2018. The term may be extended forup to 18 additional months if, at the end of the current term, the present discounted value of the actual revenueunder each of our Concession Agreement is less than the present discounted value of expected revenue undersuch Concession Agreement (Valor Actualizado de los Ingresos Esperados). We must request this extension 12months prior to the expiration of the current term. Under the March 2010 Concession Amendments, if approved,this extension may be for up 24 months, rather than 18 months.
In addition, the Bidding Guidelines contemplate the possibility for potential concession extensions as ameans to offset revenue reductions caused by an increase in the availability of mass transportation services otherthan buses, like, most notably, the Metro subway. Nevertheless, the extent to which our Concession Agreementsmight be extended in such a situation is not established in the Bidding Guidelines and would be determined on acase-by-case basis. Other means contemplated by the Bidding Guidelines to offset such revenue reductionsinclude increases in the payment per passenger variable of our revenue model and the granting of additionalservices, as was done through the 2010 Addendums discussed above.
The term of each Concession Agreement may also be extended for up to 72 additional months if wechoose to wholly or partially replace our bus fleet with new buses with higher environmental standards. In orderto qualify for such an extension, the replacement bus fleet must possess reduced-contamination technology interms of weighted particulate matter emissions (PM10) and nitrogen oxide (NOx) emissions, as compared againsta similar fleet, in terms of bus size and quantity, made up of buses complying with one of two diesel emissionstandards: Euro III (an emission standard implemented by the European Union in 2000 for buses and sinceadopted in other areas of the world) or EPA 98 (an emission standard implemented in the United States for buses
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with model years between 1998 and 2003). We must request this extension, in writing, 12 months prior to theexpiration of the current term. The Ministry would then set forth the extension by an administrative act.
Under the March 2010 Concession Amendments, the 72-month extension described above would besuperseded by the following: upon the termination of the Concessions, any qualifying replacement buses that wepurchase would be incorporated by the Ministry into the bidding process for the right to operate each Trunk Line.The winner of the bidding process for each Trunk Line would be required to acquire any replacement buses for aprice equal to the present value of any outstanding balance owed on the replacement buses, assuming allpreviously due payments on the replacement buses have been made. If the Ministry is unable to sell the rights tothe Trunk Lines under these terms, the Ministry would extend the Concessions for consecutive six-month termsuntil any outstanding balance on the replacement buses has been paid. Nevertheless, as previously noted, theMarch 2010 Concession Amendments are still under legal review and are not currently in effect.
Termination by the Ministry
The Ministry may unilaterally terminate the Concession Agreements prior to their expiration in theevent of certain breaches by us. Under the Bidding Guidelines, the following acts and omissions by Alsacia andExpress are considered breaches of their respective Concessions that would give the Ministry the right toterminate the relevant Concession:
• Unauthorized reduction in capital when authorization for such reduction is expressly required, orwhen such reduction is expressly forbidden.
• Delivery of required information, on two separate occasions, with inaccurate records or data thatrelate to the Concession’s economic and operating conditions.
• Within 30 days after notice by the Ministry, failure to comply with Section 3.2.1 of the BiddingGuidelines, which sets forth, among other things, restrictions on our ownership and capitalization;
• Accumulation of (paid) fines in an aggregate amount greater than UF 6,000 during a period of 12months. Certain fines incurred during the startup stage of the Concessions are not counted for thesepurposes.
• Failure to renew, replace or refurnish, as applicable, the performance bond required by the BiddingGuidelines.
• Assignment of the Concession without the express consent of the Ministry, or modification of theour line of business in breach of the Bidding Guidelines.
• Abandonment of services at any time during the Concession’s term. For these purposes,abandonment is defined as the lack of service frequency during peak hours for two consecutivebusiness days.
• Failure to provide services following the startup periods set forth in the Bidding Guidelines.
• Commission of certain infractions set forth in the Bidding Guidelines, including failure to complywith fleet standards, driver requirements and subcontractor requirements, on five separateoccasions.
• Failure to comply with certain obligations related to driver compensation and the provision of busservices agreed to by each of Alsacia and Express in its initial proposal to the Ministry.
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• Failure to comply with the obligation to enter into the agreements necessary for Transantiago’sintegration.
• Failure to provide service in compliance with the continuity and quality requirements set forth inthe Bidding Guidelines.
In the case of termination by the Ministry, Alsacia or Express, as applicable, may be required, at thediscretion of the Ministry, to continue to operate their respective concessions during a transition period for up to18 months or until a replacement concessionaire is found. We would be entitled to compensation for theprovision of services during any transition period under the same terms as prior to the termination, but would notbe entitled to any compensation thereafter.
Pursuant to the Bidding Guidelines and under Chilean law, in order to terminate a ConcessionAgreement upon our breach, the Ministry must bring a claim against us and undertake administrativeproceedings. During any such proceedings, Alsacia and Express have the right to challenge the grounds fortermination and present evidence in its favor. After the termination of administrative proceedings, the Ministrywould issue a decision regarding the termination of the Concession. The Ministry’s decisions are subject tojudicial review, and Alsacia an Express may file a complaint regarding the decision before an ordinary court.
The March 2010 Concession Amendments provide for additional grounds for early termination andamend some of the grounds described above. The most notable changes are the following: (i) the amount ofaccumulated (paid) fines required to trigger the Ministry’s termination right is increased to an aggregate amountof UF 20,000 during a period of 12 months (instead of UF 6,000); and (ii) the number of infractions, such asfailure to comply with fleet standards, driver requirements and subcontractor requirements, required to trigger theMinistry’s termination right is increased to eight (instead of five). Nevertheless, as previously noted, the March2010 Concession Amendments are still under legal review and are not currently in effect.
Termination by Alsacia or Express
Alsacia and Express have the right to terminate their respective Concessions under certaincircumstances. The Bidding Guidelines identify the following two cases in which Alsacia and Express would bepermitted to terminate their respective Concessions:
• During six successive months, Alsacia or Express, as applicable, has not received in full itsminimum preferential revenue, as defined in the Bidding Guidelines.
• The sum of accumulated and outstanding minimum preferential revenue, as defined in the BiddingGuidelines, equals the average of Alsacia’s or Express’s monthly revenue over the previous sixmonths, as of the date the termination request is submitted.
Termination by us would terminate the relevant Concession, and our obligations under the Concession,as well as our rights to compensation under that Concession. Nevertheless, following termination, the Ministrymay require Alsacia or Express, as applicable, to continue providing services under its Concession during atransition period for up to 18 months. During any transition period, we would be entitled to compensation underthe same terms as prior to termination.
Pending Legislation: Termination by the Chilean Government
A bill is currently being processed by the Chilean Congress, which, if approved, would allow theChilean Government to unilaterally terminate the Concession Agreements prior to their expiration. In the case ofsuch early termination, we would be entitled to the rights associated with expropriation, which includecompensation in favor of the expropriated party, payable in cash prior to the termination of the Concession. Thisbill was approved by the Chilean Senate and forwarded to the House of Representatives for further review onJanuary 11, 2011.
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Amendments
The Concession Agreements may only be amended by mutual consent of the Ministry and the relevantConcession holder. However, under the Concession Agreements, the Ministry may unilaterally (i) modify thepermitted passenger capacities and frequency of our bus services; (ii) temporarily modify Operating Plans byrequiring additional daily services; (iii) require additional bus departures under certain circumstances; and/or(iv) require that Alsacia and Express use specific buses within their respective fleets to service specific routes.
Regardless of whether the Ministry takes any of the unilateral actions described above, the ConcessionAgreements protect our revenue to a certain extent by requiring minimum levels of scheduled route distance andpassenger capacity in the Operating Plans. Both scheduled route distance and passenger capacity are drivers ofour revenue. See “The Concessions—Concession Revenue—Revenue Formulas.”
Under the March 2010 Concession Amendments, the Ministry would be able to unilaterally modify thebus routes of the trunk lines by changing or eliminating existing routes within the assigned trunk lines, or, inexceptional circumstances, creating additional routes outside of the assigned trunk lines. Nevertheless, aspreviously noted, the March 2010 Concession Amendments are still under legal review and are not currently ineffect.
The 2010 Addendums do not change the rights of the Ministry, Alsacia or Express with respect toamendment of the Concession Agreements.
Other Chilean Government Regulations
General
In addition to the Concession Agreement, the Bidding Guidelines and other laws directly relating toTransantiago and our Concessions described in “The Concessions,” we are subject to a number of regulationsthat govern matters such as driver aptitude, traffic rules, safety regulations, and damages, including thefollowing:
• Law No. 18,290, Transit Act.
• Supreme Decree No. 212 of 1992, Regulation for National Public Passenger TransportationServices.
• Supreme Decree No. 170 of 1985, Driver License Application Regulation.
• Law No. 18,490 which requires mandatory civil liability insurance for motorized vehicles.
Since we are a transportation business, we also own and operate bus terminals, which are subject tomany regulations and permits, particularly of a city planning and environmental nature, within the context ofLaw No. 19,300, which established the general groundwork for environmental protection, the General Law ofConstruction and Planning, its Ordinance and Regulation, municipal regulations and city plans. As of the date ofthis Offering Memorandum, we have a number of permits that are pending approval.
Permits
Prior Favorable Report: This permit consists of a report issued by the Ministry which describes andapproves the operational features of the terminal. This report is required for obtaining the municipal constructionpermit. This permit has been issued with respect to all of our terminals.
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Urban Traffic Impact Study (Estudio de Impacto al Sistema de Transporte Urbano): This permit isprocessed before a dependency of the Ministry, which operates a single point of contact, for the purposes ofevaluating any potential impacts over traffic conditions in the corresponding project’s sector as well as anymitigation measures that may apply. This study, approved as is indicated, is required for obtaining the municipalconstruction permit. This permit has been approved for the Puente Alto, Peñalolén, Huechuraba and Rencaterminals, but it is still pending with respect to Maipú.
National Registry of Passenger Transportation Services: Registration is mandatory and this record isheld and kept by the Ministry for all means of remunerated public transportation, particularly for the vehicles bywhich these services are rendered. This National Registry shall contain all the information that the Ministry maydeem relevant in order to oversee and control the abovementioned services. Registration shall be mandatory inorder to render services, whichever the means of transportation. Registered vehicles must carry a copy of theirregistration at all times. This requirement has repercussions in our Concession Agreements. Currently, all of ourpublic transportation vehicles are registered.
RCA (Environmental Qualification Resolution): This resolution is issued by the Regional EnvironmentalCommission and its purpose is that of evaluating any potential impacts that a certain project or business mayhave on the environment. RCAs may be subject the approval of the project to certain conditions that, if breached,may lead to the revocation of the approval, among other potential sanctions. This resolution has been approvedfor the Puente Alto, Peñalolén, Huechuraba and Renca terminals, but it is still pending with respect to Maipú.
DIA (Environmental Impact Declaration) to modify RCA: As opposed to Environmental Impact Studies,Environmental Impact Declarations are required for projects whose potential impacts on the environment are notsubstantial. It is currently being processed for all of our terminals.
Drinking Water and Drainage Systems Permit (Aguas Andinas): This permit is required for the purposesof connecting the terminals the water and sewer mains as provided by a water company. It is one of the RCA’sconditions. It has already been approved for our Peñalolén, Huechuraba and Renca terminals, but its approval isstill pending with respect to Puente Alto and Maipú.
Interior Electrical Facilities (SEC TE1): This permit is required for the installation, use, and operationof interior electrical facilities. It is processed and granted by a dependency of the Superintendence of Fuel andElectricity and it has been approved for all of our terminals.
Gas Facilities (SEC TC6-TC2): This permit is required for the installation, use, and operation of gasfacilities. Applicable statute sets out the minimum requirements for interior gas facilities, collective or otherwise,whether supplied by a gas network or by pressurized tanks. It is processed and granted by a dependency of theSuperintendence of Fuel and Electricity and it has been approved for all of our terminals.
Fuel (SEC TC4): This permit is required to install, use and operate storage and operation facilities forliquid fuels such as petroleum or diesel. It is processed and granted by a dependency of the Superintendence ofFuel and Electricity and it has been approved for all of our terminals.
Pavement Permit (MOP): It is only required for our Huechuraba Terminal and has already been issued.
Pavement Permit (SERVIU): Pavement (or repavement, as the case may be) placement works must bepreviously approved by the National Service of Housing and Planning by way of this permit. This permit hasbeen issued for the Puente Alto, Peñalolén, Huechuraba and Renca terminals, but it is still pending with respectto Maipú.
Waste Extraction (SEREMI SALUD): This permit is required in order to extract waste and other formsof non-hazardous residues and it is required for our terminals because of the volume of waste. It is processed and
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granted before a dependency of the Ministry of Health. The only terminal that currently possesses this permit isPuente Alto.
Other Approvals
Municipal Construction: This approval is required to carry out constructions of a certain size. All of ourterminals required a construction permit in order to begin building. This approval is processed and granted by themunicipality in which the works are intended to be erected. We currently possess construction approvals for allof our terminals except for the Maipú Terminal.
Provisional Reception: Through this approval, the Municipality provisionally authorizes the use andoperation of the newly-constructed works while there are still pending works to be carried out. It shall set forth aterm during which the unfinished or pending portions must be terminated and immediately after which theDefinitive Reception must be obtained. It is currently being processed for all of our terminals, but has yet to begranted.
Definitive Reception: This approval allows permanent use and operation of a construction or a partthereof. It is currently being processed for all of our terminals.
Municipal Patent: This patent is issued by the Municipality in which any business operates. Businessesoperating within the Municipality must pay bi-annual fees in order to carry out their respective lines of businessand non-payment shall bring about fines and other sanctions. The amount of these fees is dependant on thebusiness’ revenue. Currently, the only terminal with a municipal patent is Huechuraba.
Termination and Revocation of Permits
The grounds for termination and revocation of permits shall vary depending on their respective statutes.However, material breaches or non-compliance of the permit’s terms and conditions, as well as other statutorybreaches, may bring about the termination or revocation of permits.
Inspection and Supervision
Surveillance of compliance of sector-specific permits is carried out by the sector-specific ChileanGovernment agency that issued the corresponding permit. Thus, supervision of compliance in connection withhealth-related permits shall be carried out by a dependency of the Ministry of Health, and so forth.
Therefore, buses and terminals may be inspected by representatives of the Ministry of Health,Transportation, Superintendence of Electricity and Fuel, or other relevant Chilean Government agencies. Theinspectors shall present themselves at the place of inspection on a predetermined or non-disclosed date, as thecase may be, and personally verify compliance of each and every one of the corresponding permits’ terms,conditions and requirements, drawing up minutes of all observations which are then signed by both the inspectorand the inspected parties. Depending on the seriousness of the breaches, such observations may or may not bringabout sanctions.
Sanctions
Sanctions applicable to non-observance of legal requirements pertaining to these permits may bringforth a wide scope of sanctions which range from written or verbal reprimands, fines (the amount of which alsovaries in accordance with the specific permit’s statute), temporary or definitive suspension of authorizations andlicenses, seizure of assets, revocation of the permit, disconnection to mains or other public networks whenapplicable and, in some extreme cases, suspension of works until administrative proceedings are unfolded inorder to resolve the matter.
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BUSINESS
Overview
General
Alsacia and Express together are the largest operator of bus transportation services in the Santiago,Chile metropolitan area, as measured by the available bus capacity and scheduled route length of Alsacia andExpress combined. We jointly operate under the Alsacia and Express Concessions and brands to providepassenger bus service within Transantiago, the rapid transit system of Santiago managed by the ChileanGovernment.
As of September 30, 2010, we collectively owned or operated 72 bus routes, 1,861 buses and 9 busterminals and we had 6,038 employees. In the first nine months of 2010, we received an average of 27 millionPassenger Validations per month, which was approximately 28% of the total bus Passenger Validations inTransantiago. Our fleet passenger capacity accounted for 31% and 34% of the total passenger capacity and 21%and 23% of the scheduled route length in Transantiago in 2009 and the first nine months of 2010, respectively.Alsacia and Express had revenue of Ch$66,658 million and Ch$86,065 million and operating (loss) income ofCh$(184) million and Ch$4,429 million for the year ended December 31, 2009, respectively, and revenue ofCh$54,732 million and Ch$70,844 million and operating income (loss) of Ch$3,441 million and Ch$(450)million, respectively, for the nine months ended September 30, 2010.
The Transantiago Concessions
Transantiago is the public transportation system of the Santiago metropolitan area, consisting of thecity’s buses, the Metro subway, an integrated electronic payment system, as well as planning and constructionfunctions for Transantiago infrastructure. Transantiago was designed and implemented by the ChileanGovernment in 2003 in a complete overhaul of the then-existing public transportation system in Santiago, whichwas largely unregulated and prone to accidents, inefficiency and excessive pollution. Transantiago wasimplemented in three phases between October 2005 and February 2007 and rerouted the bus lines for moreefficient service, consolidated approximately 3,500 independent bus operators into 14 concession holders,introduced an integrated electronic payment system and replaced the majority of buses then in use with a modernstandardized fleet. See “Transantiago.”
We hold concessions to operate two of the five trunk bus lines that, together with the Metro subway andthe feeder bus lines, make up Transantiago and provide transit service across Santiago’s 10 metropolitan zones.Under the Concession Agreements the Ministry grants Alsacia and Express the right to use the roads of Santiagofor the provision of urban passenger transportation services along their assigned routes. Our Concessions wereinitially awarded in 2005 and will expire in October 2018 unless previously terminated. Each respectiveConcession Agreement can be renewed for 18 months if Alsacia or Express does not reach minimum revenuethresholds set forth in its respective Concession Agreement. See “The Concessions.”
In exchange for the provision of our services, Alsacia and Express receive payment from the AFT underthe terms of their Concessions. Substantially all of our revenue is derived from payments under the Concessions,which are based on the aggregate Passenger Validations recorded on our buses as adjusted by formulas set forthin the Concession Agreements. These formulas are driven by the following four main factors:
• Base Revenue: Base Revenue is a predetermined monthly amount that is adjusted for a seasonalitycurve, which is predetermined in the Concession Agreements. Base Revenue is also adjusted eachmonth for changes in the Cost Index described below. Base Revenue comprised 43% and 36% ofAlsacia’s and Express’s respective revenue in 2009.
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• Variable Revenue: Variable Revenue is based on a number of factors, including our OperatingPlans, Passenger Validations and the Cost Index. Variable Revenue comprised 57% and 64% ofAlsacia’s and Express’s respective revenue in 2009.
• Service Fulfillment Ratio: Every two weeks, the Ministry determines our Service FulfillmentRatio, which measures our actual operating performance relative to our Operating Plans. TheService Fulfillment Ratio acts as a discount to Base Revenue and Variable Revenue because theService Fulfillment Ratio is multiplied by our Base Revenue and Variable Revenue for each monthto determine our actual revenue earned. If our buses operate exactly as planned in our OperatingPlans, our Service Fulfillment Ratio would equal 100% and we would earn the full amount of ourBase Revenue and Variable Revenue for that period. If, however, our buses deviate from ourOperating Plans, our Service Fulfillment Ratio would decrease, which would lead to a proportionatedecrease in our revenue. By improving the timely and accurate delivery of our bus services, we canmaximize our Service Fulfillment Ratio and increase our earned revenue. Since 2008, Alsacia hasconsistently achieved high Service Fulfillment Ratios relative to the other operators in Transantiagowhile Express achieved Service Fullfillment Ratios that were near the average of other operators.
• Cost Index: Substantially all of our revenue is adjusted monthly based on a weighted averagespecified in the Concession Agreements of the Chilean consumer price index; the price of vehicleinsurance, inspection and registration; the Chilean labor cost index; the price of diesel fuel; theprice of mineral oil lubricant; the price of tires; and the U.S. dollar/Chilean peso exchange rate.Because most of our operating expenses are also correlated or directly tied to these factors, the CostIndex significantly mitigates the effect of changes in these factors on our operating income or loss.
See “The Concessions—Concession Revenue” for a more complete description of our Concessionrevenue.
Transantiago Fund Sources
Through the Concession payment formula, the Ministry regulates the supply and quality of our busservices in coordination with the services provided by other bus concession holders and the Metro. Passengerscurrently pay a Ch$520 bus fare throughout Transantiago, which includes up to two free bus transfers, plus anadditional fee of either Ch$20 or Ch$80 to transfer to the Metro subway, depending on the time of the day.Payment methods and fares are standardized across the system with an electronic fare system. The electronicsystem consists of a prepaid smart card, called the “Bip!” card (a brand name derived from the sound made whenthe card is passed by an electronic card reader), with an embedded microchip, which can be purchased fromvending machines, vendors and kiosks throughout Santiago. Transantiago passenger fares are regulated andperiodically set by a panel of experts (Panel de Expertos) appointed by the Ministry.
Although the Ministry is our counterparty under the Concession Agreements, the Ministry does not payor guarantee our Concession revenue. Instead, all revenue generated in Transantiago from passenger farespayments is deposited into accounts managed by the AFT, which is responsible for the Bip! card system and themanagement of all associated funds on behalf of all Transantiago service providers. The AFT is separate from theMinistry and is a private corporation, owned by various Chilean domestic banks and other corporate entities,including Banco del Estado de Chile (the state bank of Chile), Banco de Chile, Banco de Crédito e Inversiones,Banco Santander Chile, Promotora CMR Falabella S.A. and Sonda S.A. The AFT was established to collect andhold all revenue generated by Transantiago in trust for the benefit of the various Transantiago service providersand concessionaires, including Alsacia and Express. This revenue is then distributed, in order of contractualpriority, first to the Metro, then to the bus concession holders and then to Transantiago’s ancillary serviceproviders, including the AFT, in accordance with the terms of their respective concession agreements.
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Since 2007, a significant portion of Transantiago’s revenue, and consequently our revenue, has beensubsidized by the Chilean Government through supplemental payments to the AFT, which, in turn, are paid to usand the other bus concessionaires. These supplemental payments are made twice per month, on the sameschedule as our payments under the Concession Agreements, and address shortfalls created by passenger revenuelevels that are lower than anticipated in the initial concession bidding process. The Chilean Governmentsubsidies help maintain the long-term financial stability of Transantiago and help ensure the commercial viabilityof its service providers and operators, including Alsacia and Express. These subsidies thus reflect the criticalnature of Transantiago to everyday life in the Santiago metropolitan area, and the Chilean Government’sdedication to its continuance. Subsidy payments made by the Chilean Government to Transantiago totaledCh$151,960 million from June through December of 2007, Ch$361,092 million in 2008, Ch$359,172 million in2009 and Ch$255,339 million for the nine months ended September 30, 2010, which comprised 42%, 50%, 49%and 45% of the total costs to support Transantiago during those respective periods.
Our History
GPS Group
GPS Group and its controlling shareholders have operated businesses in various sectors, including urbantransportation, process outsourcing, environmental solutions and real estate development, and have a presence inboth South and North America, including in Chile, Colombia, Panama, Peru and the United States. GPS Groupand its controlling shareholders hold approximately U.S.$400 million in total assets and generated revenue ofmore than U.S.$350 million in 2009 through their various business ventures.
GPS Group is focused on generating value by growing its current businesses and capitalizing on newopportunities in its current business sectors. GPS Group is principally owned by Carlos Ríos, Javier Ríos, andentities controlled by them and members of their family.
Alsacia
After enjoying success in operating a concession in Bogotá, Colombia, the controlling shareholders ofGPS group founded Alsacia to explore the opportunities related to Transantiago. In January 2005, Alsacia wasincorporated under Chilean and bid for Transantiago’s Trunk Line 1 (Troncal Uno), which consists of bus routesthat run from north to south across much of the Santiago, Chile metropolitan area. After winning the rights tooperate Trunk Line 1, Alsacia entered into a concession agreement with the Ministry on January 28, 2005 for theprovision of public transportation services.
In October 2005, Alsacia began operations as a part of Transantiago. With a fleet of over 600 Volvobuses and over 2,500 employees, Alsacia currently transports approximately 500,000 passengers each day andtransported over 44 million passengers in 2009 alone. Having enjoyed success in the operation of Trunk Line 1through Alsacia, the controlling shareholders of GPS Group began discussions to assume the independentoperation of Trunk Line 4 in 2008. See “—Express” and “Use of Proceeds—The Acquisition.”
Express
Express was founded in 2005 and incorporated under Chilean law as a joint venture between thecontrolling shareholders of GPS Group and a Colombian investor group called Grupo Transportador.
In December 2000, Transmilenio, the transit system that serves the city of Bogotá, Colombia, opened tothe public. The controlling shareholders of GPS Group joined with Grupo Transportador, a former transportationprovider in Bogotá, to bid for a concession in the Transmilenio system. Together, the controlling shareholders ofGPS Group and Grupo Transportador won a concession, which they continue to operate.
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In 2003, the controlling shareholders of GPS Group and members of Grupo Transportador, havingenjoyed a successful partnership in Transmilenio, decided to participate jointly in the bidding process forTransantiago, through Express, to operate Trunk Line 4 (Troncal Cuatro). At this same time, the controllingshareholders of GPS Group bid for Trunk Line 1 (Troncal Uno) independently from Grupo Transportadorthrough Alsacia. In January 2005, Express entered into a concession agreement for the operation of Trunk Line 4,and in October 2005, Express began operating in Transantiago.
In 2008, the controlling shareholders of GPS Group and members of Grupo Transportador begandiscussions regarding the separation of their joint operation. As part of the negotiation that followed, they agreedthat Grupo Transportador would by itself take over the operation of Transmilenio and that the controllingshareholders of GPS Group would take over their largest joint operation, Trunk Line 4 Transantiago.
On February 3, 2011, the controlling shareholders of GPS Group entered into an agreement withmembers of Grupo Transportador and other related persons and entities to acquire the 55% of Express that is notcurrently beneficially owned by affiliates of Alsacia for U.S.$70.5 million in cash and to separate the otherbusiness interests of GPS Group and Grupo Transportador. In addition in order to facilitate equity transfer relatedto the Acquisition, Panamerican will pay U.S.$7.9 million to partially repay certain debt of GPS Group. Thistransaction is expected to be completed shortly after this offering. We intend to finance our proposed acquisitionof Express through this offering of Notes.
Our Business Strategy
Our goal is to be the best operator in Transantiago while operating under the most efficient coststructure, which we believe will allow us to generate the most income under our Concession Agreements and infuture concessions for bus and other services in Chile. We believe that each of the strategies described below canhelp us to achieve our goal.
Improve Timeliness, Frequency and Quality of Our Bus Services
We seek to increase the timeliness, frequency and quality of our bus services which we believe willincrease our overall revenue in three ways. First, if we improve our bus operations relative to our OperatingPlans, then our Service Fulfillment Ratio will increase. Because substantially all of our revenue is affected by ourService Fulfillment Ratio, each percentage point increase in our Service Fulfillment Ratio will result in anapproximate 1% increase in our revenue. Second, improved service frequency and timeliness also increases ourICF and ICR, which minimizes various discounts applied to our revenue under the Concession Agreements.Third, we believe that by maintaining high Service Fulfillment Ratios, ICF and ICR, we can increase the level ofgoodwill we hold with the Ministry and the Chilean Government. We believe that increased goodwill willincrease our ability to obtain new routes, route extensions and modifications that may increase our revenue.
Among the ways that we believe we can improve our operational efficiency is by (i) applying Alsacia’soperating procedures to Express to try to improve Express’s Service Fulfillment Ratio, which we believe hasbeen declining in recent months due to turnover in certain employees and the recent addition of portions of trunkline 3 to Express’s prior routes, and (ii) leveraging key strategic relationships with our outsource partners,Citymovil and BIG Services SpA, whom we believe will provide us with superior service in the areas ofplanning, service fulfillment, quality control and operational information management outsourcing. We alsobelieve our existing strategic relationships with key transportation service and product suppliers such as Brazil’sPetrobras for fuel supply; Argentina’s Asesorías y Proyectos San Jorge S.A. for driver training outsourcing;Sweden’s Volvo for buses and spare parts; and Germany’s ZF Friedrichshafen AG for bus transmission systemswill help us to lower our future costs. These outsourced relationships and vendors allow us to focus on our coreoperations to improve our performance.
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Maximize Synergies from Joint Operating Arrangements with Express
We expect in the near term to achieve a number of cost synergies by jointly coordinating the operationsof Alsacia and Express, including the following:
• Increasing route and terminal densities will allow us to minimize the number of unpaid kilometersdriven by our buses and drivers. These unpaid kilometers primarily include distances drivenbetween the bus terminal and the start of a bus route, along with distances driven to switch busroutes in the middle of a work shift. Reduction of unpaid kilometers will reduce our fuel, labor andbus depreciation and maintenance costs without a corresponding decrease in revenue. We believethat Express in particular will benefit from the use of Alsacia’s Huechuraba and Peñalolenterminals, which are located in the northern and eastern portion of Santiago, respectively, wheremany of Express’s routes are located. See “—Property and Equipment—Bus Terminals” for anillustration of our current terminal locations in relation to our bus routes.
• Increasing the number of drivers and bus terminals will allow us to minimize the distance we travelto shuttle drivers to and from work, resulting in cost savings. We also expect to be able to schedulemore efficient breaks for our drivers by combining the our existing rest stops and eliminatingredundant rest stops. Because some of the rest stops of Alsacia are the closest rest stops to certainroutes of Express, and vice versa, we believe we can achieve improvements in productivity byminimizing the time to travel from a bus route to the nearest rest stop.
• Eliminating redundant general and administrative labor costs between Alsacia and Express,including duplicative finance, accounting, legal, executive management and board functions,resulting in significant cost savings. Along with the reduction in headcount, there will be areduction of the overhead costs for associated office space, computer equipment and othernon-compensatory costs relating to any reduced headcount, allowing us to realize significantsavings from elimination of redundant labor functions.
• Leveraging the size of our combined fleet to increase our purchasing power for buses, tires, spareparts and maintenance supplies and services.
Seek Approval of the Ministry To Allow Joint Management of the Operations of Alsacia and Express,Maximize Revenue and Identify Service Improvements
The current Concession Agreements contain certain restrictions on our ability to share bus routes, busdrivers, or buses between Alsacia and Express. If we are able to remove these contractual restraints, we believewe will be able to realize significant synergies in addition to those described above.
The Chilean Government has also announced a number of initiatives that we believe will increasedemand for Transantiago bus services. For example, the Chilean Government plans to implement an urban tollsystem to tax private use of city roads and more stringent regulation of automobile and traffic regulations, whichwe believe will increase the cost of private automobile transport and, as a result, increase bus ridership. Inaddition, the Chilean Government began a campaign to reduce fare evasion, which is currently estimated by theMinistry to occur on approximately 18% of passenger trips, by placing more fare inspectors on buses,implementing new payment zones where passengers pay fares before boarding buses, increasing fines andcreating a master list of people who fraudulently use subsidized fare cards. We also believe that the ChileanGovernment will implement further fare increases.
Build on Our Experience as an Operator To Obtain New Concessions
We intend to leverage our experience in bus operations and concessions to obtain new concessions withinTransantiago. We believe that there will be significant opportunities to expand our role within Transantiago in the
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near term because the feeder line bus concessions are scheduled to end in October 2011. We expect the Ministrywill solicit new bids to operate the feeder concessions when they expire. Although the solicitation process has notbeen established yet, there is no requirement for the Ministry to maintain an open bidding process available to allinterested parties. Instead, the Ministry can enter into private negotiations with a single potential service provider. Inthe past, the Ministry has reassigned certain bus routes and concessions to other existing concession holders inTransantiago without conducting an open bidding process. We believe our operating history in Transantiago willgive us an advantage in winning feeder line concession when and if they are renewed.
Our experience in Transantiago also gives us valuable expertise in operating and managing publictransportation concessions. We plan to apply this expertise to help us win transportation concession in othermajor metropolitan areas in the world. We also believe that other concession bidders throughout the world willseek our expertise and prior concession credentials by partnering with us and giving us minority interests in theconcessions with minimal equity investments by us.
Increase Overall Operating Efficiencies and Cost Reductions
We intend to continue initiatives designed to decrease our operating and overhead costs in addition toany synergies we may realize from the joint management of the operations of Alsacia and Express. Our cost-cutting initiatives include improving route designs for added efficiency, partnering with Citymovil and BIGServices SpA to improve bus and driver scheduling and GPS-based service rendering control, improving busreliability and availability, and improving our driver hiring and training programs and other safety initiativesacross our operations. In addition, we believe the Acquisition will allow us to take advantage of a unifiedmanagement structure to apply operational and managerial best practices across Alsacia and Express. We believethat knowledge sharing and cross training on best practices will help reduce the operational costs of Alsacia andExpress in addition to the synergies described above.
Our Strengths
We believe the following are our principal competitive strengths:
Solid Contract-Driven Revenue
We have a consistent source of recurring revenue from our Concessions to operate two of the five trunklines in Transantiago. The Concessions expire, unless previously terminated, in October 2018, which is one yearafter the expected final maturity of the Notes. The Concessions can be renewed for 18 additional months if we donot reach minimum revenue thresholds set forth in the Concession Agreements.
The revenue formula under the Concessions significantly mitigates the effects of changes in inflation ofthe Chilean peso, the Chilean peso/U.S. dollar exchange rate, the cost of fuel and labor, and the number ofpassengers on our buses. See discussion of these factors under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations for Alsacia and Express—Quantitative and QualitativeDisclosures About Market and Operating Risks.”
Our counterparty under the Concession Agreements is the Ministry, which has a vital political interest inthe continued services provided by Transantiago. Together with the rest of Transantiago, we serve a majority ofthe people in Santiago to meet their daily transportation needs. We play a critical part within Transantiago, andoperate approximately 47% of its intrazonal trunk lines, as measured by passenger capacity. Without ourservices, the daily commute for a significant number of Santiago residents would be disrupted. As a result, wework closely with the Ministry and the Chilean Government in general to resolve emerging issues that we face.The Chilean Government demonstrated its interest in Transantiago in 2009 by implementing a subsidy forTransantiago to supplement the system’s revenue, which has been lower than anticipated in the initial biddingprocess. The subsidy is adjusted annually through the Chilean national budget and has been approved until 2014
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to help maintain the long-term financial stability of Transantiago, including Alsacia and Express. See “TheConcessions” for a description of the subsidy, our Concessions and the Concession revenue.
Achieved Economies of Scale
As a result of the Acquisition, Alsacia and Express, viewed as a commonly controlled operation, willbecome the largest operator in Transantiago, as measured by available bus capacity and scheduled route distance.Together, we managed 1,861 buses and 9 terminals, transported 29 million passengers per month in 2009 andtraveled 9.1 million kilometers per month in 2009. Combined, the companies will control 34% of the buscapacity within Transantiago and 47% of the bus capacity among the trunk line operators. We believe that ourlarger size will give us:
• economies of scale in management and administrative costs;
• greater purchasing power for materials, services and spare parts;
• reduced spare parts inventories as a percentage of buses due to parts sharing;
• more efficient scheduling and reduced idle time for buses, terminals and drivers; and
• route densities for transferring buses and drivers between lines and to and from bus terminals.
See discussion above under “Business—Our Business Strategy—Maximize synergies from theAcquisition of Express.”
Efficient Operator
General
Alsacia has developed robust business processes and logistics that have made it one of the most efficientbus operators in Transantiago. Alsacia has consistently maintained a high Service Fulfillment Ratio, which is acomparison of actual in-service capacity, number of hours in service and distance traveled by each operator’sbuses against Operating Plans. Our efficiency stems from our expertise in bus maintenance, driver training andmanagement, operational planning and fleet logistics.
Express has historically achieved a Service Fulfillment Ratio near the average of other concessionholders in Transantiago. Upon completion of the Acquisition, we believe that we can improve Express’sperformance by applying Alsacia’s operating and management techniques to Express.
Bus Maintenance
High quality maintenance service is an important part of our success and enables us to keep our busesrunning longer, with less down time and at a lower operating expense. In 2009, Express received ISO 9001:2000certification for its maintenance operations. Similarly, in 2009, Alsacia’s five maintenance terminals werecertified under both the ISO 9001:2000 and ISO 9001:2008 standards. All of Alsacia’s maintenance andelectrical technicians attend three one-week training modules to help them maintain our buses. All of thesemaintenance practices help decrease our overall operating expenses and increase the in-service time andpercentage for our buses. See further discussion below under “Business—Our Operations—Bus Maintenance.”
Driver Training and Management
We provide extensive training and benefits for our drivers, which we believe increases their operatingefficiency and reduces driver turnover. Driver candidates must first pass our rigorous selection process, which
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involves matching candidates to competency maps. Once hired they must complete a new-hire training programto build their driving and safety skills and prepare them for customer service. Once they are working in the field,we give them ongoing training to refine and refresh their skills.
Alsacia has partnered with Asesorias y Proyectos San Jorge S.A., a driver training provider, for thebasic training of Alsacia’s drivers and the development of an efficient driving program tailored to reduce fuelconsumption and wear on bus systems. In addition, Alsacia intends to work with Asesorias y Proyectos San JorgeS.A. in the future to provide driver training and certification through the use of advanced driving simulators, ifapproved by future regulations.
We also constantly monitor driver performance, attendance and punctuality. This monitoring allows usto better coordinate drivers with our dispatch system, which in turn reduces our operational labor costs.Indentifying deficiencies and errors revealed during monitoring helps us refine our training programs to avoidsimilar errors in the future.
Our compensation programs are also designed to incentivize performance. When combined with ourgeneral employee benefits, well maintained working facilities and the uniforms we provide, we believe our totalcompensation is competitive in the industry.
Scheduling
After agreeing to an Operating plan with the Ministry, it is up to the operators to schedule operations.We have access to sophisticated technology to schedule and optimize the operational program. Our schedulingprocess matches buses and drivers to meet the Operating Plan requirements while complying with other legallymandated restrictions such as maximum drivers’ working hours, minimum number of Sundays off, and drivervacations. Our scheduling process allows us to balance our legally mandated requirements with our demandpeaks and bus maintenance schedules. Our scheduling processes result in a satisfactory delivery of the service ata minimum cost.
Fleet Logistics
We use Transantiago’s real time GPS based system to monitor and control our fleet operations and wedirectly employ and supervise our drivers. We also place supervisors along our bus routes, who monitor thetimeliness of our buses and communicate with our drivers and our central control center to coordinateadjustments to our routes in response to street conditions. These measures enable us to maintain strict qualitycontrols and take advantage of the economies of scale resulting from the size of our operations. Our logistics androuting systems utilize global positioning systems and scheduling software to maximize the performance of ourbuses and drivers.
Experienced Management Team with a Proven Track Record
Our senior management team is composed of professionals who have significant experience intransportation and other business sectors, providing us with a deep understanding of the industry and theregulatory environment as well as our customers’ needs and expectations.
Our Operations
Bus Routes
As of September 30, 2010, we operated 72 bus routes under the Concessions that are defined in ourOperating Plans. Routes are created and designed according to expected demand for our services in the differentareas of Santiago. Each route schedule of services requires a certain frequency for each time of the day to be
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performed with the appropriate bus. The average route length (one way) is 20 kilometers for Alsacia and 23kilometers for Express. In Alsacia, we estimate route financial performance taking into account operationaldifferences among routes such as route length, empty kilometers required to provide a service, passenger evasion,average speed, fuel consumption, driver time requirement, and some other specific costs. We routinely monitorthis financial performance and adjust operations to improve them and negotiate changes to our Operating Plansthat may help benefit our performance as well as service to our passengers.
Bus Maintenance
Our bus maintenance programs are designed to maximize bus reliability and availability, which lowersour operating expenses and extends the operational life of our buses. In 2009, Express received ISO 9001:2000certification for its maintenance operations. Similarly, in 2009, Alsacia’s five maintenance terminals werecertified under the ISO 9001:2008 standard. We systematically measure our maintenance performance throughthe performance statistics described below.
We measure reliability by tracking the number buses that make unscheduled returns to a bus terminalper 10,000 kilometers driven. During the nine months ended September 30, 2010, the cumulative reliability ratiowas 2.24 for Alsacia and 2.42 for Express.
We measure availability by tracking the number of buses available at peak hours divided by total fleet.This cumulative availability ratio for Alsacia is 96% and for Express is 97% through September 30, 2010.
To maximize our performance in these areas, we also apply preventive, repair and aesthetic maintenanceprocedures.
Under our preventive maintenance program, we perform on average about 16 inspections per year, morethan the number recommended by Volvo. In addition, preventative maintenance includes the implementation oftechnical upgrades and patches, fixes, recalls and regulatory modifications that are issued by the ChileanGovernment and bus and equipment manufacturers. Through careful coordination of bus and mechanicschedules, we are able to minimize the labor costs associated with our preventative maintenance programs whileminimizing bus down time. Our preventive maintenance programs result in improved fuel efficiency, reducedrepair maintenance costs and lower incidence of on-the-road mechanical assistance.
Repair maintenance is performed when service indicator lights are activated in our buses, maintenanceservice is required because of a breakdown, or a technician discovers a mechanical problem during an inspectionof a bus. We also inspect each of our buses when they leave and when they return to our bus terminals and havedeveloped a preventative and predictive maintenance program. During the repair maintenance process ourtechnicians are monitored by the appropriate maintenance supervisor so that our repairs are performed correctly.After each repair for which there is a repair checklist, the technician must fill out such checklist as part of hisquality control report. Our maintenance supervisors are required to perform at least one daily review of repairs byreviewing the repair checklist and confirming that the work has been done by the technician. Once work has beencompleted the supervisors must file a repair report and release the bus for operation.
We analyze our repair history and trends to conduct root cause analysis of the problems that led torepair. By identifying the root cause and eliminating it through preventative maintenance or procedural changes,we are able to lower our repair expenses. We also strive to minimize our inventory of spare parts through strictcost and inventory management and standardization of our bus fleet.
Finally, our buses are also maintained at an aesthetic level with regular internal and external bus washes,paint touchups and cosmetic body damage repair. These aesthetic improvements help us to avoid fines andincrease passenger satisfaction and perception of our operating brands.
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Our maintenance personnel are subjected to a rigorous training program so that they apply the latestmaintenance techniques. In total, Alsacia and Express maintenance personnel received 11,241 hours of trainingin the nine months ended September 30, 2010.
Our Employees
As of September 30, 2010, Alsacia and Express each employed a total of 2,481 and 3,557 employeesrespectively, as illustrated in the table below. Approximately 5.0% and 11% of these employees, respectively, wereconsidered administrative staff. Historically, Alsacia and Express have been operated and managed as separatebusiness entities. Upon completion of the Acquisition, we believe that there are opportunities to realize somesynergies by eliminating redundant staffing. In addition, we believe that we can reduce the ratio of administrativestaff to operations staff by implementing some of Alsacia’s management practices at Express. See discussion aboveunder “Business—Our Business Strategy—Maximize synergies from the Acquisition of Express.”
Alsacia Express Total
Employee Type OperationalNon-
OperationalSub-total Operational
Non-Operational
Sub-total Operational
Non-Operational
Sub-total
Bus Drivers . . . . . . . . . . . . 1,685 0 1,685 2,354 0 2,354 4,039 0 4,039Operations Control
Staff . . . . . . . . . . . . . . . . 333 0 333 365 0 365 698 0 698Maintenance
Technicians . . . . . . . . . . 248 0 248 494 26 520 742 26 768Administrative Staff . . . . . 55 78 133 112 111 223 167 189 356Managers . . . . . . . . . . . . . . 31 30 61 36 40 76 67 70 137Officers . . . . . . . . . . . . . . . 9 12 21 6 13 19 15 25 40
Total Employees . . . . 2,361 120 2,481 3,367 190 3,557 5,728 310 6,038
% of Total . . . . . . . . . 95.2% 4.8% 94.7% 5.3% 94.9% 5.1%
In addition to our full-time employees, we also employ part time employees to meet some of our laborneeds. The substantial majority of these part-time employees are bus drivers that we utilize to meet peak demandduring the morning and afternoon commute on work days. As of September 30, 2010, we had 601 part-timedrivers on call.
Driver Training
We provide training, benefits and performance monitoring for our drivers, which we believe increasestheir operating efficiency and reduces driver turnover. Driver candidates must first pass our rigorous selectionprocess, which involves careful selection of candidates to match skill set profiles and competency maps that wehave created for our driver positions. This screening process is designed to select bus drivers with high potentialfor success.
Alsacia has partnered with Asesorias y Proyectos San Jorge S.A., a driver training provider, for thebasic training of Alsacia’s drivers and the development of an efficient driving program tailored to reduce fuelconsumption and wear on bus systems. In addition, Alsacia intends to work with Asesorias y Proyectos San JorgeS.A. in the future to provide driver training and certification through the use of advanced driving simulators, ifapproved by future regulations.
Once hired, our drivers must complete a new-hire training process that is designed to improve theirdriving skills, increase their awareness of driver safety and train them on the features of our buses. Beforecarrying their first regular passenger, our drivers must participate in two to four weeks of training, depending ontheir level of prior experience. In addition, we require that all of our drivers posses valid driver licenses, issuedby the Chilean Government, certifying that they can drive commercial buses. Express offers a similar new-hiretraining process.
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Once they are dispatched into the field, our driver training continues with broad range of skills trainingprograms covering topics such as defensive driving, fuel efficient driving practices, core driving skills, customerservice and stress management. These training programs are provided by local technical schools and are repeatedat regular intervals to continually improve and maintain driver skills. In the first nine months of 2010, Alsaciadrivers logged 78,164 hours of training with an average of 46 hours per driver, and Express drivers logged17,275 hours of training with an average of 7.5 hours per driver. In addition to the skills training, we havedeveloped a driver career development and coaching plans to support our drivers’ long-term advancement andprofessional development. We expect Express training programs to be expanded with skills training programssimilar to those in place in Alsacia, upon the completion of the Acquisition.
We provide our drivers with competitive salaries, uniforms, and good working conditions on their buses,in the terminals and at rest stops. Our labor contracts provide for paid vacation, guaranteed annual bonuses,Christmas bonuses, and performance bonuses for attendance and punctuality. The agreements also provide formonthly meal and travel allowances payable to employees. We also give our drivers performance incentive paybased on their punctuality and attendance measures each month. These benefits demonstrate our commitment toour drivers and other employees and help us maintain average driver tenure of approximately 3 years.
At Alsacia, we constantly monitor driver performance to give them proper feedback, to identify driversthat need additional training or remedial action and to identify, promote and reward our best drivers. Drivers areperiodically evaluated and ranked on their performance based on their punctuality, attendance records, accidentrate, supervisor warnings, passenger complaints filed with Transantiago, and the number of unscheduled busreturns to a terminal by a driver that are not caused by bus mechanical failures. By tracking driver performanceand improvement, we can continuously improve our training programs and apply driver best practices across allof our drivers. Measuring driver attendance and punctuality also allows us to better coordinate our dispatchprogram, which in turn reduces the operational costs associated with our drivers. Collectively, we believe ourdriver training, compensation and monitoring programs promote a pleasant work environment and improveemployee morale and satisfaction.
Fuel
All of our buses use Grade A-1 diesel fuel which is commercially available throughout Santiago.Because our revenue under the Concession Agreements increases with increases in the price of fuel, as describedabove under “The Concessions—Concession Revenue,” we do not hedge against the cost of fuel in our fuelsupply contracts.
Alsacia has contracted with Petrobras Chile Distribucion Ltda. (“Petrobras”), an affiliate of the Brazilianstate oil company, to be its exclusive supplier of Grade A-1 diesel fuel and for Petrobras to supply all ofAlsacia’s needs, subject to certain customary exceptions. The contract expires in November 2012 and isautomatically renewed for additional one-year terms unless either party gives prior notice of non-renewal. Thefuel price contained in the contract is subject to various factors including the refinery price set by the NationalPetroleum Company (Empresa Nacional de Petroleo or “ENAP”) which is the sole refiner of oil in Chile, anyindirect effect produced by the discount ENAP gives to distributors of diesel fuel, taxes and general expensesincurred by Petrobras such as delivery costs. The general expenses are subject to biannual adjustment based onthe Chilean Consumer Price Index and a transportation cost index. Alsacia has minimum purchase commitmentsunder the contract to purchase 2,500 cubic meters of diesel fuel per month. In addition, under the fuel supplycontract, Alsacia must carry Petrobras advertisements on some of its buses for certain days during May, June,and July of each year. Petrobras also provides maintenance for Alsacia’s fuel pumps for no additional charge.
As of November 2009, Express has a three-year contract with Compañía de Petroleos de Chile CopecS.A. (“Copec”) to be its exclusive supplier of Grade A-1 diesel fuel and for Copec to supply all of Express’sdiesel fuel needs, subject to certain customary exceptions. The agreed upon volume is 4,000 cubic meters permonth. The term of the contract is originally set out as a three-year term, but it may be extended for an additional
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two-year term if neither party gives prior notice of non-renewal. If this were the case, then Copec shall reimbursethe difference from the general expenses corresponding to first three years against the August 13 proposal andthe method of reimbursement shall be mutually agreed among the parties. The fuel price contained in thecontract, which is not guaranteed by Copec, is subject to various factors including the refinery price for fuel setby ENAP, any discounts given by ENAP to the Transantiago operators, taxes and general expenses incurred byCopec. The general expenses are subject to a triennial adjustment according to changes in the Chilean ConsumerPrice Index. The contract is subject to termination if the Ministry or other relevant authority halts part or all ofExpress’s business. The contract with Copec was renewed 6 months ago.
Planning
The Management Planning Department (Gerencia de Planeamiento) is in charge of developing andagreeing on Operating Plans with the Ministry and then defining the detailed schedule of buses and drivers forour operations. New business opportunities, like, for example, new or improved bus routes, capture additionaldemand for our services, which in turn increases our potential revenue under the Concession Agreements. Inaddition to increasing revenue, we have been able to lower costs through strategic scheduling of our buses andbus operators. By optimizing the use of our buses and human resources, we are able to reduce our overall costsand improve profitability.
Our planning process has a solid track record in applying complex optimization models to arrive at cost-efficient scheduling and to suggest changes to our Operating Plans. We measure their performance by looking atthe percentage of buses that leave our bus terminals on or within two minutes of its scheduled departure. Thepercentage of such on-time departures for Alsacia and Express averaged 92% for Alsacia and 77% for Expressduring the nine months ended September 30, 2010.
We have contracted with a logistics consultant to optimize our fleet and bus allocations as well asimplement our route monitoring and dispatch system. Our dispatch software allows us to monitor usage of busesfor route allocation purposes and for measuring the performance of our drivers. The data we are able to obtainallows us to improve our level of performance by applying corrective measures or providing extra training whereneeded. Our software dispatch system allows us to meet peak demand while keeping the drivers’ shift durationwithin the permitted bounds as mandated by the labor laws of Chile. Our team of dispatchers continuouslymonitors traffic congestion and rider demand fluctuations in order to efficiently allocate our many buses. Ourintegrated GPS system allows us to track our buses and maintain them on schedule as required by the ConcessionAgreements.
Our algorithms take into account speed analysis to assign bus schedules and assign shifts to drivers tomatch bus schedules. Bonuses are also payable to dispatchers who meet on-time dispatching goals.
Scheduling and Traffic Control
We divide our bus fleet operations into two critical areas. The Scheduling Department schedules busdrivers, optimizes our inventory of available buses that are ready to go into service, matches the drivers to thebuses, allocates available buses and drivers among our terminals, and regulates the dispatch of each bus intoservice.
Once a bus goes into service, the Traffic Control Department (Control de Operaciones de Flota) takesover from the Scheduling Department. In a central control room, the Traffic Control Department monitors theflow of all of our buses on the street, traffic levels, and the allocation and flow of buses along each route. Theyare able to pinpoint the precise location of each bus through GPS systems installed on all of our buses. Theycontinuously monitor our bus fleet in the field and take corrective actions to reallocate the pace and flow of busesto maintain consistent service and minimize service lags or gaps. The control room is able to communicate withroute coordinators located in the field who flag down bus operators and give them instructions to adjust theirpace.
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The effectiveness and efficiency of Alsacia’s bus fleet operations have earned it consistently highService Fulfillment Ratio in Transantiago in the nine months ending September 30, 2010. Express’s ServiceFulfillment Ratio has generally been near the average of other concession holders over the same period. Webelieve that the recent decline in Express’s Service Fulfillment Ratio is a result of turnover in certain employeesand the recent addition of portions of trunk line 3 to Express’s prior routes. We believe we can improveExpress’s operational performance by applying the best practices from Alsacia.
Service Fulfillment Ratio (1) (ICPH / ICPKH)
80.0%82.0%84.0%86.0%88.0%90.0%92.0%94.0%96.0%98.0%
100.0%102.0%
Jan-
08
Feb
-08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb
-09
Mar
-09
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep
-09
Oct
-09
Nov
-09
Dec
-09
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0
May
-10
Jun-
10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0
Nov
-10
Dec
-10
Alsacia Express
ICPH ICPKH
(1) Ratio of actual passenger capacity and route distance serviced compared to the scheduled passenger capacityand route distance in Operating Plans during the applicable period (Índice de Cumplimiento Plaza KilómetroHora). Prior to October 2009, the calculation of this ratio did not include distance (kilómetros) and wasknown as Índice de Cumplimiento Plaza Hora. The Ministry added distance (kilómetros) to the ratio inOctober 2009 and renamed it Índice de Cumplimiento Plaza Kilómetro Hora. The Ministry reports apreliminary Service Fulfillment Ratio to each concessionaire on a semi-monthly basis. Each concessionairecan then review the preliminary Service Fulfillment Ratio and propose adjustments to it to reflect serviceinterruptions or delays that are outside of the concessionaire’s control, such as road construction or trafficaccidents along its routes. Once the proposed adjustments are reviewed and accepted by the Ministry, theMinistry publicly reports the adjusted Service Fulfillment Ratios for a period starting on the sixth day ofeach calendar month and ending on the fifth day of the following calendar month. Alsacia and Express alsoseparately calculate the adjusted Service Fulfillment Ratio for each calendar month for their internalreporting purposes. All Service Fulfillment Ratios used in this Offering Memorandum refer to the internal,adjusted Service Fulfillment Ratios calculated by Alsacia and Express. For a more complete description ofthe Service Fulfillment Ratio, see “The Concessions—Concession Revenue—Revenue Formulas” and“Business—Overview—The Concessions.”
Labor Unions
Substantially all of our employees are unionized.
Alsacia has entered into collective bargaining agreements with labor unions number 1 through 5covering approximately 72% of its employees, which expire on December 31, 2012. In addition, approximately14% of Alsacia’s employees are covered under a collective bargaining agreement with the Sinemia labor unionwhich expires on March 31, 2013. These agreements require annual salary raises equal to the increase, if any, inthe Chilean Consumer Price Index and provide for additional incentive compensation for meeting punctuality andattendance standards. Workers were also paid a one-time signing bonus ranging from Ch$100,000 toCh$400,000. On July 6, 2010, Alsacia experienced a temporary service disruption for a few hours at its Peñalolénterminal because some of our bus drivers alleged that the buses were being operated unsafely. Local policenegotiated a quick end to the disruption, and Transantiago coordinator ultimately determined that the drivercomplaints were without merit.
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Express has entered into collective bargaining agreements with a number of labor unions coveringapproximately 84% of its employees, which expire in February 2013. In addition, the majority of Express’sremaining workers are covered under a separate collective bargaining agreement which expires in March 2011that we expect will be renewed under terms to be negotiated. These agreements require annual salary raises equalto the increase, if any, in the Chilean Consumer Price Index and provide for additional incentive compensationfor meeting punctuality and attendance standards. In Workers were also paid a one-time signing bonus with anaverage of Ch$304,000. Two of the labor unions representing Express employees engaged in a three day strike inApril 2009. The strike was initiated by bus drivers who unsuccessfully demanded higher wages.
In addition to the collective bargaining agreements with the unions, we are required by Chilean law toenter into employment contracts with all of our employees which adhere to minimum labor law standardsrequired by law which govern work hours, breaks and other working conditions.
Chilean law also provides severance for our employees in the event they are terminated without cause atthe rate of one month of compensation per year worked by the employee for the employer, capped at 11 years ofservice or compensation at a rate equal to the salary paid during the last month of service, with a cap of UF90 per month.
Property and Equipment
Substantially all of our assets are currently pledged under bank credit facilities. We plan to repay thesebank credit facilities in full with the net proceeds from the Notes and, as a result, to have the pledges be released.See “Use of Proceeds.”
Bus Fleet Composition
Our bus fleet is comprised of modern buses with a proven track record for reliability, cost effectivenessand safety. The majority of our buses are made by Volvo, and we have one of the largest fleets of Volvo buses inLatin America. Each of our buses has a safety system that helps prevent the bus from moving if its doors are notclosed. In addition, our buses are equipped with disc brakes, ABS and portable fire extinguishers. All of ourbuses meet the Euro III emission standards, an emission standard implemented by the European Union in 2000and since adopted in other areas of the world.
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As of September 30, 2010, we operated a total of 1,861 buses, of which 1,300 were owned and 561 wereleased. Our leased buses remain in use from the pre-Transantiago transportation system and include a variety ofmodels and brands. We plan to retire all of these leased buses by July 2011. Our owned buses come in twostandard models with the following features and quantities as of September 30, 2010:
Articulated(Type 18)
Low Floor(Type 12) Total
Bus Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B9 SALF B7RLEEngine and Chassis Manufacturer . . . . . . . . . . . Volvo VolvoBody Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marco Polo and Busscar Marco Polo and BusscarLength . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 meters 12 metersDoors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 double doors 3 double doorsCapacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 passengers 91 passengersPower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 – 360 horsepower 275 – 290 horsepowerQuantity:
Alsacia Fleet . . . . . . . . . . . . . . . . . . . . . 173 436 609Express Fleet . . . . . . . . . . . . . . . . . . . . . 496 195 691
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 631 1,300
% of Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.5% 48.5% 100%
Average approximate kilometers in serviceper bus as of September 30, 2010
Alsacia Fleet . . . . . . . . . . . . . . . . . . . . . 341,000 kilometers 397,000 kilometersExpress Fleet . . . . . . . . . . . . . . . . . . . . . 395,000 kilometers 399,000 kilometers
Approximate kilometers driven per monthper bus
Alsacia Fleet . . . . . . . . . . . . . . . . . . . . . 6,400 kilometers 7,700 kilometersExpress Fleet . . . . . . . . . . . . . . . . . . . . . 7,800 kilometers 7,400 kilometers
We maintain our fleet of buses in accordance with a regular program of preventive and correctivemaintenance, as described above under “Business—Our Operations—Bus Maintenance.”
We have recently purchased 43 Volvo B7RLE buses for Alsacia, which were delivered in Augustthrough October 2010. We also have purchase orders to purchase 193 Volvo B7RLE buses for Express to replacethe buses we currently lease, which we expect to receive in July 2011. We expect that the useful life of theserecent bus purchases will coincide with the expiration of the Concession Agreements.
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Bus Terminals
We own or lease nine long-term bus terminals spread throughout the Santiago metropolitan area atstrategic locations along our bus routes. We use our terminals primarily as service stations to providepreventative and repair maintenance for our buses, as well as to house our operations personnel. The terminalsalso provide parking for our buses when they are not in use. The table and map below summarize the locationand major characteristics of our long-term terminals.
OperatorTerminal
NameBus
CapacityService
BaysLeased /Owned
LeaseExpiration
Express . . . . . . . . . . . . . . . . . . . . . Pudahuel 260 18 Owned n/aExpress . . . . . . . . . . . . . . . . . . . . . Maipú 220 23 Owned n/aAlsacia . . . . . . . . . . . . . . . . . . . . . Maipú 212 46 Leased March 2019Express . . . . . . . . . . . . . . . . . . . . . Pajaritos 129 10 Leased October 2012Alsacia . . . . . . . . . . . . . . . . . . . . . Peñalolen 126 20 Leased March 2019Alsacia . . . . . . . . . . . . . . . . . . . . . Renca 113 20 Owned n/aAlsacia . . . . . . . . . . . . . . . . . . . . . Huechuraba 105 16 Owned n/aExpress . . . . . . . . . . . . . . . . . . . . . La Reina 82 6 Leased October 2018Alsacia . . . . . . . . . . . . . . . . . . . . . Puente Alto 59 6 Owned n/a
Total 1,306 165
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In addition, to the long-term terminals above, Express has four temporary terminals that it recentlyleased on a short-term basis to help integrate operations for the new bus routes we were assigned from TrunkLine 3. These short term leases expire between December 2010 and August 2011, and have 26 total service baysand capacity to store 304 buses. We do not intend to renew these leases when they expire, but will insteadintegrate their operations into the combined capacity of our nine long-term bus terminals.
Alsacia has an option to renew the Maipu (Alsacia) terminal lease for an additional term correspondingwith the remaining length of its latest expiring Concession, which is currently set to expire in October 2018.
The Peñalolen terminal lease automatically renews for one year unless either party gives notice morethan one year prior to the expiration of the then applicable term. Alsacia can unilaterally extend the lease for oneyear beyond the initial term even if the lessor notifies Alsacia of its intention not extend the lease. Alsaciapossesses a right of first refusal to match any third party offer to purchase the terminal during the lease term.Alsacia also possesses a right of first refusal to lease the terminal after expiration of the current lease term.
The Pajaritos terminal lease automatically renews for seven years unless Express gives notice more thanthree months prior the end of the initial term. Thereafter, the lease automatically renews for four year termsunless either parties gives notice more than one year before the end of the term.
The La Reina terminal lease may be extended to coincide with any additional term of the Concessiongranted to Express past the expiration of initial term of the lease.
Express also owns vacant land in Buzeta, Santiago, Chile, which has total size of 22,515 square meters.
Insurance
We are frequently subjected to claims for personal injury or death and property damage as a result ofbus and other operational accidents. We may be liable for damages to passengers and luggage caused by thetransportation services we provide under certain circumstances. We maintain customary insurance policies thatmeet the standards required by the Concession Agreements and under applicable law for companies engaged insimilar operations. We maintain insurance for our buses, infrastructure, and terminals with coverage for materialdamage, civil liability and personal injury. We also carry mandatory life insurance as well as personal injuryinsurance for our drivers.
Litigation
We are a party in various lawsuits arising in the ordinary course of our business, primarily involvingpersonal injury and property damage claims and employment-related claims. The majority of these claims arisefrom traffic accidents involving our buses. We currently are not subject to pending legal proceedings, other thanroutine litigation incidental to our business. We do not believe any liabilities resulting from these proceedings arelikely to have a material adverse effect on our financial condition, cash flows or results of operations.
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MANAGEMENT
As a result of the Acquisition, Alsacia, Express Eco Uno and Panamerican will become affiliatedcompanies under common control by GPS Group. GPS Group intends to operate Alsacia and Express jointlyunder common management, common operating procedures and sharing of overhead and other costs in order tomaximize efficiencies for both entities. Eco Uno and Panamerican have no independent operations or employees.The directors and officers described below represent the current directors and officers of Alsacia, and theexpected directors and officers of Alsacia and Express after the Escrow Closing Date. The discussion belowexcludes a discussion of the current Directors and Officers of Express, Eco Uno and Panamerican because, dueto our efforts to consolidate personnel, we do not expect those persons to remain in those roles after the EscrowClosing Date.
Directors and Executive Officers
The businesses of Alsacia are managed by a board of directors. Alsacia’s Estatutos (bylaws) require thatthe board of directors consist of five directors. Elections for the entire board of directors are held every threeyears. Alsacia’s executive officers are appointed by the board of directors and hold office at its discretion.Scheduled meetings of the board of directors are held once a month. The directors and executive officers ofAlsacia are listed below.
NameTenure
as Director Position Age
Carlos Ríos . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years President and Chairman of the Board 47Ruben Ríos . . . . . . . . . . . . . . . . . . . . . . . . . . 4 years Director 51Heriberto Urzúa . . . . . . . . . . . . . . . . . . . . . . 4 years Director 48Andrés Echeverría . . . . . . . . . . . . . . . . . . . . Less than 1 year Director 45Jaime Maldonado . . . . . . . . . . . . . . . . . . . . . Less than 1 year Director 52Juan Antonio Guzmán (1) . . . . . . . . . . . . . . 4 years Director of Express 62
(1) Mr. Guzmán is a director of Express elected by the controlling shareholders of GPS Group.
The principal executive officers of Alsacia and the chief executive officers of each area or department ofAlsacia are listed below.
NameYears
with Alsacia Position Age
Carlos Ríos . . . . . . . . . . . . . . . . . . . . . . . . 5 years President and Chairman of the Board 47Vlamir Domic . . . . . . . . . . . . . . . . . . . . . . 1 year Chief Executive Officer 42Carlos Marín . . . . . . . . . . . . . . . . . . . . . . . 1 year Chief Financial Officer 40Carlota Fritsch . . . . . . . . . . . . . . . . . . . . . 5 years General Counsel 34Gabriel Morales . . . . . . . . . . . . . . . . . . . . 2 years Vice President of Human Resources 50Jorge Grez . . . . . . . . . . . . . . . . . . . . . . . . . 1 year Vice President of Maintenance 45Edgar Mac Allister . . . . . . . . . . . . . . . . . . 5 years Vice President of Transportation
Services50
Fernando Iribarren . . . . . . . . . . . . . . . . . . Less than 1 year Vice President of Fleet Operations andVice President of Operations 33
Set forth below is a brief biographical description of the directors and executive officers of Alsacia.
Directors
Carlos Ríos has served as President and Chairman of the Board of Alsacia since 2005. Mr. Ríos hasextensive experience in the development and management of public services concession companies. He is aprincipal founder, promoter and shareholder of Alsacia; Express de Santiago; Express del Futuro, a parent
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company of Express; and Transporte Alimentador de Occidente S.A., an urban public transport company in theTransmilenio System in Bogotá, Colombia. Together with his wife, he also owns Rioma ConsultoresEmpresariales Limitada, a company that gives financial, strategic and development advice to the companieswhere he has shareholding participation. He was the Chairman of the Board of Consorcio Aseo Capital S.A. from1996 to 2001 and a director of Ecocapital Internacional S.A. from 2004 to 2005, both of which are companiesholding long-term waste management concessions in Bogotá, Colombia. Mr. Ríos has also previously served as adirector of various other companies, including Express, Express del Futuro S.A. and Transporte Alimentador deOccidente S.A. In addition, Mr. Ríos previously worked as a European Commission Consultant for World Bank,as a Manager Director of the Vehicular Gas Project in Santa Fe de Bogotá and as a professor and director of theMultilateral Organism and Sustainable Development Department, Research Center and Special Projects, CIPE, atUniversidad Externado de Colombia, Santa Fe de Bogotá. Mr. Ríos received a Bachelor’s degree in Economicsfrom the University of the Andes in Bogotá, Colombia, a Master’s degree in Economics from SorbonneUniversity in Paris, France, and a Doctorate degree in Economics from École des Hautes Études en SciencesSociales (EHESS) in Paris, France.
Ruben Ríos has been a member of Alsacia’s board of directors since 2006. Mr. Ríos sits on the board ofnumerous Colombian companies, including Trash Busters S.A. and Central Parking System Colombia. He waspreviously a director of Servigenerales S.A., Enelar Pereira S.A. and Aseo Capital S.A. He is currently theGeneral Manager of Gold Gate Caro S.A., the General Director of National Technical Control and AerialSecurity of the Colombian Aeronautical Authority and the General Manager of Del Prado Zonas Verdes S.A. Hepreviously served as a General Manager for Consorcio Aseo Capital S.A., a Colombian public wastemanagement company, and he founded Recycle Enterprises, Panama. He received a Bachelor’s degree inEconomics from the University of the Andes in Bogotá.
Heriberto Urzua has been a member of Alsacia’s board of directors since 2006. Mr. Urzua has beenVice chairman of Empresas La Polar, a publicly traded Chilean company, since 2007, and Chief ExecutiveOfficer of Patagonia Inversiones since 2005. He has served as a director of Empresa Portuaria Talcahuano SanVicente since 2010; Inverotero since 2008; Empresas La Polar since 2007; Forus S.A., a publicly traded Chileancompany, since 1995; Embotelladora Andina S.A., a bottling company of Coca-Cola, which is traded on the NewYork Stock Exchange through ADRs, with operations in Chile, Brazil and Argentina, since 2006; Armacero since2006; Relsa S.A., a leasing company with operations in Chile, Peru and Brazil, since 2006; Fundación ChileUnido since 2005; Agrícola Ariztía S.A. since 2005; and Hortifrut S.A., the largest producer and exporter ofblueberries in South America, since 2000. He has also served as part of the Consejo Consultivo of Claro in Chile,a telecommunications company (previously known as TELMEX), since 2005. From 1996 to 2005 he served asVice Chairman of Forus, where he directly managed brand and retail operations in Chile, Peru and Uruguay.From 1989 to 1995, he served as VP, Head of Equity Investments and Capital Markets of Chase ManhattanBank. In addition, from 1993 to 1995, he served as a director of Pesquera Coloso. He also served as a director ofEntel from 1991 to 1992. He received a Bachelor’s degree in Business Administration from the PontificalCatholic University of Chile and an MBA from the IESE Business School of the University of Navarra inBarcelona, Spain.
Andres Echeverria has been a member of Alsacia’s board of directors since 2010. Mr. Echeverriacofounded ECG Partners S.A., an investment management company, in 2009 and was the CEO of Bicecorp S.A.from 2005 to 2009. He has previously worked for Deutsche Bank, where he was a Vice Chairman, Banker’sTrust Chile and Citicorp. He has served as a director of CMPC Papeles S.A., Banco BICE, Bicecorp S.A. andInversiones Aledan S.A. He is also a member of the Icare Finance Circle. He received a Bachelor’s degree inBusiness Administration from the Pontifical Catholic University of Chile and a Master’s degree in BusinessAdministration from the University of California Los Angeles Anderson School of Management.
Jaime Maldonado has been a member of Alsacia’s board of directors since 2010. Mr. Maldonado hasbeen a partner at Arcadia Capital Partners S.A. since 2008, and he was a partner at Booz Allen Hamilton, Inc.from 1997 to 2006. At Booz Allen Hamilton, Inc., he worked in various capacities, including as the Lead Partner
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for Northern Latin America, General Director for Booz Allen Hamilton de México S.A. de C.V., GeneralManager for Booz Allen Hamilton de Colombia Ltda., and Legal Representative for Booz Allen Hamilton dePerú S.A, Booz Allen Hamilton International (Panama) and Booz Allen Hamilton de Venezuela. He is currently adirector of Express del Futuro S.A., Data Tools S.A., Central Parking Systems Colombia and Seceyo Chile, andhe was previously a director of Correval S.A. and Ecocapital S.A. He received a Bachelor’s degree in CivilEngineering from the University of the Andes in Bogotá, Colombia, a Master’s of Science in TransportationEngineering from Ohio State University and a Master’s of Science in Technology and Policy from theMassachusetts Institute of Technology.
Juan Antonio Guzmán is a director of Express elected by the controlling shareholders of GPS Group.Mr. Guzmán has vast experience in managing public and private organizations. He is currently an active directorof several companies, including Express, Compañìa General de Electricidad S.A. and Sonda S.A. He is also theChairman of the board of directors of Cemento Polpaico S.A. and Indisa S.A. He is an active shareholder incompanies in a variety of sectors, including energy, education, health and real estate. He spent twelve years asChief Executive Officer of Gener S.A. and three years as Chancellor of Universidad Andres Bello. He was alsoChile’s Minister of Education. Mr. Guzmán received a Bachelor’s degree in Civil Engineering from thePontifical Catholic University of Chile and a Ph.D. from Polytechnic of North London.
Executive Officers
Vlamir Domic has served as the Chief Executive Officer of Alsacia since 2009. Mr. Domic previouslyserved as the Chief Executive Officer of LAN Airlines. Mr. Domic received a Bachelor’s degree in BusinessAdministration from the Pontifical Catholic University of Chile. He also attended the Stanford ExecutiveProgram at the Stanford Graduate School of Business.
Carlos Marin has served as the Chief Financial Officer of Alsacia since 2009. Mr. Marin previouslyserved as the Chief Financial Officer and Chief Operating Officer of Grupo Nueva from 2005 to 2009 and, priorto that, as the CFO of Masisa S.A. from 2002 to 2004. Mr. Marin also previously served as a director of MasisaS.A., Amanco Holding, Inc. and The Plycem Company. He received a Bachelor’s degree in BusinessAdministration from the Adolfo Ibañez University in Chile and a Master’s in Business Administration fromStanford University’s Graduate School of Business.
Carlota Fritsch has served as the General Counsel of Alsacia since 2005. From 2003 to 2005,Ms. Fritsch was a partner at Fritsch & Salgado Abogados Asociados. She received a Law Degree from theAndres Bello University in Chile and a Master’s degree in Business Law from the Adolfo Ibanez University inChile.
Gabriel Morales has served as the Vice President of Human Resources of Alsacia since 2008. From2002 to 2008, Mr. Morales served as Human Resources Director of Ripley S.A., a retailer in Chile, and from1994 to 2001, he served as Human Resources Director for Lan Airlines, a leading Latin American airline. Hereceived his Bachelor’s degree in Business Administration from the Pontifical Catholic University of Chile and adiploma in Business Management from the Pontifical Catholic University of Chile. He also completed anegotiation program at Harvard University.
Jorge Grez has served as the Vice President of Engineering and Maintenance for Alsacia since 2009.From 2008 to 2009, Mr. Grez served as Post-Sales Senior Manager for Gildemeister Machinery Division. From1996 to 2008, he worked for LAN Airlines in various capacities, including Fleet Director, from December 2005to June 2007, and Line Maintenance Director, from June 2007 to October 2008, during which time he oversaw allline maintenance operations for LAN Airlines fleet in Latin America, Europe and Oceania. He was an Officer inthe Chilean Navy from 1986 to 1996. He received a Bachelor’s degree in Naval Engineering at the NavalPolytechnic Academy in Chile, a Master’s in Business Administration from the University of Chile and aMaster’s degree in Aeronautical Maintenance at École Nationale Superieure d’Ingenieurs de ConstructionsAeronautiques (ENSICA) in France.
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Edgar Mac Allister has served as the Vice President of Transportation Services of Alsacia since 2005.From 2004 to 2005, Mr. Mac Allister was the General Manager of Transporte Alimentador de Occidente S.A. inBogotá, Colombia, prior to which he performed several public transport consulting works for major Colombiancities. Beginning in 1999, he worked for Bogotá City developing the new rapid transit project “Transmilenio,”and from 2000 to 2001, he was the Operational Director of Transmilenio. From 1990 to 1998, he was PlanningManager of Empresa Colombiana de Vías Férreas in Colombia, where he worked in the design andimplementation of the concession of the main Colombian railroad. Mr. Mac Allister began his career in 1984 as aprofessor and administrative coordinator at the School of Mathematics at the University of the Andes in Bogotá,Colombia. Mr. Mac Allister received a Bachelor’s degree in Mathematics, with a minor in Systems Engineering,a Master’s degree in Mathematics and a Ph.D.(C) in Molecular Biology from the University of the Andes inBogotá, Colombia.
Fernando Iribarren has served as the Vice President of Control and Fleet Operations for Alsacia since2009. From 2008 to 2009, Mr. Iribarren served as Development Manager for Inmovet, an affiliate of GrupoMoller and Pérez-Cotapos. From 2003 to 2009, he served as Operations Manager for Redbus Urbano S.A., anaffiliate of Veolia Multinational. He received a Bachelor’s degree in Civil Industrial Engineering from theUniversity of Chile.
Directors’ Committees
Pursuant to the Corporation’s Act, Alsacia has no statutory obligation in terms of forming orincorporating any Directors’ Committees. Nevertheless, it has considered it appropriate to create a FinanceCommittee, which monitors and makes recommendations to the board of directors regarding accounting andfinancing matters, financial performance, financial risk and tax related issues; a Labor Committee, whichmonitors human resource management and labor relationships within the company; and an OperationalCommittee, which evaluates operational performance and resource management. The members of thesecommittees are selected by the board of directors and each of these committees gathers in regular sessions. Otherthan the committees described above, there is no other committees of the board.
Compensation of Directors and Officers
As agreed upon during the Annual General Meeting of Shareholders of Alsacia held on April 30, 2010,the remuneration of each member of the board of directors shall be Ch$1.0 million and the remuneration of theChairman shall be Ch$2.0 million.
The total amount of compensation paid to executive officers in 2009 was Ch$1,030 million for Alsaciaand Ch$1,555 million for Express.
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PRINCIPAL SHAREHOLDERS
The only outstanding equity securities of Alsacia are 36,535 shares of common stock of a single series,without nominal (par) value. The table below summarizes the current shareholders of Alsacia:
ShareholderTotal
Shares
ShareOwnershipPercentage
Carlos Ríos Velilla . . . . . . . . . . . . . 13,443 36.79%Javier Ríos Velilla . . . . . . . . . . . . . . 10,873 29.76%Desarrollo y Soluciones
Informáticas S.A. . . . . . . . . . . . . 12,219 33.44%
Desarrollo y Soluciones Informáticas S.A. is a holding company directly or indirectly owned andcontrolled by Carlos Rios, Javier Rios and other members of their family.
Upon completion of the Escrow Closing Date, each of the stockholders above have agreed to transfer allof their shares of Alsacia to GPS Group, except for one share which will be retained by a second shareholder,Desarrollo y Soluciones Informáticas S.A., as required under Chilean law in order to maintain the corporateexistence of Alsacia.
Upon completion of the Acquisition and the Escrow Closing Date, the relationship of the Issuer, theGuarantors and GPS Group will be as shown in the diagram below.
Eco Uno(Chile)
GUARANTOR
Eco Uno(Chile)
GUARANTOR
Express(Chile)
GUARANTOR
Express(Chile)
GUARANTOR
99.998%
11.7%
0.002%
Ursus(Panamá)
Ferro(Panamá)
%01%2
60%
EDTM (ChileanBranch)
EDTM (ChileanBranch)
GPS Group(Panama)
GPS Group(Panamá)
Panamerican(Bermuda)GUARANTOR
Panamerican(Bermuda)GUARANTOR
EDTM(Colombia)
%001%001
100%
Alsacia(Chile)ISSUER
100%100%
0.3%16%
Panamerican(ChileanBranch)
Panamerican(ChileanBranch)
100% 100%
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RELATED PARTY TRANSACTIONS
In the ordinary course of our business, we engage in transactions at arm’s-length terms with certainrelated parties. For information concerning these transactions, see Note 5 and Note 6 to the audited consolidatedfinancial statements of Express and Alsacia, respectively, found elsewhere in this Offering Memorandum.
Under Chilean law, any transactions with related parties must be carried out on an arm’s-length basis. Inaddition, any transaction (i) in which a director has an interest or is acting on behalf of a third party, (ii) thatinvolves more than the higher of U.S.$95,000 or 1% of the company’s assets, (iii) not considered, based onpolicies passed by the board, to be carried out in the ordinary course of business and (iv) where neither companyinvolved owns at least 95% of the other must be on an arm’s-length basis and previously approved by thedirectors committee, if any, and presented to the board of directors for approval by those directors who do nothave an interest in the transaction. The directors committee must prepare a report regarding the transaction,which must be read to the members of the board of directors, who have the authority to approve or reject thetransaction. The resolution of the board of directors regarding the transaction must be disclosed at the followingshareholders’ meeting. In the absence of approval of the board of directors, an extraordinary shareholders’meeting may be called in order to approve the transaction.
Directors and executive officers of companies that breach these duties may face administrative sanctionsor criminal prosecution and may be liable for losses resulting from such violation.
Alsacia
Since January 1, 2008, Alsacia has entered into the transactions with related parties described below:
On May 27, 2005, Alsacia and Express entered into a bus lease agreement, which was subsequentlyamended on October 4, 2005 and October 5, 2005, under which Alsacia leases 162 buses from Express forCh$1.9 million per month per bus, plus taxes.
Since May 2005, Alsacia and Express have shared the services of certain employees and divided thecosts associated with shared employees between the two companies. In connection with this arrangement,Alsacia recognized net receivables from Express of Ch$152 million, Ch$16 million and Ch$16 million in 2008,2009 and the first nine months of 2010, respectively. A dispute has arisen between Alsacia and Express regardingthe amount owed by Express to Alsacia. See note 6 to the financial statements of each of Alsacia and Expressappearing elsewhere in this Offering Memorandum for more information regarding this dispute.
On October 12, 2010, Alsacia sold its rights in connection with certain receivables from Express, whichhave a book value estimated by Alsacia of between U.S.$4.4 million and U.S.$5.0 million, to GPS Internationalof Panamá (Chile) S.A. (“GPS International”), a company under common control with Alsacia by GPS Group. Inconnection with the purchase of these rights, GPS International agreed to pay Alsacia U.S.$50,000, plus onepercent of any amount recovered from Express.
On August 10, 2005, Alsacia issued a promissory note to Fanach Corporation (“Fanach”) in the amountof U.S.$1.0 million, at an annual interest rate of 1.0% and payable on August 28, 2012. On March 7, 2007,Fanach subordinated its right to payment under this promissory note to the rights of several of Alsacia’snon-related party creditors.
On September 30, 2005, Alsacia issued a promissory note to Data Tools S.A. (“Data Tools”), acorporation in which Mr. Javier Ríos has 70% interest and for which Jaime Maldonado, a director of Alsacia, iscurrently a director, in the amount of U.S.$1.6 million, at an annual interest rate of 1.0% and payable onAugust 28, 2012. On February 28, 2007, Data Tools subordinated its right to payment under this promissory noteto the rights of several of Alsacia’s non-related party creditors.
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On March 31, 2006, Alsacia issued a promissory note to Aseo Capital S.A. E.S.P. (“Aseo”), a companythat was principally owned at that time by Carlos Ríos and Javier Ríos, in the amount of U.S.$0.5 million, at anannual interest rate of 1.0% and payable on August 28, 2012. On February 28, 2007, Aseo subordinated its rightto payment under this promissory note to the rights of several of Alsacia’s non-related party creditors.
On October 30, 2006, Alsacia issued a promissory note to Maraya Enterprises LLC (“Maraya”), acorporation in which Mr. Javier Ríos has 80% interest, in the amount of U.S.$170,000, at an annual interest rateof 1.0% and payable on August 28, 2012. On February 28, 2007, Maraya subordinated its right to payment underthis promissory note to the rights of several of Alsacia’s non-related party creditors.
On October 30, 2006, Alsacia issued a promissory note to Carlos Augusto Toro Pérez in the amount ofU.S.$200,000, at an annual interest rate of 1.0% and payable on August 28, 2012. On February 28, 2007,Mr. Toro subordinated his right to payment under this promissory note to the rights of several of Alsacia’snon-related party creditors.
On March 5, 2007, Alsacia loaned U.S.$350,965 to EDTM Konsultores E.U. (“EDTM”). EDTM owns40% of Desarrollo y Soluciones Informáticas S.A., which owns 33% of Alsacia. The loan had an annual interestrate of 7.7%. In December 2009, EDTM repaid this loan in full.
On July 26, 2007, Alsacia entered into two services agreements with Rioma Consultores EmpresarialesLimitada (“Rioma”), a company owned by Carlos Ríos Velilla, one of Alsacia’s owners. Pursuant to the firstservices agreement, we provide Rioma with legal, accounting and office management advisory services. Inexchange for these advisory services, Rioma pays us UF 300 monthly, plus expenses. Pursuant to the secondservices agreement, Rioma provides us with financial and strategic advisory services. In exchange for theseadvisory services, we pay Rioma Ch$8.5 million monthly, plus related expenses up to U.S.$20,000. The servicesagreements are month-to-month and terminable at will by either party.
On December 21, 2009, Alsacia entered into a loan agreement with Inversiones Dakota SpA (“Dakota”),a company owned by Laurence Golborne Riveros, who was one of Alsacia’s directors, and in which GPS Grouphas a 10% interest. Pursuant to the loan agreement, Dakota lent us UF 195,480, at an annual interest rate of12.5%, payable in 110 monthly payments beginning in January 2010. UF 185,575 of unpaid principal wasoutstanding under the loan agreement as of September 30, 2010. The loan agreement is supported by a pledgeagreement between EDTM and Dakota, for which we paid EDTM Ch$409.1 million on December 22, 2009.
On January 5, 2010, Alsacia entered into a consulting agreement with Dakota. Pursuant to the consultingagreement, Dakota provided strategic and financial consulting services to our management with respect to theadministration and investment of the funds lent to us by Dakota on December 21, 2009. For these services, wepaid Dakota a one-time fee of Ch$41 million. The consulting agreement expired on January 4, 2011.
On September 27, 2007, Alsacia entered into a supply agreement with MCS Tech S.A., a companyowned in part by Edgar Mac Allister. Pursuant to the supply agreement, MCS Tech S.A. supplies Alsacia withcertain computer equipment, for which Alsacia has paid MCS Tech S.A. a total of Ch$180.1 million, as ofDecember 31, 2010.
On April 27, 2010, Alsacia entered into a consulting agreement with EGC Partners S.A., a companyowned by Andrés Echeverría. Pursuant to this agreement, EGC Partners S.A. provides Alsacia with debtfinancing consulting services. In exchange for these consulting services, Alsacia pays EGC Partners S.A.U.S.$20,000 per month beginning in May 2010, plus a transaction fee of 0.1% of the value of any debt financingraised by Alsacia, with a minimum transaction fee of U.S.$285,000.
Beginning on June 1, 2008, Alsacia engaged Asesorías e Inversiones Río Piedras Limitada, a companyowned by José Ferrer, a former director of Alsacia, to provide Alsacia with investment advisory services. In
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exchange for these advisory services, Alsacia paid Río Piedras Limitada Ch$1.0 million monthly, plus expenses,except in the first month of the contract, during which Alsacia paid Río Piedras Limitada Ch$3.0 million. Thisarrangement was month-to-month and has been terminated.
Alsacia has consulting agreements with several of its directors through entities owned by the respectivedirectors. Fees paid by Alsacia under these agreements are in addition to the compensation these directors receivedirectly for their service on Alsacia’s board. From January 1, 2008 to December 31, 2010, Alsacia paidInversiones y Asesorías Ltda., a company owned by Heriberto Urzúa, Ch$104.5 million for consulting services;during 2010, Alsacia paid Inversiones Rinconada Ltda., a company owned by Andrés Echeverría, Ch$60.6million for consulting services; and during 2009 and 2010, Alsacia paid Arcadia Capital Partners S.A., acompany owned by Jaime Maldonado, Ch$141.5 million for consulting services.
During 2008, Alsacia paid Ch$177.7 million in interest expenses to Express del Futuro S.A. inconnection with a loan from Express del Futuro S.A. to Eco Uno. Alsacia has recorded this amount as areceivable from Eco Uno. This receivable does not bear interest and does not have a fixed payment date, thoughAlsacia expects the total amount to be paid by June 2018.
Express
Since January 1, 2008, Express has entered into the transactions with related parties described below:
On May 27, 2005, Express and Alsacia entered into a bus lease agreement, which was subsequentlyamended on October 4, 2005 and October 5, 2005, under which Alsacia leases 162 buses from Express forCh$1.9 million per month per bus, plus taxes.
Since May 2005, Express and Alsacia have shared the services of certain employees and divided thecosts associated with shared employees between the two companies. In connection with this arrangement,Express recognized net payables to Alsacia of Ch$183 million, Ch$224 million and Ch$223 million in 2008,2009 and the first nine months of 2010, respectively. A dispute has arisen between Express and Alsacia regardingthe amount owed by Express to Alsacia. See note 6 to the financial statements of each of Express and Alsaciaappearing elsewhere in this Offering Memorandum for more information regarding this dispute.
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THE ESCROW
The Initial Temporary Issuer is a special purpose company formed in 2011 under the laws of theRepublic of Chile that has been established to facilitate the issuance by Alsacia of the Notes. The InitialTemporary Issuer is owned by two special purpose companies formed in 2011 under the laws of the BritishVirgin Islands, which special purpose companies are in turn owned by a trust formed in 2011 under the laws ofthe British Virgin Islands which is independent of Alsacia, the Guarantors, the Principal Shareholder and theiraffiliates.
The Initial Temporary Issuer will issue the Notes (the date of such issuance, the “Note Closing Date”)pursuant to an indenture (as supplemented from time to time, the “Indenture”) by and between the InitialTemporary Issuer and The Bank of New York Mellon, not in its individual capacity, but solely as trustee (the“Trustee”), principal paying agent, transfer agent and registrar. The Notes are initially being issued by the InitialTemporary Issuer due to restrictions on the part of Alsacia and Express to incur indebtedness pending therepayment of certain existing indebtedness described in Appendix B and Appendix C of this OfferingMemorandum (the “Existing Indebtedness”) and the release of the liens securing the Existing Indebtedness. Inorder to address these restrictions, The Bank of New York Mellon, not in its individual capacity, but as escrowagent (the “Escrow Agent”), will hold the proceeds of the issuance of the Notes (the “Note Proceeds”), in escrowin New York (the “Escrow”) pursuant to an escrow agreement or agreements, dated as of the date of this OfferingMemorandum (the “Escrow Agreement”), among the Initial Temporary Issuer, Alsacia, Banco Internacional(“BI”) and the Escrow Agent.
In addition, and as a condition to the closing of the Notes on the Note Closing Date, the Escrow Agentwill receive and hold in Escrow U.S. $12.0 million of net proceeds (the “Loan Proceeds”) from the U.S.$12.5million Bus Terminal Loan to the Initial Temporary Issuer from BI and an additional amount of approximatelyU.S.$2.0 million payable by Alsacia in cash such that the funds in Escrow are in an amount sufficient to(i) redeem in cash the Notes at a redemption price equal to 100.00% of the aggregate issuance price of the Notes,(ii) pay interest on the Notes at the stated rate from and including the Note Closing Date and to and excludingMarch 3, 2011 and the related Additional Amounts, (iii) repay the Bus Terminal Loan in full, and (iv) payinterest on the Bus Terminal Loan at the stated rate from and including the date it is disbursed into the Escrowand to and excluding March 3, 2011 (collectively with the Note Proceeds and the Loan Proceeds, the “EscrowedAmounts”).
Upon receipt by the Escrow Agent of the Escrowed Amounts and approval of the form of all closingdocuments, irrevocable notices will be delivered to the lenders of the Existing Indebtedness indicating theConcessionaires’ intention to repay all of the Existing Indebtedness owed to such lenders, and related hedgingtermination payments on or before February 28, 2011. On the date scheduled for such repayment (the “EscrowClosing Date”), the following will be deemed to occur simultaneously, as certified by Alsacia and the Guarantorspursuant to an Officers’ Certificate delivered to the Escrow Agent and the Trustee:
(a) Alsacia will acquire 100% of the common stock of the Initial Temporary Issuer, which will resultin the automatic dissolution of the Initial Temporary Issuer and the assumption by Alsacia of theInitial Temporary Issuer’s obligations under the Notes, the Indenture, the Bus Terminal Loan andthe Escrow by operation of Chilean law;
(b) affiliates of Alsacia will consummate the pending acquisition of Express and Eco Uno as describedunder “Use of Proceeds—The Acquisition” without any provision of the related AcquisitionAgreement having been amended or waived in any manner that would be material and adverse tothe Noteholders;
(c) Alsacia and Express will repay the Existing Indebtedness in full;
(d) all liens securing the Existing Indebtedness will be released and terminated and the liens securingthe Notes and the Notes Hedge Agreement as part of the Collateral will become effective, subject
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to perfection as contemplated by “Description of Notes and Finance Agreements—AffirmativeCovenants of the Issuer and the Guarantors—Perfection of Security Interests under ChileanSecurity Documents”;
(e) Alsacia will expressly assume the Initial Temporary Issuer’s obligations and position under theNotes and the Indenture, and Express, Eco Uno and Panamerican will become guarantorsthereunder, pursuant to a supplemental indenture (the “Supplemental Indenture”);
(f) Alsacia and the Guarantors will enter into a collateral trust agreement in connection with theCollateral (the “Collateral Trust Agreement”) by and among themselves, Banco Santander Chile, ascollateral trustee with respect to collateral located in or governed by the laws of Chile (the “ChileanCollateral Agent”) and The Bank of New York Mellon, not in its individual capacity, but solely ascollateral trustee for all other collateral (the “U.S. Collateral Agent” and, together with the ChileanCollateral Agent and the Trustee, the “Secured Party Agents”);
(g) Express and Eco Uno will accede to the purchase agreement relating to the Notes;
(h) Express and Eco Uno will certify to the Escrow Agent that each of them has not, between the NoteClosing Date and the Escrow Closing Date, except in connection with the consummation of theTransactions and the Acquisition as described in this Offering Memorandum: (i) incurred any Debt,(ii) created or, to the best of their knowledge, suffered to exist any Liens (except Permitted Liens)on any of its assets or property, (iii) sold, assigned, leased, transferred or otherwise disposed of anyinterest in its assets or property, (iv) created or acquired any Subsidiaries or made any Investment,(v) consolidated or merged with or into any other Person or sold, leased or otherwise transferred,directly or indirectly, all or any part of its assets or property to any other Person, (vi) made anyRestricted Payments, (vii) entered into any Sale and Lease-Back Transaction, (viii) entered into anAffiliate Transaction, (ix) granted any powers of attorney in connection with its assets or property,(x) incurred or committed any CAPEX, except in each case in the ordinary course of business, onan arm’s-length basis (except Affiliate Transactions that would otherwise be permitted by theIndenture), and that could not be reasonably expected to result in a material adverse change in, or amaterial adverse effect on, the financial position, results of operations or business of Express andEco Uno, considered as a whole;
(i) Alsacia and Panamerican will certify to the Escrow Agent that each of them has not, between theNote Closing Date and the Escrow Closing Date, except in connection with the consummation ofthe Transactions and the Acquisition as described in this Offering Memorandum: (i) incurred anyDebt, (ii) created or, to the best of their knowledge, suffered to exist any Liens (except PermittedLiens) on any of its assets or property, (iii) sold, assigned, leased, transferred or otherwise disposedof any interest in its assets or property (except the contribution of the Excluded Depot to LorenaSpA), (iv) created or acquired any Subsidiaries or made any Investment (except the contribution ofthe Excluded Depot to Lorena SpA), (v) consolidated or merged with or into any other Person orsold, leased or otherwise transferred, directly or indirectly, all or any part of its assets or property toany other Person, (vi) made any Restricted Payments, (vii) entered into any Sale and Lease-BackTransaction (except the contribution to Lorena SpA of the Excluded Depot and lease thereof toAlsacia), (viii) entered into an Affiliate Transaction, (ix) granted any powers of attorney inconnection with its assets or property, (x) incurred or committed any CAPEX, except in each casein the ordinary course of business, on an arm’s-length basis (except Affiliate Transactions thatwould otherwise be permitted by the Indenture), and that could not be reasonably expected to resultin a material adverse change in, or a material adverse effect on, the financial position, results ofoperations or business of Alsacia and Panamerican, considered as a whole; in addition, Alsacia andPanamerican will certify that (i) they have been in compliance in all material respects during theperiod from the Note Closing Date to the Escrow Closing Date with all of the provisions of the
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Indenture, and (ii) that there has been no event or occurrence that as of such date would constitutean Event of Default or would, with the passage of time or otherwise, constitute an Event of Defaulthad the Indenture been in effect and applicable to them from and after the Note Closing Date, butsubject to all cure periods provided for in the Indenture, except in each case for (A) anynoncompliance resulting from implementation of any of the transactions contemplated in “Use ofProceeds” in the Offering Memorandum relating to the Acquisition or other matters describedtherein and (B) those reasonably relating to establishment of accounts and related paymentpriorities, payment provisions and pledges of collateral and similar provisions contemplated by theIndenture which by necessity are to become operative only from and after the Escrow ClosingDate;
(j) the Escrow Agent will receive customary opinions from counsels and certificates from officers ofAlsacia and the Guarantors;
(k) Alsacia will enter into the Notes Hedge Agreement with the Notes Hedge Counterparty;
(l) Lorena SpA will grant a first priority security interest (or the closest equivalent thereof underapplicable Chilean law) on the Huechuraba terminal (the “Excluded Depot”) and Alsacia will granta first priority security interest (or the closest equivalent thereof under applicable Chilean law) onLorena SpA’s capital stock to secure Alsacia’s obligations under the Bus Terminal Loan (see “Useof Proceeds—Secured Subordinated Bus Terminal Loan”), subject to perfection thereof; and
(m) the Escrow Agent, will distribute the Escrowed Amounts as set forth in “Use of Proceeds” (theforegoing clauses (a) through (m) being referred to as the “Closing Conditions”).
In the event the Closing Conditions cannot be met, the Escrow may be terminated prior to February 28,2011 by giving notice to the Noteholders, at which time the Escrowed Amounts shall be paid to the Noteholdersthree business days thereafter (the “Escrow Redemption Date”). If no notice is given and the Closing Conditionsshall have not been satisfied on or prior to February 28, 2011, the Escrow Redemption Date shall be March 3,2011. If the Escrow Redemption Date occurs, then the Escrowed Amounts shall be paid to the Noteholders on apro rata basis based on the principal amount of Notes held by such Noteholders (the “Escrow Redemption”) in anamount equal to the initial purchase price therefor together with interest at the stated rate therefor from andincluding the date of initial issuance and through and excluding the date of any such redemption, and the Notesshall be deemed to have been repaid in full and no longer be outstanding or having any effect or liability attachedthereto. In addition, the Bus Terminal Loan will become due and payable immediately and will be repaid withfunds in the Escrow. In the event that the other Closing Conditions shall not have been satisfied on or prior toFebruary 28, 2011, Alsacia and an affiliate of Alsacia will acquire 100% of the common stock of the InitialTemporary Issuer no later than March 3, 2011.
As long as Escrowed Amounts are deposited in Escrow, they will be invested in accordance with theterms of the Escrow Agreement in institutional money market funds. No provisions of the Escrow Agreement(including, without limitation, those relating to the release of the Escrowed Amounts) may be waived or modifiedin any manner materially adverse to the Noteholders without the consent of the Controlling Party.
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EXCHANGE RATE HEDGE
Our payment obligations under the Notes will be denominated in U.S. dollars while our receipts underthe Concession Agreements will be denominated in Chilean pesos. In order to partially hedge against thefluctuation and volatility in the Chilean peso/U.S. dollar exchange rate, on the Escrow Closing Date, Alsaciaexpects to enter into one or more derivatives transactions pursuant to which it will acquire series of call optionsthat will allow it to purchase U.S. dollars at a strike price ranging from 570 to 585 Chilean pesos per U.S. dollar.The options will be subject to a cap rate of 750 Chilean pesos per U.S. dollar or, if the options are not subject to acap, Alsacia will sell a series of call options obligating it to sell U.S. dollars at a price of 750 Chilean pesos perU.S. dollar in the same quantities (effectively capping the call options bought by Alsacia), except that the optionswill be capped (or effectively capped) at 685 Chilean pesos per U.S. dollar during the final period. The calloptions will have semiannual terms which match the scheduled amortization of the Notes so that their net effectis to hedge the exchange rate risk associated with scheduled principal and interest payments under the U.S. dollardenominated Notes in the event the U.S. dollar / Chilean peso exchange rate increases between the strike pricesand the cap rates specified above. If the exchange rate increases above 750 Chilean pesos / U.S. dollar (or, duringthe final period, 685 Chilean pesos / U.S. dollar), the call options will act as a partial hedge to reduce ourexchange rate risk by up to 180 Chilean pesos / U.S. dollar, which is the difference between the strike price of thecall options and either the cap rate or the exercise price of the call options sold by Alsacia, as applicable.
Based on current exchange rates, Alsacia expects to pay a total of approximately U.S.$39.4 million topurchase the call options, of which approximately U.S.$4.6 million is expected to be paid in the first year afterthe offering. The foregoing amounts exclude any amounts that Alsacia would get as a result of exercising the calloptions.
We expect that Merrill Lynch Capital Services, Inc. (“MLCS”) or such other financial institutions thathave a long-term credit rating for senior debt not less than that applicable to MLCS will be the Notes HedgeCounterparty. MLCS is a Delaware corporation with its principal place of business located at One Bryant Park,New York, New York, 10036. It is a wholly owned subsidiary of Merrill Lynch & Co, Inc. MLCS primarily actsas a counterparty for certain derivative financial products, including interest rate, currency, and commodityswaps, caps and floors, currency options, and credit derivatives.
Merrill Lynch & Co., Inc. was incorporated under the laws of the State of Delaware, U.S.A. in1973. Pursuant to an Agreement and Plan of Merger dated as of September 15, 2008, between Bank of AmericaCorporation and Merrill Lynch & Co., Inc. (as amended by Amendment No. 1 dated as of October 21, 2008), onJanuary 1, 2009, Merrill Lynch & Co., Inc. merged with and into a wholly-owned subsidiary of Bank ofAmerica, with Merrill Lynch & Co., Inc. continuing as the surviving corporation and a subsidiary of Bank ofAmerica Corporation.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries and affiliates, is one of theworld’s leading capital markets, advisory and wealth management companies and is a leading global trader andunderwriter of securities and derivatives across a broad range of asset classes, and serves as a strategic advisor tocorporations, governments, institutions and individuals worldwide. Its parent, Bank of America Corporation, is abank holding company and a financial holding company incorporated in the State of Delaware, U.S.A. in1998. Bank of America Corporation provides a diversified range of banking, investing, asset management andother financial services and products to consumers across the United States and in more than 40 countries. Bankof America Corporation provides these services and products through six business segments: (i) Deposits, (ii)Global Card Services, (iii) Home Loans and Insurance, (iv) Global Banking, (v) Global Markets, and (vi) GlobalWealth and Investment Management.
Moody’s Investors Service, Inc. (“Moody’s”) currently rates Merrill Lynch & Co., Inc.’s long-term debtas “A2” and short-term debt as “P-1”. Standard and Poor’s Ratings Services (“Standard and Poor’s”) currentlyrates Merrill Lynch & Co., Inc.’s long-term debt as “A” and short-term debt as “A-1”. Fitch, Inc. (“Fitch”)currently rates Merrill Lynch & Co., Inc.’s long-term debt as “A+” and short-term debt as “F1+”. Further
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information with respect to such ratings may be obtained from Moody’s, Standard & Poor’s and Fitch,respectively. No assurances can be given that the current ratings of Merrill Lynch & Co., Inc.’s debt will bemaintained.
The principal place of business of Merrill Lynch & Co., Inc. is located at One Bryant Park, New York,NY 10036, United States of America. Merrill Lynch & Co., Inc.’s registered office in the State of Delaware is c/oThe Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801,United States of America.
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DESCRIPTION OF NOTES AND FINANCE AGREEMENTS
The following summary of certain provisions of the Finance Agreements does not purport to becomplete and is qualified in its entirety by reference to the provisions of the applicable Finance Agreements. TheNoteholders will be entitled to the benefits of, be bound by, and be deemed to have notice of, all of the provisionsof the Finance Agreements, including, without limitation, the immunities and rights of the Trustee. Copies of theFinance Agreements will be on file at the corporate trust office of the Trustee in the City of New York and may beinspected upon request. Capitalized terms not otherwise defined herein have the respective meanings ascribed tothem in the Indenture.
General
Assuming that the Escrow is released and the Closing Conditions have been satisfied, then the terms ofthe Notes shall have the terms and conditions set forth herein. The Notes:
• will be senior secured obligations of the Issuer;
• will be fully and unconditionally guaranteed by Panamerican, Eco Uno and Express as theGuarantors;
• will have semi-annual principal payments on February 18 and August 18 of each year (each suchdate, a “Payment Date”), beginning February 18, 2012, with expected final maturity on August 18,2018, unless redeemed or amortized prior thereto;
• will be issued in denominations of U.S.$150,000 and integral multiples of U.S.$1,000 in excessthereof;
• will be represented by one or more registered Notes in global form and may be exchanged for Notesin definitive form only in limited circumstances;
• will be secured by first priority liens on the Collateral (subject to Permitted Liens) pursuant to theterms of the Finance Agreements, including the Indenture and the Security Documents; and
• will not be required to be registered under the Securities Act.
Interest on the Notes:
• will accrue at the rate of 8.00% per annum;
• will accrue from the date of issuance or from the most recent interest payment date;
• will be payable in U.S. dollars semi-annually in arrears in cash on each Payment Date beginningAugust 18, 2011;
• will be payable to the holders of record on February 5 and August 5 immediately preceding therelated interest payment dates; and
• will be computed on the basis of a 360 day year comprised of twelve 30 day months.
The Indenture limits and restricts the Issuer and the Guarantors from taking certain actions or engagingin certain activities or transactions. See “—Covenants.”
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Additional Notes
The Issuer is entitled, without the consent of the Noteholders, to issue additional Notes under theIndenture on the same terms and conditions as the Notes being offered hereby in an unlimited aggregate principalamount, which we refer to as the “Additional Notes.” The Notes and the Additional Notes, if any, will be treatedas a single class for all purposes of the Indenture, including waivers and amendments. Unless the contextotherwise requires, for all purposes of the Indenture and this “Description of Notes and Finance Agreements,”references to the Notes include any Additional Notes actually issued.
Final Maturity Date
Unless redeemed or amortized prior thereto, the final payment on the Notes is expected to be made onAugust 18, 2018.
Scheduled Amortization
Principal payments under the Notes (the “Scheduled Principal Amounts”) will be made on the PaymentDates listed below in accordance with the following schedule (except as provided for under “—EarlyAmortization Period” below):
Payment DateScheduled Principal
Amount (U.S.$)
August 18, 2011 . . . . . . . . . . . . . . . . . . —February 18, 2012 . . . . . . . . . . . . . . . . 16,000,000August 18, 2012 . . . . . . . . . . . . . . . . . . 13,900,000February 18, 2013 . . . . . . . . . . . . . . . . 29,300,000August 18, 2013 . . . . . . . . . . . . . . . . . . 21,900,000February 18, 2014 . . . . . . . . . . . . . . . . 35,600,000August 18, 2014 . . . . . . . . . . . . . . . . . . 25,700,000February 18, 2015 . . . . . . . . . . . . . . . . 36,100,000August 18, 2015 . . . . . . . . . . . . . . . . . . 28,000,000February 18, 2016 . . . . . . . . . . . . . . . . 39,500,000August 18, 2016 . . . . . . . . . . . . . . . . . . 29,600,000February 18, 2017 . . . . . . . . . . . . . . . . 47,300,000August 18, 2017 . . . . . . . . . . . . . . . . . . 38,800,000February 18, 2018 . . . . . . . . . . . . . . . . 55,400,000August 18, 2018 . . . . . . . . . . . . . . . . . . 46,900,000
Guarantees
All payments and obligations under the Notes due by the Issuer will be fully and unconditionallyguaranteed on a senior secured basis by each Guarantor pursuant to a guarantee agreement included in theIndenture (each, a “Guarantee”). Under each Guarantee, each Guarantor, jointly and severally, will pay directlyand unconditionally all amounts due under the Notes, without the need of any presentment, demand of payment,protest or notice to the Issuer.
Until the Indenture is discharged and all of the Notes are discharged and paid in full, each Guarantorirrevocably waives and agrees not to exercise any claim or other rights which it may have at the time itsGuarantee is made or may thereafter acquire against the Issuer or any other Guarantor that arise from theexistence, payment, performance or enforcement of the Issuer’s obligations under the Notes or such otherGuarantor’s obligations under its Guarantee, including, without limitation, any right of subrogation,
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reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy ofthe Noteholders or the Notes Hedge Counterparty against the Issuer or any other Guarantor.
Notes Hedge Agreement
The Issuer will enter into the Notes Hedge Agreement with the Notes Hedge Counterparty to hedgeagainst changes in the value of the Chilean peso against the U.S. dollar, as described under “Management’sDiscussion and Analysis of Financial Condition and Results of Operations for Alsacia and Express—Quantitativeand Qualitative Disclosures About Market and Operating Risks—Exchange Rate Hedge”.
Default Interest
The Issuer shall pay interest on overdue principal or installments of interest, to the extent lawful, at therate borne by the Notes plus 1% per annum from and including the date when such amounts were due andthrough and including the date of payment by the Issuer.
Ranking
Notes. The Notes will be senior obligations of the Issuer, secured by the Collateral. The obligations ofthe Issuer under the Notes will also rank:
(a) senior in right of payment to any Subordinated Indebtedness of the Issuer; and effectively senior tounsecured Senior Indebtedness issued in accordance with the Indenture, to the extent of the valueof the Collateral;
(b) pari passu with other Senior Indebtedness issued in accordance with the Indenture that is securedby the Collateral; and
(c) effectively subordinated to the debt and other obligations (including Subordinated Indebtednessand trade payables) of any future subsidiaries of the Issuer that are not Guarantors and to othersecured debt and other secured obligations of the Issuer to the extent of such security created incompliance with the Indenture (including Vendor Financings secured by property and assets otherthan the Collateral and the Bus Terminal Loan secured by the Excluded Depot).
Guarantees. Each Guarantee will be the senior obligations of each Guarantor, secured by the Collateral.The obligations of each Guarantor will rank effectively subordinated to the debt and other obligations (includingSubordinated Indebtedness and trade payables) of any future subsidiaries of that Guarantor that are notGuarantors and to other secured debt and other secured obligations of that Guarantor to the extent of suchsecurity created in compliance with the Indenture.
Payments
The Issuer will make all payments on the Notes exclusively in U.S. dollars.
Payments on the Notes are payable only to the person in whose name the applicable Note is registered atthe close of business (New York time) on the applicable Record Date. Payments on the Notes will be made byelectronic funds transfer in immediately available funds to an account maintained by such Noteholder with abank having electronic fund capability, except for the final payment payable with respect to a Note, which will bepayable upon presentation and surrender of such Note to the corporate trust office of the Trustee.
The Trustee will initially be designated as the paying agent for payments with respect to the Notes. TheIssuer may at any time designate additional co-paying agents or rescind the designation of any co-paying agent.
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The Indenture provides that all money received by the Trustee or any co-paying agent will, until used orapplied as provided in the Indenture, be held in trust for the purposes for which they were received.
Principal of, and interest and any Additional Amounts (as defined below) on, the Notes will be payable,and the transfer of Notes will be registrable, at the office of the Trustee, and at the offices of the paying agentsand transfer agents, respectively. If the Notes are accepted for listing on the Euro MTF, the Issuer will maintain alisting agent, paying agent and transfer agent in Luxembourg for so long as the Notes are so listed and the rulesof that stock exchange so require.
Redemption
The Notes will not be redeemable, except for the Escrow Redemption described above and as describedbelow. Notice of any redemption to each Noteholder must be made by the Issuer in the manner provided under“—Notices”, not less than 15 days nor more than 30 days prior to the redemption date.
Mandatory Redemption
Subject to the provisions of the Indenture, the Notes will be redeemed prior to maturity, in whole or, tothe extent of available funds, in part, upon the occurrence of a Termination Event or any Expropriatory Action, tothe extent of the Expropriation Compensation received. In such a redemption, the redemption price of the Notesto be redeemed will be equal to (a) the principal amount of such Notes, plus (b) interest on such principal amountaccrued through the redemption date, plus (c) Additional Amounts, if any, payable in respect of such Notes.
In connection with any mandatory redemption, the aggregate amount of funds on deposit and available fordistribution to the Noteholders on the date of such redemption in the Payment Account will be applied, pro ratabased on the outstanding principal balance of the Notes, to satisfy payment, in whole or in part, of the redemptionprice referred to in the immediately preceding paragraph.
Optional Redemption
At any time prior to February 18, 2015, the Issuer and the Guarantors may on any one or more occasionsredeem up to 35% of the original aggregate amount of Notes and Additional Notes at a redemption price of108.00% of the principal amount, plus accrued and unpaid interest to the applicable redemption date (subject tothe right of the holders of record on the relevant record date to receive interest due on the relevant interestpayment date), with the net cash proceeds of one or more Equity Offerings; provided that: (a) at least 65% of theaggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption(excluding Notes held by the Issuer or any Guarantor) and (b) the redemption occurs within 120 days of the dateof the closing of such Equity Offering.
At any time prior to February 18, 2015, the Issuer and the Guarantors may redeem all or a part of theNotes at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the ApplicablePremium as of, and accrued and unpaid interest, if any, to the applicable redemption date (subject to the rights ofholders of record on the relevant record date to receive interest due on the relevant interest payment date).
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On or after February 18, 2015, the Issuer and the Guarantors may redeem all or a part of the Notes onany one or more occasions, at the redemption prices (expressed as percentages of principal amount of the Notesto be redeemed) set forth below plus accrued and unpaid interest on the Notes redeemed, to the applicableredemption date (subject to the rights of holders of record on the relevant record date to receive interest due onthe relevant interest payment date), if redeemed during the 12-month period beginning on February of each of theyears indicated below:
Year Percentage
2015 . . . . . . . . . . . . . . . . . . . 104.00%2016 . . . . . . . . . . . . . . . . . . . 102.00%2017 and thereafter . . . . . . . 100.00%
Redemption Solely for Tax Reasons
The Issuer and the Guarantors may redeem the Notes at their option in whole, but not in part, at anytime, at a redemption price equal to 100% of their principal amount outstanding, plus Additional Amounts, ifany, and any accrued and unpaid interest up to the date of redemption, if:
(a) the Issuer or the Guarantors have or will become obligated to pay any Additional Amounts withrespect to such Notes (provided, however, that if the Additional Amounts are payable due toChilean withholding taxes imposed on interest payable on the Notes, the Additional Amounts shallbe in excess of the Additional Amounts that would be payable were payments of interest on suchNotes subject to a 4.0% withholding tax) (“Excess Additional Amounts”), as a result of any changein or amendment to the laws, treaties or regulations of Chile or any jurisdiction from or throughwhich any payment under the Notes is made on behalf of the Issuer or any Guarantor (or anypolitical subdivision or governmental authority thereof or therein having power to tax), each a“Relevant Taxing Jurisdiction”, or any change in the application or official interpretation of suchlaws or regulations, which change or amendment occurs after the date of issuance of the Notes; and
(b) such obligation cannot be avoided by the Issuer or the Guarantors taking reasonable measures (and,for the avoidance of doubt, reasonable measures includes changing jurisdiction of any paymentagent other than the Trustee) available to the Issuer or the Guarantors; provided, however, that thenotice of redemption will not be given earlier than 90 days before the earliest date on which theIssuer or the Guarantors would be obligated to pay such Excess Additional Amounts if a paymentin respect of the Notes were then due.
Before giving any notice of redemption as described in the preceding paragraph, the Issuer or theGuarantors will deliver an Officers’ Certificate to the Trustee stating that the Issuer or the Guarantors are entitledto effect such redemption in accordance with the terms of the Indenture and setting forth in reasonable detail astatement of facts relating thereto. The statement will be accompanied by a written opinion of recognizedindependent counsel to the effect that the Issuer or the Guarantors have or will become obligated to pay theExcess Additional Amounts as a result of such change or amendment.
The foregoing provisions will apply mutatis mutandis to any successor to the Issuer or any Guarantorafter such successor person becomes a party to the Indenture.
Repurchase of Notes upon a Change of Control
Upon the occurrence of a Change of Control (the date of each such occurrence, a “Change of ControlDate”), the Issuer and the Guarantors will notify the Noteholders in the manner provided under “—Notices” ofsuch occurrence and shall make an offer to purchase (a “Change of Control Offer”) to all of the Noteholders, forcash, on a Business Day (a “Change of Control Payment Date”) not later than 60 days following the Change of
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Control Date, all of such Noteholders’ Notes then outstanding at a purchase price (the “Change of ControlPurchase Price”) equal to 101% of the principal amount thereof plus accrued interest to the Change of ControlPayment Date. The Issuer and the Guarantors will not be required to make a Change of Control Offer following aChange of Control if (a) a third party makes a Change of Control Offer that would be in compliance with theprovisions described in this paragraph if it were made by the Issuer and the Guarantors and (b) such third partyhas purchased all the Notes validly tendered and not withdrawn pursuant to such Change of Control Offer. Noticeof a Change of Control Offer shall be given by the Issuer and the Guarantors not less than 30 days nor more than60 days before the Change of Control Payment Date. The Change of Control Offer will remain open for at least20 Business Days and until the close of business on the Business Day next preceding the Change of ControlPayment Date.
The Issuer and the Guarantors will comply, to the extent applicable, with the requirements ofSection 14(e) under the Exchange Act, and all other applicable United States and Chilean securities laws orregulations and the applicable rules of the principal securities exchange, if any, on which the Notes are listed inconnection with the repurchase of any Notes pursuant to a Change of Control Offer, and, in the case of anypartial tender offer, shall be prorated among accepting Noteholders pro rata in proportion to the principal amountof their Notes.
For purposes of the foregoing, “Change of Control” means the occurrence of any of the followingevents:
(i) the sale, transfer, conveyance or other disposition (other than by way of a merger or consolidationtransaction permitted by the covenant “—Limitations on Consolidation, Merger or Transfer ofAssets”) of all or substantially all of the properties or assets of the Issuer and the Guarantors, takenas a whole, to any Person (other than to (a) Carlos Rios, Javier Rios, their respective spouses ordirect descendants, or (b) any Affiliate of the persons listed in (a)); or
(ii) Carlos Rios, Javier Rios, their respective spouses or direct descendants cease to own, directly orindirectly, securities representing more than 50% of the Voting Stock of the Issuer and eachGuarantor; or
(iii) Carlos Rios, Javier Rios, their respective spouses or direct descendants cease to have, directly orindirectly, the power to elect, or shall not have elected, the managing partner or similar entitydirecting the management or operation of the Issuer and each Guarantor or a majority of the Boardof Directors of the Issuer and each Guarantor.
Open Market Purchases
The Issuer and any Guarantor may at any time, or from time to time, subject to the terms and conditionsof the Indenture, purchase Notes through Open Market Purchases, by tender or by private agreement; provided,however, that the Issuer and the Guarantors may not purchase any Notes if they are in default on any paymentdue pursuant to the Notes. Any purchase by tender by the Issuer and the Guarantors shall be made available to allNoteholders alike. All Notes so purchased shall be cancelled immediately. In determining whether the holders ofthe requisite principal amount of outstanding Notes have given any request, demand, authorization, direction,consent, notice or waiver under the Indenture, Notes owned by the Issuer and the Guarantors, by any otherobligor upon the Notes or by an affiliate of the Issuer and the Guarantors or of such other obligor shall bedisregarded and deemed not to be outstanding.
Collateral
The Notes, the Guarantees and the Notes Hedge Agreement will be secured, equally and ratably, by afirst priority perfected security interest (or the closest equivalent thereof under applicable Chilean law) held bythe Chilean Collateral Agent (with respect to collateral located in or governed by the laws of Chile) and the U.S.Collateral Agent (with respect to all other collateral) in the rights and interests of the Issuer and the Guarantors in
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the following categories of existing and after-acquired personal property and assets (all of the foregoing beingreferred to as the “Collateral”) in each case subject to Permitted Liens:
(a) all the outstanding shares of Express pursuant to one or more share pledge agreements (the“Express Share Pledge Agreements”);
(b) the Concessions and all the Concessionaires’ rights under the Concession Agreements pursuant toone or more concession pledge agreements (the “Concession Pledge Agreements”) and under theother Operating Agreements pursuant to one or more additional pledge agreements (the “OtherPledge Agreements”);
(c) all buses owned by the Concessionaires (excluding any buses acquired out of the proceeds of anySubordinated Indebtedness and, if so elected by the Issuer and the Guarantors, any buses acquiredout of the proceeds of a Vendor Financing, in each case incurred after the date hereof in accordancewith the Indenture), pursuant to one or more asset pledge agreements (the “Asset PledgeAgreements”);
(d) the intercompany notes payable to Alsacia from Panamerican and Express entered into on theEscrow Closing Date pursuant to one or more pledge agreements (the “Intercompany Debt PledgeAgreements”);
(e) all owned bus terminals, owned depot stations (except the Excluded Depot) and other owned realestate assets used by the Concessionaires in connection with the Concessions, including anybuildings, offices and fixtures therein, pursuant to one or more first priority real propertymortgages (the “Mortgages”);
(f) the NY Accounts and the money deposited therein (and investments thereof) from time to timepursuant to one or more account pledge agreements (the “NY Account Pledge Agreements”);
(g) the Chilean Accounts (other than the Transaction Checking Accounts) and the money depositedtherein (and investments thereof) from time to time pursuant to one or more money pledges (the“Chilean Money Pledges”); the Chilean Accounts (other than the Transaction Checking Accounts)will be in the name of the Chilean Collateral Agent; the Transaction Checking Accounts will be inthe name of each Concessionaire;
(h) one or more irrevocable powers of attorney granted by the Concessionaires to the ChileanCollateral Agent, exercisable only by the Chilean Collateral Agent as instructed by the ControllingParty if an Event of Default shall have occurred and is continuing beyond applicable grace periods,for the purpose of enforcing the Concessionaires’ rights under the Operating Agreements (the“Powers of Attorney”);
(i) insurance proceeds (only to the extent not deposited in the Accounts, in which case such insuranceproceeds will be part of the Collateral pursuant to the NY Account Pledge Agreements and ChileanMoney Pledges) pursuant to one or more appointments of the U.S. Collateral Agent or the ChileanCollateral Agent, as applicable, as additional insured and beneficiary (beneficiario) under theinsurance policies of (and for the benefit of) the Concessionaires (and by Panamerican and EcoUno in the event that either of them carries any insurance) (the “Insurance Appointments”, andtogether with the NY Account Pledge Agreements, the Chilean Money Pledges, the ConcessionPledge Agreements, the Intercompany Debt Pledge Agreements, the Other Pledge Agreements andthe Asset Pledge Agreements, the “Pledge Agreements”) (excluding, for the avoidance of doubt,the Excluded Depot and any collateral securing Vendor Financings that are not secured by theCollateral); and
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(j) all proceeds, products, rents, profits, income, benefits, substitutions and replacements of any and allof the foregoing including, without limitation, cash (excluding any release from the Collateral inaccordance with the Transaction Documents, such as purchases of assets that are not in thecategories listed in (a) through (i) above with funds from the Accounts and transfers of funds fromthe Accounts (other than the Transaction Checking Accounts) to the Transaction CheckingAccounts).
Although the Notes and the Notes Hedge Agreement will not be guaranteed by the Issuer’s shareholders,the Notes and the Notes Hedge Agreement will be secured by a first priority perfected security interest (or theclosest equivalent thereof under Chilean law) granted by the Issuer’s shareholders in all the outstanding shares ofthe Issuer pursuant to one or more share pledge agreements (together with the Express Share Pledge Agreements,the “Share Pledge Agreements”).
The Collateral will secure the Noteholders and the Notes Hedge Counterparty equally and ratably on apari passu basis. The Issuer and the Guarantors may incur either secured or unsecured Senior Indebtedness incompliance with the Indenture. If such Senior Indebtedness is secured, the collateral thereof will secure the Notesand the Notes Hedge Agreement, and such Senior Indebtedness will be secured by the Collateral, equally andratably on a pari passu basis in accordance with the “Collateral Trust Agreement”); provided that if such SeniorIndebtedness is a Vendor Financing, the collateral securing such Vendor Financing may not secure the Notes andthe Notes Hedge Agreement at the election of the Issuer and the Guarantors, in which case the Collateral will notsecure such Vendor Financing.
All Liens securing the Notes, the Notes Hedge Agreement and all future secured Senior Indebtednesspermitted under the Indenture will be held by the Secured Party Agents and administered pursuant to theCollateral Trust Agreement. See “—Collateral Trust Agreement”.
Collateral Trust Agreement
On the Escrow Closing Date, the Issuer and the Guarantors will enter into the Collateral TrustAgreement with the Secured Party Agents. The Collateral Trust Agreement will set forth the terms on which theSecured Party Agents will receive, hold, administer, maintain, enforce and distribute the proceeds of all Liensupon the Collateral at any time held by it, in trust for the benefit of the Noteholders, the Notes HedgeCounterparty and, if applicable, the present and future holders of any other secured Senior Indebtedness.
The Secured Party Agents
Banco Santander Chile will be appointed pursuant to a separate appointment letter (which appointmenthas been confirmed pursuant to the Collateral Trust Agreement) to serve as the Chilean Collateral Agent, andThe Bank of New York Mellon has been appointed pursuant to the Collateral Trust Agreement to serve as theU.S. Collateral Agent, for the benefit of the holders of: (i) the Notes; (ii) the Notes Hedge Agreement; and (iii)certain other secured Senior Indebtedness incurred in accordance with the Indenture.
The Secured Party Agents will hold (directly or through co-trustees or agents), and will be entitled toenforce, all Liens on the Collateral created by the applicable Security Documents in accordance with the terms ofthe Collateral Trust Agreement.
Except as provided in the Collateral Trust Agreement or as directed by an Act of Required Debtholdersin accordance with the Collateral Trust Agreement, the Secured Party Agents will not be obligated: (i) to actupon directions purported to be delivered to it by any Person; (ii) to foreclose upon or otherwise enforce anyLien; or (iii) to take any other action whatsoever with regard to any or all of the Security Documents, the Lienscreated thereby or the Collateral.
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The Secured Party Agents, the Notes Hedge Counterparty and each present and future holder of securedSenior Indebtedness will agree that notwithstanding: (i) anything to the contrary contained in the SecurityDocuments; (ii) the time of incurrence of any secured Senior Indebtedness; (iii) the order or method ofattachment or perfection of any Liens securing any secured Senior Indebtedness; (iv) the time or order of filing offinancing statements or other documents filed or recorded to perfect any Lien upon any Collateral; (v) the time oftaking possession or control over any Collateral; (vi) that any Lien of the Secured Party Agents may not havebeen perfected or may be or have become subordinated, by equitable subordination or otherwise, to any otherLien; or (vii) the rules for determining priority under any law governing relative priorities of Liens: (a) all Liensgranted to the Secured Party Agents at any time by the Issuer or any Guarantor will secure, equally and ratably,the Notes, the Notes Hedge Agreement and, if applicable, all present and future secured Senior Indebtednessincurred in accordance with the Indenture; and (b) all proceeds of all Liens granted to the Secured Party Agentsat any time by the Issuer or any Guarantor will be allocated and distributed equally and ratably on account of theNotes, the Notes Hedge Agreement and, if applicable, all present and future secured Senior Indebtednessincurred in accordance with the Indenture, in accordance with the Collateral Trust Agreement.
These provisions are intended for the benefit of, and will be enforceable as a third party beneficiary by,the Secured Party Agents, the Noteholders, the Notes Hedge Counterparty and, if applicable, the present andfuture holders of any other secured Senior Indebtedness incurred in accordance with the Indenture. The Issuerand the representative or agent for each future series of secured Senior Indebtedness will be required to deliver,among other things, a joinder to the Collateral Trust Agreement (including a Lien sharing and priorityconfirmation), in the form attached as an exhibit to the Collateral Trust Agreement, to the Secured Party Agentsat the time of incurrence of such series of secured Senior Indebtedness.
For purposes of the foregoing:
“Act of Required Debtholders” means a direction in writing delivered to the Secured Party Agents by orwith the written consent of the Noteholders, the Notes Hedge Counterparty and the holder of any other securedSenior Indebtedness incurred in accordance with the Indenture representing the Required Parity LienDebtholders. For purposes of this definition: (i) secured obligations registered in the name of, or beneficiallyowned by, the Issuer or any affiliate of the Issuer will be deemed not to be outstanding and (ii) votes will bedetermined in accordance with “—Voting”.
“Discharge of Parity Lien Obligations” means: (a) with respect to any given series of securedobligations, the occurrence of all of the following: (i) termination or expiration of all commitments to extendcredit that would, if extended, constitute secured obligations of such series of secured obligations; (ii) payment infull in cash of the principal of and interest and premium (if any) on such series of secured obligations (other thanany undrawn letters of credit): (iii) discharge or cash collateralization (at the lower of (A) 103% of the aggregateundrawn amount and (B) the percentage of the aggregate undrawn amount required for release of liens under theterms of the applicable Parity Lien Document) of all outstanding letters of credit constituting secured obligationsof such series of secured obligations; and (iv) payment in full in cash of all other obligations with respect to suchseries of secured obligations that are outstanding and unpaid at the time the secured obligations is paid in full incash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilitiesin respect of which no claim or demand for payment has been made at such time); and (b) otherwise, theoccurrence of each of the items set forth in clauses (a)(i) through (iv) with respect to each series of securedobligations.
“Required Parity Lien Debtholders” means, at any time, the holders of more than 50% of the sum of:(i) the aggregate outstanding principal amount (or in the case of the Notes and the Notes Hedge Agreementconsidered together, the Voting Balances thereof) of the Notes, the Notes Hedge Agreement and any othersecured Senior Indebtedness incurred in accordance with the Indenture (including outstanding letters of creditwhether or not then available or drawn); and (ii) other than in connection with the exercise of remedies, theaggregate unfunded commitments to extend credit which, when funded, would constitute secured Senior
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Indebtedness in accordance with the Collateral Trust Agreement; provided, however, that after the Discharge ofParity Lien Obligations, the term “Required Parity Lien Debtholders” will mean the holders of more than 50% ofthe sum of the aggregate “settlement amount” (or similar term) (as defined in the applicable document relating toobligations consisting of a Hedging Obligation (other than Hedging Obligations in respect of the Notes HedgeAgreements)) or, with respect to any such Hedging Obligation that has been terminated in accordance with itsterms, the amount then due and payable (including any termination payments then due) under such HedgingObligation, under all obligations consisting of Hedging Obligations (other than Hedging Obligations in respect ofthe Notes Hedge Agreements); provided that the “settlement amount” (or similar term) as of the last business dayof the month preceding any date of determination shall be calculated by the appropriate swap counterparties andreported to the Secured Party Agents upon request; provided further, that any such Hedging Obligation with a“settlement amount” (or similar term) that is a negative number shall be disregarded for purposes of allcalculations required by the term “Required Debtholders”. For purposes of this definition: (i) secured obligationsregistered in the name of, or beneficially owned by, the Issuer or any affiliate of the Issuer will be deemed not tobe outstanding and (ii) votes will be determined in accordance with “—Voting”.
Order of Application of Proceeds; Deficiency Claims under the Collateral Trust Agreement
The Collateral Trust Agreement will provide that if the Secured Party Agents receive any proceeds ofany title insurance with respect to any Collateral or any other insurance with respect to any Collateral or if anyCollateral is sold or otherwise realized upon by the Secured Party Agents in connection with any foreclosure,collection, sale or other enforcement of Liens granted to such Secured Party Agents in the applicable SecurityDocuments, the proceeds (including distributions of cash, securities or other property on account of the value ofthe Collateral in a bankruptcy, insolvency, reorganization or similar proceedings) received by such Secured PartyAgents from such insurance or foreclosure, collection, sale or other enforcement will be distributed by suchSecured Party Agents in the following order of application:
• first, to the payment of all amounts payable under the Collateral Trust Agreement on account of theSecured Party Agents’ fees and expenses and any reasonable legal fees, costs and expenses or otherliabilities of any kind incurred by such Secured Party Agents or any co-trustee or agent of theSecured Party Agents in connection with any Security Document (including, but not limited, toindemnification obligations);
• second, to the repayment of Debt and other Obligations (other than the Notes, the Notes HedgeAgreement and any other secured Senior Indebtedness secured on an equal and ratable basis withthe Notes and such Notes Hedge Agreement), secured by a Permitted Lien on the Collateral sold orrealized upon to the extent that such other Debt or obligation is required to be discharged inconnection with such sale;
• third, equally and ratably, to the Secured Party Agents and each other applicable representative oragent for any other series of secured Senior Indebtedness, for application to the payment of alloutstanding Notes, the Notes Hedge Agreement and any other outstanding secured SeniorIndebtedness, and any other related obligations that are then due and payable in such order as maybe provided in the Indenture, the Notes Hedge Agreement and any other applicable documentgoverning such other secured Senior Indebtedness, in an amount sufficient to pay in full in cash allsuch obligations (including all interest accrued thereon after the commencement of any insolvencyor liquidation proceeding at the rate, including any applicable post-default rate, specified in theIndenture, the Notes Hedge Agreement or any other applicable document governing such othersecured Senior Indebtedness, even if such interest is found not enforceable, allowable or allowed asa claim in such proceeding, and including, if applicable, the discharge or cash collateralization (atthe lower of (i) 103% of the aggregate undrawn amount and (ii) the percentage of the aggregateundrawn amount required for release of Liens under the terms of the Indenture, the Notes HedgeAgreement or any other applicable document governing such other secured Senior Indebtedness) ofall outstanding letters of credit constituting secured Senior Indebtedness); and
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• fourth, any surplus remaining after the payment in full in cash of the amounts described in thepreceding clauses will be paid to the Issuer or the applicable Guarantor, as the case may be, itssuccessors or assigns, or as a court of competent jurisdiction may direct.
The Secured Party Agents, the Noteholders, the Notes Hedge Counterparty and any holders of othersecured Senior Indebtedness will agree that to the extent such Person collects or receives any proceeds ofinsurance, of Collateral, on account of the value of Collateral or otherwise that should have been applied inaccordance with the priority of payments set forth above, whether after the commencement of an insolvency orliquidation proceeding or otherwise, such Person will deliver the same to the Secured Party Agents for theaccount of the Noteholders, the Notes Hedge Counterparty and any other holders of secured Senior Indebtedness,to be applied as set forth above.
The provisions set forth above under this caption “—Order of Application of Proceeds; DeficiencyClaims” are intended for the benefit of, and will be enforceable, subject to the provisions of the Collateral TrustAgreement, as a third party beneficiary by, the Secured Party Agents, the Noteholders, the Notes HedgeCounterparty and, if applicable, the present and future holders of any other secured Senior Indebtedness.
Voting under the Collateral Trust Agreement
In connection with any matter under the Collateral Trust Agreement requiring a vote of Noteholders andNotes Hedge Counterparty, the Noteholders and Notes Hedge Counterparty will cast their votes in accordancewith the Indenture. In connection with any matter under the Collateral Trust Agreement requiring a vote of otherholders of secured Senior Indebtedness, each series of secured Senior Indebtedness will cast its votes inaccordance with the documents governing such series of secured Senior Indebtedness. Following and inaccordance with the outcome of the applicable vote under documents governing each series of secured SeniorIndebtedness, the agent or representative of each such series will cast all of its votes under such series as a blockin respect of any vote under the Collateral Trust Agreement.
The Secured Party Agents shall not have any obligation or duty to determine whether the vote of therequisite holders of the applicable series of secured Senior Indebtedness was obtained as required in theCollateral Trust Agreement.
Release of Liens on Collateral under the Collateral Trust Agreement
The Collateral Trust Agreement will provide that the Secured Party Agents’ Liens on the Collateral willbe released:
(a) in whole, upon (i) payment in full and discharge of all Notes, the Notes Hedge Agreements and allother secured Senior Indebtedness and (ii) termination or expiration of all commitments to extendcredit under any applicable documents governing any such secured Senior Indebtedness and thecancellation or termination or cash collateralization (at the lower of (x) 103% of the aggregateundrawn amount and (z) the percentage of the aggregate undrawn amount required for release ofLiens under the terms of the applicable documents governing such secured Senior Indebtedness) ofall outstanding letters of credit issued pursuant to any such document;
(b) as to any Collateral that is sold, transferred or otherwise disposed of by the Issuer or any Guarantorto a Person that is not (either before or after such sale, transfer or disposition) the Issuer or aGuarantor in either (i) a foreclosure sale or other transaction approved by an Act of RequiredDebtholders or (ii) a transaction or other circumstance that complies with the asset dispositionprovisions of the Indenture and is permitted by all of the other applicable documents governing anysecured Senior Indebtedness, at the time of such sale, transfer or other disposition, to the extent ofthe interest sold, transferred or otherwise disposed of;
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(c) as to any Collateral of the Issuer or any Guarantor to the extent all of the Capital Stock of suchGuarantor owned by the Issuer or any other Guarantor is sold (to a Person other than the Issuer or aGuarantor) in a transaction permitted pursuant to the Indenture and any other applicable documentgoverning any secured Senior Indebtedness (it being understood that (i) the sale of all of theCapital Stock in any Person that owns, directly or indirectly, all of the Capital Stock in anyGuarantor shall be deemed to be a sale of all of the Capital Stock in such Guarantor for purposes ofthis clause (c) and (ii) such release of the Collateral of such Guarantor shall also release suchGuarantor and its Subsidiaries from its obligations under the Security Documents);
(d) as to a release of less than all or substantially all of the Collateral, if (i) the requisite percentage ornumber of holders of each series of secured Senior Indebtedness at the time outstanding asprovided for in the Indenture or the applicable documents governing such other series of securedSenior Indebtedness or (ii) such release is in connection with a transaction or circumstance thatcomplies with the asset disposition provisions of the Indenture and is permitted by all of the otherapplicable documents governing any other series of secured Senior Indebtedness at the time of suchsale, transfer or other disposition; and
(e) as to a release of all or substantially all of the Collateral, if (i) the requisite percentage or number ofholders of each series of secured Senior Indebtedness at the time outstanding as provided for in theIndenture or the applicable documents governing such other series of secured Senior Indebtednessand (ii) the Issuer has delivered an Officers’ Certificate to the applicable Secured Party Agentcertifying that any such necessary consents have been obtained.
Release of Liens in respect of Notes and Notes Hedge Agreements under the Indenture and the CollateralTrust Agreement
The Indenture and the Collateral Trust Agreement will provide that the Secured Party Agents’ Liensupon the Collateral will no longer secure the Notes and the Notes Hedge Agreements, and the right of the holdersof the Notes and the Notes Hedge Counterparties to the benefits and proceeds of the Secured Party Agents’ Lienson the Collateral will terminate and be discharged: (i) upon satisfaction and discharge of the Indenture as setforth under the caption “—Satisfaction and Discharge” and payment in full of the Notes Hedge Agreement; (ii)upon a defeasance or covenant defeasance of the Notes as set forth under the caption “—Defeasance” andpayment in full of the Notes Hedge Agreement; (iii) upon payment in full and discharge of all outstanding Notesand all other obligations that are outstanding, due and payable under the Indenture at the time the Notes are paidin full and discharged, and payment in full of the Notes Hedge Agreement; or (iv) with the consent of theNoteholders and the Notes Hedge Counterparty and to the extent as set forth in the Indenture.
Enforcement of Liens under the Collateral Trust Agreement
If any Secured Party Agents at any time receives written notice that any event has occurred thatconstitutes a default under the Indenture, the Notes Hedge Agreement or any other document governing anysecured Senior Indebtedness entitling such Secured Party Agent to foreclose upon, collect or otherwise enforceany of its Liens under the Security Documents, it will promptly deliver written notice thereof to the SecuredParty Agents, the Trustee, the Notes Hedge Counterparty and each agent or representative in respect of eachother series of secured Senior Indebtedness. Thereafter, the Secured Party Agents may await direction by an Actof Required Debtholders and will act, or decline to act, as directed by an Act of Required Debtholders, in theexercise and enforcement of such Secured Party Agent’s interests, rights, powers and remedies in respect of theCollateral or under the Security Documents or applicable law and, following the initiation of such exercise ofremedies, the Secured Party Agents will act, or decline to act, with respect to the manner of such exercise ofremedies as directed by an Act of Required Debtholders. Unless it has been directed to the contrary by an Act ofRequired Debtholders, the Secured Party Agents in any event may (but will not be obligated to) take or refrainfrom taking such action with respect to any such default as it may deem advisable and in the best interest of the
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Noteholders, the Notes Hedge Counterparty and the other holders of secured Senior Indebtedness. The SecuredParty Agents, the Noteholders, the Notes Hedge Counterparty and the other holder of secured SeniorIndebtedness will not be able to exercise rights or remedies with respect to the Collateral; only the Secured PartyAgents will be able to exercise such rights or remedies.
The Collateral Trust Agreement will provide that, notwithstanding any prior termination of theIndenture, the Secured Party Agents, the Notes Hedge Counterparty and the other holders of secured SeniorIndebtedness will not, before the date that is one year and one day after all Notes (including all interest andpremium, if any, thereon) have been paid in full, acquiesce, petition or otherwise invoke or cause the Issuer orany Guarantor to invoke the process of any court or other governmental authority for the purpose of commencingor sustaining a case against the Issuer or any Guarantor under any bankruptcy, insolvency or similar law orappointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer,any Guarantor or any substantial part of their respective property, or ordering the winding up or liquidating of theaffairs of the Issuer or any Guarantor.
Additional Amounts
All payments under the Notes will be made free and clear of, and without withholding or deduction foror on account of, any present or future taxes, penalties, duties, fines, assessments or other governmental charges(or interest on any of the foregoing) of whatsoever nature (collectively, “Taxes”) imposed, levied, collected,withheld or assessed by, within or on behalf of any Relevant Taxing Jurisdiction, unless such withholding ordeduction is required by law or the interpretation or administration thereof. In such event, the Issuer or theGuarantors, as applicable, will pay to each holder such additional amounts (“Additional Amounts”) as may benecessary to ensure that the amounts received by the holder of such Note after such withholding or deduction,including withholding or deduction with respect to such Additional Amounts, equal the amounts of principal andinterest and premium, if any, and Additional Amounts, if any, that would have been receivable in respect of suchNote in the absence of such withholding or deduction. However, the obligation to pay Additional Amounts willnot apply:
(a) to any Taxes that would have not been imposed:
(i) in the case where presentation of a Note is required for payment, but for the fact that the Noteis presented more than 30 days after the later of (1) the date on which such payment firstbecame due and (2) the date on which the relevant payment is first made available to theholder, except to the extent that the holder of such Note would have been entitled to suchAdditional Amounts on presenting such Note for payment on the last day of such 30-dayperiod;
(ii) but for the existence of any present or former, direct or indirect, connection between theholder (or between a fiduciary, settler, beneficiary, member or shareholder of the holder, if theholder is an estate, a trust, a partnership, a limited liability company or a corporation) and theRelevant Taxing Jurisdiction (including, without limitation, being or having been a nationaldomiciliary, or resident of such Relevant Taxing Jurisdiction or having been physicallypresent or engaged in a trade or business therein, other than the mere ownership or holding ofsuch Note or the receipt of principal, interest or other amounts in respect thereof; or
(iii) but for the failure by the holder, the beneficial owner of the Note of any payment in respect ofsuch Note or the Trustee to (1) make a declaration of residence or non-residence, or any otherclaim or filing for exemption, to which it is entitled or (2) comply with any certification,identification, information, documentation or other reporting requirement concerning itsnationality, residence, identity or connection with the Relevant Taxing Jurisdiction; provided,however, that at least 30 days before the first Payment Date with respect to which the Issuer or
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the Guarantors with respect to a payment shall apply this clause (iii), such Issuer or Guarantorshall have notified such recipient in writing that such recipient will be required to comply withsuch requirement;
(b) in respect of any estate, inheritance, gift, value added, sales, use, excise, transfer, personal propertyor similar taxes, duties, assessments or other governmental charges;
(c) by presenting the Notes (when presentation is required) to another paying agent;
(d) in respect of taxes or other levies that are imposed other than by withholding or deduction;
(e) in respect of any payment to a holder that is a fiduciary or partnership or any person other than thesole beneficial owner of such payment or Note, to the extent that a beneficiary or settlor withrespect to such fiduciary, a member of such partnership or the beneficial owner of such payment orNote would not have been entitled to the Additional Amounts had such beneficiary, settlor,member or beneficial owner been the actual holder of such Note; or
(f) any combination of (a) through (e) above.
The Issuer and the Guarantors will pay any present or future stamp, court or documentary taxes or anyexcise or property taxes, charges or similar levies which arise in any jurisdiction from the execution, delivery,enforcement or registration of the Notes or any other document or instrument relating thereto, excluding any suchtaxes, charges or similar levies imposed by any jurisdiction other than: (a) Chile; (b) any jurisdiction where thepaying agent is organized or otherwise considered by a taxing authority to be a resident for tax purposes, anyjurisdiction from or through which the paying agent makes a payment on the Notes, or any political organizationor governmental authority thereof or therein having the power to tax in respect of any payments under the Notes;or (c) any jurisdiction imposing such taxes, charges or similar levies as a result of, or as a requirement inconnection with, the enforcement of the Notes or any other such document or instrument related to the Notesfollowing the occurrence of any Event of Default with respect to the Notes.
Wherever there is mentioned, under this caption “Description of Notes and Finance Agreements”, in anycontext, the payment of principal of, or interest on, or any other amount payable on or with respect to, any Notes,such mention will be deemed to include mention of the payment of Additional Amounts to the extent that, insuch context, Additional Amounts are, were or would be payable in respect thereof.
Form and Denomination and Title
The Global Notes (and beneficial interests therein) will be issued in registered form only withoutinterest coupons in denominations of U.S.$150,000 and integral multiples of U.S.$1,000 in excess thereof. NoNotes will be issued in bearer form. See “—Definitive Notes.” Notes offered and sold in reliance uponRule 144A will be issued in the form of a single Rule 144A Global Note. Notes offered and sold in reliance onRegulation S will be issued in the form of a single Regulation S Global Note. Each of the Global Notes will beregistered in the name of DTC or its nominee and deposited with the Trustee as custodian for DTC. Beneficialinterest in the Global Notes will be shown on, and transfers thereof will be affected only through, the book entryrecords maintained by DTC and its direct and indirect participants (including Euroclear and Clearstream).
Transfers between participants in Euroclear and Clearstream or DTC will be conducted in accordancewith the applicable rules and procedures of Euroclear and Clearstream or DTC, as the case may be, and will besettled in immediately available funds. These rules may change from time to time. Any secondary market-tradingactivity in beneficial interests in the Global Notes is expected to occur through the account holders andintermediaries, as the case may be, of Euroclear and Clearstream or DTC, and the securities custody accounts ofinvestors will be credited with their holdings against payment in same-day funds on the settlement date.
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Beneficial interests in the Global Notes will be subject to certain restrictions on transfer set forth thereinand described under “Notice to Investors.” In addition, transfers of beneficial interests in the Global Notes willbe subject to the applicable rules and procedures of Euroclear and Clearstream and/or DTC, which may changefrom time to time. See “Clearing and Settlement.”
Title to the Global Notes will pass by registration in the register. The holder of any Global Note will(except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it isoverdue and regardless of any notice of ownership, trust or any interest in it, writing on, or theft or loss of, thedefinitive Note issued in respect of it) and no person will be liable for so treating the holder.
Definitive Notes
If (i) DTC notifies the Trustee in writing that it is unwilling or is unable to continue as depositary for aGlobal Note or that it ceases to be a “clearing agency” registered under the Exchange Act, (ii) the Issuer, theGuarantors and the Trustee are unable to locate a qualified successor depositary within 90 days of such notice,and (iii) if an Event of Default has occurred and is continuing, then the Trustee will notify all applicable NoteOwners of the occurrence of any such event and (a) of the availability of definitive Notes to such Note Owners,or (b) at the election of the Issuer, that definitive Notes will be issued to all Note Owners. Upon the giving ofsuch notice and the surrender of such Global Notes by DTC, accompanied by registration instructions, the Issuerwill issue (and the Guarantors will guarantee) definitive Notes for the applicable Notes. Any definitive Notesshall only be issued in registered form for U.S. federal income tax purposes.
In the case of definitive Notes issued in exchange for the Rule 144A Global Note, such definitive Noteswill bear the legend set forth on the Rule 144A Global Note (unless counsel to the Issuer and the Guarantorsdetermine otherwise in accordance with applicable law and the procedures set forth in the Indenture). DefinitiveNotes will be exchangeable or transferable for interests in other definitive Notes as described under“—Replacement, Exchange and Transfers.”
Replacement, Exchange and Transfers
If any Note at any time is mutilated, destroyed, stolen or lost, such Note may be replaced at the cost ofthe applicant (including fees and expenses of the Trustee) upon provision of evidence satisfactory to the Trusteeand the Issuer that such Note was destroyed, stolen or lost, together with such indemnity as the Trustee and theIssuer may require. Mutilated Notes must be surrendered before replacements will be issued.
Transfers by an owner of a beneficial interest in the Regulation S Global Note to a transferee who takesdelivery of such beneficial interest through the Rule 144A Global Note will be made only in accordance withapplicable procedures and upon receipt by the Trustee of a written certification from the DTC participanttransferor of the beneficial interest in the form provided in the Indenture to the effect that such transfer is beingmade to a purchaser whom the DTC participant transferor reasonably believes is a QIB in a transaction meetingthe requirements of Rule 144A and in accordance with any applicable securities laws of any state of the UnitedStates or any other jurisdiction.
Transfers by an owner of a beneficial interest in the Rule 144A Global Note to a transferee who takesdelivery of such beneficial interest through the Regulation S Global Note will be made only in accordance withapplicable procedures and upon receipt by the Trustee of a written certification from the DTC participanttransferor in the form provided in the Indenture to the effect that such transfer is being made in accordance withRegulation S.
Transfers of beneficial interests in the Global Notes between participants in DTC will be effected inaccordance with DTC’s procedures and will be settled in same-day funds. Transfers between participants inEuroclear and Clearstream will be effected in the ordinary manner in accordance with their respective rules andoperating procedures.
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Notes may be exchanged or transferred in whole or in part in the amount of authorized denominationsby surrendering such Notes at the office of the Trustee with a written instrument of transfer as provided in theIndenture. In addition, additional certifications to the effect that such exchange or transfer is in compliance withthe restrictions contained in the applicable legend will be required. Each new Note to be issued upon exchange ofNotes or transfer of Notes will be mailed at the risk of the Noteholder entitled to the bond to such address as maybe specified in such request or form of transfer.
Notes will be subject to certain restrictions on transfer as more fully set out in the Indenture. See“Notice to Investors.”
Transfers of Notes will be effected by or on behalf of the Issuer, the registrar or the transfer agents,without charge to the Noteholder except for any tax or governmental charges or insurance charges which may beimposed in relation to such transfer or any expenses of delivery other than regular mail. The Issuer is not requiredto transfer or exchange any individual definitive Notes selected for redemption.
No Noteholder may require the transfer of a Note to be registered during the period of 15 days endingon the due date for any payment of principal or interest on that Notes.
Establishment of Accounts
The Concessionaires will establish and maintain the following accounts in the name of the U.S.Collateral Agent and, in the case of the Chilean Accounts, in the name of the Chilean Collateral Agent, for thebenefit of the Noteholders and the Notes Hedge Counterparty, and, if applicable, the holders of any other securedSenior Indebtedness:
(a) a revenue account (the “Revenue Account”) for both Concessionaires;
(b) an operations and maintenance account for each Concessionaire (the “O&M Accounts”); and
(c) an overhaul account for each Concessionaire (the “Overhaul Accounts”).
In addition, the Concessionaires will establish and maintain the following accounts in the name of theU.S. Collateral Agent and, in the case of the Chilean Accounts, in the name of the Chilean Collateral Agent, forthe exclusive benefit of the Noteholders and the Notes Hedge Counterparty but not any holder of any otherSenior Indebtedness:
(a) a payment account (the “Payment Account”);
(b) a reserve account (the “Reserve Account”);
(c) an open market purchases account (the “Open Market Purchases Account”); and
(d) the Coverage Reserve Account.
Panamerican and Eco Uno will establish and maintain an operations and transfer account for each ofthemselves (the “Transfer Accounts”) in the name of the Chilean Collateral Agent for the benefit of theNoteholders and the Notes Hedge Counterparty, and, if applicable, the holders of any other secured SeniorIndebtedness permitted pursuant to the Indenture. Transfers of funds from the Transfer Accounts will be limitedto transfers to the Revenue Account but no other Person shall be permitted to have any interest therein.
Each Concessionaire will establish and maintain two transaction checking accounts in its name inrespect of its O&M Account (the “O&M Transaction Checking Accounts”) and its Overhaul Account (the
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“Overhaul Transaction Checking Accounts” and, together with the O&M Transaction Checking Accounts, the“Transaction Checking Accounts”).
Funds on deposit in the Accounts may be invested in Permitted U.S. Investments and Permitted ChileanInvestments, as applicable, provided that all funds received in respect of such Investments upon sale orrepayment of such Investments shall be available to be transferred to other Accounts on each Transfer Date orotherwise disbursed as required by the Indenture and the other Transaction Documents.
The balance of the Accounts remaining after the Notes and all other amounts owing in respect of theIndenture, the other Transaction Documents and, if applicable, any other Senior Indebtedness have been paid infull will be released to the Concessionaires.
Treatment of Funds
Deposits of Funds to and Distribution of Funds from the Revenue Account
By irrevocable instructions to the AFT on or before the Escrow Closing Date, the Concessionaires willcause to be deposited directly into the Revenue Account all amounts which they are entitled to receive under, inconnection with or pursuant to the Operating Agreements or ancillary agreements related thereto and, in anyevent, shall immediately deposit in the Revenue Account any funds that they shall receive from the AFT inrespect of the Concessions. The Concessionaires shall also cause to be deposited directly into the RevenueAccount:
(a) all amounts required to be transferred thereto from other Accounts in accordance with theIndenture as described below;
(b) revenues from Permitted Investments and distributions received by the Issuer or any Guarantor inrespect of any other Investments;
(c) cash proceeds from any Debt permitted to be incurred under the Indenture, except for:
(i) the Notes, whose proceeds will be applied as set forth in “—Use of Proceeds”;
(ii) Vendor Financings, whose proceeds will be applied to purchase, or enter into capital leases inrespect of, buses for the Bus Network from the company providing such Vendor Financing oran affiliate or related party thereof;
(iii) Subordinated Indebtedness incurred in connection with “—Early Amortization”, provided thatthe proceeds are applied as set forth in “—Early Amortization—Coverage Reserve Account”;
(iv) Permitted Investments funded with Subordinated Indebtedness incurred by the Issuer or anyGuarantor as contemplated in clause (g) of the definition of “Permitted Investments”, providedthat the proceeds are applied as set forth therein;
(v) Subordinated Indebtedness incurred in connection with “Negative Covenants of the Issuer andthe Guarantors—CAPEX Costs”, provided that the proceeds are applied as set forth therein,and intercompany Subordinated Indebtedness solely between the Issuer and the Guarantors(provided that transfers from either Revenue Account in connection therewith to any TransferAccount shall only be permitted pursuant to “—Deposits of Funds to and Distribution ofFunds from the Revenue Account-sixth”); and
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(vi) Permitted Refinancing Indebtedness, provided that the proceeds are immediately applied toextend, refinance, renew, replace, defease or refund the Debt being extended, refinanced,renewed, replaced, defeased or refunded;
(d) common equity issuances for cash or cash capital contributions, except for common equityissuances for cash or cash capital contributions in connection with:
(i) “—Early Amortization”, whose proceeds will be applied as set forth in “—EarlyAmortization—Coverage Reserve Account”;
(ii) “Negative Covenants of the Issuer and the Guarantors—CAPEX Costs”, provided that theproceeds are applied as set forth therein; and
(iii) clause (g) of the definition of “Permitted Investments”, provided that the proceeds are appliedas set forth therein;
(e) cash proceeds from any Asset Disposition and Permitted Disposition; and
(f) cash proceeds payable to the Concessionaires in respect of any insurance policies maintained bythe Concessionaires.
For the avoidance of doubt, cash proceeds from any Debt permitted to be incurred under the Indenturedescribed in point (c)(i) through (vi) above and common equity issuances for cash or cash capital contributionsdescribed in point (d)(i) through (iii) above will not be deposited in the Revenue Account but applied asdescribed therein. Although cash proceeds in connection with certain Repair Payments and Asset Dispositionswill be deposited in the Revenue Account pursuant to clauses (c) and (d) under “—Repair Payments” and clause(h) under “—Limitations on Sale of Assets”, respectively, they will not be subject to the order of priority setforth under “—Deposits of Funds to and Distribution of Funds from the Revenue Account” but they may beapplied as described in such clauses. In addition, the Concessionaires will cause payments due by the NotesHedge Counterparty to the Concessionaires under the Notes Hedge Agreement to be directly deposited into thePayment Account.
The Revenue Account will be maintained in Chile by the Concessionaires with the Chilean CollateralAgent.
Bi-monthly Distributions
On the day immediately following the Escrow Closing Date and, thereafter, on the 15th and last day ofeach month during any period that the Notes shall be outstanding (or if any such day is not a Business Day, onthe following Business Day) (each such date, a “Transfer Date”, and the period from but excluding such TransferDate until and including the next Transfer Date, a “Transfer Period”), the Concessionaires will cause funds in theRevenue Account to be disbursed in the following order of priority:
• first, into the O&M Accounts, until the balance in such accounts equals the aggregate amount of(i) fees, expenses and any other amounts due and payable to the Secured Party Agents during thefollowing Transfer Period, plus (ii) O&M Costs then due and payable or reasonably expected to bedue and payable during the following two Transfer Periods, plus (iii) Repair Payments then due andpayable or reasonably expected to be due and payable during the following two Transfer Periods inan aggregate amount not to exceed U.S.$3.0 million of Unsettled Claims at any time outstanding asset forth under “—Repair Payments” below; provided that no Repair Payments may be made fromthe O&M Accounts during any Early Amortization Period or Cash Trapping Period if, after givingeffect thereto, the aggregate amount of Unsettled Claims outstanding would exceed U.S.$1.5million as set forth under “—Repair Payments” below;
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• second, into the Overhaul Accounts, until the balance in such accounts equals the Overhaul Costs;
• third, to the Agents and the Rating Agencies the amount of fees and expenses due and payable toeach of them during the following Transfer Period;
• fourth, to the Notes Hedge Counterparty and any other Hedge Counterparty, the aggregate amountof the Hedge Payments in respect of the Notes and any other Senior Indebtedness, respectively, dueand payable to the Notes Hedge Counterparty and such Hedge Counterparty during the followingTransfer Period;
• fifth, pro rata to (i) the L/C Bank, the aggregate amount of any fees due and payable to the L/CBank under the Letter of Credit during the following Transfer Period, and (ii) to BI, the aggregateamount of interest and fees due and payable to BI under the Bus Terminal Loan during thefollowing Transfer Period; and
• sixth, into the Transfer Accounts and from the Transfer Accounts into the Revenue Account asdetermined by the Concessionaires to be necessary; provided that, any balance in the TransferAccounts will be transferred pursuant to “first” to “seventeenth” under “—Deposits of Funds to andDistribution of Funds from the Revenue Account” on each Payment Transfer Date.
Semi-annual and Special Distributions
On the Transfer Date prior to any (i) Payment Date during any period that the Notes shall be outstanding(each such date, a “Payment Transfer Date”, and the period from but excluding such Payment Transfer Date untiland including the next Payment Transfer Date, a “Payment Period”), and (ii) (A) payment date of RepairPayments to be made pursuant to clause (ii) of “—Semi-annual and Special Distributions—eleventh”,(B) payment date of CAPEX Costs incurred or committed pursuant to “Negative Covenants of the Issuer and theGuarantors—CAPEX Costs” and to be made pursuant to clause (ii) of “—Semi-annual and SpecialDistributions—eleventh” and (C) payment date of any Permitted Investment made pursuant to clause (ii) of“—Semi-annual and Special Distributions—fifteenth” (each such date in clauses (ii)(A) through (ii)(C), a“Special Transfer Date”), the Concessionaires will cause funds in the Revenue Account to be disbursed, afterdisbursement pursuant to “—first” through “—sixth” above, in the following order of priority:
• seventh, pro rata into (i) the Payment Account, until the balance in such account equals the amountof (A) the Scheduled Principal Amount (or the Early Amortization Principal Amount during anEarly Amortization Period), accrued interest and any other payment due under the Notes in theorder of priority set forth in the Indenture on the next Payment Date to the Noteholders, plus(B) any Contingent Hedge Payment and Accelerated Hedge Payments due and payable to the NotesHedge Counterparty during the current Payment Period; and (ii) any other payment account oraccounts pledged for the benefit of the creditors under any other Senior Indebtedness (the“Additional Payment Accounts”), until the balance in such accounts equals the amount of (A) thepayments due under such other Senior Indebtedness on the payment dates thereof during the currentPayment Period, plus (B) any Contingent Hedge Payment due and payable to any HedgeCounterparty in respect of such other Senior Indebtedness during the current Payment Period;
• eighth, to any Hedge Counterparty, the aggregate amount of the Hedge Payments in the form of putoptions for the purpose of offsetting declines in revenue pursuant to the revenue formula under theConcession Agreements that the Concessionaires reasonably expect may exceed theConcessionaires’ reductions in actual fuel expenses due and payable to such Hedge Counterpartyduring the following Transfer Period, in an aggregate amount not to exceed U.S.$2.0 million in anyfiscal year;
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• ninth, pro rata into (i) the Reserve Account, until the balance in such account equals the DebtService Reserve Amount; and (ii) any other reserve account or accounts pledged for the benefit ofthe creditors under any other Senior Indebtedness (the “Additional Reserve Accounts”), until thebalance in such accounts equals the amount of debt service reserve provided for thereunder;
• tenth, pro rata to (i) BI, the aggregate amount of principal due and payable to BI under the BusTerminal Loan on such Payment Date, and (ii) the L/C Bank, the aggregate amount of interest andprincipal due and payable to the L/C Bank under the Letter of Credit during the current PaymentPeriod;
• eleventh, as instructed by each Concessionaire, in each case on the conditions set forth under“—Repair Payments” below:
(i) on any Payment Transfer Date, to make Repair Payments exceeding the amount permittedpursuant to “—Bi-monthly Distributions—first” that are then payable or reasonably expected tobe payable during the following Payment Period; and
(ii) on any Special Transfer Date, (A) in the event that the amount deposited in the ReserveAccount and any Additional Reserve Account pursuant to “—Semi-annual and SpecialDistributions—ninth” and in the Payment Account and any Additional Payment Accountspursuant to “—Semi-annual and Special Distributions—seventh” equals the aggregate amount ofpayments due from such accounts on the next Payment Date, to make Repair Payments exceedingthe amount permitted pursuant to “—Bi-monthly Distributions—first” that are payable on suchSpecial Transfer Date or reasonably expected to be payable during the following Transfer Period;and (B) in the event that the amount deposited in the Reserve Account and any Additional ReserveAccount pursuant to “—Semi-annual and Special Distributions—ninth” equals the aggregateamount of payments due from such accounts on the next Payment Date and the amount depositedin the Payment Account and any Additional Payment Accounts pursuant to “—Semi-annual andSpecial Distributions—seventh” equals the aggregate amount of payments due on the nextPayment Date from such accounts, calculated in proportion to the number of days elapsed in thethen-current Payment Period through such Special Transfer Date, to make Repair Payments in anaggregate amount not exceeding U.S.$1.5 million of Unsettled Claims at any time outstanding inaddition to the Repair Payments made pursuant to “—Bi-monthly Distributions—first”; for theavoidance of doubt, the Concessionaires may make Repair Payments at this level of priority asdescribed in the foregoing clause (B) even if the Payment Account and any Additional PaymentAccounts, which are at a higher level of priority, are not fully funded but proportionally funded asdescribed herein;
• twelfth, as instructed by each Concessionaire, in each case on the conditions set forth under“—CAPEX Costs” below:
(i) on any Payment Transfer Date, the portion of CAPEX Costs reasonably expected to be due andpayable during the following Payment Period; and
(ii) on any Special Transfer Date, in the event that the amount deposited in the Reserve Accountand any Additional Reserve Account pursuant to “—Semi-annual and Special Distributions—ninth” equals the aggregate amount of payments due from such accounts on the next PaymentDate and the amount deposited in the Payment Account and any Additional Payment Accountspursuant to “—Semi-annual and Special Distributions—seventh” equals the aggregate amount ofpayments due on the next Payment Date from such accounts, calculated in proportion to thenumber of days elapsed in the then-current Payment Period through such Special Transfer Date, topay the CAPEX Costs due and payable on such Special Transfer Date or during the followingTransfer Period; for the avoidance of doubt, the Concessionaires may pay CAPEX Costs at this
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level of priority as described in the foregoing clause (ii) even if the Payment Account and anyAdditional Payment Accounts, which are at a higher level of priority, are not fully funded butproportionally funded as described herein;
• thirteenth, to the Notes Hedge Counterparty and any other Hedge Counterparty, the aggregateamount of any Excluded Contingent Hedge Payments due and payable to the Notes HedgeCounterparty and such Hedge Counterparty during the current Payment Period;
• fourteenth, pro rata to the holders of any Subordinated Indebtedness, the aggregate amount due andpayable under the Subordinated Indebtedness during the current Payment Period provided that anycash payment under such Subordinated Indebtedness shall be made in compliance with“—Limitations on Restricted Payments” (all payments due by the Concessionaires under anySubordinated Indebtedness will be subordinated to payments under the Notes and any other SeniorIndebtedness, and, except for intercompany payments between the Issuer and the Guarantors withinthe Revenue Account or pursuant to “—Deposits of Funds to and Distribution of Funds from theRevenue Account-sixth”, will be made only from the Revenue Account according to the foregoingorder of priority; no event, request, demand, direction, notice, consent, waiver or other action underany Subordinated Indebtedness will have any effect or consequence under the Notes or any otherSenior Indebtedness);
• fifteenth, as instructed by each Concessionaire:
(i) on any Payment Transfer Date, to use funds to make Permitted Investments (other than clause(d) of the definition of “Permitted Investments”, which will be made from the O&M Accounts); and
(ii) on any Special Transfer Date, in the event that the amount deposited in the Reserve Account andany Additional Reserve Account pursuant to “—Semi-annual and Special Distributions—ninth” andin the Payment Account and any Additional Payment Accounts pursuant to “—Semi-annual andSpecial Distributions—seventh” equals the aggregate amount of payments due from such accounts onthe next Payment Date, to use funds to make Permitted Investments pursuant to clause (j) of thedefinition thereof on such Special Transfer Date;
• sixteenth, as instructed by each Concessionaire, into the Open Market Purchases Account to effectredemptions of the Notes under the Indenture (excluding, for the avoidance of doubt, redemptionseffected with Permitted Refinancing Indebtedness or pursuant to a defeasance or satisfaction anddischarge in accordance with the Indenture), Open Market Purchases or to consummate any tenderoffers for the Notes in accordance with the Indenture during the following Payment Period; and
• seventeenth, subject to “—Limitations on Restricted Payments”, to make payments in respect ofRestricted Payments, in accordance with the Concessionaires’ written instructions, and to make allother payments required to be made not payable at a higher level of priority set forth hereunder, ordeposited into reserves, by the Concessionaires in accordance with the Indenture and the otherTransaction Documents.
Notwithstanding the foregoing, transfers on any Special Transfer Date will be limited to “—Semi-annual and Special Distributions—first” through “—fifteenth” on the terms set forth therein.
If an Event of Default has occurred and is continuing, the Concessionaires will continue to disbursefunds from the Accounts as specified in the Indenture except to the extent otherwise instructed by the Trusteeacting at the direction of the Controlling Party as contemplated by the Indenture; provided that such instructionswill not limit or restrict the rights of the Secured Party Agents to receive payments under the Indenture.
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During any Early Amortization Period or Cash Trapping Period, the Concessionaires will disburse fundsfrom the Accounts as specified in “—Early Amortization” and “—Cash Trapping Upon any Event of Default”,respectively, as contemplated by the Indenture except to the extent otherwise instructed by the Trustee acting atthe direction of the Controlling Party. The Trustee may instruct the Concessionaires to make such disbursementsat any time, but only (a) to pay amounts owing in respect of the Notes and under the Indenture, or (b) inaccordance with the payment priorities set forth in the Indenture.
Deposits of Funds to and Distribution of Funds from the O&M Accounts
The Concessionaires will deposit or cause to be deposited into the O&M Accounts all amounts requiredto be transferred thereto from the Revenue Account. The O&M Accounts will be maintained in Chile by theConcessionaires with the Chilean Collateral Agent.
The Concessionaires will cause funds in each O&M Account to be disbursed at any time to pay in thefollowing order of priority:
• first, as instructed by each Concessionaire, the aggregate amount of fees and expenses due andpayable to the Secured Party Agents during the current Transfer Period;
• second, as instructed by each Concessionaire, the aggregate amount of O&M Costs due and payableduring the current Transfer Period;
• third, as instructed by each Concessionaire, the aggregate amount of Repair Payments payable fromthe O&M Accounts due and payable during the current Transfer Period;
• fourth, between the O&M Accounts as determined by the Concessionaires to be necessary; and
• fifth, into the Revenue Account, to the extent any remaining funds in the O&M Accounts exceed theO&M Costs required to be deposited therein.
The Concessionaires will not make or direct the Secured Party Agents to make, and the Secured PartyAgents will not make, any withdrawal from either O&M Account to the extent that the aggregate amount of allrequested withdrawals from such O&M Account to pay O&M Costs (other than fuel costs to be incurred by theConcessionaires in the ordinary course of business) in any semi-annual budgetary period exceeds 115% of theamount budgeted for O&M Costs (other than fuel costs to be incurred by the Concessionaires in the ordinary courseof business) for such semi-annual budgetary period as set forth in the then-current semi-annual expense budgetapplicable to such O&M Account (the “Expense Budget”) completed by the Concessionaires and submitted to theSecured Party Agents and each Rating Agency unless such Concessionaire has delivered to the Secured PartyAgents an Officers’ Certificate executed by its respective chief financial officer and chief executive officer settingforth, in reasonable detail, the purpose and nature of such exceptional O&M Costs (other than fuel costs to beincurred by the Concessionaires in the ordinary course of business) and certifying that such exceptional O&M Costsare reasonable and necessary and are required to maintain the safe and economic operation of the Bus Network, tosatisfy a legal obligation or to avoid a breach of or default under the Operating Agreements and that suchexceptional O&M Costs have been or will be incurred in good faith and on an arm’s-length basis.
The Concessionaires will not make or direct the Secured Party Agents to make, and the Secured PartyAgents will not make, any withdrawal from either O&M Account in respect of Repair Payments payable fromthe O&M Accounts unless such withdrawal is in compliance with “—Repair Payments” below.
In any case, the Concessionaires will also deliver to the Secured Party Agents, within ten days after theend of each fiscal quarter, an Officers’ Certificate certifying all O&M Costs and Repair Payments payable fromthe O&M Accounts incurred and paid during the applicable fiscal quarter and attaching an account statement.
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Unless otherwise instructed by the Controlling Party in a “notice of acceleration”, the Concessionairesmay cause funds in each O&M Account to be transferred to and from the respective O&M Transaction CheckingAccount at any time to pay O&M Costs; provided that, the aggregate amount deposited in the O&M TransactionChecking Accounts may not exceed at any time the lesser of (i) U.S.$12.0 million (considered together with theaggregate amount deposited in the Overhaul Transaction Checking Accounts) and (ii) the sum of O&M Costswhich will be paid in the following seven calendar days from the O&M Transaction Checking Accounts, plusany outstanding checks issued from such account that has not yet been paid plus U.S.$3.0 million. TheControlling Party may, together with the delivery of a “notice of acceleration” to the Concessionaires and theTrustee in accordance with the Indenture, request the Trustee to instruct the Chilean Collateral Agent to transferall amounts deposited in the O&M Transaction Checking Accounts to the O&M Accounts, at which time theConcessionaires will not make further transfers to the O&M Transaction Checking Accounts unless such “noticeof acceleration” is rescinded in accordance with the Indenture. The O&M Transaction Checking Accounts will bedeemed sub-accounts of the O&M Accounts and subject to the same aggregate limits, reporting and certificationobligations.
Deposits of Funds to and Distribution of Funds from the Overhaul Accounts
The Overhaul Accounts will be funded on the Escrow Closing Date with part of the proceeds from theissuance of the Notes. On the Escrow Closing Date, the Concessionaires will deposit or cause to be deposited anamount equal to Ch$3,316 million into the Overhaul Accounts, which amount represents the initial expectedOverhaul Costs. The required balance of each Overhaul Account will be adjusted on each Transfer Datethereafter so that such amount at such time will equal the Overhaul Costs reasonably expected to be expendedover the next six months following such Transfer Date on a rolling basis. The Overhaul Accounts will bemaintained in Chile by the Concessionaires with the Chilean Collateral Agent.
The Concessionaires will cause funds in each Overhaul Account to be disbursed at any time to pay inthe following order of priority:
• first, as instructed by each Concessionaire, the portion of Overhaul Costs due and payable duringthe current Transfer Period;
• second, between the Overhaul Accounts as determined by the Concessionaires to be necessary; and
• third, into the Revenue Account, to the extent any remaining funds in the Overhaul Accountsexceed the Overhaul Costs required to be deposited therein.
The Concessionaires will not make or direct the Secured Party Agents to make, and the Secured PartyAgents will not make, any withdrawal from either Overhaul Account to the extent that the aggregate amount ofall requested withdrawals from such Overhaul Account to pay Overhaul Costs in any semi-annual budgetaryperiod exceeds 115% of the then-current semi-annual overhaul budget applicable to each Concessionaire (the“Overhaul Budget”) completed by the Concessionaires and submitted to the Secured Party Agents and eachRating Agency unless such Concessionaire has delivered to the Secured Party Agents an Officers’ Certificateexecuted by its respective chief financial officer and chief executive officer setting forth, in reasonable detail, thepurpose and nature of such exceptional Overhaul Costs and certifying that such Overhaul Costs are reasonableand necessary and are required to maintain the safe and economic operation of the Bus Network or to avoid abreach of or default under the Operating Agreements and that such Overhaul Costs have been or will be incurredin good faith and on an arm’s-length basis.
In any case, the Concessionaires will also deliver to the Secured Party Agents, within ten days after theend of each fiscal quarter, an Officers’ Certificate certifying all Overhaul Costs incurred and paid during theapplicable fiscal quarter and attaching an account statement.
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Unless otherwise instructed by the Controlling Party in a “notice of acceleration”, the Concessionairesmay cause funds in each Overhaul Account to be transferred to and from the respective Overhaul TransactionChecking Account at any time to pay Overhaul Costs; provided that, the aggregate amount deposited in theOverhaul Transaction Checking Accounts may not exceed at any time the lesser of (i) U.S.$12.0 million(considered together with the aggregate amount deposited in the O&M Transaction Checking Accounts) and(ii) the sum of Overhaul Costs which will be paid in the following seven calendar days from the OverhaulTransaction Checking Accounts, plus any outstanding checks issued from such account that has not yet been paidplus U.S.$3.0 million. The Controlling Party may, together with the delivery of a “notice of acceleration” to theConcessionaires and the Trustee in accordance with the Indenture, request the Trustee to instruct the ChileanCollateral Agent to transfer all amounts deposited in the Overhaul Transaction Checking Accounts to theOverhaul Accounts, at which time the Concessionaires will not make further transfers to the OverhaulTransaction Checking Accounts unless such “notice of acceleration” is rescinded in accordance with theIndenture. The Overhaul Transaction Checking Accounts will be deemed sub-accounts of the Overhaul Accountsand subject to the same aggregate limits, reporting and certification obligations.
Deposits of Funds to and Distribution of Funds from the Payment Account
The Concessionaires will deposit or cause to be deposited into the Payment Account all amountsrequired to be transferred thereto from the Revenue Account and payments due by the Notes Hedge Counterpartyto the Concessionaires under the Notes Hedge Agreement. The Payment Account will be maintained in NewYork by the Concessionaires with the U.S. Collateral Agent.
The Concessionaires will instruct the U.S. Collateral Agent to disburse funds in the Payment Accounton each Payment Date (or payment dates under the Notes Hedge Agreement) in the following order of priority:
• first, pro rata to the Noteholders and each Notes Hedge Counterparty, respectively, the aggregateamount (i) of the Scheduled Principal Amount (or the Early Amortization Principal Amount duringan Early Amortization Period), accrued interest and any other payment due and payable under theNotes in the order of priority set forth in the Indenture on such Payment Date, and (ii) of theContingent Hedge Payments and Accelerated Hedge Payments due and payable under the NotesHedge Agreements on the applicable payment dates; and
• second, into the Revenue Account, to the extent any remaining funds in the Payment Accountexceed the amounts required to be deposited therein.
Deposits of Funds to and Distribution of Funds from the Additional Payment Accounts
The Concessionaires will deposit or cause to be deposited into any Additional Payment Account allamounts required to be transferred thereto from the Revenue Account and payments due by any HedgeCounterparty to the Concessionaires under any foreign exchange contract, currency swap agreement or othersimilar agreement or arrangement entered into in connection with any Senior Indebtedness (other than the Notes).The Payment Account will be maintained as provided for under the applicable instruments. The Concessionaireswill instruct the collateral agent thereunder to disburse funds in the Additional Payment Account on eachapplicable payment date in the following order of priority:
• first, pro rata to any Hedge Counterparty and the creditors under any other Senior Indebtedness, theaggregate amount (i) of the Contingent Hedge Payment due and payable with respect thereto on theapplicable payment date, and (ii) due and payable under such other Senior Indebtedness on theapplicable payment date; and
• second, into the Revenue Account, to the extent any remaining funds in the Additional PaymentAccounts exceed the amounts required to be deposited therein.
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Any such Additional Payment Accounts may not provide for more favorable benefits or be on morefavorable terms to the creditors under such other Senior Indebtedness than the Payment Account to theNoteholders and the Hedge Counterparty, as determined by the boards of directors of the Concessionaires ingood faith.
Deposits of Funds to and Distribution of Funds from the Reserve Account
The Reserve Account will be funded on the Escrow Closing Date with either or a combination of(a) part of the proceeds from the issuance of the Notes, and/or (b) a Letter of Credit. On the Escrow ClosingDate, the Concessionaires will deposit or cause to be deposited into the Reserve Account an aggregate amountequal to U.S.$22.0 million. The required balance of the Reserve Account will be adjusted on each PaymentTransfer Date and each Special Transfer Date thereafter so that such amount at such Payment Transfer Date andSpecial Transfer Date, as applicable, will equal the sum of the amount (which amount will be set forth in aschedule to the Indenture) representing the interest, Scheduled Principal Amount and Hedge Payments to be paidin respect of the Notes on the immediately succeeding Payment Date or on the next succeeding Payment Date,whichever sum is the higher (such required amount being the “Debt Service Reserve Amount”). The ReserveAccount will be maintained by the Concessionaires in New York with the U.S. Collateral Agent.
As an alternative to depositing and/or maintaining the Debt Service Reserve Amount in cash, theConcessionaires may deliver to the U.S. Collateral Agent one or more direct-pay on-demand irrevocable lettersof credit for the benefit of the Trustee, the Noteholders and the Notes Hedge Counterparty from a bank (the “L/CBank”) with an international rating of at least “A” by S&P, “A” by Fitch or “A2” by Moody’s, or a Chileandomestic rating of at least “AA” or equivalent by any of such rating agencies (the “Letter of Credit”), in anamount equal to, when combined with any amounts on deposit in the Reserve Account, the Debt Service ReserveAmount.
All payments due by the Concessionaires to the L/C Bank under the Letter of Credit (other than fees dueto the L/C Bank under the Letter of Credit payable pursuant to “—Deposits of Funds to and Distribution of Fundsfrom the Revenue Account—Bi-monthly Distribution—fifth”) will be subordinated to payments under the Notesand any other Senior Indebtedness as permitted pursuant to the terms of the Indenture and will be made onlyfrom the Revenue Account according to the order of priority set forth above.
On each Payment Date, so long as no Event of Default is continuing, the U.S. Collateral Agent willdisburse funds in the Reserve Account or draw on the Letter of Credit in the following order of priority:
• first, pro rata to the Trustee for the benefit of the Noteholders and to the Notes HedgeCounterparty, to the extent that the Payment Account would not be fully funded on such PaymentDate (or the Early Amortization Principal Amount during an Early Amortization Period to theextent available in the Reserve Account and/or Letter of Credit); and
• second, to the Revenue Account, to the extent any remaining funds in the Reserve Account exceedthe Debt Service Reserve Amount (not including drawing on the Letter of Credit).
Additional Reserve Accounts
Any other Senior Indebtedness may provide for Additional Reserve Accounts, provided that suchAdditional Reserve Accounts may not provide for more favorable benefits or be on more favorable terms to thecreditors under such other Senior Indebtedness than the Reserve Account to the Noteholders and the NotesHedge Counterparty, as determined by the boards of directors of the Concessionaires in good faith.
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Deposits of Funds to and Distribution of Funds from the Open Market Purchases Account
The Concessionaires will deposit or cause to be deposited into the Open Market Purchases Account anyamount that they determine at their sole discretion, which amount may be zero. The Concessionaires may directany funds in the Open Market Purchases Account to be transferred to the Revenue Account at any time. TheOpen Market Purchases Account will be maintained in New York by the Concessionaires with the U.S.Collateral Agent.
The Concessionaires will instruct the U.S. Collateral Agent to disburse funds in the Open MarketPurchases Account on any Transfer Date as follows:
• first, to effect any redemption of the Notes under the Indenture, Open Market Purchases of theNotes or to consummate any tender offer for the Notes in accordance with the Indenture; and
• second, into the Revenue Account, any balance at the end of the applicable Payment Period.
For the avoidance of doubt, the Concessionaires may make Open Market Purchases with funds ondeposit in the Open Market Purchases Account during the applicable Payment Period even if at the time of suchpurchases there would not have been funds available to run through the waterfall at “Semi-annual and SpecialDistributions—sixteenth”.
Affirmative Covenants of the Issuer and the Guarantors
Pursuant to the Indenture, the Issuer and the Guarantors, as applicable, will agree to the following:
Use of Proceeds
On the Escrow Closing Date, the Issuer will apply the proceeds as described under “Use of Proceeds” inthis Offering Memorandum.
Maintenance of Corporate Existence
The Issuer and each Guarantor will maintain and preserve its existence as a company in the place of itsrespective formation, except as permitted by the covenant described under “Limitations on Consolidation,Merger or Transfer of Assets.”
Compliance with Legal Requirements
The Issuer and each Guarantor will, to the extent applicable to them, own, lease, operate and maintainthe Bus Network and any Permitted Business in compliance with all applicable law, including without limitationCorrupt Practices Laws, and comply with, all governmental authorizations required for the ownership,construction, financing, maintenance or operation of the Bus Network and any Permitted Business, except ineach case where the failure to do so could not be reasonably expected to result in a Material Adverse Change.
Maintenance of Properties
The Issuer and each Guarantor will, to the extent applicable to them, obtain and maintain in force goodand valid title and/or rights to such properties as are necessary for (a) the maintenance and operation of the BusNetwork and any Permitted Business, and (b) the use of its property, assets and revenues, except in each casewhere the failure to do so could not be reasonably expected to result in a Material Adverse Change, in each casein compliance with and except as otherwise limited by “—Negative Covenants—CAPEX Costs” and any otherprovisions set forth in the Indenture.
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Repayment of Obligations
The Issuer and each Guarantor will pay, discharge or otherwise satisfy all its payment obligations ofwhatever nature, except where the amount or validity thereof is currently being contested in good faith, andexcept where the failure to do so could not be reasonably expected to result in a Material Adverse Change.
Maintenance of Insurance
Each Concessionaire will: (a) maintain all insurance, with its current insurers or financially sound andreputable insurers, required under the Concessions in accordance with the requirements set forth therein;(b) maintain all other insurance in respect of any material risk, with its current insurers or financially sound andreputable insurers, that is otherwise required by any applicable law and that is generally accepted as customary inregard to property and business of like character; and (c) make all premium and other payments due in respect ofthe required insurance policies promptly when due and take such other action as may be necessary to cause suchpolicies to be in full force and effect at all times. All insurance proceeds required to be deposited in any Accountwill be applied solely as set forth in the Indenture.
Operation and Maintenance
Each Concessionaire will use, operate and maintain the Bus Network and any Permitted Business (a) ingood working order and condition and in accordance with the Concession Agreements and prudent industrypractices, and (b) in a manner that ensures the conditions set forth in any warranty provisions provided by anymanufacturer, supplier, vendor or licensor of any equipment or process incorporated into the Bus Network andany Permitted Business (whether in such manufacturer’s, supplier’s, vendor’s or licensor’s operating manuals orotherwise) are not violated, in each case except where the failure to do so could not be reasonably expected toresult in a Material Adverse Change.
Budgets
Prior to the beginning of each fiscal year, each Concessionaire will deliver to the Trustee:
(a) an annual budget (the “Annual Budget”) for such upcoming fiscal year, including budgetedstatements of income and sources and uses of cash (including without limitation any RestrictedPayment) and balance sheets; each Annual Budget will contain good faith estimates of therevenues, capital expenditures (including buses, technology and infrastructure), overhaul expenses,expenses and projected working capital requirements of the Concessionaires and any PermittedBusiness for each calendar quarter covered by such Annual Budget based on each Concessionaire’sgood faith projections at such time; and
(b) a three-year budget (the “Three-Year Budget”) covering the next succeeding three fiscal years;each Three-Year Budget will contain good faith estimates of the capital expenditures (includingbuses, technology and infrastructure), overhaul expenses, expenses and projected working capitalrequirements of the Concessionaires and any Permitted Business for each fiscal year covered bysuch Three-Year Budget based on each Concessionaire’s good faith projections at such time.
In addition, prior to the beginning of each quarterly or semi-annual budgetary period, as applicable, eachConcessionaire will deliver to the Trustee the Expense Budget, Overhaul Budget and the CAPEX Budget forsuch period. Such quarterly or semi-annual budgets will be in a form agreed upon by the Issuer, Guarantors, theSecured Party Agents and the Rating Agencies and attached to the Indenture. Once delivered to the Trustee, suchquarterly or semi-annual budgets will not be amended or replaced.
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Base Case Model
Concurrently with the submission of each Annual Budget and any amendment thereto, theConcessionaires will provide an updated version of its base case financial projections that is substantially in theform of the Base Case Model and consistent with the Annual Budget.
In addition, the Concessionaires will deliver to the Trustee, promptly, and in any event (a) within thirtydays after a material change (which change must be reasonably justified) to one or more assumptions in the BaseCase Model, written notice of such change(s) and (b) within 90 days after the end of each fiscal year, (i) a writtenand electronic update of all changed assumptions (if any) in the Base Case Model from the immediatelypreceding calendar year, together with the underlying assumptions (including, without limitation, assumptionsregarding demand, revenue formula variables and expenses), each certified by an Officer of each Concessionaireas having been prepared in good faith.
Accounts
The Concessionaires, Panamerican and Eco Uno, as applicable, will establish and maintain theAccounts.
Compliance with Concessions
Each Concessionaire will comply with the provisions of and perform all obligations under theConcession Agreements and maintain and enforce its rights thereunder, except in each case where the failure todo so could not be reasonably expected to result in a Material Adverse Change.
Books and Records
The Issuer and each Guarantor will: (a) maintain internal accounting, management information and costcontrol systems adequate to ensure compliance with applicable law and (b) maintain books, accounts and recordsin compliance with all applicable law, and, with respect to financial statements, in accordance with GAAP orother accounting principles that may be applicable to the Issuer or each Guarantor, consistently applied.
Notices
The Issuer and the Guarantors will provide written notice to the Secured Party Agents and theNoteholders promptly, and no later than three days, after any Officer of the Issuer or any Guarantor becomingaware of any of the following:
(a) the occurrence of an Event of Default, Early Amortization Event, Material Adverse Change,Termination Event or Expropriation Action;
(b) deposits in and withdrawals from the Coverage Reserve Account;
(c) any replacement, termination, cancelation, nullification, rescission or revocation of, or materialamendment to, any Transaction Document (and any new Operating Agreement entered into inconnection therewith or related thereto) attaching an Officers’ Certificate executed by theConcessionaires’ chief financial officers and chief executive officers setting forth, in reasonabledetail, the reason, nature and effects of such action and stating whether such action couldreasonably be expected to result in a Material Adverse Change and the basis for their conclusion;provided, however, that the Issuer and each Guarantor will provide to the Secured Party Agents andthe Noteholders written notice of any amendment (other that a material amendment) to anyTransaction Document made during a fiscal quarter within ten days after the end of such fiscalquarter attaching the Officers’ Certificate referred to above;
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(d) any initiation of litigation, claims, investigations, judicial or arbitral proceedings (including,without limitation, with respect to environmental matters) involving such Concessionaire that itreasonably expects to result in a Material Adverse Change;
(e) any cancellation or material change in or any notice of non-payment of premiums with respect toany insurance policy required to be maintained under the Indenture;
(f) any event of force majeure claimed by any person under any Transaction Document that isreasonably expected to result in a Material Adverse Change;
(g) any event or occurrence that reasonably could be expected to render the Issuer or any Guarantorincapable of, or prevent the Issuer or any Guarantor from, meeting any of its material obligationsunder any Transaction Document;
(h) any amendment to any Transaction Document (when such amendment requires the consent of theControlling Party pursuant to the Indenture);
(i) any proceeding or threat to initiate a proceeding that could reasonably be expected to result in anExpropriation Event or Expropriatory Action;
(j) any Lien on the assets or property of the Issuer or any Guarantor (other than Permitted Liens);
(k) prior to adoption thereof, any proposed material change in the nature or scope of the Bus Network,Permitted Business or the business or operations of the Issuer or any Guarantor that is proposed foradoption by the Board of Directors thereof;
(l) receipt by either Concessionaire of written notice of any noncompliance with or any suspension,termination or non renewal of a governmental authorization or other license or authorizationnecessary for the performance by the each Concessionaire of its material obligations under anyTransaction Document;
(m) any ongoing strike, slowdown or work stoppage by the employees of the Concessionaires or anyother person affiliated with the Bus Network or any Permitted Business that is reasonably expectedto result in a Material Adverse Change;
(n) any decision by either Concessionaire to cease or suspend all or substantially all operations of theBus Network or any Permitted Business; and
(o) any material dispute under the Concessions that either Concessionaire reasonably expects to resultin the appointment of an arbitrator thereunder;
provided that, the Issuer may provide such written notice on behalf of any Guarantor.
Quarterly Reports
On February 10, April 10, July 10 and October 10 of each year, the Issuer and the Guarantors willprovide the Secured Party Agents, the Rating Agencies and the Noteholders with a quarterly report (the“Quarterly Report”) setting forth the following:
(a) all information necessary to calculate (in reasonable detail and providing calculations necessary todetermine) the Debt Service Coverage Ratio and the Debt to Equity Ratio as of the last day of theReporting Period most recently ended, and certifying that the Issuer and each Guarantor is incompliance with the covenant and restriction relating to the Debt Service Coverage Ratio orspecifying any noncompliance;
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(b) the balance in each of the Accounts as of the last day of the Reporting Period most recently ended;
(c) certification as to whether any Cash Trapping Period, Early Amortization Event or Event ofDefault has occurred and/or is occurring during the Reporting Period most recently ended;
(d) for the quarters ended June 30 and December 31, a detailed set of information which is necessaryfor, and relevant to, the distributions on the next Payment Transfer Date, that is capable ofdetermination as of the date of preparation of such Quarterly Report; and
(e) complete information as to the distributions made in the Reporting Period most recently ended,specifying the aggregate amount of payments made per category at each level of payment priorityunder the Indenture.
The Quarterly Reports will be in a form agreed upon by the Issuer, Guarantors, the Secured PartyAgents and the Rating Agencies and attached to the Indenture.
Financial Statements
The Issuer and each Guarantor will, upon request, furnish to the Noteholders and to prospectivepurchasers of Notes any information required to be delivered pursuant to Rule 144A(d)(4) under the SecuritiesAct so long as the Notes are not freely transferable under the Securities Act. In addition, so long as the Notesremain outstanding, each Concessionaire (or, if the Concessionaires are consolidated, the Issuer) will provide theTrustee and the Noteholders with:
(a) annual information in English consisting of (i) such Concessionaire’s annual audited consolidatedfinancial statements prepared in accordance with GAAP, or, if required under GAAP or if theIssuer so elects, annual audited consolidated financial statements combining the Concessionairesincluding a report thereon by such Concessionaire’s (or, if the Concessionaires are thenconsolidated, the Issuer’s) certified independent auditors, (ii) a management’s discussion andanalysis of financial condition and results of operations for that period, and (iii) a ComplianceCertificate, all of which shall be provided no more than 90 days following the end of the relatedfiscal year; and
(b) periodic information in English consisting of (i) quarterly consolidated financial statements of suchConcessionaire prepared in accordance with GAAP, (or, if required under GAAP or if the Issuer soelects, unaudited quarterly consolidated financial statements combining the Concessionaires) whichmay be unaudited, for the three-month periods ending March 31, June 30 and September 30 of eachyear, (ii) a management’s discussion and analysis of financial condition and results of operationsfor that period, and (iii) a Compliance Certificate, all of which shall be provided no more than 75days following the end of the related quarter; provided, that such quarterly information may consistof, and be in the same format as, the information (translated into English) that would be required tobe provided to the Chilean regulatory authorities on a quarterly basis by companies that arerequired to report quarterly;
provided, in each case, that the Concessionaires will not be required pursuant to this paragraph toprovide disclosure which is qualitatively more explicit or precise than that which is provided in thisOffering Memorandum. So long as the Notes are listed on the Luxembourg Stock Exchange, the Issuerand each Guarantor will make available the information specified in the preceding sentence at the officeof the Luxembourg transfer and paying agent.
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Visits and Inspections
Once per year, each Concessionaire will permit representatives of the Trustee and one representative ofthe Controlling Party, upon reasonable notice and at reasonable times, to visit and inspect properties related to itsoperations and the business, accounts, operations, properties and financial and other conditions of theConcessionaires with Officers of the Concessionaires. At any time when an Event of Default has occurred and iscontinuing, each Concessionaire will permit representatives of the Trustee and one representative of theControlling Party, upon reasonable notice and at reasonable times, to (a) visit and inspect the properties related toits operations, (b) examine or audit and make abstracts from any of its books, accounts and records and to makecopies and memoranda thereof, and (c) discuss the business, accounts, operations, properties and financial andother conditions of the Concessionaires with Officers and employees of the Concessionaires and (to the extentthe auditors agree to participate) with their auditors. Upon reasonable notice and at reasonable times, eachConcessionaire will grant the Trustee and one representative of the Controlling Party access to all new contractsthat such Concessionaire has entered into and all new amendments to any contract, including any transaction withaffiliates.
Taxes
The Issuer and each Guarantor will timely pay and discharge or cause to be paid and discharged allmaterial taxes imposed upon the Issuer, such Guarantor or its respective income or profits or any of theCollateral, all material utility and other governmental charges incurred in the ownership, operation, maintenance,use, occupancy and upkeep of the Bus Network or any Permitted Business that, if unpaid, would become a Lien(other than a Permitted Lien) upon the Collateral, or upon any part thereof, except if such charge or claim isbeing contested in good faith by appropriate proceedings and if such reserves or other appropriate provision, ifany, as shall be required by GAAP shall have been made therefor.
Expropriation Event or Termination Action
If an Expropriation Event or Termination Action is threatened in writing with respect to all or anymaterial portion of the Bus Network, the Concessionaires (a) will diligently contest such claim or proceeding if,in the Concessionaires’ reasonable judgment, they have a legal basis to do so and (b) will not, without the writtenconsent of the Controlling Party, compromise or settle any claim against the relevant government instrumentality.
If an Expropriation Event or Termination Action occurs, the Concessionaires (a) will diligently pursueall its rights to compensation against the relevant governmental instrumentality in respect of such ExpropriationEvent or Termination Action, (b) will not compromise or settle any claim against such governmentalinstrumentality without the written consent of the Controlling Parties and (c) will pay or apply all amounts orproceeds in respect of such Expropriation Event or Termination Action in accordance with the Indenture. TheConcessionaires will consent to the participation of the Trustee acting for the benefit of the Noteholders in anyproceedings regarding an Expropriation Event or Termination Action, or a threatened Expropriation Event orTermination Action.
Cash Flow
From and after the Escrow Closing Date, the Issuer and each Guarantor will instruct each personremitting cash to or for the account of the Issuer or such Guarantor to deposit such cash in accordance with theterms of the Indenture and will otherwise comply with its covenants and agreements in the Finance Agreements.
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Repair Payments
When the Concessionaires experience losses they reasonably believe to be covered by an insurancepolicy in effect (except for deductibles), they may make Repair Payments subject to the following:
(a) in the event that any Repair Payment is not reasonably expected to exceed U.S.$1.0 million, theConcessionaires may (i) transfer funds from the Revenue Account to the O&M Accounts anddisburse funds in the O&M Accounts, subject to the limitations on the amount of Unsettled Claimsthat may be funded at any time pursuant to “—Deposits of Funds from the Revenue Account—Bi-Monthly Distributions—first”, or (ii) disburse funds in the Revenue Account pursuant to, andsubject to the limitations of “—Deposits of Funds to and Distribution of Funds from the RevenueAccount—Semi-annual and Special Distributions—eleventh” above, as applicable, in each case tocover such Repair Payment irrespective of the time that the insurance proceeds are received in theRevenue Account;
(b) in the event that any Repair Payment is reasonably expected to exceed U.S.$1.0 million but is notreasonably expected to exceed U.S.$25.0 million, subject to the delivery by the Concessionaires tothe Trustee and the Rating Agencies of an Officers’ Certificate setting forth, in reasonable detail,the purpose and nature of such Repair Payment and that it will be used in good faith and on anarm’s-length basis, the Concessionaires may (i) transfer funds from the Revenue Account to theO&M Accounts and disburse funds in the O&M Accounts, subject to the limitations on the amountof Unsettled Claims that may be funded at any time pursuant to “—Deposits of Funds from theRevenue Account—Bi-Monthly Distributions–first”, or (ii) disburse funds in the Revenue Accountpursuant to, and subject to the limitations of “—Deposits of Funds to and Distribution of Fundsfrom the Revenue Account—Semi-annual and Special Distributions—eleventh” above, asapplicable, in each case to cover such Repair Payment irrespective of the time that the insuranceproceeds are received in the Revenue Account;
(c) in the event that the Repair Payment is reasonably expected to exceed U.S.$25.0 million, theRepair Payment may not be made prior to the receipt of insurance proceeds except pursuant to(d) below; within 180 days after the receipt of any such insurance proceeds in the RevenueAccount, the Concessionaires will apply an amount equal to such proceeds at their option: (i) toinvest, or to enter into a binding agreement to invest within 30 days, in Replacement Assets; (ii) torepay any other Senior Indebtedness and, in the case of any such Senior Indebtedness whichconstitutes a revolving credit facility, to cause the related loan commitment (if any) to bepermanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased;(iii) to make an offer to purchase Notes at 100% of the principal amount thereof plus accruedinterest; or (iv) a combination of (i) through (iii). Any such Repair Payment proceeds so depositedin the Revenue Account will not be subject to the order of priority set forth under “—Deposits ofFunds to and Distribution of Funds from the Revenue Account” above, but they will be segregatedand applied in due time to the purposes provided for from (i) through (iv) above subject to thedelivery by the Concessionaires to the Trustee and the Rating Agencies of an Officers’ Certificatesetting forth, in reasonable detail, the purpose and nature of such Repair Payment and that it will beused in good faith and on an arm’s-length basis; in addition, any purchase of Replacement Assetswith such insurance proceeds will not be subject to the covenant restrictions applicable to CAPEXCosts; and
(d) irrespective of the amount of the Repair Payment and irrespective of any Event of Default, EarlyAmortization Event or Cash Trapping Period, if such Repair Payment has been funded with commonequity for cash issued by, cash capital contributions made to or Subordinated Indebtedness incurredby the Concessionaires in anticipation of their receiving insurance proceeds, subject to the delivery bythe applicable Concessionaire to the Trustee and the Rating Agencies of an Officers’ Certificate
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setting forth, in reasonable detail, the purpose and nature of such Repair Payment and that it has beenso funded into the Revenue Account and will be used in good faith and on an arm’s-length basis, theConcessionaires may disburse funds in the Revenue Account to cover such Repair Payment. Anyproceeds so deposited in the Revenue Account will not be subject to the order of priority set forthunder “—Deposits of Funds to and Distribution of Funds from the Revenue Account” above. Uponreceipt of the insurance proceeds corresponding to such Repair Payment in the Revenue Account,subject to the delivery by the Concessionaires to the Trustee of an Officers’ Certificate setting forththe purpose and nature of the withdrawal, the Concessionaires may use such funds in the RevenueAccount to repay such Subordinated Indebtedness or return such common equity or cash capitalcontributions to the extent of the insurance proceeds received in the Revenue Account for that RepairPayment (which shall not be considered a Restricted Payment), with any remaining balance payablein accordance with the Indenture and the order of priority set forth therein; provided that no suchrepayment or return may be made, even after receipt of the insurance proceeds corresponding to suchRepair Payment in the Revenue Account, during the period that an Event of Default, EarlyAmortization Event or Cash Trapping Period is continuing.
In each case, the Concessionaires will deliver to the Trustee, within ten days after the end of each fiscalquarter, an Officers’ Certificate certifying all such Repair Payments paid during the applicable fiscal quarter andattaching an account statement.
Perfection of Security Interests under Chilean Security Documents
The Issuer and the Guarantors, as applicable, shall, as promptly as practicable, (a) register in therelevant registries or offices, the relevant recording information for each of the Chilean Security Documentsrequired to be so registered for the priority and perfection of the security interests granted by such documents,(b) deliver any notices in the form of judicial notifications or acceptances to third parties for each of the ChileanSecurity Documents which requires such notification for the priority and perfection of the security interestsgranted by such documents, (c) subject to Permitted Liens, cause a valid and fully perfected first priority securityinterest in and lien upon the properties and rights covered by the Chilean Security Documents in favor of theNoteholders and the Notes Hedge Counterparty to be created and (d) deliver to the Chilean Collateral Agent acertified copy of (i) the certificate of registration for the Mortgages and each of the Chilean Security Documentswhich are required to be so registered, (ii) any notices to third parties for each of the Chilean Security Documentswhich requires such notification; provided that, in any event the Issuer and the Guarantors, as applicable, shallhave performed each of its obligations hereunder no later than 30 days after (A) the Escrow Closing Date, withrespect to Collateral owned on the Escrow Closing Date and (B) the date of acquisition, in respect of Collateralacquired after the Escrow Closing Date. If at any time prior to the creation of the security interest describedabove, in the reasonable judgment of the Chilean Collateral Agent, the Issuer and the Guarantors, as applicable,cannot be reasonably expected to satisfy their respective obligations as and when provided under the immediatelypreceding sentence, the Chilean Collateral Agent may (but shall not be required to) instruct their attorney-in-factto register or publish (as applicable) any Chilean Security Documents in favor of the Chilean Collateral Agent forthe benefit of the Noteholders and the Notes Hedge Counterparty, and any related expenses shall be paid for bythe Issuer and the Guarantors.
Creation and Perfection of Money Pledges
On the Escrow Closing Date, on each date funds are deposited in the Revenue Account from the AFTand on any date funds in excess of U.S.$1.0 million are deposited on any Chilean Accounts (other than theTransaction Checking Accounts), the Chilean Collateral Agent will create and perfect a Chilean Money Pledgeon such Chilean Accounts (other than the Transaction Checking Accounts) in accordance to a schedule to theapplicable account agreement, which schedule shall be amended from time to time as the Secured Party Agentsmay reasonably request in order to reflect any change in the requirements of registration, publication,notification, annotation and other applicable procedures required to create or perfect such security interest under
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Chilean Law. The Chilean Collateral Agent shall take all actions required to be taken by it in order to accomplishthe foregoing in accordance with the schedule, and shall otherwise have no duty or liability with respect to theperfection or creation of the Money Pledges.
Negative Covenants of the Issuer and the Guarantors
Pursuant to the Indenture, the Issuer and the Guarantors, as applicable, will agree to the following:
Incurrence of Senior Indebtedness
The Issuer and the Guarantors will not incur any Senior Indebtedness during the first two ReportingPeriods after the date of the Indenture. After the first two Reporting Periods, the Issuer and the Guarantors willnot, directly or indirectly, Incur any Senior Indebtedness unless each of the following conditions is satisfied:
(a) no Default or Event of Default has occurred and is continuing;
(b) (i) satisfaction of a backwards looking Debt Service Coverage Ratio requirement of not less than1.50:1.00 for each of the two immediately preceding Reporting Periods for which consolidatedfinancial statements have been submitted to the Trustee, (ii) satisfaction of, after giving pro formaeffect to the incurrence of such Senior Indebtedness and the application of the proceeds thereof, aforward looking Debt Service Coverage Ratio requirement of (x) an average of 1.50:1:00 until thefinal maturity of the Notes and (y) a minimum of 1.35:1.00 for each of the remaining ReportingPeriods until the final maturity of the Notes, (iii) rating confirmation by each Rating Agency, and(iv) that any collateral of any Senior Indebtedness (other than a Vendor Financing if so elected bythe Issuer and the Guarantors) secure the holders of the Notes equally and ratably on a pari passubasis; provided, however, that the Indenture will permit the Issuer and the Guarantors to incurVendor Financings in an aggregate amount at any time outstanding (a) not to exceed U.S.$10.0million, subject to satisfaction of (A) a backwards looking Debt Service Coverage Ratiorequirement of not less than 1.20:1.00 for each of the two immediately preceding ReportingPeriods for which consolidated financial statements have been submitted to the Secured PartyAgents, and (B) after giving pro forma effect to the incurrence of such Vendor Financings and theapplication of the proceeds thereof, (x) a forward looking Debt Service Coverage Ratiorequirement of an average of 1.20:1.00 for the remaining Reporting Periods until the final maturityof the Notes and (y) a forward looking Debt Service Coverage Ratio requirement of a minimum of1.15:1.00 for each of the remaining Reporting Periods until the final maturity of the Notes; and(b) exceeding U.S.$10.0 million but not to exceed U.S.$20.0 million, subject to satisfaction of (i) abackwards looking Debt Service Coverage Ratio requirement of not less than 1.35:1.00 for each ofthe two immediately preceding Reporting Periods for which consolidated financial statements havebeen submitted to the Trustee, and (ii) after giving pro forma effect to the incurrence of suchVendor Financings and the application of the proceeds thereof, a forward looking Debt ServiceCoverage Ratio requirement of a minimum of 1.35:1.00 for each of the remaining ReportingPeriods until the final maturity of the Notes;
(c) prior to the applicable date on which Senior Indebtedness is Incurred (an “Incurrence Date”) theIssuer and the Guarantors will have delivered to the Trustee an Officers’ Certificate executed by itsrespective chief financial officer and chief executive officer setting forth all information necessaryto calculate the Debt Service Coverage Ratio and certifying that the Issuer and the Guarantors arein compliance with all of the conditions required for the Incurrence of Senior Indebtedness underthe Indenture; and
(d) prior to the applicable Incurrence Date, the Issuer and the Guarantors will have delivered to theTrustee an Officers’ Certificate executed by its respective chief financial officer and chief
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executive officer certifying that: (i) as of the applicable Incurrence Date, and after giving effect tosuch Incurrence, no Default or Event of Default has occurred and is continuing; (ii) suchIncurrence complies in all respects with this clause; and (iii) such Incurrence complies with allapplicable laws.
Notwithstanding the foregoing, the Issuer may incur (i) Hedging Obligations for the purpose of fixing,hedging or swapping interest rate or foreign currency exchange rate, in the ordinary course of business and notfor speculative purposes, in respect of any Senior Indebtedness, (ii) Hedging Obligations only in the form of putoptions for the purpose of offsetting declines in revenue pursuant to the revenue formula under the ConcessionAgreements that the Concessionaires reasonably expect may exceed the Concessionaires’ reductions in actualfuel expenses, in the ordinary course of business and not for speculative purposes, (iii) the Bus Terminal Loan,and (iv) Permitted Refinancing Indebtedness subject to compliance with the limitations in the definition thereof.
Limitations on Restricted Payments
The Issuer and the Guarantors will not make any Restricted Payment during the first two ReportingPeriods after the date of the Indenture. After the first two Reporting Periods, the Issuer and the Guarantors willnot make any Restricted Payment unless each of the following conditions has been satisfied:
(a) no Default or Event of Default has occurred and is continuing;
(b) (i) a backwards looking Debt Service Coverage Ratio requirement of not less than 1.35:1.00 foreach of the two immediately preceding Reporting Periods for which consolidated financialstatements have been submitted to the Trustee, and (ii) a forward looking Debt Service CoverageRatio requirement of a minimum of 1.35:1.00 for each of the remaining Reporting Periods until thefinal maturity of the Notes; provided, however, that the Indenture will permit the Issuer and theGuarantors to make a Restricted Payment up to the excess of the Revenue Account balance overU.S.$30.0 million subject to the satisfaction of (A) a backwards looking Debt Service CoverageRatio requirement of not less than 1.25:1.00 for each of the two immediately preceding ReportingPeriods for which consolidated financial statements have been submitted to the Trustee, (B) aforward looking Debt Service Coverage Ratio requirement of a minimum of 1.25:1.00 for each ofthe remaining Reporting Periods until the final maturity of the Notes, (C) rating confirmation byeach Rating Agency), and (D) a Debt to Equity Ratio of a minimum of 75:25;
(c) prior to the applicable date on which a Restricted Payment is made (a “Restricted Payment Date”)the Issuer and the Guarantors will have delivered to the Trustee (i) an Officers’ Certificate executedby its respective chief financial officer and chief executive officer setting forth all informationnecessary to calculate the Debt Service Coverage Ratio and the Debt to Equity Ratio (if applicable)and certifying that the Issuer and the Guarantors are in compliance with all of the conditionsrequired for Restricted Payments under the Indenture, and (ii) a written and electronic update of allchanged assumptions (if any) in the Base Case Model from the immediately preceding calendaryear; and
(d) prior to the applicable Restricted Payment Date, the Issuer and the Guarantors will have deliveredto the Trustee an Officers’ Certificate executed by its respective chief financial officer and chiefexecutive officer certifying that: (i) as of the applicable Restricted Payment Date, and after givingeffect to such Restricted Payment, no Default or Event of Default has occurred and is continuing;(ii) such Restricted Payment complies in all respects with this clause; and (iii) such RestrictedPayment complies with all applicable laws.
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Limitations on Liens
The Issuer and the Guarantors will not, and will not agree to, create, assume or permit to exist any Lienupon any of the assets or properties of the Issuer or the Guarantors, whether now owned or hereafter acquired, orany of its Capital Stock, other than Permitted Liens.
For purposes of the foregoing, “Permitted Liens” means:
(a) Liens created under or pursuant to any of the Security Documents;
(b) Liens imposed by any Governmental Authority for taxes, assessments or other similar charges notyet due or which are being contested in good faith by appropriate proceedings, if adequate reservesor other appropriate provision with respect thereto are maintained on the books of the Issuer andthe Guarantors to the extent required by GAAP;
(c) statutory Liens such as carriers’, warehousemen’s, mechanics’, suppliers’, contractors’,materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business that secureamounts not overdue for a period of more than 90 days or which are being contested in good faithby appropriate proceedings, if adequate reserves or other appropriate provision with respect theretoare maintained on the books of the Issuer and the Guarantors, to the extent required by GAAP;
(d) any easements, rights of way, and other similar restrictions and encumbrances incurred in theordinary course of business that do not, individually or in the aggregate, impair the operation of theBus Network or any Permitted Business in any material respect;
(e) pledges or deposits in connection with workers’ compensation, unemployment insurance and othersocial security legislation;
(f) deposits to secure the performance of bids, trade contracts (other than for borrowed money),performance bonds and other obligations of a like nature incurred in the ordinary course ofbusiness;
(g) Liens and/or deposits to secure statutory obligations, surety and appeal bonds, judgments,attachments or awards not giving rise to an Event of Default related to litigation being contested ingood faith by appropriate proceedings and for which adequate reserves have been made or otherappropriate provision with respect thereto are maintained on the books of the Issuer and theGuarantors, to the extent required by GAAP;
(h) any interest or title of a lessor or sublessor under any lease entered into by the Issuer or anyGuarantor, as lessees/sub-lessees, in the ordinary course of business and covering only the assets soleased;
(i) any interest or title of a licensor or sublicensor under any license entered into by the Issuer or anyGuarantor, as licensees/sub-licensees, in the ordinary course of business and covering only theassets subject thereto;
(j) Liens on property of a Person existing at the time such Person is merged with or into orconsolidated with the Issuer or any Guarantor provided that such Liens were in existence prior tothe contemplation of such merger or consolidation and do not extend to any assets other than thoseof the Person merged into or consolidated with the Issuer or the Guarantor;
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(k) Liens on property existing at the time of acquisition thereof by the Issuer or any Guarantor aspermitted under the Indenture provided that such Liens were in existence prior to the contemplationof such acquisition and do not extend to any property other than the property so acquired by theIssuer or the Guarantor;
(l) Liens existing on the Escrow Closing Date as set forth in a schedule to the Indenture (including forthe avoidance of doubt a mortgage on the Excluded Depot and a pledge on the capital stock ofLorena SpA and insurance proceeds on the Excluded Depot to secure the Bus Terminal Loan);
(m) Liens on property or assets securing Debt incurred to fully defease or to fully satisfy and dischargethe Notes; provided that (i) the Incurrence of such Debt was not prohibited by the Indenture and(ii) such defeasance or satisfaction and discharge is not prohibited by the Indenture;
(n) Liens on property or assets securing Senior Indebtedness or Vendor Financings Incurred inaccordance with the Indenture;
(o) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment ofcustoms duties in connection with importation of goods in the ordinary course of business;
(p) any extension, renewal, refinancing or replacement, in whole or in part, of any Lien described inthe foregoing clauses (a) through (o); provided that any such Lien is limited to all or part of thesame property or assets (plus improvements, accessions, proceeds or dividends or distributions inrespect thereof) that secured (or, under the written arrangements under which the original Lienarose, could secure) the original Lien, including any Permitted Refinancing Indebtedness; and
(q) Liens securing obligations that do not exceed U.S.$1.0 million at any one time outstanding.
Limitations on Sale of Assets
The Issuer and the Guarantors will not convey, sell, lease, assign, transfer or otherwise dispose of any ofits property, business or assets, including its interest in the Bus Network or any Permitted Business, having a fairmarket value for any such disposition or series of related dispositions in excess of U.S.$100,000, whether nowowned or hereafter acquired (an “Asset Disposition”), except:
(a) to the extent permitted under any Transaction Document to which it is a party;
(b) sales of obsolete, worn out or defective property or property no longer used in connection with theoperation of the Bus Network or any Permitted Business for an amount not in excess ofU.S.$500,000 for a single transaction or U.S.$2.0 million in the aggregate for all such transfers ordispositions in any fiscal year;
(c) property transferred or disposed of as a result of an Expropriation Event or Termination Action thatdoes not constitute an Event of Default under the Indenture;
(d) any Permitted Disposition;
(e) any such conveyance, sale, lease, assignment, transfer or disposition among the Issuer and theGuarantors, in each case subject to the Indenture;
(f) any dispositions of Permitted Investments for cash or in exchange for other Permitted Investments;
(g) any Restricted Payments made in compliance with the Indenture; or
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(h) unless within 270 days of the later of the date of such Asset Disposition and the receipt of the NetAvailable Cash, the Issuer or any Guarantor, as applicable, applies an amount equal to 100% of theNet Available Cash from such Asset Disposition:
(i) to invest, or to enter into a binding agreement to invest within 30 days, in ReplacementAssets;
(ii) to repay any other Senior Indebtedness and, in the case of any such Senior Indebtedness whichconstitutes a revolving credit facility, to cause the related loan commitment (if any) to bepermanently reduced in an amount equal to the principal amount so prepaid, repaid orpurchased;
(iii) to make an offer to purchase Notes at 100% of the principal amount thereof plus accruedinterest; or
(iv) any combination of (i) through (iii);
provided that, any Net Available Cash pursuant to the foregoing clause (h) will be deposited in theRevenue Account and will not be subject to the order of priority set forth under “—Deposits of Funds toand Distribution of Funds from the Revenue Account” above, but it will be segregated and applied indue time to the purposes provided for from (i) through (iv) above subject to the delivery by theConcessionaires to the Trustee and the Rating Agencies of an Officers’ Certificate setting forth, inreasonable detail, the purpose and nature of the utilization of such Net Available Cash and that it will beused in good faith and on an arm’s-length basis. Any purchase of Replacement Assets with such NetAvailable Cash proceeds will not be subject to the covenant restrictions applicable to CAPEX Costs.
Limitation on Sale and Lease-Back Transactions
The Issuer and the Guarantors will not enter into any Sale and Lease-Back Transaction unless either:
(i) the Issuer and the Guarantors would be entitled (A) pursuant to the provisions of the covenantdescribed in “Negative Covenants of the Issuer and the Guarantors—Incurrence of SeniorIndebtedness”, to incur Senior Indebtedness in a principal amount equal to or exceeding the Valueof such Capitalized Lease Obligation and (B) pursuant to the provisions of the covenant in“Negative Covenants of the Issuer and the Guarantors—Limitations on Liens”, to incur a Lien tosecure such Senior Indebtedness; or
(ii) the Issuer and the Guarantors, during or immediately after the expiration of four months after theeffective date of such Sale and Lease-Back Transaction (whether made by the Issuer or any of theGuarantors), will apply the proceeds in accordance with “Negative Covenants of the Issuer and theGuarantors—Limitations on Sale of Assets”.
Abandonment of Project
Each Concessionaire will not voluntarily (a) suspend its commercial activities for more than 24 hoursother, to the extent consistent with such Concessionaire’s obligations under its Concession Agreement, than dueto safety concerns, at the insistence of such Concessionaire’s insurer or any governmental instrumentality orconsistent with prudent industry practices, (b) suspend any activities that would result in a loss of 15% ofrevenues of the Concessionaires on a combined basis for more than 30 days, or (c) permanently close the BusNetwork or any Permitted Business or cease, abandon or agree to abandon the operation of the Bus Network orany Permitted Business.
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Change of Fiscal Year; Nature of Business; Subsidiaries
The Concessionaires will not change their fiscal years, except as required by law, or engage in anybusiness other than a Permitted Business. The Issuer and Guarantors shall not have, directly or indirectly, anyRestricted Subsidiary (except for subsidiaries existing on the Escrow Closing Date to be dissolved pursuant to“—Covenants Relating to Existing Subsidiaries,” the Guarantors and Lorena SpA).
Bank Accounts
The Issuer and the Guarantors will not open or maintain any bank accounts other than the Accounts andwill promptly, and no later than 30 Business Days from the Escrow Closing Date, close any such accounts thatexisted prior to the Escrow Closing Date and cause any balances therein to be transferred to the RevenueAccount.
Assignment
Other than as set forth in the Security Documents, the Issuer and the Guarantors will not assign orotherwise transfer their rights or obligations under any Transaction Document or governmental authorization toany Person, provided that the Concessionaires may assign or otherwise transfer their rights or obligations underany Operating Agreement or governmental authorization only between themselves in compliance with the termsand conditions set forth therein.
Limitations on Affiliate Transactions
The Issuer and the Guarantors will not, directly or indirectly, enter into any transaction or series ofrelated transactions (including, without limitation, the purchase, sale, lease or exchange of any property or therendering of any service) with, or for the benefit of, any of the Issuer’s or the Guarantors’ respective affiliates(each such transaction, an “Affiliate Transaction”), unless:
(a) the terms of such Affiliate Transaction are no less favorable than those that could reasonably beexpected to be obtained in a comparable transaction at such time on an arm’s-length basis from aperson that is not its affiliate;
(b) in the event that such Affiliate Transaction involves aggregate payments, or transfers of property orservices with a Fair Market Value in excess of U.S.$5.0 million, the terms of such AffiliateTransaction will be approved by a majority of the members of the Board of Directors of the Issueror any Guarantor party to such Affiliate Transaction, the approval to be evidenced by a boardresolution stating that the Board of Directors has determined that such transaction complies withclause (a) above; and
(c) in the event that such Affiliate Transaction involves aggregate payments, or transfers of property orservices with a Fair Market Value in excess of U.S.$10.0 million, the Issuer and any Guarantorwill, prior to the consummation thereof, obtain a favorable opinion as to the fairness of suchAffiliate Transaction to the Issuer or any Guarantor party to such Affiliate Transaction from afinancial point of view from an independent financial advisor and provide the same to the Trustee.
The foregoing requirements will not apply to:
(a) transactions with or among the Issuer and any Guarantor, or between or among Guarantors;
(b) reasonable fees and compensation paid to, and any indemnity provided on behalf of, andemployment contracts and benefit plans for the benefit of, and reimbursement of reasonablebusiness expenses of, the Issuer’s and the Guarantors’ officers, directors, employees, consultants oragents as determined in good faith by the Board of Directors of the Issuer and any applicableGuarantor;
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(c) any transactions undertaken pursuant to any contractual obligations or rights in existence on theNote Closing Date and described in this Offering Memorandum (as in effect on the Note ClosingDate) (including the consulting agreement with Rioma and the Assigned Receivables bothdescribed in this Offering Memorandum) or any renewal or amendment thereto after the NoteClosing Date (so long as such renewal or amendment is not disadvantageous to the Issuer or theGuarantors, as applicable, in any material respect);
(d) any Restricted Payments made in compliance with “Restricted Payments;”
(e) any issuance of Capital Stock (other than Disqualified Stock) of the Issuer or any Guarantor toAffiliates of the Issuer or any Guarantor; provided that such Capital Stock required to be pledgedpursuant to any Share Pledge Agreement is so pledged simultaneously with such issuance; and
(f) the Transactions and the Acquisition.
No Other Powers of Attorney
The Issuer and the Guarantors will not execute or deliver any power of attorney (other than powers ofattorney for signatories of documents permitted by the Transaction Documents and limited purpose powers ofattorney in the ordinary course of its business), fiduciary transfer agreements or similar documents, instrumentsor agreements, except to the extent such documents, instruments or agreements comprise part of the SecurityDocuments or relate to the consummation of the Transactions and the Acquisition or the performance ofministerial or operational tasks in the ordinary course of business.
Dispositions
The Issuer and the Guarantors will not cause or suffer to exist any direct or indirect sale, transfer,assignment, pledge or other disposition (a “Disposition”) of any Capital Stock of the Issuer or the Guarantorsunless such Disposition is a Permitted Disposition.
Investment Company Act
The Issuer and the Guarantors will not take (nor permit any affiliate) to take any action that could resultin the Issuer or any Guarantor being required to register as an “investment company” or being a company“controlled” by a company required to register as an “investment company,” under and within the definitions setforth in the Investment Company Act.
CAPEX Costs
The Issuer and the Guarantors will not incur, commit or pay any CAPEX Costs during the first twoReporting Periods after the date of the Indenture, except to the extent permitted to be paid from the O&MAccount or with proceeds from common equity issuances for cash, cash capital contributions or SubordinatedIndebtedness in accordance with the Indenture. After the first two Reporting Periods, the Concessionaires willnot make or direct the Secured Party Agents to make, and the Secured Party Agents will not make, anywithdrawal from the Revenue Account to the extent that the aggregate amount of all requested withdrawals fromthe Revenue Account to pay CAPEX Costs from the “—Deposits of Funds to and Distribution of Funds from theRevenue Account—Semi-annual and Special Distributions—eleventh” in any quarterly budgetary period exceeds100% of the amount budgeted for CAPEX Costs for such quarterly budgetary period (excluding, for theavoidance of doubt, CAPEX Costs paid from the O&M Account in accordance with the Indenture) as set forth inthe then-current quarterly CAPEX budget (the “CAPEX Budget”) completed by the Concessionaires andsubmitted to the Secured Party Agents and each Rating Agency; provided that such CAPEX Costs will besubject, at the time they are incurred or committed, to (a) a backwards looking Debt Service Coverage Ratio
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requirement of not less than 1.20:1.00 for each of the two immediately preceding Reporting Periods for whichconsolidated financial statements have been submitted to the Secured Party Agents, (b) a forward looking DebtService Coverage Ratio requirement of an average of 1.20:1.00 for the remaining Reporting Periods until thefinal maturity of the Notes, and (c) a forward looking Debt Service Coverage Ratio requirement of a minimum of1.15:1.00 for each of the remaining Reporting Periods until the final maturity of the Notes.
Notwithstanding the foregoing, if the Concessionaires fund any CAPEX Costs by the issuance ofcommon equity for cash, cash capital contributions or Subordinated Indebtedness, then such CAPEX Costs willnot be subject to any ratios and such funds will not be required to be deposited into the Revenue Account.
The Concessionaires will deliver to the Secured Party Agents, within ten days after the end of eachfiscal quarter, an Officers’ Certificate certifying all CAPEX Costs incurred and paid during the applicable fiscalquarter and attaching an account statement.
Limitations on Consolidation, Merger or Transfer of Assets
None of the Issuer or Guarantor will consolidate or merge with or into, or assign, transfer, convey leaseor otherwise dispose of all or substantially all of its assets to, any person, unless:
(a) the resulting, surviving or transferee person or persons (if not an Issuer or Guarantor) will be aperson or persons organized and existing under the laws of Chile, the United States, the District ofColumbia, Canada or any other country that is a member country of the European Union or of theOrganization for Economic Co-operation and Development on the date of the Indenture, and suchperson or persons expressly assume, by a supplemental indenture to the Indenture, executed anddelivered to the Trustee, all the obligations of such Issuer or Guarantor under the Indenture;
(b) the resulting, surviving or transferee person or persons (if not a an Issuer or Guarantor), if notorganized and existing under the laws of Chile undertakes, in such supplemental indenture, to paysuch additional amounts in respect of principal (and premium, if any) and interest as may benecessary in order that every net payment made in respect of the Notes or the guarantees, asapplicable, after deduction or withholding for or on account of any present or future tax, penalty,duty, assessment, fee or other governmental charge (and any fines, penalties, interest or otherliabilities related thereto) imposed by the jurisdiction under the laws of which such person (orpersons) is organized or existing or any jurisdiction from or through which any payment under theNotes is made on behalf of the Issuer or any Guarantor (or any political subdivision or taxingauthority thereof or therein) will not be less than the amount of principal (and premium, if any) andinterest then due and payable on the Notes, subject to the same exceptions set forth under clauses(a) (i), (ii) and (iii) under “Additional Amounts” but adding references to such other jurisdiction tothe existing references in such clause to Relevant Taxing Jurisdiction;
(c) immediately prior to such transaction and immediately after giving effect to such transaction, noDefault or Event of Default will have occurred and be continuing; and
(d) the Issuer and Guarantor will have delivered to the Trustee an Officers’ Certificate and an Opinionof Counsel of recognized standing, each stating that such consolidation, merger, conveyance,transfer or lease and such supplemental indenture, if any, comply with the Indenture and that allconditions precedent under the Indenture to the consummation of such transaction have beensatisfied.
Nothing in the Indenture shall prevent (i) Panamerican or Eco Uno from consolidating with, merginginto or transferring all or substantially all of its properties and assets to either Concessionaire, or (ii) any suchtransaction between the Concessionaires.
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The Trustee will accept such certificate and opinion as sufficient evidence of the satisfaction of theconditions precedent set forth in this covenant, in which event it will be conclusive and binding on theNoteholders.
Additional Covenants Related to Panamerican, Eco Uno, Lorena SpA and the Bus Terminal Loan
Nature of Business. Panamerican and Eco Uno will not engage in any business activity other than (i) thedirect or indirect ownership of shares of the Issuer and/or one or more of the Guarantors held by them on the dateof the Indenture or any additional shares provided that the same are promptly pledged to secure their Guaranteesto the extent contemplated by the Share Pledge Agreements, (ii) establishment and maintenance of the TransferAccounts, and (iii) as otherwise required or contemplated in connection with the Finance Agreements andintercompany transfers pursuant thereto and, as applicable, intercompany obligations owing to or from the Issuerand/or one or more of the Guarantors.
Lorena SpA. Alsacia will cause Lorena SpA not to engage in any business activity other than ownershipof the Excluded Depot and guarantee of the Bus Terminal Loan, the lease of the Excluded Depot to Alsacia andrelated administrative activities. In addition, Lorena SpA shall not (i) incur any Debt (except its guarantee of theBus Terminal Loan and intercompany Subordinated Debt payable to Alsacia), (ii) create or suffer to exist anyLiens on any of its assets or property (except Permitted Liens), (iii) sell, assign, lease, transfer or otherwisedispose of any interest in its assets or property (except its lease of the Excluded Depot to Alsacia, which shallaccrue and not be payable in cash while any Notes are outstanding, and in connection with any foreclosure on theExcluded Depot, (iv) create or acquire any Subsidiaries or make any Investment, (v) consolidate or merge with orinto any other Person or sell, lease or otherwise transfer, directly or indirectly, all or any part of its assets orproperty to any other Person (except the Issuer or a Guarantor), in each case except as otherwise expresslypermitted under the Finance Agreements. For the avoidance of doubt, the Excluded Depot shall be operated byAlsacia, and O&M Expenses, Repair Costs and other payments in respect of the Excluded Depot and suchoperations shall be paid out of the Accounts as Concessionaire payments. Alsacia shall operate the ExcludedDepot in accordance with the covenants of this Indenture applicable to other operations of Alsacia.
Bus Terminal Loan. Alsacia and any Guarantor will not consent to or otherwise provide for anyamendment, supplement, novation or renewal of the Bus Terminal Loan on terms that are more favorable thanthe current terms thereof, nor any such amendment, supplement, novation or renewal will be on terms materiallyadverse to the Noteholders or the Notes Hedge Counterparty.
Covenants Relating to Existing Subsidiaries
Dissolution and Liquidation of Existing Subsidiaries. Alsacia and the Guarantors will liquidate anddissolve their then existing subsidiaries (other than Lorena SpA and subsidiaries which are Guarantors) as soonas practicable after the Escrow Closing Date.
Nature of Business. Until the time they are dissolved and liquidated, Alsacia and the Guarantors willcause each of their then existing subsidiaries (other than Lorena SpA and subsidiaries which are Guarantors) notto: (i) engage in any business activity; (ii) Incur any Debt; (iii) create or suffer to exist any Liens on any of itsProperties; and (iv) create or acquire any subsidiaries or make any Investments.
Early Amortization
General. During the period (the “Early Amortization Period”) beginning on the day on which an EarlyAmortization Period is declared to have commenced or automatically commences pursuant to the provisionsunder “—Early Amortization Events” below, and continuing to and including the date on which principal,interest and all other amounts due under the Notes have been paid in full (or such earlier date as the ControllingParty of the Notes so determines), the remaining unpaid principal balance under the Notes will be due andpayable on each Payment Date with the Available Funds (the “Early Amortization Principal Amounts”).
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During any Early Amortization Period, the Concessionaires will transfer or cause to be transferred theAvailable Funds (in addition to funds for accrued interest and any other payment under the Notes in the order ofpriority set forth in the Indenture, and Contingent Hedge Payments) from the Revenue Account to the PaymentAccount on each Transfer Date for payment of the Early Amortization Principal Amounts on the next PaymentDate(s). Additionally, during any Early Amortization Period, the Concessionaires will transfer funds in theReserve Account and/or under the Letter of Credit to the Trustee for the benefit of the Noteholders and the NotesHedge Counterparty on the next Payment Date, which funds will be applied to the payment of the EarlyAmortization Principal Amounts, accrued interest and any other payment under the Notes in the order of priorityset forth in the Indenture on such Payment Date.
Amounts thus applied to reduce the principal of the Notes will result in a pro rata reduction of theremaining Scheduled Amortization Amounts for the Notes.
Early Amortization Events. Each of the following will be designated as an “Early Amortization Event”for the Notes:
(a) the occurrence of an Event of Default;
(b) the occurrence of an early amortization event with respect to any other Senior Indebtedness of theIssuer or any Guarantor; and
(c) failure to maintain a minimum Debt Service Coverage Ratio of 1.10:1.00 in any Reporting Period(the “Early Amortization Debt Service Coverage Ratio”), except for the Reporting Periods throughMarch 31, 2012.
Upon the occurrence of an Early Amortization Event, the Controlling Party, by notice then given inwriting to the Issuer, the Guarantors and the Secured Party Agents, may declare that the Early AmortizationPeriod has commenced; provided that, the written notice in respect of an Event of Default (other than an Event ofDefault described in clause (h) under “—Events of Default”) must be given by the Controlling Party to the Issuer,the Guarantors and the Secured Party Agents within six months of the Noteholders receiving notice of such Eventof Default; provided further that, (A) upon the occurrence of an Event of Default described in clause (h) under“—Events of Default”, an Early Amortization Period will automatically commence, and (B) the specific event,occurrence or omission that resulted in the Event of Default that caused such Early Amortization Event shall notbe the basis for declaration of any other Early Amortization Events for six months following the end of suchsix-month period.
Coverage Reserve Account. Notwithstanding anything herein to the contrary, upon the occurrence of anEarly Amortization Event related to the failure to satisfy the Early Amortization Debt Service Coverage Ratio,the Issuer and the Guarantors may cure such breach by either:
(a) electing (by written notice to the Secured Party Agents) to have all amounts then and thereafterpayable to the Noteholders under the Finance Agreements to be deposited into a segregated trustaccount in the United States held by the Secured Party Agents in the name of Secured Party Agentsfor the benefit of the Noteholders (the “Coverage Reserve Account”); and/or
(b) depositing, or causing to be deposited, into the Coverage Reserve Account (which shall be fundedby the issuance of common equity for cash, cash capital contributions or SubordinatedIndebtedness, and which shall not be required to be deposited into the Revenue Account) anamount of U.S. dollars such that, had such amount been received as collections in the RevenueAccount during the applicable Transfer Period, such breach would not have occurred (the“Coverage Reserve Account Deposit Amount”). If so elected by the Issuer and the Guarantors, theIssuer and the Guarantors shall deposit, or cause to be deposited, into the Coverage Reserve
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Account an amount equal to the Coverage Reserve Account Deposit Amount, which must havebeen funded with Subordinated Indebtedness incurred by or cash capital contributions made to theIssuer or the Guarantors for specific deposit therein.
If the Coverage Reserve Account is funded as described herein, notwithstanding anything to thecontrary described herein, an Early Amortization Event related to the failure to satisfy any Early AmortizationDebt Service Coverage Ratio will be deemed not to have occurred (regardless of whether the Controlling Partyfor the Notes has declared that an Early Amortization Period has commenced with respect to the failure to meetthe Early Amortization Debt Service Coverage Ratio); provided that if the Early Amortization Debt ServiceCoverage Ratio continues to fail to be met for each of the next three respective Reporting Periods, then,notwithstanding the funding of the Coverage Reserve Account, an Early Amortization Event shall occur.
Pending application in accordance with the Indenture, amounts in the Coverage Reserve Account will beinvested by the Secured Party Agents in U.S. Permitted Investments. The Issuer and the Guarantors may exercisesuch right to cure up to three times through the final maturity of the Notes; provided that they may not exercisesuch right more than once during any period of 12 consecutive calendar months.
Amounts in the Coverage Reserve Account will be distributed by the Secured Party Agents as follows:
(a) on each Payment Date occurring after the exercise by the Issuer and the Guarantors of the option tofund the Coverage Reserve Account, if amounts on deposit in the Payment Account for the Noteson such Payment Date are less than the aggregate amount due and payable on such date, then theamount of such shortfall will (to the extent available) be transferred from the Coverage ReserveAccount to the Payment Account and then paid to the Noteholders, the Notes Hedge Counterpartyand other parties entitled to such amounts as set forth in the Indenture; and
(b) if the Early Amortization Debt Service Coverage Ratio for the Notes is met with respect to any twoconsecutive Reporting Periods after such election, then the balance of funds on deposit in theCoverage Reserve Account may be used by the Issuer and the Guarantors to cancel the relatedSubordinated Indebtedness or return the related capital contribution (which, in each case, shall notconstitute a Restricted Payment), with any remaining balance under the Subordinated Indebtednessor the capital contribution payable in accordance with the Indenture and the order of priority setforth above; additional funds need no longer be deposited into the Coverage Reserve Accountunless and until the Issuer and the Guarantors exercise such option again.
If a balance remains in the Coverage Reserve Account after all of the Notes have been paid in full, thensuch balance will be paid at the Issuer’s and the Guarantors’ instructions.
Additional Coverage Reserve Account. Any other Senior Indebtedness may provide for an account toserve the same purpose as the Coverage Reserve Account (the “Additional Coverage Reserve Accounts”),provided that such Additional Coverage Reserve Accounts may not provide for better benefits or be on morefavorable terms to the creditors under such other Senior Indebtedness than the Coverage Reserve Account to theNoteholders and the Notes Hedge Counterparty, as determined by the board of directors of the Concessionaires ingood faith.
Events of Default
Each of the following is an “Event of Default” under the Indenture:
(a) a failure by the Issuer or any Guarantor to pay any principal of the Notes, when due and payable,whether at maturity, upon redemption or otherwise;
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(b) a failure by the Issuer or any Guarantor for 30 days to pay interest or any Additional Amountswhen due and payable on any Notes;
(c) any default of any of the following covenants by the Issuer or any Guarantor will constitute animmediate Event of Default:
(i) “—Covenants—Use of Proceeds”;
(ii) “—Covenants—Maintenance of Corporate Existence”;
(iii) “—Repurchase of Notes upon a Change of Control”;
(iv) “—Mandatory Redemption”; and
(v) “—Covenants—Notices” only with respect to notices relating to any Event of Default, EarlyAmortization Event, Termination Event or Expropriation Action.
(d) a default in the observance or performance of any covenant or agreement of the Issuer or anyGuarantor made in the Indenture (other than as contemplated in clauses (a) through (c) above) orany other Finance Agreement and, other than a default that cannot be cured in a 30-day period (or,in the case of “Affirmative Covenants of the Issuer and the Guarantors—Books and Records” and“Negative Covenants of the Issuer and the Guarantors—Limitations on Liens”, a 45-day period),such default continues for 30 days (or, in the case of “Affirmative Covenants of the Issuer and theGuarantors—Books and Records” and “Negative Covenants of the Issuer and the Guarantors—Limitations on Liens”, 45 days) after the earlier of (i) any Officer of the Issuer or any Guarantorbecoming aware of such default and (ii) the Secured Party Agents or the Controlling Party givingnotice of default;
(e) the application of any fines or discounts under the Concession Agreements which could reasonablybe expected to result in a Material Adverse Change;
(f) any default under any Transaction Document, including any failure to deposit any funds to theextent available as provided therein or withdrawal, except as expressly permitted thereunder,including express provision for default if any Transaction Document (other than AdditionalAgreements) is terminated, canceled or materially amended, and in each case could reasonably beexpected to result in a Material Adverse Change;
(g) any representation or warranty made by the Issuer or any Guarantor in any Finance Document towhich such person is a party or in any Officers’ Certificate delivered in connection with the releaseof the Escrow, is found to be false and misleading in any material respect when made, unless, in thecase of any false or misleading representation or warranty as to which the condition giving risethereto is capable of being cured, such condition has been cured and such representation orwarranty is no longer false or misleading in any material respect within 30 days after the Issuer orsuch Guarantor first has knowledge or should have had knowledge, after due inquiry, that suchrepresentation or warranty was false or misleading in such material respect;
(h) the Issuer or any Guarantor (collectively, the “Subject Persons”):
(i) institutes a voluntary case or undertake actions to form an arrangement with its creditorsgenerally for the purpose of paying past due debts or seeking liquidation, reorganization ormoratorium of payments, under any bankruptcy law (or any similar statute in any relevantjurisdiction), or consents to the institution of an involuntary case thereunder against it;
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(ii) files a petition, answer or consent or otherwise institutes any similar proceeding under anyother legal requirements, or consents thereto;
(iii) applies for, or by consent or acquiescence there is, the appointment of a receiver, liquidator,sequestrator, trustee or other official with similar powers, or any of the Subject Persons makesan assignment for the benefit of creditors generally;
(iv) admits in writing its inability to pay its debts generally as they become due;
(v) has an involuntary case commenced against it seeking the liquidation or reorganization ofsuch Subject Person under any bankruptcy law (or any similar statute under any relevantjurisdiction) or any similar proceeding is commenced against such Subject Person under anyother legal requirements and (A) the petition commencing the involuntary case is not timelycontroverted, (B) the petition commencing the involuntary case is not dismissed within ninetydays of its filing, (C) an interim trustee is appointed to take possession of all or a portion ofthe property, and/or to operate all or any part of the business of Subject Person and suchappointment is not vacated within ninety days, or (D) an order for relief has been issued orentered therein; or
(vi) has entered against it a decree or order of a court having jurisdiction in the premises for theappointment of a receiver, liquidator, sequestrator, trustee or other officer having similarpowers of such Subject Person or of all or a part of its property;
(i) any final, non-appealable judgments, decisions or orders for the payment of money in an aggregateamount exceeding U.S.$10.0 million (or the equivalent in another currency) (to the extent suchjudgments, decisions or orders are not paid or covered by insurance provided by a reputablecarrier) are entered against the Issuer or any Guarantor and (A) enforcement proceedings arecommenced by any creditor upon such judgments, decisions or orders or (B) there is a period of 30consecutive days during which a stay of enforcement of such judgments, decisions or orders, byreason of a pending appeal or otherwise, is not in effect;
(j) any Expropriatory Action of the Concessions or any portion, material to the Issuer and theGuarantors considered as a whole, of the assets used by the Issuer and/or any Guarantor and theiraffiliates in connection with the operation of the Concessions, except to the extent that anExpropriatory Action results in the immediate payment to the Trustee of ExpropriationCompensation sufficient, in the opinion of the Trustee, to repay the Notes and all amounts then dueand payable to the Noteholders;
(k) any suspension, revocation, cancellation, loss or termination of any of the Operating Agreementsand that in each case could reasonably be expected to result in a Material Adverse Change;
(l) the Noteholders or the Notes Hedge Counterparty cease to have a perfected first-priority securityinterest in any Collateral having an aggregate Fair Market Value in excess of U.S.$10.0 millionexcept as released in accordance with the Transaction Documents;
(m) any revocation or withdrawal of any material government authorization that could reasonably beexpected to result in a Material Adverse Change; or
(n) default under any mortgage, indenture or instrument under which there may be issued or by whichthere may be secured or evidenced any Senior Indebtedness (other than the Bus Terminal Loan) bythe Issuer or any Guarantor (or the payment of which is guaranteed by the Issuer or any Guarantor)whether such Senior Indebtedness or guarantee now exists, or is created after the issuance of the
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Notes, if that default: (A) is caused by a failure to make any payment when due at the finalmaturity of such Senior Indebtedness (a “Payment Default”); or (B) results in the acceleration ofsuch Senior Indebtedness prior to its express maturity, and, in each case, the amount of any suchSenior Indebtedness, together with the amount of any other such Senior Indebtedness under whichthere has been a Payment Default or the maturity of which has been so accelerated, aggregatesU.S.$10.0 million or more.
The Indenture provides that (a) if an Event of Default (other than an Event of Default described inclause (h) above) will have occurred and be continuing with respect to the Notes, either the Trustee or theControlling Party may declare the principal of, and Additional Amounts, if any, and accrued and unpaid intereston all the outstanding Notes to be due and payable immediately by notice in writing to the Concessionaires andthe Trustee specifying the Event of Default and that it is a “notice of acceleration” and (b) if an Event of Defaultdescribed in clause (h) above will have occurred, the principal of all the outstanding Notes and the interestaccrued thereon, if any, will become and be immediately due and payable without any declaration or other act onthe part of the Trustee or any holder of such Notes. The Indenture provides that the Notes owned by the Issuer orthe Guarantors or any of their affiliates will be deemed not to be outstanding for, among other purposes,declaring the acceleration of the maturity of the Notes.
Upon the satisfaction by the Issuer and Guarantors of certain conditions, the declaration described inclause (a) of the preceding paragraph may be rescinded by the Controlling Party. No rescission will affect anysubsequent Default or impair any rights relating thereto. Past defaults, other than non-payment of principal,interest and compliance with certain covenants, may be waived by the Controlling Party.
The Trustee must give to the Noteholders notice of all uncured defaults actually known to it with respectto the Notes within 30 days after the Trustee has actual knowledge of such a default (unless such default willhave been cured); provided, however, that, except in the case of default in the payment of principal, interest orAdditional Amounts, the Trustee will be protected in withholding such notice if it in good faith determines thatthe withholding of such notice is in the interest of the Noteholders.
The Indenture provides that, subject to the duty of the Trustee during default to act with the requiredstandard of care, the Trustee will be under no obligation to exercise any of its rights or powers under theIndenture at the request or direction of any Noteholders, unless such holders will have offered to the Trusteeindemnity satisfactory to it. Subject to the provisions of the Indenture and applicable law, Controlling Party hasthe right to direct the time, method and place of conducting any remedy available to the Trustee or exercising anytrust or power conferred on the Trustee.
Cash Trapping Upon any Event of Default
During the period (the “Cash Trapping Period”) beginning on the day any Event of Default hasoccurred, and continuing to and including the date on which principal, interest and all other amounts due underthe Notes have been paid in full (or such earlier date as the Controlling Party so determines, or as set forth in theprovisos below), except in the limited circumstances provided in the Indenture that permit transfer of cashproceeds of common equity issuances, capital contributions or Subordinated Indebtedness, the Concessionaireswill make no transfers pursuant to “tenth” through “seventeenth” under “—Deposits of Funds to and Distributionof Funds from the Revenue Account”; provided that, if such Event of Default has been cured or waived, or if theControlling Party does not declare an Early Amortization Period in respect of an Event of Default (other than anEvent of Default described in clause (h) under “—Events of Default”) to have commenced pursuant to theprovisions under “—Early Amortization Events” within six months of the Noteholders receiving notice of suchEvent of Default, then in either case the Cash Trapping Period shall end and shall not recommence until theoccurrence or continuance of another Event of Default (or new circumstances or events resulting in the same typeof Event of Default) that would automatically trigger or permit the Controlling Party to declare an EarlyAmortization Event; provided further that, (i) upon the occurrence of an Event of Default described in clause
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(h) under “—Events of Default”, or (ii) upon a “notice of acceleration” being given under “—Events of Default”,the Cash Trapping Period will continue to and including the date on which principal, interest and all otheramounts due under the Notes have been paid in full irrespective of any other notice being given (unless suchacceleration has been rescinded in accordance with the Indenture or the Controlling Party determines otherwise).
For the avoidance of doubt, a Cash Trapping Period in connection with an Event of Default (other thanan Event of Default described in clause (h) under “—Events of Default”) shall end and shall not recommenceuntil the occurrence or continuance of another Event of Default (or new circumstances or events resulting in thesame type of Event of Default) that would automatically trigger or permit the Controlling Party to declare anEarly Amortization Event, unless the Controlling Party declares an Early Amortization Period in respect of suchEvent of Default within six months of the Noteholders receiving notice of such Event of Default.
Defeasance
The Issuer or any Guarantor may at any time terminate all of their obligations with respect to the Notes,which we refer to as “defeasance,” except for certain obligations, including those regarding any trust establishedfor a defeasance and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed,lost or stolen Notes and to maintain agencies in respect of Notes. The Issuer or any Guarantor may at any timeterminate their obligations under certain covenants set forth in the Indenture, and any omission to comply withsuch obligations will not constitute a Default or an Event of Default with respect to the Notes issued under theIndenture, which we refer to as “covenant defeasance.” In order to exercise either defeasance or covenantdefeasance, the Issuer or any Guarantor must irrevocably deposit in trust, for the benefit of the Noteholders, withthe trustee money or U.S. government obligations, or a combination thereof, in such amounts as will besufficient, in the opinion of an internationally recognized firm of independent public accountants expressed in awritten certificate delivered to the Trustee, without consideration of any reinvestment, to pay the principal of, andinterest on the Notes to redemption or maturity and comply with certain other conditions, including the deliveryof an opinion of counsel as to certain tax matters (which in the case of defeasance only must be based on a rulingof the Internal Revenue Service or a change in U.S. federal income tax law).
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect (except as to the surviving rightsor registration or transfer or exchange of the Notes, except as otherwise therein expressly provided for), and theCollateral will be released, as to all Notes and the Notes Hedge Agreement when:
(a) either (i) all Notes theretofore executed, authenticated and delivered (except (A) lost, stolen ordestroyed Notes which have been replaced or paid and (B) Notes for whose payment money hastheretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaidto the Issuer or discharged from such trust) have been delivered to the Trustee for cancellation; or(ii) all Notes not theretofore delivered to the Trustee for cancellation have become due and payableor subject to redemption as set forth above under “—Optional Redemption”, and the Issuer hasirrevocably deposited or caused to be irrevocably deposited with the Trustee U.S. dollars or U.S.Government Obligations sufficient to pay and discharge the entire Debt on the Notes not theretofordelivered to the Trustee for cancellation, for principal of and interest on the Notes to the date ofmaturity or redemption, together with irrevocable instructions from the Issuer directing the Trusteeto apply such funds to the payment thereof at maturity or redemption, as the case may be;
(b) the Issuer has paid all other sums payable under the Indenture and the Notes; and
(c) the Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel statingthat all conditions precedent under the Indenture relating to the satisfaction and discharge of theIndenture have been complied with.
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Notices
Any notice or communication to a Noteholder shall be deemed to have been duly given (i) upon themailing of such notice by first class mail to such Noteholder at its registered addresses as recorded in the Registernot later than the latest date, and not earlier than the earliest date, prescribed in the Indenture for the giving ofsuch notice, such notice being deemed validly given on the fourth Business Day following such mailing, and(ii) for so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange, upon publicationvia the website of the Luxembourg Stock Exchange at www.bourse.lu, such notices being deemed given on thedate of such publication. In the case of Global Notes, held in book-entry form at DTC, such notices shall be sentto DTC or its nominees (or any successors), as the holders thereof, and DTC will communicate such notices tothe DTC participants in accordance with its standard procedures. Any requirement of notice hereunder may bewaived by the Person entitled to such notice before or after such notice is required to be given.
Amendments, Supplements and Waivers
The Issuer, the Guarantors and the Secured Party Agents may, without notice to or the consent or vote ofany Noteholder or the Notes Hedge Counterparty, amend or supplement the Finance Agreements or the Notes forthe following purposes:
(a) to cure any ambiguity, omission, defect or inconsistency, provided that such amendment orsupplement does not materially and adversely affect the rights of any Noteholder or any NoteHedge Counterparty;
(b) to comply with the covenant described under “—Limitations on Consolidation, Merger or Transferof Assets”;
(c) to add guarantees or collateral with respect to the Notes or the Notes Hedge Agreement;
(d) to add to the covenants of any of the Issuer and the Guarantors for the benefit of the Noteholders;
(e) to surrender any right conferred upon any of the Issuer of the Guarantors;
(f) to evidence and provide for the acceptance of an appointment by a successor trustee or collateralagent;
(g) to provide for the issuance of Additional Notes if otherwise permitted under the Indenture; or
(h) to make any other change that does not materially and adversely affect the rights of any Noteholderor the Notes Hedge Counterparty, as determined in good faith by the Board of Directors of theIssuer and any applicable Guarantor.
Subject to the terms of the immediately succeeding paragraph and only with the written consent of theControlling Party, the Issuer, the Guarantors and the Secured Party Agents may, from time to time and at anytime, enter into a written supplemental indenture for the purpose of adding any provisions to or changing in anymanner or eliminating any of the provisions of the Finance Agreements, any supplemental indenture or any Noteor of modifying in any manner the rights of the Noteholders in respect thereof. Without limitation of theforegoing, the Controlling Party may terminate or suspend any Early Amortization Event or Cash TrappingPeriod, in whole or in part.
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Changes or additions to, or eliminations or waivers of, provisions of the Finance Agreements andmodifications to the rights of the Noteholders may be made with the consent of the Controlling Party except inthe following cases where the consent of all (except to the limited extent provided in clause (h) below) of theaffected Noteholders and affected Notes Hedge Counterparty is required:
(a) reduce the amount of Voting Balances necessary to consent to an amendment, waiver, ormodification of any section in the Indenture relating to amendments, supplements and waivers;
(b) reduce the rate of or change the time of payment of interest, including defaulted interest on anyNotes or Notes Hedge Agreement;
(c) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes orNotes Hedge Agreement, or change the date on which any Notes may be subject to redemption, orreduce the redemption prices therefore;
(d) make any change in provisions of the Finance Agreements entitling each Noteholder to receivepayment of, premium (including Additional Amounts), if any, and interest on any Note on or afterthe due date thereof, including any change in the obligation to repurchase the Notes following aChange of Control or an Asset Disposition or under “Affirmative Covenants of the Issuer and theGuarantors—Repair Payments(c)” that is made after any such obligation has arisen;
(e) change the currency for payment of principal of or interest on any Note or Notes HedgeAgreement;
(f) impair the right to institute a suit for the enforcement of any right to payment on or with respect toany Note or Notes Hedge Agreement;
(g) modify provisions relating to waiver of certain defaults, waiver of certain covenants and theprovisions summarized in this paragraph, except to increase any such percentage or to provide thatcertain other provisions of the Finance Agreements cannot be modified or waived without theconsent of the Noteholder and Notes Hedge Counterparty affected by the modification;
(h) release or terminate any of the Security Documents or any Lien purported to be created thereby;provided that, with the written consent of the Noteholders and Notes Hedge Counterparty that, inthe aggregate, hold at least 80% of the Voting Balances, the Issuer, the Guarantors and the SecuredParty Agents may, from time to time and at any time, enter into a written agreement to release orterminate the Liens created by the Asset Pledge Agreements and Mortgages in respect of assetswith an aggregate Fair Market Value not to exceed, on a cumulative basis, 10% of the total fixedassets of the Issuer and the Guarantors, taken as a whole, as set forth in the latest consolidatedfinancial statements submitted to the Trustee; or
(i) reduce in any manner the amount of, or alter the priority of, or delay the timing of, any payment ordistributions that are required to be made on any Note or Notes Hedge Agreement.
For the avoidance of doubt, pursuant to clause (h) above, Noteholders and Notes Hedge Counterpartythat, in the aggregate, hold at least 80% of the Voting Balances may provide their written consent to release orterminate certain Liens on the Collateral, which release or termination will be binding upon all Noteholders andthe Notes Hedge Counterparty.
The Noteholders will receive prior notice as described under “—Notices” of any proposed amendmentto the Notes or the Indenture or any waiver described in this paragraph. The Notes Hedge Counterparty willreceive notice as provided for in the Notes Hedge Agreement. After an amendment or waiver described in thepreceding paragraph becomes effective, the Issuer is required to mail to the Noteholders a notice brieflydescribing such amendment or waiver. However, the failure to give such notice to all holders of the Notes, or anydefect therein, will not impair or affect the validity of the amendment or waiver.
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The consent of the Noteholders or Notes Hedge Counterparty is not necessary to approve the particularform of any proposed amendment or waiver. It is sufficient if such consent approves the substance of theproposed amendment or waiver.
Governing Law
The Issuer’s and Guarantors’ capacity and corporate authorization to execute and deliver theTransaction Documents are governed by applicable Chilean laws. The Mortgages, the Asset Pledge Agreements,the Concession Pledge Agreements, the Chilean Money Pledges, the Intercompany Debt Pledge Agreements andthe Share Pledge Agreements will be governed by, and construed in accordance with, the laws of Chile. TheNotes, the Indenture and the NY Account Pledge Agreements will be governed by, and construed in accordancewith, the laws of the State of New York.
Consent to Jurisdiction; Process Agent; Waivers
The Issuer and each Guarantor will irrevocably and unconditionally submit to the jurisdiction of: (a) theUnited States District Court for the Southern District of New York or of any New York State court (in either casesitting in Manhattan, New York City) and (b) the courts of its own corporate domicile, in each case with allapplicable courts of appeal therefrom, with respect to actions brought against it as a defendant, for purposes of alllegal proceedings arising out of or relating to the Indenture (including any supplemental indenture) or thetransactions contemplated hereby. The Issuer and each Guarantor will irrevocably waive, to the fullest extentpermitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of anysuch proceeding brought in such a court, any claim that any such proceeding brought in such a court has beenbrought in an inconvenient forum and any objection based on place of residence or domicile.
The Issuer and each Guarantor will irrevocably appoint Corporation Service Company (CSC) as itsauthorized agent on which any and all legal process may be served in any such action, suit or proceeding broughtin the United States District Court for the Southern District of New York or in any New York State court (ineither case sitting in Manhattan, New York City). The Issuer and each Guarantor will agree that service ofprocess in respect of it upon such agent, together with written notice of such service sent to it in the mannerprovided for in the Indenture (or in any supplemental indenture), will be deemed to be effective service ofprocess upon it in any such action, suit or proceeding. The Issuer and each Guarantor will agree that the failure ofsuch agent to give notice to it of any such service of process will not impair or affect the validity of such serviceor any judgment rendered in any action, suit or proceeding based thereon. If for any reason such agent will ceaseto be available to act as such (including by reason of the failure of such agent to maintain an office in New YorkCity), then the Issuer and each Guarantor will agree promptly to designate a new agent in New York City, on theterms and for the purposes of the Indenture (including any supplemental indenture). Nothing contained in theIndenture (or in any supplemental indenture) will in any way be deemed to limit the ability of the Trustee toserve any such legal process in any other manner permitted by applicable law or to obtain jurisdiction over theIssuer and each Guarantor or bring actions, suits or proceedings against it in such other jurisdictions, and in suchmanner, as may be permitted by applicable law.
To the extent that the Issuer and each Guarantor has or may acquire any immunity from jurisdiction ofany court or from any legal process (whether through service of notice, attachment prior to judgment, attachmentin aid of execution or execution, on the ground of sovereignty or otherwise) with respect to itself or its property,it will irrevocably waive, to the fullest extent permitted by applicable law, such immunity in respect of itsobligations under the Indenture.
The Issuer and each Guarantor will irrevocably waive, to the fullest extent permitted by applicable law,any claim that any action or proceeding relating in any way to the Indenture (or any supplemental indenture orNote) should be dismissed or stayed by reason, or pending the resolution, of any action or proceedingcommenced by the Issuer and each Guarantor relating in any way to the Indenture (or such supplemental
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indenture or Note) whether or not commenced earlier. To the fullest extent permitted by applicable law, theIssuer and each Guarantor will take all measures necessary for any such action or proceeding to proceed tojudgment before the entry of judgment in any such action or proceeding commenced by each of the Issuer or theGuarantors.
Each of the parties to the Indenture and any supplemental indenture (and each Noteholder and NoteOwner, by its acceptance of a Global Note or a beneficial interest therein, will be deemed to) will irrevocably andunconditionally waive trial by jury in any legal action or proceeding relating to the Indenture and anysupplemental indenture and for any counterclaim relating thereto.
Trustee
The Bank of New York Mellon is the Trustee under the Indenture.
The Indenture contains provisions for the indemnification of the Trustee and for its relief fromresponsibility. The obligations of the Trustee to any holder are subject to such immunities and rights as are setforth in the Indenture.
Except during the continuance of an Event of Default, the Trustee need perform only those duties thatare specifically set forth in the Indenture and no others, and no implied covenants or obligations will be read intothe Indenture against the Trustee or the principal paying agent. In case an Event of Default has occurred and iscontinuing, the Trustee shall exercise those rights and powers vested in it by the Indenture, and use the samedegree of care and skill in such exercise, as a prudent person would exercise or use under the circumstances inthe conduct of his own affairs. No provision of the Indenture will require the Trustee or the principal payingagent to expend or risk its own funds or otherwise incur any financial liability in the performance of its dutiesthereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against anyloss, liability or expense.
The Issuer and the Guarantors and their respective affiliates may from time to time enter into normalbanking and Trustee relationships with the Trustee and its affiliates. The address of the Trustee is 101 BarclayStreet, New York, New York 10286.
Listing
The Issuer and the Guarantors will apply to list the Notes on the Official List of the Luxembourg StockExchange and to trade them on the Euro MTF Market of that exchange.
Currency Indemnity
U.S. dollars are the sole currency of account and payment for all sums payable by the Issuer and theGuarantors under or in connection with the Notes, including damages. Any amount received or recovered in acurrency other than U.S. dollars (whether as a result of a judgment or the enforcement of a judgment or order of acourt of any jurisdiction, in the winding-up or dissolution of any of the Issuer or the Guarantors or otherwise) byany holder of a Note in respect of any sum expressed to be due to it from any of the Issuer and the Guarantorswill only constitute a discharge of such sum to the extent of the amount of U.S. dollars that the recipient is able topurchase with the amount so received or recovered in that other currency on the date of that receipt or recovery(or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so).If that U.S. dollar amount is less than the U.S. dollar amount expressed to be due to the recipient under any Note,the Issuer and the Guarantors will jointly and severally indemnify such holder against any loss sustained by it asa result; and if the amount of U.S. dollars so purchased is greater than the sum originally due to such holder, suchholder will, by accepting a Note, be deemed to have agreed to repay such excess. In any event, the Issuer and theGuarantors will jointly and severally indemnify the recipient against the cost of making any such purchase.
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For the purposes of the preceding paragraph, it will be sufficient for the holder of a Note to certify in asatisfactory manner (indicating the sources of information used) that it would have suffered a loss had an actualpurchase of U.S. dollars been made with the amount so received in that other currency on the date of receipt orrecovery (or, if a purchase of U.S. dollars on such date had not been practicable, on the first date on which itwould have been practicable, it being required that the need for a change of date be certified in the mannermentioned above). These indemnities constitute a separate and independent obligation from the other obligationsof the Issuer and the Guarantors, will give rise to a separate and independent cause of action, will applyirrespective of any indulgence granted by any holder of a Note and will continue in full force and effect despiteany other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note.
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PLAN OF DISTRIBUTION
Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC are acting asrepresentatives of each of the initial purchasers named below. Subject to the terms and conditions set forth in apurchase agreement among us and the representatives, on behalf of the initial purchasers, we have agreed to sellto the initial purchasers, and each of the initial purchasers has agreed, severally and not jointly, to purchase fromus, the principal amount of Notes set forth opposite its name below.
Initial PurchaserPrincipal
Amount of Notes
Merrill Lynch, Pierce, Fenner &Smith Incorporated . . . . . . . . . . U.S.$232,000,000
J.P. Morgan Securities LLC . . . . . . . . 232,000,000
Total . . . . . . . . . . . . . . . . . . . . . . U.S.$464,000,000
Subject to the terms and conditions set forth in the purchase agreement, the initial purchasers haveagreed, severally and not jointly, to purchase all of the Notes sold under the purchase agreement if any of theseNotes are purchased. If an initial purchaser defaults, the purchase agreement provides that the purchasecommitments of the non-defaulting initial purchasers may be increased or the purchase agreement may beterminated.
We have agreed to indemnify the initial purchasers against certain liabilities, including liabilities underthe Securities Act, or to contribute to payments the initial purchasers may be required to make in respect of thoseliabilities. The initial purchasers have agreed to be paid their discounts, fees and commissions at the EscrowClosing Date. In the event that (i) the proceeds of the Notes at the Escrow Closing Date after application thereofpursuant to “Use of Proceeds” are not sufficient to cover the discounts, fees and commissions and all relatedexpenses, including the fees and expenses of their counsels or (ii) the amounts on deposit in the Escrow arereturned to the investors because the Closing Conditions shall not have been satisfied, then in each case suchdiscounts, fees, commissions and expenses will be paid to the initial purchasers and their counsels pursuant to acredit arrangement provided by one of the members of Grupo GPS.
Commissions and Discounts
The representatives have advised us that the initial purchasers propose initially to offer the Notes at theoffering price set forth on the cover page of this Offering Memorandum. After the initial offering, the offeringprice or any other term of the offering may be changed. The initial purchasers may offer and sell the Notesthrough their affiliates.
Notes Are Not Being Registered
The Notes have not been registered under the Securities Act or any state securities laws. The initialpurchasers propose to offer the Notes for resale in transactions not requiring registration under the Securities Actor applicable state securities laws, including sales pursuant to Rule 144A and Regulation S. The initial purchaserswill not offer or sell the Notes except to persons they reasonably believe to be qualified institutional buyers orpursuant to offers and sales to non-U.S. persons that occur outside of the United States within the meaning ofRegulation S. In addition, until 40 days following the commencement of this offering, an offer or sale of Noteswithin the United States by a dealer (whether or not participating in the offering) may violate the registrationrequirements of the Securities Act unless the dealer makes the offer or sale in compliance with Rule 144A oranother exemption from registration under the Securities Act. Each purchaser of the Notes will be deemed tohave made acknowledgments, representations and agreements as described under “Transfer Restrictions.”
The Notes are being issued outside Chile. The initial purchasers will not offer or sell the Notes directlyor indirectly to the public in Chile.
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New Issue of Notes
The Notes are a new issue of securities with no established trading market. We do not intend to applyfor listing of the Notes on any national securities exchange or for inclusion of the Notes on any automated dealerquotation system. We have been advised by the initial purchasers that they presently intend to make a market inthe Notes after completion of the offering. However, they are under no obligation to do so and may discontinueany market-making activities at any time without any notice. We cannot assure the liquidity of the trading marketfor the Notes. If an active trading market for the Notes does not develop, the market price and liquidity of theNotes may be adversely affected. If the Notes are traded, they may trade at a discount from their initial offeringprice, depending on prevailing interest rates, the market for similar securities, our operating performance andfinancial condition, general economic conditions and other factors.
No Sales of Similar Securities
We have agreed that, for a period of 180 days after the date of this Offering Memorandum, we will notwithout first obtaining the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated andJ.P. Morgan Securities LLC, directly or indirectly, issue, sell, offer to contract or grant any option to sell, pledge.transfer or otherwise dispose of, any debt securities or securities exchangeable for or convertible into debtsecurities, except for the Notes sold to the initial purchasers pursuant to the purchase agreement.
Short Positions
In connection with the offering, the initial purchasers may purchase and sell the Notes in the openmarket. These transactions may include short sales and purchases on the open market to cover positions createdby short sales. Short sales involve the sale by the initial purchasers of a greater principal amount of Notes thanthey are required to purchase in the offering. The initial purchasers must close out any short position bypurchasing Notes in the open market. A short position is more likely to be created if the initial purchasers areconcerned that there may be downward pressure on the price of the Notes in the open market after pricing thatcould adversely affect investors who purchase in the offering.
Similar to other purchase transactions, the initial purchasers’ purchases to cover the syndicate shortsales may have the effect of raising or maintaining the market price of the Notes or preventing or retarding adecline in the market price of the Notes. As a result, the price of the Notes may be higher than the price thatmight otherwise exist in the open market.
Neither we nor any of the initial purchasers make any representation or prediction as to the direction ormagnitude of any effect that the transactions described above may have on the price of the Notes. In addition,neither we nor any of the initial purchasers make any representation that the representatives will engage in thesetransactions or that these transactions, once commenced, will not be discontinued without notice.
Notice to Prospective Investors in the EEA
In relation to each Member State of the European Economic Area (“EEA”) which has implemented boththe Prospectus Directive and the 2010 PD Amending Directive (each, a “Relevant Member State”), with effectfrom and including the date on which the Prospectus Directive is implemented in that Relevant Member State(the “Relevant Implementation Date”), an offer to the public of any Notes which are the subject of the offeringcontemplated by this offering memorandum may not be made in that Relevant Member State, except that an offerto the public in that Relevant Member State of any Notes may be made at any time under the followingexemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) to investors with a minimum total consideration per investor of €100,000;
(b) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
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(c) to fewer than 150 natural or legal persons (other than qualified investors as defined in theProspectus Directive) subject to obtaining the prior consent of Merrill Lynch, Pierce, Fenner &Smith Incorporated and J.P. Morgan Securities LLC; or
(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive.
provided that no such offer of Notes shall result in a requirement by us or any representative to publish aprospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 ofthe Prospectus Directive.
For the purposes of this provision, the expression an “offer to the public” in relation to any Notes in anyRelevant Member State means the communication in any form and by any means of sufficient information on theterms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe to theNotes, as the same may be varied in that Relevant Member State by any measure implementing the ProspectusDirective in that Relevant Member State, the expression “Prospectus Directive” means Directive 2003/71/EC(and the amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in theRelevant Member State in question) and includes any relevant implementing measure in that Relevant MemberState, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
Notice to Prospective Investors in Switzerland
This document, as well as any other material relating to the Notes which are the subject of the offeringcontemplated by this Offering Memorandum, do not constitute an issue prospectus pursuant to Article 652a of theSwiss Code of Obligations. The Notes will not be listed on the SWX Swiss Exchange and, therefore, the documentsrelating to the Notes, including, but not limited to, this document, do not claim to comply with the disclosurestandards of the listing rules of SWX Swiss Exchange and corresponding prospectus schemes annexed to the listingrules of the SWX Swiss Exchange. The Notes are being offered in Switzerland by way of a private placement, i.e. toa small number of selected investors only, without any public offer and only to investors who do not purchase theNotes with the intention to distribute them to the public. The investors will be individually approached by us fromtime to time. This document, as well as any other material relating to the Notes, is personal and confidential and donot constitute an offer to any other person. This document may only be used by those investors to whom it has beenhanded out in connection with the offering described herein and may neither directly nor indirectly be distributed ormade available to other persons without our express consent. It may not be used in connection with any other offerand shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This document relates to an exempt offer in accordance with the Offered Securities Rules of the DubaiFinancial Services Authority. This document is intended for distribution only to persons of a type specified inthose rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authorityhas no responsibility for reviewing or verifying any documents in connection with exempt offers. The DubaiFinancial Services Authority has not approved this document nor taken steps to verify the information set out init, and has no responsibility for it. The Notes which are the subject of the offering contemplated by this OfferingMemorandum may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Notesoffered should conduct their own due diligence on the Notes. If you do not understand the contents of thisdocument you should consult an authorised financial adviser.
Peru
The Notes and the information contained in this offering memorandum have not been and will not beregistered with or approved by CONASEV or the Lima Stock Exchange. Accordingly, the Notes cannot beoffered or sold in Peru, except if such offering is a private offering under the securities laws and regulations ofPeru. The Peruvian securities market law establishes that any offering may qualify as private offering if it isdirected exclusively to institutional investors.
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Other Relationships
The initial purchasers and their respective affiliates are full service financial institutions engaged invarious activities, which may include securities trading, commercial and investment banking, financial advisory,investment management, investment research, principal investment, hedging, financing and brokerageactivities. Certain of the initial purchasers and their respective affiliates have, from time to time, performed, andmay in the future perform, various financial advisory and commercial and investment banking services for us, forwhich they received or will receive customary fees and expenses. In connection with the issuance of the Notes,we currently expect that an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated will be a NotesHedge Counterparty and an affiliate of J.P.Morgan Securities LLC may be a Notes Hedge Counterparty. See“Exchange Rate Hedge.”
In the ordinary course of their various business activities, the initial purchasers and their respectiveaffiliates may make or hold a broad array of investments and actively trade debt and equity securities (or relatedderivative securities) and financial instruments (including bank loans) for their own account and for the accountsof their customers, and such investment and securities activities may involve securities and/or instruments of theissuer. The initial purchasers and their respective affiliates may also make investment recommendations and/orpublish or express independent research views in respect of such securities or instruments and may at any timehold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
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TAXATION
General
This section summarizes the principal Chilean tax and U.S. federal income tax considerations relating tothe purchase, ownership and disposition of the Notes. This summary does not provide a comprehensivedescription of all tax considerations that may be relevant to a decision to purchase the Notes. This summary doesnot describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other thanthe United States and Chile. The convention for the avoidance of double taxation between the United States andChile has been signed on February 4, 2010. However such convention is not yet in effect since the approval ofthe Congresses of the respective countries is still outstanding.
This summary is based on the tax laws of Chile and the United States as in effect on the date of thisOffering Memorandum, as well as regulations, rulings and decisions of Chile and the United States available onor before that date and now in effect. Those laws, rules, regulations and decisions are subject to change andchanges could apply retroactively, which could affect the continued accuracy of this summary.
Prospective purchasers of the Notes should consult their own tax advisors as to the Chilean, U.S. orother tax consequences of the purchase, ownership and disposition of the Notes. They should especially considerhow the tax considerations discussed below, as well as the application of state, local, foreign or other tax laws,could apply to them in their particular circumstances.
Chilean Tax Disclosure
The following is a general summary of the material consequences under Chilean Tax Law, as currentlyin effect, of an investment in the Notes made by a Foreign Holder. For purposes of this summary, the term“Foreign Holder” means (i) an individual not resident or domiciled in Chile or (ii) a legal entity that is notorganized under the laws of Chile, unless the Notes are assigned to a branch or an agent, representative or,permanent establishment of such entity in Chile. For purposes of Chilean taxation (a) an individual is a residentof Chile if such individual has resided in Chile for more than six consecutive months in one calendar year, or atotal of more than six consecutive months in two consecutive fiscal years; or (b) an individual is domiciled inChile if he or she resides in Chile with the purpose of staying in Chile (such purpose to be evidenced bycircumstances such as the acceptance of employment in Chile or the relocation of one’s family to Chile).
Under Chilean Tax Law, payments of interest or premium, if any, made by us in respect of the Notes toa Foreign Holder will generally be subject to a Chilean withholding tax currently assessed at a rate of 4%.However, the same interest and premium that qualify for the referred 4% withholding tax rate is subject to aspecial additional tax equal to the difference between the withholding tax paid and a 35% tax rate to the extentpaid to entities related to us, on the portion of our indebtedness considered to be excessive. Our indebtedness willbe considered to be excessive (“Excessive Indebtedness”) when in the commercial year in which the Notes areissued we have an indebtedness with entities related to us qualifying for the 4% withholding tax rate that exceedsthree times our “net worth,” as calculated for Chilean tax purposes. Consequently, such qualifying interest orpremium paid to entities related to us with respect to debt that exceeds the Excessive Indebtedness ratio will besubject to a 35% tax rate (4% withholding tax plus the difference between the withholding tax paid and a 35%rate). Under the Excessive Indebtedness rules, a lender or creditor, such as a holder of the Notes, will be deemedto be related to the payor or debtor, if: (i) the lender or creditor is incorporated, domiciled or resident in a taxhaven (qualified as such by the Chilean Ministry of Finance, based on the list of harmful preferential tax regimesand tax havens published by the Organization for Economic Co-Operation and Development (“OECD”)) at thetime of granting the loan; (ii) the lender or debtor, directly or indirectly, owns or participates in 10% or more ofthe capital or the profits of the other or if lender and debtor have a common partner or shareholder which,directly or indirectly, owns or participates in 10% or more of the capital or the profits of both; or (iii) the debt isguaranteed directly or indirectly in cash or in any financial instruments or securities evidencing payment
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obligations (excluding any financial instruments or securities evidencing obligations of the borrower with any ofits related entities) by a third party, for the amount effectively guaranteed. The debtor will be required to issue asworn statement in this regard in the form set forth by the Chilean tax authorities.
As described above, we have agreed, subject to specific exceptions and limitations, to pay AdditionalAmounts to the Foreign Holders of the Notes in respect of the Chilean interest withholding tax in order that anyinterest or premium the Foreign Holder receives, net of the Chilean interest withholding tax, equals the amountwhich would have been received by such Foreign Holder in the absence of such Chilean interest withholding tax.See “Description of Notes and Finance Agreements—Additional Amounts.”
From a Chilean Law perspective, the terms and conditions of the issuance indicate that the lender orcreditor is the holder of record of the Global Note, and therefore the beneficiary of the interest payments to beremitted abroad. In that regard, if the holder of the Global Note continues to be an entity which is notincorporated, domiciled or resident in a tax haven, as defined by the Chilean Financial authority based on the listprepared by OECD, it will not be deemed to be related to the payor or debtor.
Under Chilean Tax Law and regulations thereunder, payments of principal made by us with respect tothe Notes to a Foreign Holder will not be subject to any Chilean taxes.
Any capital gains realized on the sale or other disposition by a Foreign Holder of the Notes generallywill not be subject to any Chilean income taxes provided that the sale or other disposition of such Notes will beeffected outside of Chile by a Foreign Holder. Any premium payable on redemption of the Notes will be treatedas interest and subject to the Chilean interest withholding tax as described above.
A Foreign Holder will not be liable for estate, gift, inheritance or similar taxes with respect to the Notesunless such Notes (i) are located in Chile at the time of such Foreign Holder’s death or (ii) were purchased oracquired with money obtained from Chilean sources.
The initial issuance of the Notes is subject to stamp tax at a rate of 0.6% of the aggregate principalamount of the Notes, which will be payable by us within five business days following that in which the Notes areissued. If the stamp tax is not paid when due, Chilean Tax Law requires payment of the tax due plus adjustmentsand 1.5% interest per each month or portion thereof and a penalty of up to three times the amount of the tax due.In addition, until such tax (and any penalty) is paid, Chilean courts will not enforce any action based on theNotes.
United States Tax Disclosure
Certain United States Federal Income Tax Considerations
TO COMPLY WITH INTERNAL REVENUE SERVICE CIRCULAR 230, PROSPECTIVEINVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAXISSUES CONTAINED OR REFERRED TO IN THIS OFFERING MEMORANDUM IS NOTINTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY PROSPECTIVE INVESTORS,FOR THE PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDERTHE U.S. INTERNAL REVENUE CODE OF 1986; (B) SUCH DISCUSSION IS BEING USED INCONNECTION WITH THE PROMOTION OR MARKETING BY US OF THE TRANSACTIONS ORMATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE INVESTORS SHOULD SEEK ADVICEBASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
The following discussion is a summary of certain U.S. federal income tax consequences of the purchase,ownership and disposition of the Notes by a U.S. holder (defined below), but does not purport to be a completeanalysis of all potential tax effects. This summary is based upon the U.S. Internal Revenue Code of 1986, as
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amended (the “Code”), Treasury regulations issued thereunder, and judicial and administrative interpretationsthereof, each as in effect on the date hereof, and all of which are subject to change, possibly with retroactiveeffect. No rulings from the Internal Revenue Service (“IRS”) have been or are expected to be sought with respectto the matters discussed below. There can be no assurance that the IRS will not take a different positionconcerning the tax consequences of the purchase, ownership or disposition of the Notes or that any such positionwould not be sustained.
This discussion does not address all of the U.S. federal income tax consequences that may be relevant toa holder in light of such holder’s particular circumstances or to holders subject to special rules, such as financialinstitutions, U.S. expatriates, insurance companies, dealers in securities or currencies, traders in securities, U.S.holders whose functional currency is not the U.S. dollar, tax-exempt organizations, regulated investmentcompanies, real estate investment trusts, partnerships or other pass through entities (or investors in such entities),persons liable for alternative minimum tax and persons holding the Notes as part of a “straddle,” “hedge,”“conversion transaction” or other integrated transaction. In addition, this discussion is limited to persons whopurchase the Notes for cash at original issue and at their “issue price” (i.e., the price at which a substantialamount of the Notes is sold for money to initial investors, other than underwriters, placement agents orwholesalers) and who hold the Notes as capital assets within the meaning of section 1221 of the Code.
For purposes of this discussion, a “U.S. holder” is a beneficial owner of a Note that is, for U.S. federalincome tax purposes, (i) an individual who is a citizen or resident of the United States; (ii) a corporation or anyentity taxable as a corporation created or organized in the United States or under the laws of the United States,any state thereof or the District of Columbia; (iii) any estate the income of which is subject to U.S. federalincome taxation regardless of its source; or (iv) any trust if a court within the United States is able to exerciseprimary supervision over the administration of the trust and one or more U.S. persons have the authority tocontrol all substantial decisions of the trust, or if a valid election is in place to treat the trust as a U.S. person. Ifany entity treated as a partnership for U.S. federal income tax purposes holds the Notes, the tax treatment of apartner in the partnership will generally depend upon the status of the partner and the activities of the partnership.A holder that is a partnership, and partners in such partnerships, should consult their tax advisors regarding thetax consequences of the purchase, ownership and disposition of the Notes.
Prospective purchasers of the Notes should consult their tax advisors concerning the taxconsequences of holding Notes in light of their particular circumstances, including the application of theU.S. federal income tax considerations discussed below, as well as the application of U.S. federal estate andgift tax laws and state, local, foreign or other tax laws.
Effect of the Escrow Closing Date
We believe that the transactions that will occur in connection with the Escrow Closing Date, asdescribed above under “Introductory Note,” should not result in a taxable event for U.S. federal income taxpurposes. It is possible, however, that the IRS could take a contrary view, and seek to treat U.S. holders asexchanging the Notes for “new” Notes in a deemed taxable exchange occurring in connection with the EscrowClosing Date. If such a view were to be sustained, a U.S. holder would recognize capital gain or loss in anamount equal to the issue price of the “new” Notes and such U.S. holder’s adjusted tax basis in the Notes. Theissue price of the “new” Notes would equal their principal amount, or, if the Notes or “new” Notes are treated as“publicly traded” for U.S. federal income tax purposes, the fair market value of such Notes on the date of theEscrow Closing Date. In addition, a U.S. holder could be treated as acquiring the “new” Notes with original issuediscount (“OID”) for U.S. federal income tax purposes if the principal amount of the Notes exceeded the issueprice of the “new” Notes by more than a statutorily defined de minimis amount. In such case, U.S. holders wouldbe required to include such OID in gross income under a constant yield method before cash attributable to suchOID is received. The remainder of this discussion assumes that a taxable event will not result from thetransactions that will occur in connection with the Escrow Closing Date. U.S. holders are urged to consult theirtax advisors regarding the U.S. federal income tax consequences to them of the Escrow Closing Date.
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Characterization of the Notes
We are required to pay Additional Amounts as described under “Description of Notes and FinanceAgreements—Additional Amounts.” In addition, in certain circumstances (see “Description of Notes and FinanceAgreements—Redemption—Optional Redemption,” and “Description of Notes and Finance Agreements—Repurchase of Notes upon a Change of Control,” we may be obligated to make certain other payments on theNotes in excess of stated principal and interest. We believe (and the rest of this discussion assumes) that theamount of Additional Amounts we will be required to pay on the Notes will generally be constant throughout theterm of the Notes and that there is only a remote possibility that we will be obligated to make any otheradditional payments. Accordingly, we believe that the Notes should not be treated as contingent payment debtinstruments. Assuming such position is respected, a U.S. holder would be required to include in income theamount of any such additional payments at the time such payments are received or accrued in accordance withsuch U.S. holder’s method of accounting for U.S. federal income tax purposes. Our position is binding on aholder, unless the holder discloses in the proper manner to the IRS that it is taking a different position. If the IRSsuccessfully challenged this position, and the Notes were treated as contingent payment debt instruments, U.S.holders could be required to accrue interest income at a rate higher than their yield to maturity and to treat asordinary income, rather than capital gain, any gain recognized on a sale, exchange, retirement or redemption of aNote. This disclosure assumes that the Notes will not be considered contingent payment debt instruments. U.S.holders are urged to consult their own tax advisors regarding the potential application to the Notes of thecontingent payment debt instrument rules and the consequences thereof.
Payments of Interest
Payments of stated interest on the Notes (including any Chilean or other foreign income tax withheld onsuch payments and any Additional Amounts with respect thereto) generally will be taxable to a U.S. holder asordinary income at the time that such payments are received or accrued, in accordance with such U.S. holder’smethod of accounting for U.S. federal income tax purposes.
Foreign Tax Credit
Interest income on a Note generally will constitute foreign source income and generally will beconsidered “passive category income” or, in the case of certain U.S. holders, “general category income” incomputing the foreign tax credit allowable to U.S. holders under U.S. federal income tax laws. A U.S. holdershould be able to claim a foreign tax credit for U.S. federal income tax purposes (or, in lieu of such credit, adeduction) with respect to the foreign income tax withheld from the payment of interest on the Note at the rateapplicable to such holder, subject to applicable limitations. U.S. tax rules governing the foreign tax credit arecomplex. U.S. holders should consult their tax advisors regarding the availability of the foreign tax credit andrelevant limitations.
Sale, Exchange, Redemption, Retirement or Other Taxable Disposition of Notes
Generally, upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S.holder will recognize taxable gain or loss equal to the difference between the amount realized on the disposition(less any amount attributable to accrued but unpaid interest not previously included in income, which will betaxable as such) and such U.S. holder’s adjusted tax basis in the Note. A U.S. holder’s adjusted tax basis in aNote is generally the cost therefor decreased by any payment on the Note other than stated interest.
Gain or loss recognized upon the sale, exchange, redemption, retirement or other taxable disposition of aNote generally will be U.S. source gain or loss and generally will be capital gain or loss and will be long-termcapital gain or loss if at the time of the sale, exchange, redemption, retirement or other disposition the Note hasbeen held by such U.S. holder for more than one year. Long-term capital gain realized by a non-corporate U.S.holder will generally be subject to taxation at a reduced rate. The deductibility of capital losses is subject to
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limitation. Because such gain will be U.S. source gain, in the event any foreign income tax is withheld thereon,the U.S. holder may not be able to benefit from the foreign tax credit for the tax unless the U.S. holder can applythe credit against its U.S. federal income tax payable on other income from foreign sources. Alternatively, theU.S. holder may take a deduction for the foreign income tax if the U.S. holder elects to deduct (rather than credit)all foreign income taxes paid or accrued during the taxable year. The rules governing foreign tax credits arecomplex and U.S. holders should consult their tax advisors regarding the availability of foreign tax credits intheir particular circumstances.
Information Reporting and Backup Withholding
In general, payments of interest and the proceeds from sales or other dispositions (including retirementsor redemptions) of Notes held by a U.S. holder may be required to be reported to the IRS unless the U.S. holderis an exempt recipient and, when required, demonstrates this fact. In addition, a U.S. holder that is not an exemptrecipient may be subject to backup withholding unless it provides a taxpayer identification number and otherwisecomplies with applicable certification requirements.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be creditedagainst a holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that theappropriate information is timely furnished to the IRS.
New Legislation
For taxable years beginning after March 18, 2010, new legislation requires certain U.S. holders who areindividuals to report information relating to an interest in our Notes, subject to certain exceptions (including anexception for Notes held in accounts maintained by certain financial institutions). U.S. holders should consulttheir tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the Notes.
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CERTAIN ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans subject to Title I of ERISA and onentities that are deemed to hold the assets of such plans (“ERISA Plans”), and on those persons who arefiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciaryrequirements, including, but not limited to, the requirement of investment prudence and diversification and therequirement that an ERISA Plan’s investments be made in accordance with the documents governing the plan.
Section 406 of ERISA and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the“Code”), prohibit certain transactions involving the assets of an ERISA Plan, as well as those plans that are notsubject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts, andentities that are deemed to hold the assets of ERISA Plans or plans subject to Section 4975 of the Code(collectively, “Plans”)) and certain persons (referred to as “parties in interest” or “disqualified persons”) havingcertain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction.A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxesand other penalties and liabilities under ERISA and the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase and hold the Notes should consult withits counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions ofERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase and holding willnot constitute or result in a breach of fiduciary duty, non-exempt prohibited transaction or any other violation ofan applicable requirement of ERISA.
Non-U.S. plans, governmental plans and certain church plans, while not subject to the fiduciaryresponsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of theCode, may nevertheless be subject to non-US, state, local or other federal laws or regulations (“ApplicableLaws”). Fiduciaries of any such plans should consult with their counsel before purchasing the Notes to determinethe need for, and the availability, if necessary, of any exemptive relief under Applicable Laws or regulations.
Prohibited Transactions
The fiduciary of a Plan that proposes to purchase and hold any Notes should consider, among otherthings, whether such purchase and holding may involve (i) the direct or indirect lending of money or otherextension of credit between a Plan and a party in interest or a disqualified person, (ii) the sale or exchange of anyproperty between a Plan and a party in interest or a disqualified person, (iii) the transfer to, or use by or for thebenefit of, a party in interest or disqualified person, of any Plan assets, or (iv) other prohibited transaction underSection 406 of ERISA or Section 4975 of the Code. Such parties in interest or disqualified persons could include,without limitation, the Issuer, Guarantors, initial purchasers and the trustee or any of their respective affiliates.Depending on the satisfaction of certain conditions which may include the identity of the Plan fiduciary makingthe decision to acquire or hold the Notes on behalf of a Plan, Section 408(b)(17) of ERISA or ProhibitedTransaction Class Exemption (“PTCE”) 84-14 (relating to transactions effected by a “qualified professional assetmanager”), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 91-38(relating to investments by bank collective investment funds), PTCE 95-60 (relating to investments by insurancecompany general accounts) or PTCE 96-23 (relating to transactions directed by an in-house asset manager)(collectively, the “Class Exemptions”) could provide an exemption from the prohibited transaction provisions ofERISA and Section 4975 of the Code. However, there can be no assurance that any of these Class Exemptions orany other exemption will be available with respect to any particular transaction involving the Notes, and afiduciary of a Plan should consult with its counsel regarding the applicability of such Class Exemptions or anyother exemptions.
By its purchase of any Note, the purchaser thereof will be deemed to have represented and warranted,and will be deemed to have agreed, that during the period such purchaser holds any Note, that either (i) no assets
240
of a Plan or non-U.S., governmental or church plan have been used to acquire such Notes or an interest thereinand such Notes and any interest therein will not constitute the assets of a Plan or non-U.S., governmental orchurch plan or (ii) the purchase and holding of such Notes or an interest therein by such person do not constitutea non-exempt prohibited transaction under ERISA or the Code or violation of ERISA or Applicable Laws.
Each Plan fiduciary (and each fiduciary or other person acting for non-U.S., governmental or churchplans subject to Applicable Laws) should consult with its legal advisor concerning the potentialconsequences to the Plan or the plan under ERISA, the Code or Applicable Laws of an investment in theNotes.
241
TRANSFER RESTRICTIONS
The Notes are subject to restrictions on transfer as summarized below. By purchasing Notes you will bedeemed to have made the following acknowledgements, representations to and agreements with the initialpurchasers and us:
1. You acknowledge that:
• the Notes and the related Guarantees have not been registered under the Securities Act or any othersecurities laws and are being offered for resale in transactions that do not require registration underthe Securities Act or any other securities laws; and
• unless so registered, the Notes and the related Guarantees may not be offered, sold or otherwisetransferred except under an exemption from, or in a transaction not subject to, the registrationrequirements of the Securities Act or any other applicable securities laws, and in each case incompliance with the conditions for transfer set forth in paragraph (4) below.
2. You represent that you are not an affiliate (as defined in Rule 144 under the Securities Act) of ours, thatyou are not acting on our behalf and that either:
• you are a qualified institutional buyer (as defined in Rule 144A under the Securities Act) and arepurchasing Notes for your own account or for the account of another qualified institutional buyer,and you are aware that the initial purchasers are selling the Notes to you in reliance on Rule 144A;or
• you are not a U.S. person (as defined in Regulation S under the Securities Act) or purchasing for theaccount or benefit of a U.S. person, other than a distributor, and you are purchasing Notes in anoffshore transaction in accordance with Regulation S.
3. You acknowledge that neither we, the Guarantors nor the initial purchasers nor any person representingus, the Guarantors or the initial purchasers has made any representation to you with respect to us or theoffering of the Notes, other than the information contained in this Offering Memorandum. Yourepresent that you are relying only on this Offering Memorandum in making your investment decisionwith respect to the Notes. Accordingly, you acknowledge that no representation or warranty is made bythe initial purchasers as to the accuracy or completeness of such materials. You agree that you have hadaccess to such financial and other information concerning us and the Notes as you have deemednecessary in connection with your decision to purchase Notes, including an opportunity to ask questionsof and request information from us.
4. You represent that you are purchasing Notes for your own account, or for one or more investor accountsfor which you are acting as a fiduciary or agent, in each case not with a view to, or for offer or sale inconnection with, any distribution of the Notes in violation of the Securities Act, subject to anyrequirement of law that the disposition of your property or the property of that investor account oraccounts be at all times within your or their control and subject to your or their ability to resell the Notespursuant to Rule 144A or any other available exemption from registration under the Securities Act. Youagree on your own behalf and on behalf of any investor account for which you are purchasing Notes,and each subsequent holder of the Notes by its acceptance of the Notes will agree, that until the end ofthe Resale Restriction Period (as defined below), the Notes may be offered, sold or otherwise transferredonly:
• to us or any of our subsidiaries;
• under a registration statement that has been declared or become effective under the Securities Act;
242
• for so long as the Notes are eligible for resale under Rule 144A, to a person the seller reasonablybelieves is a qualified institutional buyer that is purchasing for its own account or for the account ofanother qualified institutional buyer and to whom notice is given that the transfer is being made inreliance on Rule 144A;
• through offers and sales that occur outside the United States within the meaning of Regulation Sunder the Securities Act; or
• under any other available exemption from the registration requirements of the Securities Act;
subject in each of the above cases to any requirement of law that the disposition of the seller’s property or theproperty of an investor account or accounts be at all times within the seller’s or account’s control.
You also acknowledge that:
• the above restrictions on resale will apply from the closing date until the date that is one year (in thecase of Rule 144A Notes) or 40 days (in the case of Regulation S Notes) after the later of theclosing date and the last date that we or any of our affiliates was the owner of the Notes or anypredecessor of the Notes (the “Resale Restriction Period”), and will not apply after the applicableResale Restriction Period ends;
• we and the trustee reserve the right to require in connection with any offer, sale or other transfer ofNotes under clause (e) above prior to the end of the Resale Restriction Period the delivery of anopinion of counsel, certifications and/or other information satisfactory to us and the trustee; and
• each Note will contain a legend substantially to the following effect:
THIS NOTE AND THE RELATED GUARANTEE HAVE NOT BEEN REGISTERED UNDER THEUNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THESECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE, THERELATED GUARANTEE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF INTHE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, ORNOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCEHEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FORWHICH IT HAS PURCHASED NOTES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTEAND THE RELATED GUARANTEE, PRIOR TO THE DATE (THE “RESALE RESTRICTIONTERMINATION DATE”) THAT IS: ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATEHEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WASTHE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE ISSUEROR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HASBEEN DECLARED OR BECOME EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG ASTHE NOTES AND THE RELATED GUARANTEES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIEDINSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THATPURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONALBUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ONRULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATESWITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TOANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT, SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCHOFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN
243
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TOEACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTERTHE RESALE RESTRICTION TERMINATION DATE.
5. You agree that you will give to each person to whom you transfer Notes notice of any restrictions ontransfer of such security.
6. You acknowledge that we, the initial purchasers and others will rely upon the truth and accuracy of theabove acknowledgments, representations and agreements. You agree that if any of theacknowledgments, representations or agreements you are deemed to have made by your purchase ofNotes is no longer accurate, you will promptly notify us and the initial purchasers. If you are purchasingany Notes as a fiduciary or agent for one or more investor accounts, you represent that you have soleinvestment discretion with respect to each of those accounts and that you have full power to make theabove acknowledgments, representations and agreements on behalf of each account.
7. If you are a purchaser in a sale that occurs outside the United States within the meaning of Regulation S,you acknowledge that until the expiration of the 40-day distribution compliance period within themeaning of Rule 903 of Regulation S, any offer or sale of the Notes shall not be made by it to a U.S.person or for the account or benefit of a U.S. person within the meaning of Rule 902(k) of the SecuritiesAct except in accordance with Regulation S.
8. You acknowledge that the trustee will not be required to accept for registration of transfer any Notesacquired by you, except upon presentation of evidence satisfactory to the Company and the trustee thatthe restrictions set forth herein have been complied with.
9. You represent, warrant and agree that during the period you hold any Note, that either (i) no assets of aPlan or non-U.S., governmental or church plan have been used to acquire such Notes or an interesttherein and such Notes and any interest therein will not constitute the assets of a Plan or non-U.S.,governmental or church plan or (ii) your purchase and holding of such Notes or an interest therein donot constitute a non-exempt prohibited transaction under ERISA or the Code or a violation of ERISA orApplicable Laws.
244
GENERAL INFORMATION
For so long as any of the Notes remain outstanding, copies of the following documents will beobtainable and available during normal business hours at our principal office at Av. Santa Clara 555,Huechuraba, Santiago, Chile.
• the Indenture relating to the Notes
• our by-laws (estatutos);
• the financial statements included in this Offering Memorandum; and
• all of our future annual and quarterly interim consolidated financial statements.
The Rule 144A Global Note has been assigned ISIN No. US05572UAA88 and CUSIP No.05572UAA8. The Regulation S Global Note has been assigned ISIN No. USP1911CAA01 and CUSIP No.P1911CAA0.
VALIDITY OF NOTES AND GUARANTEES
The validity of the Notes and Guarantees will be passed upon for us by Latham & Watkins LLP, LosAngeles, California, as to certain matters of New York law, and for the initial purchasers by Shearman & SterlingLLP, New York, New York, as to certain matters of New York law. The validity of the Notes and Guaranteeswill be passed upon for us by Bofill Mir & Alvarez Jana as to certain matters of Chilean law, and for the initialpurchasers by Philippi, Yrarrázaval, Pulido & Brunner Ltda. as to certain matters of Chilean law.
INDEPENDENT AUDITORS
The consolidated financial statements of Inversiones Alsacia S.A. as of December 31, 2007 and 2008,which have been prepared in Chilean pesos in accordance with Chilean GAAP and included in this OfferingMemorandum, have been audited by KPMG Auditores Consultores Limitada, Inversiones Alsacia S.A.’s priorindependent auditors, as stated in their report appearing herein.
The consolidated financial statements of Inversiones Alsacia S.A. as of December 31, 2009, which havebeen prepared in Chilean pesos in accordance with Chilean GAAP and included in this Offering Memorandum,have been audited by Ernst & Young Servicios Profesionales de Auditoria y Asesorias, Inversiones AlsaciaS.A.’s independent auditors, as stated in their report appearing herein.
The consolidated financial statements of Express as of December 31, 2008 and 2009 and for each of thethree years in the period ended December 31, 2009, included in this Offering Memorandum, have been auditedby PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada, independent accountants, as stated intheir report appearing herein.
245
INDEX TO FINANCIAL STATEMENTS
Inversiones Alsacia S.A.
Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, Interim ConsolidatedStatements of Cash Flows and Notes to Interim Consolidated Financial Statements as of and for thenine months ended September 30, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet, Consolidated Statement of Income, Consolidated Statement of Cash Flowsand Notes to Consolidated Financial Statements as of and for the year ended December 31, 2009 . . . . F-50
Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of CashFlows and Notes to Consolidated Financial Statements as of and for the years ended December 31,2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-101
Express de Santiago Uno S.A.
Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, Interim ConsolidatedStatements of Cash Flows and Notes to Interim Consolidated Financial Statements as of and for thenine months ended September 30, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-152
Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of CashFlows and Notes to Consolidated Financial Statements as of and for the years ended December 31,2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-199
Eco Uno and Panamerican
No financial or operating information is provided in this Offering Memorandum for either Eco Uno orPanamerican, which are additional Guarantors of the Notes. Eco Uno is a holding company with the sole purposeof holding 99.998% of the common shares of Express. Panamerican is a holding company formed for the solepurpose of acquiring and consolidating the ownership of 99.7% of the common shares of Eco Uno through theAcquisition. Both Eco Uno and Panamerican lend or borrow intercompany debt to or from affiliates from time totime, and neither will have any employees or other activities except as described herein. See “Description ofNotes and Finance Agreements—Additional Covenants Related to Panamerican and Eco Uno.” As a result,Alsacia does not believe any information concerning Eco Uno or Panamerican would be material to prospectiveinvestors.
Initial Temporary Issuer
No financial or operating information is provided in this Offering Memorandum for the Initial Temporary Issuerbecause it has never had, and currently does not have, any assets, liabilities or operations. It is a special purposecompany established to facilitate the issuance of the Notes as described under “The Escrow”.
F-1
Consolidated Financial StatementsInversiones Alsacia S.A.
September 30, 2009 and 2010
Ch$ = Chilean pesosThCh$ = Thousands of Chilean pesosUS$ = United States dollarsThUS$ = Thousands of United States dollarsUF = “Unidades de Fomento”, an inflation-indexed, peso-denominated monetary unit. The UF rate is set
daily based on changes in the Chilean Consumer Price Index.
(A free translation from the original prepared in Spanish)
F-2
INVERSIONES ALSACIA S.A.
CONSOLIDATED BALANCE SHEET(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation from the original prepared in Spanish)
As of September 30,
NOTE 2009 2010
ThCh$ ThCh$
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728,279 33,314Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5,706,858 5,430,520Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 506,110 —Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 449,988 944,872Accounts receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1,023,253 790,786Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 61,075 43,614Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,035 454,359Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724,488 2,757,631Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 119,368 341,597Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7,308,955 6,776,910
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,955,409 17,573,603
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3,731,750 3,707,034Buildings and infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 15,755,362 16,018,624Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 64,471,432 67,987,444Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5,776,749 6,733,528Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (25,516,638) (33,727,011)
TOTAL PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . 64,218,655 60,719,619
OTHER ASSETSInvestment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3,970,681 3,719,741Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 794,990 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 16,884,539 15,652,239
TOTAL ADDITIONAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,650,210 19,371,980
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,824,274 97,665,202
The accompanying notes 1 to 28 form an integral part of these financial statements
F-3
INVERSIONES ALSACIA S.A.
CONSOLIDATED BALANCE SHEET(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation from the original prepared in Spanish)
As of September 30,
NOTE 2009 2010
ThCh$ ThCh$
LIABILITIES
CURRENT LIABILITIES
Short-term loans with banks and financial institutions . . . . . . . . . . . . . . . . . . 12 8,951,890 8,367,263
Long-term bank borrowings—short-term portion . . . . . . . . . . . . . . . . . . . . . . 12 15,429,102 9,977,150Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 8,073,774 6,340,940Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,198,902 1,357,050Accounts payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 182,029 421,105Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 962,013 1,367,253Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653,975 887,638
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,451,685 28,718,399
LONG-TERM LIABILITIES
Obligations with banks and financial institutions . . . . . . . . . . . . . . . . . . . . . . 13 60,620,598 47,583,254Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497,362 4,530,183Accounts payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2,037,075 5,458,878Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1,955,422 3,056,595Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 — 647,406
TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,110,457 61,276,316
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 — —
SHAREHOLDERS’ EQUITYShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10,814,815 10,308,365Capital revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (302,815) 206,167Retained earnings (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (12,391,697) (5,698,573)Net income (loss) for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3,141,829 2,854,528
TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,262,132 7,670,487
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,824,274 97,665,202
The accompanying notes 1 to 28 form an integral part of these financial statements
F-4
INVERSIONES ALSACIA S.A.
CONSOLIDATED STATEMENT OF INCOME(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation from the original prepared in Spanish)
For the nine-month periodended on
September 30,
NOTE 2009 2010
ThCh$ ThCh$
STATEMENT OF INCOME
OPERATING INCOMERevenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 50,311,188 54,732,442Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (45,303,560) (46,738,798)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,007,628 7,993,644
Administrative and selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (4,593,415) (4,552,459)
TOTAL OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414,213 3,441,185
NON-OPERATING INCOME (EXPENSES)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,759 149,747Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 86,987 382,943Loss from investment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (720,803) (552,931)Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,700,764) (3,136,097)Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (47,046) (140,430)Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (2,445,278) 1,312,043Foreign exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10,990,929 2,170,550
TOTAL NON-OPERATING INCOME (EXPENSES) . . . . . . . . . . . . . . . 4,331,784 185,823
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARYITEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,745,997 3,627,008
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (1,604,168) (772,480)MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
NET INCOME (LOSS) FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . . . 3,141,829 2,854,528
The accompanying notes 1 to 28 form an integral part of these financial statements
F-5
INVERSIONES ALSACIA S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation from the original prepared in Spanish)
For the nine-month periodended on
September 30,
2009 2010
ThCh$ ThCh$CASH FLOWS FROM OPERATING ACTIVITIESCollection of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,763,078 46,820,458Interest income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,186 149,747Other income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,987 1,000,797Payment to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,535,008) (41,337,315)Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,319,122) (3,068,064)Other expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (589,361) (140,430)Value added tax and other taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (596,512) (584,730)
TOTAL NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . 7,057,248 2,840,463
CASH FLOWS FROM FINANCING ACTIVITIESLoans received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,416,450 6,973,000Payment of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,882,136) (12,543,072)Payment of loans related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (189,667)
TOTAL NET CASH FLOW USED IN FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,465,686) (5,759,739)
NET CASH FLOWS FROM INVESTMENT ACTIVITIESOthers Investments Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,303,064 9,891,734Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,710,954) (2,658,600)Investments in financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,773,560) (8,388,978)
TOTAL NET CASH FLOW PROVIDED BY INVESTMENT ACTIVITIES . . . . . . . . . . . . . . . . . . . . (3,181,450) (1,155,844)
TOTAL NET CASH FLOW FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,112 (4,075,120)EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,166) 77,518
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,946 (3,997,602)OPENING BALANCE OF CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,333 4,030,916
CLOSING BALANCE OF CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728,279 33,314
Net Income (Loss) for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,141,829 2,854,528
Charges (credits) to income which do not represent cash flowsDepreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,313,235 6,469,523Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,944,078 1,246,587Write-offs and provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955,422 1,541,036Loss from investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,803 552,931Price-level restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,445,278 (1,312,043)Foreign exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,990,930) (2,170,550)Charges to income which do not represent cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,604,169 772,480
Total charges (credits) to income which do not represent cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,992,055 7,099,964
Changes in assets affecting cash flows decrease (increase)Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (875,295) (2,438,668)Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,677 (116)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,198,172 (597,852)
Total changes in assets affecting cash flows decrease (increase) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,355,554 (3,036,636)
Changes in liabilities affecting cash flows (decrease)Accounts payable related to operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,818,477 (2,644,624)Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,301,671) (935,050)Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,841) —Other accounts payable related to non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,845 (497,719)
Total changes in liabilities affecting cash flows (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,432,191) (4,077,393)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,057.248 2,840,463
The accompanying notes 1 to 28 form an integral part of these financial statements
F-6
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
(A free translation from the original prepared in Spanish—See Note 2(c))
1. Corporate Information
Registration in the Securities and Trade Registry
Inversiones Alsacia S.A. is listed in the Securities and Trade Registry of the Office of the Superintendency ofSecurities and Insurance of Chile (SVS), under No 883 dated January 27, 2005, and is subject to the supervisionof the SVS.
With the entry into effect of law 20,382, from October 2009, this registration No. 883 in the Trade Registry wascancelled, and the Company bécame part of the Registry of Reporting Companies under No. 126 on May 9, 2010.
Incorporation and operations:
Inversiones Alsacia S.A. was founded as a closely-held corporation by public deed on November 27, 2004. Theprincipal activity of the Company is providing public transportation services to passengers on the roads grantedto it in the Metropolitan region and any other related activity in connection with that service.
At the Shareholders’ Meeting held on December 9, 2004, it was agreed to extend the line of business to includestatic and dynamic advertisement through the use of advertising spaces on buses and other services related to themain activity.
On October 23, 2005, the Corporation stated providing public transportation services associated with The TrunkLine No 1, which involved the operation of 533 buses at the beginning of the transition stage that reached thesame amount at the beginning of the Normal Operatig Stage(February 2007).
2. Summary of Significant Accounting Principles
(a) Accounting period
These financial statements include the period January 1 to September 30, 2009 and 2010.
(b) Basis of preparation
The consolidated financial statements as of September 30, 2009 and 2010 have been prepared in accordance withgenerally accepted accounting principles in Chile (Chilean GAAP), issued by the Chilean Institute ofAccountants A.G., and instructions of the Superintendency of Securities and Insurance of Chile.
Certain accounting practices applied by the Company that conform to Chilean GAAP may not conform togenerally accepted accounting principles in the United States (US GAAP) or International Financial ReportingStandards.
(c) Basis of presentation
For comparative purposes, the financial statements as of September 30, 2009 and their related notes have beenrestated for accounting purposes by 2.5%.
F-7
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
The financial statements as of September 30, 2009, include certain reclassifications in order to make themconform with the classifications used in 2010.
In these consolidated financial statements, certain reclassifications have been made in the Statements of CashFlows for the periods 2009 and 2010, in order to make the criteria used uniform. These reclassifications do notaffect total cash flows for the periods.
For the convenience of the reader, these financial statements and their accompanying notes have been translatedfrom Spanish to English.
(d) Price-level restatement
The financial statements have been price-level restated in order to reflect the variation in purchasing power of theChilean peso during each fiscal year. The adjustments have been determined based on the official indices of theNational Institute of Statistics, which show a variation of 2,0% for 2010 (-2,8% in 2009).
The effect of the foreign exchange adjustment for the year between January 1st and September 30 , 2010, hasbeen recognized in net income
(e) Basis of translation
The assets and liabilities in foreign currency and in “Unidades de Fomento” are valued at the exchange rateeffective as of the closing date of each period. Effects have been recognized directly in the income statement.The exchange rates effective as of the closing date of each period are the following:
2010 2009
$ $
US dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,65 550,36Unidad de Fomento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.339,99 20.834,45
(f) Time deposits
Investments in time deposits are presented at acquisition cost plus any readjustment and interest accrued as ofeach closing date. Time deposits are presented under other current assets.
(g) Allowance for Doubtful Accounts
Allowance for doubtful accounts has been calculated based on aging and current regulations. These allowancesare shown on a deduction of the related receivable.
(h) Inventories
The fuel stock is shown at its price –level restated cost, which does not exceed its net realizable value.
Spare parts and materials for maintenance of buses have been classified in other property, plant and equipment.
F-8
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
The Company has established an allowance for obsolescence for replacement parts and materials that have arotation greater than one year.
(i) Prepaid expenses
Prepaid expenses includes expenses related to insurance policies, which are amortized over the insurance policyterm.
(j) Property, plant and equipment
The Company’s Property, plant and equipment mainly corresponds to buses held for public transportation, whichare valued at price-level restated acquisition price adjusted by inflation, including all the expenses incurred up tothe date in which they available for use. Other property, plant and equipment items are accounted for at theirpurchasing price adjusted by inflation.
Expenditures related to the purchase of software packages are recognized at price-level restated acquisition costand amortized over a three-year period.
Goods subject to a sale-and-leaseback agreement are capitalized as a property, plant and equipment of theCompany; corresponding obligations are accounted for as part of other short-term and long-term payables.
The Company has made a provision for maintenance related to its buses.
(k) Depreciation of property, plant and equipment
The annual depreciation has been estimated using the straight-line method, considering the remaining estimateduseful life of the respective goods.
(l) Property, plant and equipment under finance lease
Items of property, plant and equipment leased on the basis of contracts which include a purchase option andwhich fulfill all criteria of a financial lease agreement are capitalized as if they were acquired. The sum of theannual lease payments is recognized as liability and lease interest is recorded on accrual basis. Such assets arenot legally owned by the Company, so, as long as the purchase option is not exercised, the Company cannotfreely dispose of them.
(m) Investments in associates
Investments in associates are accounted for using the equity method.
The share in the associates income is recognized in the Company’s income statement on an accrual basis over thecorresponding holding period.
(n) Income taxes and deferred taxes
According to the current legal regulations, the Company has not accrued any provision for First-category incometax, because it shows a negative taxes base in the respective periods.
F-9
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
In accordance with what is set forth in Technical Bulletin No 60 and the complementary bulletins issued by theChilean Association of Accountants, and the standards provided in Circular No 1,466 of the ChileanSuperintendency of Securities and Insurance, the Company accounts for deferred taxes originated by timingdifferences, benefits due to taxes losses and other events that generate differences between accounting and taxincome.
(o) Vacation accrual
At each period end, the Company sets up an accrual for unused vacations days of its employees.
(p) Operating Income
On February 10, 2007, the new regimen period began, and from this date on the earnings are calculated inaccordance with the concession agreement with the Ministry for Transportation and Telecommunications, that is,the price per transported passenger (PTP) multiplied by the adjusted demand.
Income is recognized in accordance with generally accepted accounting principles in Chile, on an accrual basis.As of the date of the financial statements, provisions have been established for services provided and not billed.
Income from static and dynamic advertising originates from renting out advertising spaces on buses.
(q) Technical operating reserve (TOR)
The Technical Operating Reserve is an allowance incorporated in the fare paid by users to cover possibletemporary lags or mismatches between the income and costs of the Transantiago passenger transportationsystem. The amounts paid to the Transantiago Financial Administrator (FMT) for this concept in relation to theTrunk Line Nº 1 business unit, are recorded as a deferred asset that will be amortized with a charge to operatingincome, during the concession´s operating period, based on projected income to be obtained from providingtransportation services.
(r) Statements of Cash Flows
The Company considers as cash equivalents all highly-liquid financial investments agreed with a maximummaturity of 90 days, and with minimum risk of loss in value. Cash flows from operating activities include allbusiness-related cash flows, as well as paid interest, interest income and, in general, all cash flows not defined asfrom investment or financing activities. It is important to emphasize that the operating concept used in thestatements of cash flows is more comprehensive than the one considered in the statement of income.
Amortization associated to technical operating reserve and capitalized financing expenses have been classified asamortization of intangibles in the reconciliation of the cash flows.
(s) Capital Expenditures
According to the ordinary official letter No. 11,808 of October 31, 2006, the Office of the Superintendency ofSecurities and Insurance authorized the Company to accrue and subsequently amortize capital expenditures
F-10
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
directly associated with the bank loans used to finance the purchase of the bus fleet. For this purpose, suchexpenditures are distributed based on the development of actual earnings obtained, considering the total projectedearnings. These expenditures are capitalized as part of the line item Other Long-Term Assets.
(t) Companies Included in the Consolidation
Taxpayer No. Company Name
Ownership Percentage
30-09-2010 30-09-2009
Direct Indirect Total Total
0-E IASA de Colombia Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.999 — 99.999 99.999
3. Accounting Changes
During the period from January 1 to September 30, 2010, no significant changes have been made to the generallyaccepted accounting principles of Chile
4. Short- and long-term receivables
Composition of short and long-term receivables as of September 30, 2009 and 2010:
2009 2010
ThCh$ ThCh$
Trade receivablesDeferred income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,158,602 5,014,313AFT (Exempted Resolution 1985) (2) . . . . . . . . . . . . . . 2,583,247 2,583,247Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,520 106,337Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 837 83,459Allowance for doubtful accounts (3) . . . . . . . . . . . . . . . (127,348) (2,356,836)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,706,858 5,430,520
Other receivablesPromissory Note AFT Transantiago (4) . . . . . . . . . . . . 506,110 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506,110 —
Other receivablesAccounts receivable from employees . . . . . . . . . . . . . . 298,570 408,453Prepayments to suppliers . . . . . . . . . . . . . . . . . . . . . . . . 104,802 454,896Accounts receivable from Volvo (5) . . . . . . . . . . . . . . . 25,739 25,111Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,877 56,412
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,988 944,872
(1) For the most part corresponds to the passenger revenue accrued by rendering public transportation servicesduring the regimen period that are liquidated every two weeks by the Transantiago Financial Administrator.
(2) The Company has recorded as receivables the amounts withheld by the Ministry of Transportation andTelecommunications through Exempt Resolution 1985 of 2008, which establishes a fine for non-compliance
F-11
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
4. Short- and long-term receivables—(Continued)
with regularity and frequency indices. According to the Exempt Resolutions mentioned in note 26 theamounts should be accounted for in the pertinent account as debts of the system that the Company expectsto recover in 2010.
(3) As stated in note 2 g), the Company has estimated an accrual for ThCh$ 2,232,594 corresponding to revenuewithheld by the Ministry of Transport and Telecommunication for the application of Exempt Resolution1938, where the fines relating to regularity, frequency and ICPKH indices are set.
(4) Corresponds to the balance of the compensation from the Transantiago Financial Administrator (FMT)equivalent to UF 221,208 plus accrued interest, of which UF 200,000 were transferred in January 2007. Thiscompensation is due to lower revenue and higher costs derived from delaying the operating regime stagefrom October 23, 2006 to February 10, 2007. On November 2, 2009, the Company received the remainingbalance of the promissory note owed by the Transantiago Financial Administrator.
(5) This line item relates to warranty claims against Volvo Sweden Co. in the form of spare parts for the busfleet.
Short-term Long-term
Up to 90 days < 90 days > 1 year
Subtotal
Total Current (net)
2009 20102009 2010 2009 2010 2009 2010
Trade receivables . . . . . . . . . . . 5,834,206 7,787,356 — — 7,787,356 5,706,858 5,430,520 — —Allowance for doubtful
accounts trade receivables . . — — — — 2,356,836 — — — —Notes receivable . . . . . . . . . . . . 506,110 — — — — 506,110 — — —Other receivables . . . . . . . . . . . 449,988 944,872 — — 944,872 449,988 944,872 — —
Total long-termreceivables . . . . . . . . . . — —
F-12
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
5. Related party disclosures
The sales to and purchases from related parties are made at terms equivalent to those prevailing in arm´s lengthtransactions.
Short-term receivables from related parties are detailed as follows:
2009 2010
ThCh$ ThCh$
Express de Santiago Uno S.A. (1) . . . . . . . . . . . . . . . . . . . 198,458 194,027Carlos Rios V. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,416 55,235EDTM Consultores.E.U. (3) . . . . . . . . . . . . . . . . . . . . . . . 311,980 172,176Rioma Ltda. (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,853 231,327Desarrollo y Soluciones Informáticas (5) . . . . . . . . . . . . . 132,028 128,850Inversiones Eco Uno Ltda. (6) . . . . . . . . . . . . . . . . . . . . . . 176,518 136,079Holding Alsacia S.A. (7) . . . . . . . . . . . . . . . . . . . . . . . . . . — 5,078Seceyco Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 561GPS International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 253Silvia de Narvaez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 315
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023,253 923,901
Long-term payables to related parties are detailed as follows:
2009 2010
ThCh$ ThCh$
Data Tools S.A. (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 942,257 815,743Fanach Corp. (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,812 508,867Aseo Capital S.A. (11) . . . . . . . . . . . . . . . . . . . . . . . . . . 292,080 252,868Carlos Toro (12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,164 100,575Maraya E.U. (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,762 85,508Dakota SPA (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,695,317
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,037,075 5,458,878
(1) As of September 30, 2009 and 2010, the receivable and payable balances recorded by the Company withExpress de Santiago Uno S.A., correspond to balances generated in the context of the allocation of expensesand operating costs, amount to ThCh$16,438 and, ThCh$16,429 respectively.
Moreover, there exists an adjustment account for the financial years of 2005 and 2006, determined onconservative basis, which amounts to ThCh$1,515,343 (historic value), increasing the balance in favor ofInversiones Alsacia S.A. as of June 30, 2010 to ThCh$1,531,781.
The value of the adjustment account is based on the instructions of Official Letter No. 06354 dated June 11,2007, of the Superintendency of Securities and Insurance. The Company followed the guidelines of thegranted Official Letter and altered the balances receivable from and payable to Express de Santiago Uno SAto the amounts of ThCh$611,317 and ThCh$2,126,660, respectively (historic net amount ofThCh$1,515,343 in favor of Inversiones Alsacia S.A.).
F-13
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
5. Related party disclosures—(Continued)
Adjusted balances originated from:
The pre-operational period: ThCh$611,317 (historic value) in favor of Express. referring to the periodbetween January 10 and December 31, 2005.
The operational period: ThCh$2,126,660 (historic value) in favor of Inversiones Alsacia S.A. referring tothe period between January 10th and August 31, 2006.
Inversiones Alsacia S.A. has 2 independent third party reports confirming the figures cited.
The companies involved have been in negotiations to resolve the situation, as of the period-end noresolution have been reached. For the fact that no agreement has yet been reached, the Company isconsidering submitting the matter for arbitration. In the meantime, following the instructions of the OrdinaryOfficial Letter (Oficio Ordinario) published by the Superintendency of Securities and Insurance, thebalances above are considered as contingent income, without bearing interest or readjustments.
(2) Carlos Rios: Funds payable not generating interests.(3) EDTM: Corresponds to accrued interest in the amount of ThCh$172,176, for the loan made to the Company
on March 5, 2007, destined to financing capitalization in Eco Uno Ltda.(4) Rioma Ltda.: Recovery of expenses not generating interest with a maturity date of December 31, 2010.(5) Desarrollo y Soluciones Informáticas: Accounts receivable of US$ 258,160.96 corresponding to accrued
interest from external financing.(6) Eco Uno Ltda.: Corresponds to contribution for interest.(7) Holding Alsacia S.A.: Corresponds to recoveries of expenditures that do not generate interests with a
maturity date of 31/12/2010.(8) Dakota SPA: Corresponds to a credit to finance working capital in the amount of UF195,480.00; the amount
is to be paid in 110 monthly installments and successive quotas payable from January 2010 and accrues aninterest of 12.5% annually.
(9) Data Tools: Corresponds to three loans obtained to finance Transantiago Operating Plan totaling of US$1,610,000. The loans are in US dollars and accrue 1% of annual interest with a maturity date of 28/08/2012.
(10) Fanach: Corresponds to a credit in the amount of US$ 1,000,000 obtained to finance operations pursuant tothe Transantiago Operating Plan. The loan is in US dollars and accrue an annual interest of 1% with amaturity date of 28/08/2012.
(11) Aseo Capital: Corresponds to a credit in the amount of US$ 500,000 obtained to finance operations pursuantto the Transantiago Operating Plan. The loan is in US dollars and accrues an annual interest of 1% with amaturity date of 28/08/2012.
(12) Carlos Toro: Corresponds to a credit amounting to US$ 200,000 obtained to finance operations pursuant tothe Transantiago Operating Plan. This loan is in US dollars and accrues an annual interest of 1% with amaturity date of 28/08/2012.
(13) Maraya: Corresponds to a credit amounting to US$ 170,000 obtained to finance operations pursuant to theTransantiago Operating Plan. This loan is in US dollars and accrues an annual interest of 1% with a maturitydate of 28/08/2012.
F-14
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
5. Related party disclosures—(Continued)
Balances and transactions with related parties during the period January through September, 2009 and 2010 areshown in tables below:
a) Documents and accounts receivable
Taxpayer IDNo. Corporation Short-term Long-term
2009 2010 2009 2010
ThCh$ ThCh$ ThCh$ ThCh$
99577390-2 Express de Santiago Uno S.A. . . . . . . . . . . . . . . . . 198,458 194,027 — —48095921-3 Carlos Rios V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,416 55,235 — —
0-E Edtm Consultores . . . . . . . . . . . . . . . . . . . . . . . . . . 311,980 172,176 — —76452480-2 Rioma Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,853 231,327 — —
0-E DSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,028 128,850 — —76195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . . . . . . . . . . 176,518 136,079 — —
0-E Holding Alsacia S.A. . . . . . . . . . . . . . . . . . . . . . . . — 5,078 — —78737390-9 Seceyco Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 561 — —
0-E GPS International . . . . . . . . . . . . . . . . . . . . . . . . . . — 253 — —0-E Silvia de Narvez . . . . . . . . . . . . . . . . . . . . . . . . . . . — 315 — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023,253 923,901 — —
b) Notes and accounts receivable
Taxpayer IDNo. Corporation Short-term Long-term
2009 2010 2009 2010
ThCh$ ThCh$ ThCh$ ThCh$
99577390-2 Express de Santiago Uno S.A. . . . . . . . . . . . . . . . . 182,029 177,589 — —0-E Aseo Capital De Colombia . . . . . . . . . . . . . . . . . . — — 292,080 252,8680-E Data Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 942,257 815,7430-E Fanach Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 587,812 508,8670-E Carlos Toro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 116,164 100,5750-E Maraya E.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 98,762 85,508
77080776-K Dakota Spa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 243,516 — 3,695,317
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,029 421,105 2,037,075 5,458,878
F-15
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
5. Related party disclosures—(Continued)
c) Transactions
2009 2010
CorporationTaxpayer id
no. Nature of the relationship Transaction description Amount
Effects onIncome
(charge/credit) Amount
Effects onIncome
(charge/credit)
ThCh$ ThCh$ ThCh$ ThCh$
Express de Santiago Uno S.A. . . . . . . . . . . . . . . 99577390-2 Related Company SHARED EXPENSES 83,893 83,893 409 409Dakota Spa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7780776-K Related Company Delivery Of Loan — — 568,503 (380,146)Holding Alsacia S.A . . . . . . . . . . . . . . . . . . . . . . 0-E Related Company CHECKING ACCOUNT — — 4,408 —Carlos Rios V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21922672-1 Shareholder/Director Various Payments 3,828 — 2,530 —Ruben Rios V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0-E Shareholder Board Of Directors’ Fees 6,208 (6,208) 6,000 (6,000)Carlos Rios V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21922672-1 Shareholder/Director Board Of Directors’ Fees — — 12,000 (12,000)Luis Videla V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7779468-9 Director Board Of Directors’ Fees 4,460 (4,460) 1,500 (1,500)Laurence Goldborne . . . . . . . . . . . . . . . . . . . . . . 8170562-3 Director Board Of Directors’ Fees — — 1,000 (1,000)Heriberto Urzua . . . . . . . . . . . . . . . . . . . . . . . . . . 6666825-8 Director Board Of Directors’ Fees 1,102 (1,102) 6,500 (6,500)Andres Echeverria . . . . . . . . . . . . . . . . . . . . . . . . 9669081-9 Director Board Of Directors’ Fees — — 6,000 (6,000)Asesorias Vsa Ltda. . . . . . . . . . . . . . . . . . . . . . . . 77127320-K Company Director Consultancies 36,000 (36,000) 5,000 (5,000)Sociedad De Inversiones Santa Anita Ltda. . . . . 76939320-K Company Director Consultancies 10,763 (10,763) 9,000 (9,000)
Heriberto Urzua Inversiones y AsesoriasLtda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76704540-9 Company Director Consultancies 36,000 (36,000) 20,000 (20,000)
Inversiones Rinconada Ltda. . . . . . . . . . . . . . . . . 78845440-6 Company Director Consultancies — — 10,500 (10,500)Rioma Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76452480-2 Related Company Consultancies 113,495 (113,495) 117,558 (117,000)
Related Company Services Received — — 84,610 84,610
Seceyco Chile Ltda. . . . . . . . . . . . . . . . . . . . . . . . 78737390-9 Common owner Various payments — — 560 —
Arcadia Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 1000-6 Company Director Consultancies — — 36,008 (36,008)
EGC Partners S.A. . . . . . . . . . . . . . . . . . . . . . . . . 76042210-K Company Director Consultancies — — 21,719 (21,719)
F-16
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
6. Inventories
Includes the inventories owned by the Company, valued according to the accounting policy of the Companydescribed in Note 2h).
The balances as of September 30, 2009 and 2010 are detailed as follows:
2009 2010
ThCh$ ThCh$
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,075 43,614
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,075 43,614
7. Deferred and Income Taxes
General information:
As of September 30, 2009 and 2010 as stated in Note 2 n), the Company has made no provision for FirstCategory income tax (“Impuesto al la Renta de Primera Categoría”), according to current legal regulations inforce it has negative taxable income.
Retained loss as of September 30, 2010 amounts to ThCh$44,779,015 (ThCh$59,398,775 in 2009).
Deferred taxes
Concepts 2009 2010
Deferred Tax Asset Deferred Tax Liability Deferred Tax Asset Deferred Tax Liability
Temporary Differences Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$Allowance for doubtful
accounts . . . . . . . . . . 21,649 — — — 400,661 — — —Vacation accrual . . . . . . 121,826 — — — 103,873 — — —Amortization of
intangible assets . . . . — — — 1,970,300 — — — 1,772,161Finance lease assets . . . — — — 92,811 — — — 48,178Depreciation of
property, plant andequipment . . . . . . . . . — — — 6,457,918 — — — 5,952,000
Other events . . . . . . . . . — 348,760 — — — 603,186 — —Amortization of other
Assets . . . . . . . . . . . . — — — 1,130,534 — — 31,278 1,090,686Prepayments . . . . . . . . . — — 24,107 — — — 131,659 —Accrued Tax Loss . . . . . — 10,097,793 — — — 7,612,432 — —OthersComplementary
accounts-net ofamortization . . . . . . . — — — — — — — —
Valuated Provisions . . . — — — — — — — —
Total . . . . . . . . . . . . . . . 143,475 10,446,553 24,107 9,651,563 504,534 8,215,619 162,937 8,863,025
F-17
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
7. Deferred and Income Taxes—(Continued)
Income Taxes
Item 2009 2010
ThCh$ ThCh$
Effect on assets and liabilities due to fiscal year’s deferred tax . . . (1,604,168) (772,480)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,604,168) (768,477)
8. Other current assets
Other current assets balance as of September 30, 2009 and 2010 is the following:
2009 2010
ThCh$ ThCh$
Time deposits (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,607,985 5,037,844AFT Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,736 175,694Technical Reserve for Operations, short-term portion . . 995,299 1,012,340Transantiago’s guarantee (3) . . . . . . . . . . . . . . . . . . . . . . 222,555 —Rental Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 127,332 149,399HSBC Deferred Expenditures (4) . . . . . . . . . . . . . . . . . . 183,048 172,123Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 229,510
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,308,955 6,776,910
(1) Correspond to time deposits obtained from the HSBC Bank and Bancolombia, to assure the payment ofinterest for the loans granted by the same banks for the financial period between August 28, 2010 andFebruary 28, 2011. Details are as follows:
Bank or Financial Institution Start Due dateCurrencyof Origin
Value ofSubscription
AnnualRate
Book value30/09/2010
ThCh$ ThCh$
HSBC BANK . . . . . . . . . . . . . . . 13-07-2010 28-02-2011 US$ 359,238 1,350 323,291HSBC BANK . . . . . . . . . . . . . . . 31-08-2010 29-11-2010 US$ 2,010,101 1,000 1,948,875HSBC BANK . . . . . . . . . . . . . . . 14-09-2010 28-02-2011 US$ 173,729 1,300 169,902HSBC BANK . . . . . . . . . . . . . . . 24-09-2010 09-10-2010 US$ 124,124 0,800 122,564HSBC BANK . . . . . . . . . . . . . . . 30-08-2010 29-10-2010 CH$ 271,186 0,150 271,606HSBC BANK . . . . . . . . . . . . . . . 14-09-2010 28-02-2011 CH$ 94,649 0,021 94,756INTERNACIONAL . . . . . . . . . . 27-07-2010 28-02-2011 US$ 343,425 1,400 320,379INTERNACIONAL . . . . . . . . . . 29-06-2010 28-02-2011 US$ 356,070 1,350 321,294INTERNACIONAL . . . . . . . . . . 11-06-2010 28-02-2011 US$ 358,719 1,500 324,086INTERNACIONAL . . . . . . . . . . 11-08-2010 28-02-2011 US$ 340,411 2,200 321,639INTERNACIONAL . . . . . . . . . . 26-08-2010 28-02-2011 US$ 338,116 1,950 322,914INTERNACIONAL . . . . . . . . . . 27-09-2010 28-02-2011 US$ 315,521 1,500 314,060INTERNACIONAL . . . . . . . . . . 27-09-2010 28-02-2011 CH$ 73,477 0,300 73,499BANCOLOMBIA . . . . . . . . . . . 25-09-2010 25-10-2010 US$ 109,476 1,540 108,979
Total . . . . . . . . . . . . . . . . . . . . . . 5,268,242 5,037,844
F-18
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
8. Other current assets—(Continued)
(2) Time deposit obtained from the HSBC Bank and BanColombia for the period of 2009 are the following:
Bank or FinancialInstitution Start Due date
Currencyof Origin
Value ofSubscription
AnnualRate
Book value30/09/2009
ThCh$ ThCh$
HSBC BANK . . . . . . 11-08-2009 26-02-2010 US$ 364,020 1,100 367,238HSBC BANK . . . . . . 27-08-2009 26-02-2010 US$ 365,373 0,830 366,852HSBC BANK . . . . . . 28-08-2009 27-10-2009 US$ 3,523,965 0,500 3,537,214HSBC BANK . . . . . . 11-09-2009 26-02-2010 US$ 314,606 0,730 312,642HSBC BANK . . . . . . 29-09-2009 26-02-2010 US$ 334,327 1,000 337,352HSBC BANK . . . . . . 11-09-2009 26-02-2010 CH$ 3,946 0,700 3,964HSBC BANK . . . . . . 29-09-2009 26-02-2010 CH$ 3,957 1,000 3,958BANCOLOMBIA . . . 19-06-2009 19-12-2009 US$ 49,440 2,850 50,817BANCOLOMBIA . . . 11-06-2009 19-12-2009 US$ 83,218 2,850 81,684BANCOLOMBIA . . . 30-06-2009 19-12-2009 US$ 108,480 2,850 113,667BANCOLOMBIA . . . 28-07-2009 19-12-2009 US$ 91,070 2,850 93,142BANCOLOMBIA . . . 11-08-2009 19-12-2009 US$ 112,027 2,850 113,292BANCOLOMBIA . . . 27-08-2009 19-12-2009 US$ 112,478 2,850 113,150BANCOLOMBIA . . . 11-09-2009 19-12-2009 US$ 113,598 2,850 113,013
Total . . . . . . . . . 5,580,505 5,607,985
(3) Corresponds to the time deposits obtained from Banco Internacional in the amount of UF10,000, toguarantee the insurance contract obtained from Aseguradora Magallanes S.A., to comply with theTransantiago 2003 service contract. On November 2, 2009, according to the bid contract, the guarantee wasreturned for an amount of ThCh$210,894 and no new guarantees have been granted in exchange.
(4) Corresponds to the expenditures paid for commissions, fees and other expenditures to HSBC Bank fordisbursements of loans granted to the Company to finance the purchase of buses, operating costs andimplementation of terminals. The expenses are amortized over the debt duration period. As ofSeptember 30, 2010 the amortization amounted to ThCh$142,098 (ThCh$140,718 in 2009).
F-19
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
9. Property, plant and equipment
Property, plant and equipment as of September 30, 2009 and 2010, valued according to Note 2 j), is detailed asfollows:
Property, plant and equipment,gross amount Accumulated Depreciation
2009 2010 2009 2010
ThCh$ ThCh$ ThCh$ ThCh$Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,731,750 3,707,034 — —
Buildings and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,755,362 16,018,624 (522,451) (1,224,310)
Machinery & equipment:Buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,432,191 67,269,753 (22,011,797) (29,062,041)Machinery & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,039,241 717,692 (429,403) (273,968)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,471,432 67,987,444 (22,441,200) (29,336,009)
OtherOffice furniture and equipment . . . . . . . . . . . . . . . . . . . . 298,808 325,185 (110,235) (160,058)Computer Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744,132 980,013 (259,950) (424,249)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,990,603 2,161,858 (958,070) (1,387,525)Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,518,474 1,371,388 — —Improvements for transition . . . . . . . . . . . . . . . . . . . . . . . — 700,224 — —Terminals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,224,732 1,194,860 (1,224,732) (1,194,860)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,776,749 6,733,528 (2,552,987) (3,166,692)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,735,293 94,446,630 (25,516,638) (33,727,011)
Total net property, plant and equipment . . . . . . . . . . . 64,218,655 60,719,619
Depreciation charges for the respective period have been imputed to the following accounts:
2009 2010
ThCh$ ThCh$Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,901,787 6,023,165Administrative and sales expenditures . . . . . . . . . . . . . . 411,448 446,358
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,313,235 6,469,523
10. Investment in associates
During the extraordinary shareholders’ meeting held on January 25, 2005, the shareholders agreed to modifyarticle one of the Company‘s statutes in order to pay 18,802 unpaid shares through contribution of non-monetaryassets. The shareholders’ meeting approved that the payment of above-mentioned shares would be made bycontributing a total of 16% of their rights in the Sociedad de Inversiones Eco Uno Ltda. (“Eco Uno”) in favor ofthe Company. At that date, shareholders Mr. Carlos Ríos V. and Mr. Francisco Ríos V. held 14% of the votingrights of Inversiones Eco Uno Ltda. The voting rights were valued at an amount of ThCh$ 1,880,202 (historic),based on the carrying value of Inversiones Eco Uno Ltda..
F-20
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
10. Investment in associates—(Continued)
On March 2, 2007, a sum of $262,061,908 (historic)—a part of which consisted of capital owed by theCompany´s partners – was transferred to Eco Uno, in order to enable Eco Uno to increase the capital of itssubsidiary Express de Santiago Uno S.A..
F-21
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
10. Investment in associates—(Continued)
Investment details
TaxpayerID No.
Nameof theCor-
porationCountryof origin
Invest-ment
controlcurrency
No. ofshares
SharePercentage
Corporation’sequity Net income
Cor-poration’s
equityat fairvalue
Netincomeat fairvalue
Accruedincome (loss) Equity method
Unrea-lizedgains
Bookvalueof the
investment
2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 201076195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . . . . . . . . CHILE PESOS — 16.00 16.00 24,816,758 23,248,385 (4,505,015)(3,455,819) — — — — (720,803)(552,931)3,970,681 3,719,741 — — 3,970,681 3,719,741
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,970,681 3,719,741 — — 3,970,681 3,719,741
F-22
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
11. Other (assets)
Other assets as of September 30, 2009 and 2010 are detailed as follows:
2009 2010
ThCh$ ThCh$
Technical Operating Reserve (1) . . . . . . . . . . . . . . . . . . . . 8,880,700 7,870,500Reserve of Transantiago’s Financial Administrator (2) . . . 1,541,266 1,365,942Other long-term deferred expenditures (3) . . . . . . . . . . . . . 1,323,199 1,151,395Capitalization of Financ. Expenditures Met Ing (4) . . . . . . 5,139,374 5,264,402
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,884,539 15,652,239
(1) Corresponds to the total amount of the contribution to the Technical Operating Reserve by the Trunk LineNo. 1 business unit, which is defined as an allowance incorporated into the tariff paid by the users to coverpossible temporary lags or mismatches between the revenue and costs. This amount is amortized inaccordance with the projected revenue curve, obtained from the transportation service rendering.
As of September 30, 2010, the accumulated amortization from the concept mentioned above amounted toThCh$4,326,392 (ThCh$3,330,051 in 2009). The annual amortization for the period amounted toThCh$746,927 (ThCh$734,355 in 2009) and it is part of the Company´s operating cost.
(2) From the start of Stage I defined in the Transantiago 2003 Bidding Conditions, FMT will be the only ticket,paid in coins, issuer that give access to the users of Transportation Services System. Inversiones AlsaciaS.A. buys the tickets from FMT at a price of $20 per ticket. Out of this amount, $16 correspond to a depositto increase the System’s OTR which FMT is supposed to deposit to the Temporary Account 2 of the system.The remaining amount of $4 resembles cash available to FMT. The reserve corresponds to the total amountrelated to all $16-deposits per ticket acquired by the Company during the financial years of 2006 and 2005.This amount is amortized according to the projected income curve for rendering services of transportation.As of September 30, 2010, the amortization for this concept amounts to ThCh$129,631 (ThCh$127,448 in2009) and is presented as part of the Company’s operating costs.
According to the modification of the Concession Agreement signed on June 30, 2006, between theCompany and the Ministry for Transportation and Telecommunication, pursuant to Article 4, from July 1,2006, the $16-deposit per ticket bought from FMT is no longer needed to be paid.
(3) Corresponds to the deferred expenditures paid for commissions, fees and other expenditures to HSBC Bankfor disbursements of loans granted to the Company to finance the purchase of buses, operating costs andimplementation of terminals. The expenses are amortized over the debt duration period. As ofSeptember 30, 2010 the amortization amounted to ThCh$93,283 (ThCh$93,375 in 2009).
(4) In accordance with what is set forth in Note 2 q) and according to the authorization of the Office of theSuperintendency of Securities and Insurance No. 11,808 dated on October 31, 2006, the Companycapitalized borrowing costs directly associated with the purchase of the bus fleet. For this purpose, suchexpenditures are distributed based on the actual earnings obtained, considering the total of projectedearnings. This method is aimed at distributing the financial charge that the Company will have to cope withalong the period of debt amortization over the whole concession period, considering the remaining usefullife of the bus fleet. As of September 30, 2010, the accumulated capitalized costs for the concept amountedto ThCh$142,098 (ThCh$140,718 in 2009).
F-23
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
12. Short-term obligations with banks and other financial institutions
As of September 30, 2009 and 2010, short-term obligations with banks and other financial institutions include thefollowing:
Short-term payables to banks and other financial institutions:
Includes short-term loans obtained from the National Bank. Interest is calculated on the balance of principaloutstanding of the promissory notes as of their signing dates until the date of its full and effective payment.
The amount of accrued interests as of September 30, 2010 amounts to ThCh$162,412 (ThCh$98,057 in 2009).
Long-term payables to banks and other financial institutions, short-term portion:
1. Installment: The total term of the HSBC EKN’s credit was modified from 20 to 19 installments withsemi-annual installments on February 28 and August 28.
2. Accrued interests: Correspond to the long-term borrowings from HSBC EKN, NEXI, NIB, GNBSudameris and BANCOLOMBIA.
Interest is calculated on the balance of principal outstanding of the promissory notes as of their signing datesuntil the date of its full and effective payment.
Interest expenses as of September 30, 2010 amount to ThCh$197,800 (ThCh$765,212 in 2009).
F-24
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
12. Short-term obligations with banks and other financial institutions—(Continued)Currency types and adjustment index
Taxpayer IDNo. Bank or Financial Institution Dollars Euros Yens
Other ForeignCurrencies UF Non Adjustable $ Totals
2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010
Short-Term (code 5.21.10.10) . . . . . .97951000-4 HSBC BANK . . . . . . . . . . . . . . . . . . — — — — — — — — — — 4,747,218 4,669,876 4,747,218 4,669,87697011000-3 BANCO INTERNACIONAL . . . . . . — — — — — — — — — — 3,048,837 1,361,466 3,048,837 1,361,46697006000-6 BANCO CRÉDITO E
INVERSIONES . . . . . . . . . . . . . .— — — — — — — — — — 615,000 732,872 615,000 732,872
97032000-8 BBVA BANK . . . . . . . . . . . . . . . . . . — — — — — — — — — — 540,835 530,500 540,835 530,50097051000-1 BANCO ITAU . . . . . . . . . . . . . . . . . — — — — — — — — — — — 1,072,549 — 1,072,54976645030-K OTHERS . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — —
TOTALS . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 8,951,890 8,367,263 8,951,890 8,367,263AMOUNT OF DUE CAPITAL . . . . 8,853,833 8,056,944 8,853,833 8,056,944Annual average interest rate . . . . . . .Long-term—Short-term (code
5.21.10.20) . . . . . . . . . . . . . . . . . .97951000-4 HSBC EKN BANK . . . . . . . . . . . . . 5,487,004 4,594,059 — — — — — — — — — — 5,487,004 4,594,059
0-E NEXI . . . . . . . . . . . . . . . . . . . . . . . . . 1,878,119 1,359,760 — — — — — — — — — — 1,878,119 1,359,7600-E BANCOLOMBIA . . . . . . . . . . . . . . . 7,426,353 2,642,784 — — — — — — — — — — 7,426,353 2,642,7840-E GNB SUDAMERIS . . . . . . . . . . . . . 583,702 505,534 — — — — — — — — — — 583,702 505,5340-E HSBC NIB . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 53,924 875,013 53,924 875,013
OTHERS . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — —TOTALS . . . . . . . . . . . . . . . . . . . . . . 15,375,178 9,102,137 — — — — — — — — 53,924 875,013 15,429,102 9,977,150AMOUNT OF DUE CAPITAL . . . . 14,663,890 8,915,113 — — — — — — — — — 864,236 14,663,890 9,779,349
Average annual interest rate . . . . . . . . . . . . . . . 6,73% 4,56%Percentage of payable foreign currency (%) . . . . . . . . . . . . . . . . . . . . . 684,400Percentage of payable national currency (%) . . . . . . . . . . . . . . . . . . . . . 315,600
F-25
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
13. Long-term obligations with banks and other financial institutions
At September 30, 2010, the movements in obligations with banks and financial institutions are detailed asfollows:
Between August 17, 2005 and March 28, 2006, HSBC Bank (EKN) made three disbursements amounting toThCh$41,724,306, which corresponded to six promissory notes for a total sum of US$77,347,446. The amountsmust be paid in nineteen equal and successive semi-annual installments on February 28 and August 28, as ofAugust 28, 2007, at fixed annual rate of 5.38%. With the credits the Company financed approximately 85% of itsbus purchases.
On March 30, 2006, a credit amounting to ThCh$12,191,344 (equivalent to US$22,600,000) was obtained fromHSBC Tokyo, Japan and Sumitomo Bank, together with NEXI, a Japanese credit and insurance corporation. Thiscredit has been agreed upon at an 8-year term with a 5 year grace period, and a 180-day floating Libor rate plus0.6%. The interests will be paid starting August 28, 2006 and the repayment will be in equal and successivesemi-annual installments on February 28 and August 28 starting from 2010.
On May 31, 2006, the Company obtained a credit from the HSBC—NIB (Nordic Investment Bank) in theamount of ThCh$6,360,000 at an 8-year term with 5 years of grace and at an interest rate of 6.36%. On June 13,2006, the bank granted another credit of ThCh$1,060,000 subject to the same terms and conditions. Interest willbe paid starting from August 28, 2006 and the repayment will be in equal and successive semi-annualinstallments on February 28 and August 28, starting from 2011.
On December 19, 2006, Bancolombia granted a credit of US$5,000,000, on December 20, 2006 other credit ofUS$4,500,000 and on March 1, 2007, additional for US$2,500,000, and on June 4, 2007 credit of US$3,000,000,all of them at a 5-year term with a 2-year grace period and at a 180-day Libor interest rate plus 3.5%, repaymentwill be in equal semi-annual and successive installments on June 19 and December 19, starting fromDecember 19, 2008.
On January 29, 2008, a loan from GNB Sudameris Colombia was obtained in the amount of ThCh$3,000,000with a grace period of one year, the loan installments will be paid in equal and successive semi-annualinstallments of US$500,000, the first with a maturity of July 28, 2009 and the last of January 28, 2012.
On October 30, 2009, a credit was obtained from GNB Sudameris in the amount of US$1,000,000 payable in oneinstallment on April 09, 2012.
On March 3, 2008, a loan was obtained from HSBC bank in the amount of ThUS$11,107,836 (equivalent to$5,042,401,694 historical). This loan has been agreed upon for a 10-year term, and at a floating rate of 6.81%.The loan installments will be paid in equal and successive semi-annual installments on February 28 andAugust 28 beginning in 2008.
On August 12, 2008 a loan was obtained from Bancolombia Puerto Rico Internacional INC. in the amount ofUS$17,000,000, with variable interest rate and monthly and successive installments starting from the 13 month.On August 28, 2008 and September 5, 2008 the Company received US$5,800,000 and US$11,200,000,respectively.
F-26
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
13. Long-term obligations with banks and other financial institutions—(Continued)
On September 25, 2009, the original credit conditions were modified, changing the spread Libor interest ratefrom 5% to 5.5% annually, the amount of monthly payments and the final payment date.
On August 25, 2010 the company changed the terms of credit contracts one and two obtained from Bancolombia,both will be paid in 41 successive monthly installments, the first on August 25, 2010 and the last onDecember 25, 2013. Along with the above modified the annual interest rate of LIBOR plus 8.5%
Additionally, during the term of the contract, the following financial relationships should be maintained:
a) EBITDA/ Interest Expenses, greater than or equal to:
• 2 times for the year 2010
• 2.5 times for the year 2011
• 2.8 times for the year 2012
• 3.5 times for the year 2013
b) EBITDA / Debt Services, greater than or equal to 1 time
These financial indicators will be evaluated on a quarterly basis.
In case the subscriber does not pay the loan installments of these credits at any of their due dates, or in case theinterests of these promissory notes were not paid by the subscriber on the date they were due, and suchdelinquency or simple delay in payment of interests continued for three or more working days, the bearer of thepromissory notes will be entitled to demand the total balance of owed capital and interest debt immediately andintegrally under promissory notes, which will be considered expired and payable on demand for all pertinentpurposes. The bank will be entitled to demand payment of the entire debt as set forth in promissory notes inadvance as if it was the due date whenever the subscriber does not comply with effective legislation, does nothave the corresponding governmental authorizations, in case of any changes in Company controllingshareholders, in case of failure to comply with effective environmental regulations, whenever dividends aredistributed without the corresponding authorizations, or if the subscriber becomes notoriously insolvent,understanding for all purposes the existence of notorious insolvency on its part when the subscriber or one ormore of its creditors requests bankruptcy, or when judicial or out-of-court composition of creditors are executedor proposed.
Restrictions have been satisfactorily met as of September 30, 2010.
F-27
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
13. Long-term obligations with banks and other financial institutions—(Continued)
Due in (years)Current period
closing datePrevious period
closing date
TaxpayerID No.
Bank Or FinancialInstitution
CurrencyReadjustment
Index
MoreThan 1Up To 2
MoreThan 2Up To 3
More Than3 Up To 5
More Than5 Up To 10
More Than10 Years
Long TermTotal AtBalanceClosing
AverageAnnualInterest
Rate
Long TermTotal AtBalanceClosing
AMOUNT TERM
97951000-4 HSBC BANK . . . . . . . . . . . . . . . . . . Dollars 4,538,380 4,538,380 9,076,760 5,344,227 — 23,497,747 5,38 32,700,739Euros — — — — — — — —Yens — — — — — — — —UF — — — — — — — —$ non readjusted — — — — — — — —Other currencies — — — — — — — —
97951000-4 HSBC BANK/ NEXI & NIB . . . . . . Dollars 1,366,311 1,366,311 2,732,622 2,732,623 — 8,197,867 0,99 11,155,453Euros — — — — — — — —Yens — — — — — — — —UF — — — — — — — —$ non readjusted 864,236 864,236 1,728,472 2,592,710 — 6,049,654 1,81 7,086,736Other currencies — — — — — — — —
0-E BANCOLOMBIA . . . . . . . . . . . . . . Dollars 3,699,922 3,845,018 1,233,999 — — 8,778,939 3,95 8,421,491Euros — — — — — — — —Yens — — — — — — — —UF — — — — — — — —$ non readjusted — — — — — — — —Other currencies — — — — — — — —
0-E GNB SUDAMERIS . . . . . . . . . . . . . Dollars 725,475 — — — — 725,475 4,88 846,179Euros — — — — — — — —Yens — — — — — — — —UF — — — — — — — —$ non readjusted — — — — — — — —Other currencies — — — — — — — —
97006000-6 CREDITO E INVERSIONES . . . . . Dollars — — — — — — — —Euros — — — — — — — —Yens — — — — — — — —UF — — — — — — — —$ non readjusted 333,572 — — — — 333,572 — 410,000Other currencies — — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,527,896 10,613,945 14,771,853 10,669,560 — 47,583,254 — 60,620,598
PERCENTAGE OF PAYABLE FOREIGN CURRENCY (%) . . . . . . . . . . . . . 89.6282PERCENTAGE OF PAYABLE NATIONAL CURRENCY (%) . . . . . . . . . . . 10.3718
F-28
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
14. Provisions
The balance of accrued expenses and sanctions as of September 30, 2009 and 2010 is detailed as follows:
a) Short-term
2009 2010
ThCh$ ThCh$
Vacation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716,628 611,015Reserve for Labor Contingencies . . . . . . . . . . . . . . . . . . . . 96,112 396,110Human resources reserves . . . . . . . . . . . . . . . . . . . . . . . . . 149,273 264,678Spare Parts Obsolescence Provision . . . . . . . . . . . . . . . . . — 95,450
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962,013 1,367,253
b) Long-term
Reserve for Overhaul of Buses (a) . . . . . . . . . . . . . . . . . 1,955,422 3,056,595
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955,422 3,056,595
(a) Corresponds to a reserve for the maintenance of buses (overhaul), calculated on the basis of travelledkilometers of the buses, with an estimated maintenance cost for motors estimated to be performed when550,000 kilometers are reached, and with maintenance performed at 600,000 kilometers for the gearboxesand differentials.
During the first quarter of 2010, the overhaul that will be conducted on motors was added to the original reserve.
15. Minority interest
The Company consolidated its financial statements with those of its subsidiary Iasa de Colombia Ltda. Since thesubsidiary has negative shareholders’ equity, 100% of its loss has been consolidated in the current financialstatements.
16. Changes in Equity
Changes in equity for 2009 and 2010, are as follows:
Movements in Shareholders’ Equity:
Inversiones Alsacia S.A. was founded on November 22, 2004, through subscription and payment of ThCh$ 1,000divided into 10 ordinary nominal shares without par value, with each share being of equal value.
During the Shareholders’ Meeting held on December 9, 2004, it was agreed to increase share capital toThCh$ 9,000,000, divided into 90,000 nominal shares, without par value and of a single series of commonshares, through issuance of 89,999 shares of the same characteristics.
During the Stockholders’ Meeting held on December 20, 2004, it was agreed to increase the share capital toThCh$18,000,000, divided into 180,000 nominal shares, without par value and of a single series of commonshares, through issuance of 90,000 shares of the same characteristics. It was additionally agreed that theminimum price per shares should not be lower than ThCh$100.
F-29
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
16. Changes in Equity—(Continued)
During the Stockholders’ Meeting held on January 25, 2005, it was agreed to approve the payment of 18,802shares issued by the Company by means of the contribution of 16% of the voting rights of Inversiones Eco UnoLtda. It was also agreed to value the voting rights in the amount of ThCh$ 1,880,202 (historic), based on thebook value of the shares (see note No. 12).
In addition, during the accounting period of 2005, the amount of 20,234 stocks was paid in through contributionsin cash amounting to ThCh$2,023,377 (historic).
During the Extraordinary General Stockholders’ Meeting held on February 16, 2007, shareholders decided tolegally reduce the share capital from the amount of $18,000,000,000 to $1,916,000,000. In addition, it wasagreed to increase the share capital from the amount of $1,916,000,000 to $8,866,000,000 divided into 36,535shares, through issuance of 17,375 new shares that would be issued, subscribed, and paid for February 28, 2007,at a price per share not lower than $400,000. Later, as a result of a meeting of the Company’s Board of Directorsheld on February 20, 2007, the Board agreed to offer the 17,375 new shares on a preferred basis to the existingshareholders, who decided to waive the option to obtain the shares they had the right to. Furthermore, it wasagreed to offer the remaining shares not subscribed by the shareholders to a Colombian company calledDesarrollo y Soluciones Informáticas S.A..
2009
ItemsPaid-InCapital
CapitalRevaluat.Reserve
Retainedearnings(losses)
Net Income(loss) for the
period Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Initial Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 10,551,035 — (6,768,094) — (5,669,621)Distribution income previous year . . . . . . . . . . — — (5,669,621) — 5,669,621Revaluation of share capital . . . . . . . . . . . . . . . — (295,429) 348,255 — —Fiscal year income . . . . . . . . . . . . . . . . . . . . . . . — — — — 3,065,199
Final balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,551,035 (295,429) (12,089,640) — 3,065,199
Updated Balances . . . . . . . . . . . . . . . . . . . . . . . 10,814,815 (302,815) (12,391,697) — (3,141,829)
2010
ItemsPaid-InCapital
CapitalRevaluat.Reserve
Retainedearnings(losses)
Net Income(loss) for the
period Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Initial Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 10,308,365 — (12,151,648) — 6,564,812Distribution income previous year . . . . . . . . . . — — 6,564,812 — (6,564,812)Revaluation of share capital . . . . . . . . . . . . . . . — 206,167 (111,737) — —Fiscal year income . . . . . . . . . . . . . . . . . . . . . . . — — — — 2,854,528
Final balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,308,365 206,167 (5,698,573) — 2,854,528
F-30
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
16. Changes in Equity—(Continued)
Number of shares
Series No. of subscribed sharesNo. of paid-in
shares No. of voting shares
ZZ 36,535 36,535 36,535
Capital (Amount—ThCh$)
Series Subscribed capital Fully-paid capital
ZZ 10,551,035 10,551,035
17. Other Non-Operating Income and Expenses
Other non-operating income and expenses as of September 30, 2009 and 2010 is detailed as follows:
2009 2010
ThCh$ ThCh$
Other non-operating income:AFT Panel of Experts Recovery (1) . . . . . . . . . . . . . . . . . . . . — 350,781Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,202 5,933Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,785 26,229
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,987 382,943
2009 2010
ThCh$ ThCh$
Other non-operating expensesOther taxes expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 15,753Rejected expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,666 15,142Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,380 109,535
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,046 140,430
(1) Corresponds to the recovery of the implementation costs of a communications contingency system for theperiod from July 2007 to April 2008, as instructed in Resolution No. 45 of the Panel of Experts—Transantiago System.
F-31
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
18. Price-level Restatement
Adjustabilityindex 2009 2010
Assets (charges)/ creditsProperty, plant and equipment . . . . . . . . . . . . . . . . CPI (1,629,017) 1,192,968Investments in associates . . . . . . . . . . . . . . . . . . . . CPI (135,145) 63,251Other non-monetary assets . . . . . . . . . . . . . . . . . . . CPI (732,135) 213,896Accounts of expenses and costs . . . . . . . . . . . . . . . CPI (354,373) 521,870
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . (2,850,670) 1,991,985
Liabilities (charges) / creditsEquity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 34,809 (94,430)Non-monetary liabilities . . . . . . . . . . . . . . . . . . . . CPI 30,620 (81,393)Revenue accounts . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 339,963 (504,119)
Total (charges)/ credits . . . . . . . . . . . . . . . . . . . . . 405,392 (679,942)
Profit (loss) due to foreign exchangeadjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,445,278) 1,312,043
19. Foreign Exchange Differences
Items Currency
Amount
2009 2010
ThCh$ ThCh$
Assets (charges) /creditsBank accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (2,242) (6,300)Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (1,141,064) (408,501)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (14,428) (2,963)
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . (1,157,734) (417,764)
Liabilities (charges)/ creditsBank obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 11,595,731 2,438,086Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 178,633 66,814Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 374,299 83,414
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . 12,148,663 2,588,314
Net Income (loss) from foreign exchangedifferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,990,929 2,170,550
F-32
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions
1) Concession Agreement:
On January 28, 2005, Inversiones Alsacia S.A. entered into a Concession agreement with the Ministry ofTransport and Telecommunications to use the roads of the city of Santiago to render public bus transportationservices for passengers. The Concession agreement is subscribed as the result of a public bid for the use of theroads of the city of Santiago according to article 30 of Law No.18,696.
The Company submitted an offer in the bidding process, where the Trunk line No. 1 business unit was awarded,according to Exempted Resolution No. 109 from 2005 of the Sub-Secretariat of Transportation published in theOfficial News on January 14, 2005.
The agreement was enforced from the publication date in the Official News of the administrative act thatapproved it and will be in force until the termination of the Concession period. The duration of the Concessionagreement shall be 156 months, in accordance with the article 3.4.4.2.1 of the Concession agreement.
Within the Concession agreement, the Company committed to pay 615,010 U.F. for a Technical Operatingreserve, which corresponds to an amount incorporated into the tariff paid by users that is used to cover possibletemporary lags or mismatches between the income and costs of the Transantiago passenger transportationsystem. On July 1, 2005, the Company paid the first of three installments on that contribution.
Non-payment of installments will lead to the use of the Warranty reserve set in accordance with the Concessionagreement.
Inversiones Alsacia has fully paid all the above-mentioned obligations. In fact, as of January 2, 2009, theCompany fully complied with the payment of the balance of the Technical Operating reserve, payable onDecember 31, 2008 by (a) Bank transfer in the amount of Ch$2,365,577,273 to account number 17385-1 ofBanco Estado on behalf of the Transantiago Financial Administrator (FMT) and, (b) By bank deposit, datedJanuary 2, 2009 of Ch$550,000,000 to account number 17385-1 of Banco Estado on behalf of the TransantiagoFinancial Administrator (FMT). Payments complied in full with the requirements and were certified by theMinistry of Transportation and Telecommunications by Ordinary Issue (Oficio Ordinario) N°2.783 dated July 2,2009.
2) Modifications to the Concession Agreement:
2.1) On June 30, 2006, the following modifications of the Concession Agreement were made:
a) Starting date of the new regimen stage will begin from February 10, 2007.
b) Modifications to the calendar of contributions to the Technical Operating reserve (TOR),:
Installment 2: 191,309 U.F. maturity date July 1, 2007.Installment 3: 170,836 U.F. maturity date July 1, 2008.
c) The elimination of the payment of $16 per ticket to FMT (Contribution to transitory account two of theTransantiago system), from July 1, 2006, to December 31, 2006.
F-33
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
d) For the start date of phase II at the latest, the operator should accredit with the Ministry of Transportation andTelecommunications before obtaining the planning permissions for different terminals. The dates of phase IIcannot be modified in any manner, additionally, within fifteen days after the termination of phase II, the Operatorshall provide the Ministry of Transportation and Telecommunications with a Gantt Chart or Schedule of the mainworks that will be constructed or implemented in each terminal. Likewise, 120 days at the latest after thecommissioning date of services of the regime stage, the operator should prove to the Ministry of Transportationand Telecommunications that it has obtained authorization for the operation of different terminals.
e) On June 30, 2006, the FMT signed a promissory note for 221,208 Unidades de Fomento (UF), in favor of theCompany, with a maturity date of October 31, 2009. UF 200,000 were transferred in January 2007, with aremaining balance of UF 21,208, which shall accrue daily interests at the ratio of a fixed annual rate of 3.56%.As stated in Note No 5, UF 200,000 was transferred in January 2007.
2.2) During February 2007, the Company signed a modification to the Road Use Concession Agreement with theMinistry of Transportation and Telecommunications. The main aspects of this modification and its addendumdated February 20, are detailed as follows:
a) For the period between February 10, 2007 and May 5, 2007, minimum guaranteed revenue is considered inaccordance with the referential demands in replacement of users’ validations.
b) mechanism is determined to regulate the fleet increase for the commencement of the regimen stage, as well asthe related payment.
c) Contributions to the Technical Operating Reserve (TOR) with maturity date of February 10, 2007 will be paidin 3 installments, correspondingly 55% at March 10th, 22.5% at April 10, and 22.5% in May 10, 2007.
d) A procedure is established to regulate the situation of terminals and deposits with respect to the additionalfleet.
2.3) On May 9, 2007, the Company subscribed a modification to the Concession Agreement and on June 4, 2007,an addendum to the modification to determine the Company’s income for the period between May 6, and June 5,2007, shall correspond 100% to the demand determined in the agreement and the Payment per PassengerTransported, adjusted in accordance with the Bidding Conditions.
2.4) On June 29, 2007, the Company signed a modification and two addendums to the Concession Agreementwith the purpose of: i) altering the Company’s payment dates from July 10 to 12; ii) delaying the contributiondate to Technical Reserve from July 1 to July 16, 2007 and; iii) regulating the payment terms of buses withoutvalidating equipment.
2.5) On July 17 and August 17, 2007, the Company signed two new addendums related to the modificationsdated June 29 with the Ministry of Transport and Telecommunications, for which the payment date of theTechnical Reserve was postponed to August 17th and October 24, respectively.
2.6) On July 19, 2007, the Company subscribed an Agreement Protocol with the Ministry of Transport andTelecommunications for the modification of the Concession Agreement, a modification that was implemented on
F-34
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
November 9, 2007 and two addendums to the modification, dated December 10 and 28, respectively andApril 21, June 30 and July 15 of 2008, respectively. In order to modify service hours; regulate payment of buseswithout validation equipment; delay payment of TOR for 12 months; incorporate a Service Fulfillment Index(ICPH) Regularity Compliance Index (ICR) to the formula; adjust calculation mechanism of the PPT; incorporatethe Additional and/or Complementary Fleet to the base fleet and to increase the bus fleet, which in thetransitional period do not necessarily need to be new.
2.7) On May 9, 2007, the Company signed a modification to the contract of Commercial Mandate of Collectionand Custody with the FMT.
2.8) On March 7, 2008, the Company signed a modification and addendum to the service and supply ofTechnology equipment contract with the FMT, which establishes the calculation of the payment that theconcessionaires must make for the services rendered by the FMT until this date; determines the general terms andconditions and the equipment remuneration of the denominated payment zones; adopts improvements oriented toincrease the actual service levels of the functionalities and; determined the transitory and permanent conditionsof the equipment, systems and services that the FMT has to supply and the conditions of remunerations derivedfrom rendering of services.
2.9) On March 18, 2008, the Company signed a contract amendment of Collection Mandate with the FMT inorder to authorize to the FMT the payment or reimbursement of costs, expenses or fees associated with the loanagreements.
2.10) On July 3, 2009, the Company signed a modification to the Road Use Concession Agreement of the city ofSantiago with the Ministry of Transport and Telecommunications for the provision public bus transportationservices for passengers, which was aimed at formalizing the extension of the Concession term to which theCompany has rights from 48 months to 156 months. The foregoing was informed as an essential fact to theOffice of the Superintendency of Securities and Insurance.
2.11) On January 29, 2010, the Company s signed an Agreement Protocol with the Ministry of Transportationand Telecommunications in order to incorporate a modification to the Road Use Concession Agreement toprovide public bus transportation services for passengers (“Contrato de Concesión de Uso de Vías para laPrestación de Servicios Urbanos de Transporte Público Remunerado de Pasajeros mediante Buses”), which wassigned by the Company on March 5, 2010 for the following purpose:
• A Procedure for Modification of Routes, for the reasons of public interest to ensure continuity andadequate coverage of public transportation services and a method for compensating the demand wasintroduced.
• In order to verify the effective, correct and adequate rendering of public transportation services, therewill be a measurement taken on the basis of the parameters for “Incumplimiento de Plazas-Kilómetros-Horas (ICPKH), Frequency Index (ICF) and Regularity Index (lCR).
• New revenue calculation methodology is incorporated.
F-35
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
2.12) On July 30, 2010, the company signed with the Ministry of Transport and Telecommunications, anaddendum to the concession contract of way use for the provision of urban public transport of passengers bybuses paid and includes the following changes:
• Increasing the fleet in 4.641 places.
• The additional fleet buses, will become part of the fleet based, insofar as it consists of standard busesand Technology Transantiago p EPA98 diesel Euro III or higher and have some form of post-treatmentto reduce emissions that at least 80%.
• In response to increased fleet base, adjusting the demand of Inversiones Alsacia S.A. for their servicesin the period between August and December 2010.
3) Other Contracts:
The Company signed a contract with a specialized Spanish Company Goal in the amount of ThUS$1,150, toestablish a development program to manage bus operations system.
4) Restrictions for bank loans
The Company has obligations and restrictions for loans contracted with various foreign and national banks.
By virtue of the credit agreements of the Company that exist to ensure compliance with the obligations thereincontained, and the 36,535 shares in which the Company´s equity is divided are currently pledged. The pledgecontracts imply the prohibition to alienate, sale, promise to sell or dispose in any manner whatsoever of saidshares as far as the full compliance of the obligations resulting from the financing obligation with the HSBCBank are accredited. Likewise, each bus owned by the Company has been pledged, pledges that were dulyregistered in the Registry of Motorized Vehicles of the Civil Registry Office.
On August 25, 2010 the Company modified the terms of credit agreements one and two obtained from the bankBancolombia. Additionally, during the term of the contract the following financial relationships must bemaintained:
a) EBITDA/Interest Expenses, greater than or equal to:
• 2 times for the year 2010
• 2.5 times for the year 2011
• 2.8 times for the year 2012
• 3.5 times for the year 2013
b) EBITDA/Debt Service greater than or equal to 1 time.
These financial indicators will be evaluated on a quarterly basis.
F-36
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
5) Pending Lawsuits:
The details of the Corporation’s main lawsuits are as follows:
Court: 18 Civil Court of Santiago; Rol 5,852-2007
Alsacia was sued for damages by a private person in an Ordinary Civil Trial. The compensation demandedamounts to $398,000,000. The accusation is still being tried by the Court (responses to the suit and the SIATreport are still pending). According to the background knowledge available, the matter has limited possibilities ofsuccess.
Court: 15 Civil Court of Santiago; Rol: 16,299-2007
Alsacia was jointly sued for damages with other operators—Buses Gran Santiago y Express de Santiago UnoS.A. —and the Financial Administrator of Transantiago (FMT) in an Ordinary Civil Trial by the I. Municipalityof Renca which accuses its counterparties of unfair enrichment. The compensation demanded amounts to$154,600,000. A verdict was dictated rejecting the claim of the plaintiff.
Court: 23 Civil Court of Santiago; Rol: 16956-2007
Alsacia was sued for damages by a private person in an Ordinary Civil Trial. The compensation demandedamounts to $25,500,000. The evidence stage is finished. A sentence was dictated requiring payment for a sum of$2,800,000 with no costs.
I suggest to delete. Case completedCourt: 30 Civil Court of Santiago; Rol: 15.667-2007
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $15,000,000. A termination of the evidence period is still in effect.
Court: 2 Civil Court of Santiago; Rol: 66-2008
Alsacia was sued for damages in Ordinary Civil Trial by a third party. The compensation demanded amounts to$110,550,000. A sentence was pronounced, obligating the Alsacia to pay $15,000,000, for which reason thesentence is currently in the process of appeal.
Court: 5 Civil Court of Santiago; Rol: 16.327-2007
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $15,000,000. The case was declared null because the Bus operator being sued was not legally subpoenaed.Alsacia presented a plea for abandonment of the proceedings, which was accepted by the court, and for whichreason the Trial has been concluded.
Court: 30 Civil Court of Santiago; Rol: 56.994-2008
F-37
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $716,000,000. A sentence was pronounced obligating payment of $170,000,000, for which reason both Alsaciaand the plaintiff presented appeals. This was resolved, finally obligating Inversiones Alsacia to pay $250,000 forthe concept of moral damages, plus adjustments, interest and costs, a sum which was paid by the Insurancecompany.
Court: 21 Civil Court of Santiago; Rol: 2398-2008
Alsacia was sued for damages in Ordinary Civil Court by a third party. The sum requested amounts to$300,000,000. The case was annulled, for which reason the hearing phase was given retroactive effect, currentlypending notification of evidence.
Court: 7 Civil Court of Santiago; Rol: 648-2009
Alsacia was sued for damages in Ordinary Civil Court by a third party. The sum requested amounts to$20,000,000. Termination of the evidence period is pending.
Court: 28 Civil Court of Santiago; Rol: 97-2009
Alsacia was sued for damages in Civil Ordinary Court. The sum demanded amounts to $56,850,000. The case iscurrently being tried.
Court: 30 Civil Court of Santiago; Rol: 8688-2009
The Company was sued for damages. The sum demanded amounts to $103,000,000. The Bus Operator has notyet been notified, for which reason this trial is not currently being tried.
Court: 17 Civil Court of Santiago; Rol: 16704-2009
The Company was sued for damages. The sum demanded amounts to $80,000,000 for moral damages. It is beingtried. The company presented a plea for abandoment of the proceedings, which was rejected, without any usefulprocedure having been tried as of the current date.
Court: 25 Civil Court of Santiago; Rol: 999-2009
The Company was sued for the damages. The sum demanded amounts to $180,000,000 for moral damages. Thecase is currently being tried.
Court: 25 Civil Court of Santiago; Rol: 25258-2009
The Company was sued damages. The sum demanded amounts to $80,000,000 for moral damages. It is underdiscussion period.
F-38
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
Court: 27 Civil Court of Santiago; Rol 21723-2009
The Company was sued for damages in summary proceedings. The sum demanded amounts to $602,304,540 formoral damages. It is being tried and has a precautionary measure enacted, which is currently being appealed.
Court: 11 Civil Court of Santiago; Rol: 39429-2009
The Company was sued for damages. The sum demanded amounts to Ch$ 300,000,000. The case is being tried.There is a precautionary measure decreed for the sum of $100,000,000. A plea for the raising of this sum wasrejected, for which reason the case is currently being appealed.
Court: 2 Civil Court of Santiago, Rol 4122-2010
The Company was sued by 10 persons for injuries and death, for an accident that occurred in 2006. The totalamount demanded is Ch$ 140,700,000, but there is little possibility that the case will be successful, as the actionhas expired. Currently the case is being tried.
Court: 300 Civil Court of Santiago; Rol 39.115-2009
The Company was sued for civil responsibility for the serious injuries suffered by a pedestrian. The amountdemanded is Ch$ 29,581,350. The case is currently being tried.
La sociedad fue demandada por responsabilidad civil derivada de las lesiones graves sufridas por un peatón. Elmonto demandado es la suma de $29.581.350. Se encuentra actualmente en etapa de discusión.
Court: 20 Civil Court of Santiago, Rol 5726-2010
The Company was sued by 13 persons for injuries and death, for an accident that occurred in 2005. The totalamount demanded is $158,000,000, but there is little probability that the case will be successful, since the actionwould have expired. The case is currently being tried.
Court: 29 Civil Court of Santiago, Rol 26539-2010
The Company was sued by serious injury. The total amount demanded is $450,900,000. The case is currentlybeing tried.
Court: 25 Civil Court of Santiago, Rol 5328-2010
The Company was sued by serious injury. The total amount demanded is $51,000,000. The case is currentlybeing tried.
Court: 22 Civil Court of Santiago, Rol 16878-2010
F-39
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
The Company was sued by an accident resulting in death. The total amount demanded is $250,000,000. The caseis tried.
Court: 25 Civil Court of Santiago, Rol 14990-2010
The company was sued for quasi crime acts of serious injury. The total amount demanded is $61,976,250. Thebus driver had not been informed of the event. We present motion for dismissal of proceedings by lack of notice.
6) Direct and Indirect Guarantees
A compliance policy has been granted for the Concession agreement in favor of MTT according to the sixthclause of the contract in the amount of UF 30,000.00. As a counter-guarantee to that policy, Inversiones AlsaciaS.A. took an indefinitely adjustable time deposit for an amount of UF 10,000.00 that was handed to AseguradoraMagallanes S.A. The policy was returned to the Company on November 2, 2009.
The Company was awarded by HSBC Bank (Chile) a time deposit equivalent to 5% of the total debt that remainsin force with EKN Bank, for the purchase of buses. The deposit is placed by HSBC Bank (Chile) in HSBC Bank(London) and the former undertakes to pay that value if the Company does not pay off its debt. The Company hasnot signed any documents relating to this deposit.
The Company has no knowledge of other prohibitions, encumbrances, or contingencies that affect these financialstatements.
F-40
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
20. Contingencies and Restrictions—(Continued)
Direct Guarantees
Debtor Assets involved
Outstanding payments ofoutstanding payment
balances as of the closingof financial statements Release of guarantees
Guarantee creditor Name Relation Guarantee type TypeAccounting
value 2009 2010 2011 Assets 2012 Assets 2013 Assets
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
HSBC . . . . . . . . . . . . . InversionesAlsacia S.A.
— MORTGAGE Land for Puente Altoterminal
1,149,591 4,747,217 4,669,876 — — — — — —
BANCOLOMBIA . . . InversionesAlsacia S.A.
— MORTGAGE Land for Rencaterminal
616,322 15,847,844 11,421,723 — — — — — —
BANCOLOMBIA . . . InversionesAlsacia S.A.
— MORTGAGE Land for Huechurabaterminal
1,966,736 15,847,844 11,421,723 — — — — — —
BANCOLOMBIA . . . InversionesAlsacia S.A.
— MORTGAGE Construction 3,866,506 15,847,844 11,421,723 — — — — — —
HSBC . . . . . . . . . . . . . InversionesAlsacia S.A.
— MORTGAGE Construction 2,221,017 4,747,217 4,669,876 — — — — — —
BANCOLOMBIA . . . InversionesAlsacia S.A.
— MORTGAGE High Construction 4,970,795 15,847,844 11,421,723 — — — — — —
HSBC EKN . . . . . . . . InversionesAlsacia S.A.
— PLEDGE Huechuraba Buses 34,213,997 38,187,743 28,091,806 — — — — — —
F-41
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
21. Securities obtained from third parties
As of September 30, 2009 and 2010 there are no effective securities granted by third parties in favor of theCompany, except for those mentioned in the notes to the financial statements.
22. Local and Foreign Currency
Assets
Line of business Currency 2009 2010
ThCh$ ThCh$
Current AssetsCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 707,398 23,921Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollars 20,881 9,393Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ — —Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 5,706,857 5,430,520Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unidad de Fomento 506,110 —Other Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 449,988 944,872Documents And Accounts Receivable From Related Parties . . . Non Adjusted $ 1,023,253 790,786Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 61,075 43,614Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 650,531 2,757,631Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unidad de Fomento 73,957 —Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 119,368 341,597Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unidad de Fomento 222,555 729,732Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 1,303,288 1,203,739Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollar 5,600,064 4,597,983Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 183,048 245,456Taxes Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 327,035 454,359Property, Plant And Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . — 28,395Property, Plant And Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 6,421,865 60,719,619Investments In Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 3,970,681 3,719,741Long-Term Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No Adjusted $ 794,990 —Other Long-Term Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 16,884,539 15,652,239Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 9,045,977 7,820,766
Dollars 5,620,945 4,607,376Adjusted $ 29,557,939 84,507,328Unidad de Fomento 802,622 729,732
F-42
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
22. Local and Foreign Currency—(Continued)
Current Liabilities
Description Currency
Up to 90 days 90 days to 1 year
2009 2010 2009 2010
Amount
Annualaver.
Int. Rate Amount
Annualaver.
Int. Rate Amount
Annualaver.
Int. Rate Amount
Annualaver.
Int. Rate
ThCh$ ThCh$ ThCh$ ThCh$
Long -term obligations with financialinstitutions—short term portion . . . Dollars 2,199,686 6.73% 145,095 6.75% 13,229,416 — 9,832,055 6.73%
Short term bank obligations . . . . . . . . Adjusted $ 8,951,890 8.12% 1,079,248 8.12% — 7,621,587 —Accounts payable . . . . . . . . . . . . . . . . Non Adjusted $ 7,682,145 5,945,895 — — — — —Accounts payable . . . . . . . . . . . . . . . . Dollars 391,629 395,048 — — — — —Other payables . . . . . . . . . . . . . . . . . . . Non Adjusted $ 1,082,506 715,416 — — — — —Other payables . . . . . . . . . . . . . . . . . . . Unidad de Fomento 863,314 641,634 — — — — —Other payables . . . . . . . . . . . . . . . . . . . Dollars 253,082 — —Provisions . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 962,013 — 1,367,253 — — — — —Withholdings . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 653,975 — 887,638 — — — —
OTROS OTHER CURRENTLIABILITIES . . . . . . . . . . . . . . . . . Unidad de Fomento $ — — — — — — — —
Deferred Taxes . . . . . . . . . . . . . . . . . . Adjusted $ — — — — — — — —Docs. & accounts payable
with rel. Co. . . . . . . . . . . . . . . . . . . . Unidad de Fomento 182,029 — 191,676 — — — 229,429 —
Total current liabilities . . . . . . . . . . . . Dollars 2,844,397 — 540,143 — 13,229,416 — 9,832,055 —Adjusted $ 8,951,890 — 1,079,248 — — — 7,621,587 —Non Adjusted $ 10,380,639 — 8,916,202 — — — — —Unidad de Fomento 1,045,343 — 833,310 — — — 229,429 —
F-43
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
22. Local and Foreign Currency—(Continued)
Long Term Liabilities—Current period 30-09-2009
Line of business Currency
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate
ThCh$ ThCh$ ThCh$ ThCh$
L/t obligations with banks & fin.Entities . . . . . . . . . . . . . . . . . . . . Dollars 23,451,880 6.73% 13,774,211 6.73% 16,307,771 6.73% — —
L/t obligations with banks & fin.Entities . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 1,771,684 6.73% 1,771,684 6.73% 3,543,368 6.73% — —
Other payables . . . . . . . . . . . . . . . . Unidad de Fomento 252,574 — — — — — — —Other payables . . . . . . . . . . . . . . . . Dollars 244,788 — — — — — — —Docs. & accounts payable with
rel. Co. . . . . . . . . . . . . . . . . . . . . Dollars 2,037,075 — — — — — — —L/t Provision . . . . . . . . . . . . . . . . . . Non Adjusted $ 1,955,422 — — — — — — —Total current liabilities . . . . . . . . . . Dollars 25,733,743 — 13,774,211 — 16,307,771 — — —
Non Adjusted $ 3,727,106 — 1,771,684 — 3,543,368 — — —Unidad de Fomento 252,574 — — — — — — —
F-44
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
22. Local and Foreign Currency—(Continued)
Long Term Liabilities—Previous Period 30-09-2010
Line of business Currency
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate
ThCh$ ThCh$ ThCh$ ThCh$
Obligations with Banks & Fin.Inst. . . . . . . . . . . . . . . . . . . . . Dollar 20,079,798 6.75% 13,043,381 6.75% 8,076,849 6.75% — —
Obligations with Banks & Fin.Inst. . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 1,728,472 6.75% 1,728,472 6.75% 2,592,710 6.75% — —
Other payables . . . . . . . . . . . . . Unidad de Fomento 4,530,183 — — — — — — —Other payables . . . . . . . . . . . . . Non Adjusted $ — — — — — — — —Docs. & accounts payable with
rel. Parties . . . . . . . . . . . . . . . Unidad de Fomento 1,102,888 — 2,343,349 — 249,081 — — —Docs. & accounts payable with
rel. Parties . . . . . . . . . . . . . . . Dollars 1,763,560 — — — — — — —Provisions . . . . . . . . . . . . . . . . . Non Adjusted $ 3,056,595 — — — — — — —Long-Term Deferred Taxes . . . Non Adjusted $ 643,366Total long term liabilities . . . . . Dollar 21,843,358 — 13,043,381 — 8,076,849 — — —
Non Adjusted $ 4,785,067 — 1,728,472 — 2,592,710 — — —Unidad de Fomento 5,633,071 — 2,343,349 — 249,081 — — —Non Adjusted $ 643,366
F-45
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
23. Sanctions
a) The Ministry of Transportation and Telecommunications applied the following penalties.
i) Through Exempt Resolution N°69 dated January 11, 2010, in accordance with Exempt Resolution No. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in a sum equivalent toUF 2,700 and ICPKH in the sum of Ch$ 132,358,812. The status of the appeal is pending.
ii) Through Exempt Resolution No. 372 on February 10, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,400 and for ICPKH in the amount of Ch$ 91,600,365. An appeal for reversal seeks the return of UF 200. AHierarchical Appeal was rejected and Exempt Resolution No. 911 was confirmed, in 2010, in all of its parts. As aconsequence, the UF 200 should be re-integrated; in the rest, the deductions applied are confirmed.
iii) Through Exempt Resolution N°487 on March 2, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,000 and for ICPKH in the amount of Ch$ 65,604,414. An appeal for reversal seeks the return of UF 200. AHierarchical Appeal was rejected and Exempt Resolution No. 1078 was confirmed, in 2010, in all of its parts. Asa consequence, the UF 200 should be re-integrated; in the rest, the deductions applied are confirmed.
iv) Through Exempt Resolution N°601 of March 10, 2010, in accordance with Exempt Resolution No. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts for a sum equivalent toUF 400 and ICPKH in the sum of Ch$ 70,455,023. No appeal was filed since there is no information that wouldallow reversal of the resolution.
v) Through Exempt Resolution N° 772 on March 29, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF600 and for ICPKH in the amount of Ch$ 111,772,148. A Hierarchical Appeal was rejected and ExemptResolution No. 772/ 2010 was confirmed, in all of its parts. As a consequence, the the deductions are maintained.
vi) Through Exempt Resolution N°930 on April 13, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF2,000 and for ICPKH in the amount of Ch$ 111,289,560. A Hierarchical Appeal was rejected and ExemptResolution N°1935 declaring that the appeal for reversal is justified, ordering the return of 200 UF for ICF. Ahierarchical resolution is conceded, which is currently pending resolution.
vii) Through Exempt Resolution N°1115 on April 28, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,200 and for ICPKH in the amount of Ch$ 104,635,822. Exempt Resolution No. 1115 resolves that the Appealfor Reversal is justified, ordering the return of 200 UF for ICF. A hierarchical resolution is conceded, which iscurrently pending resolution.
viii) Through Exempt Resolution N°1267 on May 12, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,900 and for ICPKH in the amount of Ch$ 100,006,174. Exempt Resolution No. 2209 resolves that the Appealfor Reversal is justified, ordering the return of 200 UF for ICF. A hierarchical resolution is conceded, which iscurrently pending resolution.
F-46
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
23. Sanctions—(Continued)
ix) Through Exempt Resolution N°1414on May 27, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,200 and for ICPKH in the amount of Ch $105,626,034. The appeal for resolution by a higher authority wasrejected, and exempt resolution N° 2270/2010 was confirmed in all of its parts. As a consequence, 100 UF shouldbe reintegrated.
x) Through Exempt Resolution N°1663 on June 21, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,200 and for ICPKH in the amount of Ch$64,877,676. The case was not presented, as there was not sufficientprecedent to allow for a reversal of the resolution.
xii) Through Exempt Resolution N°1803 on June 05, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,600 and for ICPKH in the amount of Ch$85,571,207. RE 2995/2010 resolved to the Reposition Resources.Return UF 100. An Appeal for Reversal has been filed, which is pending resolution.
xiii) Through Exempt Resolution N°1997 on July 20, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF200 and for ICPKH in the amount of Ch$66,552,604. RE 2985/2010 resolved that an appeal for reversal was notmerited. An appeal for resolution by a higher authority was granted, pending resolution. resolución
xiv) Through Exempt Resolution N°2197 on August 5, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,400 and for ICPKH in the amount of Ch$72,956,691. RE 3159/2010 resolved that an appeal for reversal wasmerited. 300 UF was returned for ICG. An appeal for resolution by a higher authority was granted, pendingresolution.
xv) Through Exempt Resolution N°2437 on August 5, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF800 and for ICPKH in the amount of Ch$60,792,358. An Appeal for Reversal has been filed, which is pendingresolution.
xvi) Through Exempt Resolution N°2609 on September 8, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF1,800 and for ICPKH in the amount of Ch$101,409,549. An Appeal for Reversal has been filed, which is pendingresolution.
xvii) Through Exempt Resolution N°2828 on September 24, 2010, in conformity with Exempt Resolution N.1938, complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount ofUF 1,900 and for ICPKH in the amount of Ch$80,654,091. An Appeal for Reversal has been filed, which ispending resolution.
xviii) Through Exempt Resolution N°2977 on October 8, 2010, in conformity with Exempt Resolution N. 1938,complemented by Exempt Resolution No. 2230, the MTT applied ICR and ICF discounts in the amount of UF2,150 and for ICPKH in the amount of Ch$136,417,281. An Appeal for Reversal has been filed, which is pendingresolution.
F-47
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
23. Sanctions—(Continued)
c) Sesma
By resolution N°457/09, the sanction process for non-compliance of the resolution that qualified environmentapproving the project “Depósito y Terminal de Vehículos Puente Alto Exp. N°016/2006” is resolved, a verdictwas issued that ordered payment of the sum of 100 UTM. The Company presented an administrativereconsideration appeal, pending resolution.
24. Subsequent Events
On November 2, 2010, a credit was received from HSBC EKN in the amount of US$7,593,205.00 for financingthe purchase of 43 new buses and the spare parts necessary for their proper functioning. This credit has an annualfloating Libor interest rate of 1.8%.
As of September 30, 2010 and the date of issue of these financial statements, the Company’s Management is notaware of other subsequent events.
25. Environment
No disbursements connected either directly or indirectly to environmental protection have been made as ofSeptember 30, 2009 and 2010.
26. Operating Income
Operating income mainly consists of revenue related to public transportation corresponding to the Company’sTrunkline N°1., which is detailed as follows:
2009 2010
ThCh$ ThCh$
Trunkline N°1 Service Revenue . . . . . . . . . . . . . . . . . 45,151,589 49,381,023Static and dynamic advertisement on buses . . . . . . . . 92,141 188,363Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,067,458 5,163,056
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,311,188 54,732,442
27. Operating Costs and Expenses
Operating costs as of September 30 for each year are detailed as follows:
2009 2010
ThCh$ ThCh$
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,539,658 39,839,425Depreciation and amortization . . . . . . . . . . . . . . . . . . 6,763,902 6,899,373
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,303,560 46,738,798
F-48
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of September 30, 2010)(A free translation of financial statements issued in Spanish)
27. Operating Costs and Expenses—(Continued)
Administrative and sales expenses as of September 30 of each year are detailed as follows:
2009 2010
ThCh$ ThCh$
Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,603,842 3,735,722Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 989,573 816,737
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,593,415 4,552,459
28. Accounts Payable
Accounts payable as of September 30 for each year are detailed as follows:
2009 2010
ThCh$ ThCh$
National suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,710,437 5,778,838Foreign suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,683 416,002Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 993,654 146,100
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,073,774 6,340,940
F-49
Consolidated Financial StatementsInversiones Alsacia S.A.
December 31, 2008 and 2009
Ch$ = Chilean pesosThCh$ = Thousands of Chilean pesosUS$ = United States dollarsThUS$ = Thousands of United States dollarsUF = “Unidades de Fomento”, an inflation-indexed, peso-denominated monetary unit. The UF rate is set
daily based on changes in the Chilean Consumer Price Index.
(A free translation from the original prepared in Spanish)
F-50
Report of Independent Accountants(A free translation from the original report issued in Spanish)
To the Shareholders and Directors ofInversiones Alsacia S.A.:
We have audited the consolidated balance sheet of Inversiones Alsacia S.A. (the “Company”) as of December 31,2009 and the related consolidated statements of income and cash flows for the year then ended. These financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audit. The financial statements of Inversiones Alsacia S.A. for the yearended December 31, 2008 were audited by other auditors, who issued an unqualified opinion on their reportdated February 26, 2009. We have not reviewed the financial statements of subsidiary IASA de ColombiaLimitada which shows total assets of ThCh$227 as of December 31, 2009. In addition we have not reviewed thefinancial statements of indirect associate Express de Santiago Uno S.A. (subsidiary of the direct associateInversiones Eco Uno S.A.) which as a result of the application of the equity method shows a total investment ofThCh$4,196,640 and a loss of ThCh$403,962 for the year then ended. Those financial statements were reviewedby other auditors whose reports have been furnished to us, and our opinion expressed herein, in reference to theamounts used to calculate the equity value of those companies, is based solely on the reports issued by thoseauditors.
We conducted our audit in accordance with generally accepted auditing standards in Chile. Those standardsrequire that we plan and perform our audit to obtain reasonable assurance that the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also involves assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referredto above present fairly, in all material respects, the financial position of Inversiones Alsacia S.A. as ofDecember 31, 2009 and the results of its operations and cash flows for the year then ended, in conformity withgenerally accepted accounting principles in Chile and the accounting instructions provided by theSuperintendency of Securities and Insurance.
For the convenience of the reader, these financial statements and their accompanying notes have been translatedfrom Spanish to English.
/s/ Ernst & Young Ltda.
Santiago, Chile, February 24, 2010
F-51
INVERSIONES ALSACIA S.A.
CONSOLIDATED BALANCE SHEET(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
NOTE
As of December 31,
2008 2009
ThCh$ ThCh$
ASSETS
CURRENT ASSETSCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,942 2,795,845Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 36,063 1,080,043Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4,981,464 3,452,926Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 535,165 444,026Accounts receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 955,661 1,515,049Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 89,361 43,498Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,717 454,358Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754,664 1,469,230Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 — 38,368Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9,322,678 8,369,978
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,262,715 19,663,321
PROPERTY, PLANT AND EQUIPMENTLand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3,675,230 3,659,461Buildings and infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13,389,388 15,577,834Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 63,004,416 62,867,269Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5,269,498 5,557,594Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (18,764,536) (26,862,382)
TOTAL PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . 66,573,996 60,799,776
OTHER ASSETSInvestment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4,600,602 4,196,640Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2,909,321 428,304Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 16,793,808 16,293,636
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,303,731 20,918,580
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,140,442 101,381,677
The accompanying notes 1 to 33 are an integral part of these financial statements
F-52
INVERSIONES ALSACIA S.A.
CONSOLIDATED BALANCE SHEET—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
NOTE
As of December 31,
2008 2009
ThCh$ ThCh$
LIABILITIES
CURRENT LIABILITIESShort-term loans with banks and financial institutions . . . . . . . . . . . . . 14 5,379,495 7,044,276Long-term bank borrowings—short-term portion . . . . . . . . . . . . . . . . . 14 13,455,598 14,355,974Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7,172,988 8,774,470Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447,255 1,532,668Accounts payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 31,321 431,841Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 973,606 1,528,282Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,662 712,993Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,381 —Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 508,734 —Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 52,628 —
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,549,668 34,380,504
LONG-TERM LIABILITIESObligations with banks and financial institutions . . . . . . . . . . . . . . . . . 16 77,199,605 53,784,391Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,454 281,870Accounts payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2,228,998 5,669,745Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 — 2,543,639
TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,434,057 62,279,645
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 — —SHAREHOLDERS’ EQUITY
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10,308,365 10,308,365Retained earnings (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (6,612.428) (12,151,648)Net income (loss) for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (5,539,220) 6,564,811
TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,843,283) 4,721,528
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,140,442 101,381,677
The accompanying notes 1 to 33 are an integral part of these financial statements
F-53
INVERSIONES ALSACIA S.A.
CONSOLIDATED STATEMENT OF INCOME(Restated for general price-level changes and expressed in millions of constant
Chilean pesos As of December 31, 2009)(A free translation from the original prepared in Spanish)
For the year ended as ofDecember 31,
NOTE 2008 2009
ThCh$ ThCh$
STATEMENT OF INCOME
OPERATING INCOMERevenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 70,865,567 66,658,229Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (56,528,310) (60,229,691)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,337,257 6,428,538
Administrative and selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (4,988,842) (6,612,768)
TOTAL OPERATING PROFIT (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . 9,348,415 (184,230)
NON-OPERATING INCOME (EXPENSES)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692,043 170,487Profit from investment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 491,160 —Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 305,712 192,875Loss from investment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 — (403,962)Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,001,080) (4,163,844)Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (436,526) (581,862)Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6,390,055 (1,975,261)Foreign exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (17,412,968) 15,501,036
TOTAL NON-OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,971,604) 8,739,469
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEMS . . (6,623,189) 8,555,239INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1,083,969 (1,990,428)MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
NET INCOME (LOSS) FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . . . (5,539,220) 6,564,811
The accompanying notes 1 to 33 are an integral part of these financial statements
F-54
INVERSIONES ALSACIA S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
For the year ended as ofDecember 31,
2008 2009
ThCh$ ThCh$
CASH FLOWS FROM OPERATING ACTIVITIESCollection of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,138,939 62,249,384Interest income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793,407 170,492Other income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,941 192,875Payables to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54,789,265) (46,850,810)Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,924,717) (4,942,392)Other expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (294,433) (581,862)Value Added Tax and other taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (246,642) (807,079)
TOTAL NET CASH FLOWS PROVIDED BY OPERATINGACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,848,230 9,430,608
CASH FLOWS FROM FINANCING ACTIVITIESLoans received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,323,201 16,820,480Loans from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,099,876Other borrowings from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463,899 —Payment of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,099,542) (23,241,668)Acquisition of other loans from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (649,285) —
TOTAL NET CASH FLOWS PROVIDED BY FINANCINGACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,038,273 (2,321,312)
CASH FLOWS FROM INVESTMENT ACTIVITIESOthers Investments Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,197,891 10,147,260Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,842,385) (1,867,035)Investments in financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,312,934) (11,818,292)
TOTAL NET CASH FLOWS PROVIDED BY INVESTMENTACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,957,428) (3,538,067)
TOTAL NET CASH FLOWS FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . (70,925) 3,571,229EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 28,916 (7,346)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . (42,009) 3,563,883OPENING BALANCE OF CASH & CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 354,014 312,005
CLOSING BALANCE OF CASH & CASH EQUIVALENTS . . . . . . . . . . . . . . . 312,005 3,875,888
F-55
INVERSIONES ALSACIA S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
For the year ended onDecember 31,
2008 2009
ThCh$ ThCh$
Net income (Loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,539,220) 6,564,811Charges (credits) to income that do not represent cash flowsDepreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,578,402 8,255,510Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,573,963 2,400,869Write-offs and provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,913 3,899,395Profit from investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (491,160) —Loss from investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 403,962Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,390,055) 1,975,261Foreign exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,412,969 (15,501,036)Credits to income which do not represent cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . (2,691,217) —Charges to income which do not represent cash flows . . . . . . . . . . . . . . . . . . . . . . . . . — 2,087,454
Total charges (credits) to income that do not represent cash flows . . . . . . . . 17,114,815 3,521,415
Changes in assets affecting cash flows decrease (increase)Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,841,681) 1,749,547Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,512) 47,967Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 909,836 (560,820)
Total changes in assets affecting cash flows decrease (increase) . . . . . . . . . . . (949,357) 1,236,694
Changes in liabilities affecting cash flows increase (decrease)Accounts payable related to operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216,332) 1,544,056Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890,255 (3,294,436)Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,382 (9,602)Other accounts payable related to non-operating income . . . . . . . . . . . . . . . . . . . . . . . (6,461,313) (132,330)Profit (Loss) of minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
Total changes in liabilities affecting cash flows increase (decrease) . . . . . . . . (5,778,008) (1,892,312)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . 4,848,230 9,430,608
F-56
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
1. Corporate Information
Registration in the Securities and Trade Registry
Inversiones Alsacia S.A. is listed in the Securities and Trade Registry of the Office of the Superintendency ofSecurities and Insurance of Chile (SVS), under No 883 dated January 27, 2005, and is subject to the supervisionof the SVS.
Incorporation and operations:
Inversiones Alsacia S.A. was founded as a closely-held corporation by public deed on November 27, 2004. Theprincipal activity of the Company is providing public transportation services to passengers on the roads grantedto it in the Metropolitan region and any other related activity in connection with that service.
At the Shareholders’ Meeting held on December 9, 2004, it was agreed to extend the line of business to includestatic and dynamic advertisement through the use of advertising spaces on buses and other services related to themain activity.
On October 23, 2005, the Corporation started providing public transportation services associated with The TrunkLine No 1, which involved the operation of 533 buses at the beginning of the transition stage that reached thesame amount at the beginning of the Normal Operatig Stage(February 2007).
2. Summary of Significant Accounting Principles
(a) Accounting period
These financial statements include the period January 1 to December 31, 2008 and 2009.
(b) Basis of preparation
The consolidated financial statements as of December 31, 2008 and 2009 have been prepared in accordance withgenerally accepted accounting principles in Chile (Chilean GAAP), issued by the Chilean Institute of CertifiedAccountants A.G., and with the specific rules and instructions issued by the Office of the Superintendency ofSecurities and Insurance of Chile.
Certain accounting practices applied by the Company that conform to Chilean GAAP may not conform togenerally accepted accounting principles in the United States (US GAAP) or International Financial ReportingStandards.
(c) Basis of presentation
The consolidated financial statements as of December 31, 2008, include certain reclassifications in order to makethem conform with the classifications used in 2009.
In these consolidated financial statements, certain reclassifications have been made in the Statements of CashFlows for the periods 2008 and 2009, in order to make the criteria used uniform. These reclassifications do notaffect total cash flows for the periods.
F-57
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
For comparative purposes, the consolidated financial statements as of December 31, 2008 and its correspondingnotes have been restated for accounting purposes by -2.3%.
(d) Price-level restatement
The consolidated financial statements have been price-level restated in order to reflect the variation in purchasingpower of the Chilean peso during each period. The adjustments have been determined based on the official indexof the National Institute of Statistics, which show a variation of -2.3% for 2009 (8.9% in 2008).
The effect of the foreign exchange adjustment for the periods between January 1 and December 31, 2009, hasbeen recorded in net income.
(e) Basis of foreign currency translation
The assets and liabilities in foreign currency and in “Unidades de Fomento” are valued at the exchange rateeffective as of the closing date of each period. Effects have been recognized directly in the income statement.The exchange rates effective as of the closing date of each fiscal year are the following:
2008 2009
$ $
US dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636.45 507.10Unidad de Fomento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,452.57 20,942.88
(f) Time deposits
Investments in time deposits are presented at the acquisition cost plus any readjustment and interest accrued as ofeach closing date. Time deposits are presented under other current assets.
(g) Marketable Securities
Investments in mutual fund units are recorded at the unit value of the period and date.
(h) Allowance for Doubtful Accounts
Allowance for doubtful accounts has been calculated based on aging and current regulations. These allowancesare shown on a deduction of the related receivable.
(i) Inventories
The fuel stock is shown at its price-level restated cost, which does not exceed its net realizable value.
Spare parts and materials for maintenance of buses have been classified in other property, plant and equipment.
F-58
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
(j) Prepaid expenses
Prepaid expenses includes expenses related to insurances policies, which are amortized over the insurance policyterm.
(k) Property, plant and equipment
The Company’s Property, plant and equipment mainly corresponds to buses held for public transportation, whichare valued at price-level restated acquisition price adjusted by inflation, including all the expenses incurred up tothe date in which they available for use. Other property, plant and equipment items are accounted for at theirpurchasing price adjusted by inflation.
Expenditures related to the purchase of software packages are recognized at price-level restated acquisition costand amortized over a three-year period.
Goods subject to a sale-and-leaseback agreement are capitalized as a property, plant and equipment of theCompany; corresponding obligations are accounted for as part of other short and long-term payables.
The Company has made a provision for maintenance related to its buses.
(l) Depreciation of property, plant and equipment
The annual depreciation has been estimated using the straight-line method, considering the remaining estimateduseful life of the respective goods.
During the third quarter of 2008, the Company carried out a technical review of the buses in order to determinethe technical situation in the current operating situations. As a result of the review, the remaining useful life ofthe buses was reduced from 13 years—originally determined according to the duration of the concessioncontract—to 9 years.
This adjustment of the useful lives of the buses led to an increase in a depreciation charge for the financial periodof 2008 in the amount of ThCh$1,866,815. According to internal analysis the change in useful lives will have anegative impact on future income for the period of 2009 and onwards in the amount of ThCh$2,309,741annually.
(m) Property, plant and equipment under finance lease
Items of property, plant and equipment leased on the basis of contracts which include a purchase option andwhich fulfill all criteria of a financial lease agreement are capitalized as if they were acquired. The sum of theannual lease payments is recognized as liability and lease interest is recorded on accrual basis. Such assets arenot legally owned by the Company, so, as long as the purchase option is not exercised, the Company cannotfreely dispose of them.
(n) Investments in associates
Investments in associates are accounted for using the equity method.
F-59
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
The share in the associates income is recognized in the Company’s income statement on an accrual basis over thecorresponding holding period.
(o) Income Tax and Deferred Taxes
According to the current legal regulations, the Company has not accrued any provision for First-category incometax, because it shows a negative taxes base in the respective periods.
In accordance with what is set forth in Technical Bulletin No 60 and the complementary bulletins issued by theChilean Association of Accountants, and the standards provided in Circular No 1,466 of the ChileanSuperintendency of Securities and Insurance, the Company accounts for deferred taxes originated by timingdifferences, benefits due to taxes losses and other events that generate differences between accounting and taxincome.
(p) Vacation accrual
At each period end, the Company sets up an accrual for unused vacations days of its employees.
(q) Operating Income
On February 10, 2007, the new regimen period began, and from this date on the earnings are calculated inaccordance with the concession agreement with the Ministry for Transportation and Telecommunications, that is,the price per transported passenger (PTP) multiplied by the adjusted demand.
Income is recognized in accordance with generally accepted accounting principles in Chile, on an accrual basis.As of the date of the financial statements, provisions have been established for services provided and not billed.
Income from static and dynamic advertising originates from renting out advertising spaces on buses.
(r) Technical Operating Reserve (TOR)
The Technical Operating Reserve is an allowance incorporated in the fare paid by users to cover possibletemporary lags or mismatches between the income and costs of the Transantiago passenger transportationsystem. The amounts paid to the Transantiago Financial Administrator (AFT) for this concept in relation to theTrunk Line Nº 1 business unit, are recorded as a deferred asset that will be amortized with a charge to operatingincome, during the concession´s operating period, based on projected income to be obtained from providingtransportation services.
(s) Statements of Cash Flows
The Company considers as cash equivalents all highly-liquid financial investments agreed with a maximummaturity of 90 days , and with minimum risk of loss in value. Cash flows from operating activities include allbusiness-related cash flows, as well as paid interest, interest income and, in general, all cash flows not defined asfrom investment or financing activities. It is important to emphasize that the operating concept used in thestatements of cash flows is more comprehensive than the one considered in the statement of income.
F-60
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
Amortization associated to technical operating reserve and capitalized financing expenses have been classified asamortization of intangibles in the reconciliation of the cash flows.
(t) Capital Expenditures
According to the ordinary official letter No. 11,808 of October 31, 2006, the Office of the Superintendency ofSecurities and Insurance authorized the Company to accrue and subsequently amortize capital expendituresdirectly associated with the bank loans used to finance the purchase of the bus fleet. For this purpose, suchexpenditures are distributed based on the development of actual earnings obtained, considering the total projectedearnings. These expenditures are capitalized as part of the line item Other Long-Term Assets.
(u) Companies Included in the Consolidation
Taxpayer No. Company Name
Participation Percentage
12-31-2009 12-31-2008
Direct Indirect Total Total
0-E Iasa de Colombia Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.999 0 99.999 99.999
3. Accounting Changes
During the period from January 1 to December 31, 2009, no significant changes have been made to the generallyaccepted accounting principles of Chile.
4. Marketable Securities
Book Value
2008 2009
ThCh$ ThCh$
Financial InstrumentsMutual fund units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,063 1,080,043
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . 36,063 1,080,043
F-61
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
5. Short- and long-term receivables
Composition of short- and long-term receivables as of December 31, 2008 and 2009:
2008 2009
ThCh$ ThCh$
Trade receivablesDeferred income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,020,565 1,605,686FMT (Exempted Resolution 1985) (2) . . . . . . . . . . . . . . 2,864,126 2,583,247Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,889 176,606Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797 18,186Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . (121,913) (930,799)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,981,464 3,452,926
Other receivablesAccounts receivable from employees . . . . . . . . . . . . . . . 258,924 279,788Prepayments to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 212,427 105,108Accounts receivable from Volvo (4) . . . . . . . . . . . . . . . . 47,558 25,111Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,256 34,019
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535,165 444,026
(1) For the most part corresponds to the passenger revenue accrued by rendering public transportation servicesduring the regimen period that are liquidated every two weeks by the Transantiago Financial Administrator.
(2) The Company has recorded as receivables the amounts withheld by the Ministry of Transportation andTelecommunications through Exempt Resolution 1985 of 2008, which establishes a fine for non-compliancewith regularity and frequency indices. According to the Exempt Resolutions mentioned in note 26 theamounts should be accounted for in the pertinent account as debts of the system that the Company expectsto recover in 2010.
(3) As stated in note 2 h), the Company has estimated an accrual for ThCh$806,557 corresponding to revenuewithheld by the Ministry of Transport and Telecommunication for the application of Exempt Resolution1938, where the fines relating to regularity, frequency and ICPKH indices are set.
(4) This line item relates to warranty claims against Volvo Sweden Co. in the form of spare parts for the busfleet.
Short-term Long-term
Up to 90 days < 90 days > 1 year Subtotal Total Current (net)
2008 20092008 2009 2008 2009 2008 2009
Trade receivables . . . . . . . . . . . . . 4,981,464 4,383,725 — — 4,383,725 4,981,464 3,452,926 — —Allowance for doubtful
accounts . . . . . . . . . . . . . . . . . . — — — — 930,799 — — — —Trade receivables . . . . . . . . . . . . . — — — — — — — — —Other receivables . . . . . . . . . . . . . 535,165 444,026 — — 444,026 535,165 444,026 — —Allowance for doubtful accounts
other receivables . . . . . . . . . . . — — — — — — — — —
Total long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
F-62
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
6. Related party disclosures
The sales to and purchases from related parties are made at terms equivalent to those prevailing in arm´s lengthtransactions.
Short-term receivables from related parties are detailed as follows:
2008 2009
ThCh$ ThCh$
Express de Santiago Uno S.A. (1) . . . . . . . . . . . . . . . . . . . 183,317 193,619Carlos Rios V. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,509 46,076EDTM Consultores.E.U. (4) . . . . . . . . . . . . . . . . . . . . . . . 297,370 742,245Rioma Ltda. (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,367 231,418Desarrollo y Soluciones Informáticas (6) . . . . . . . . . . . . . 125,845 128,808Inversiones Eco Uno Ltda. (7) . . . . . . . . . . . . . . . . . . . . . . 168,253 172,213Holding Alsacia S.A. (8) . . . . . . . . . . . . . . . . . . . . . . . . . . — 670
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 955,661 1,515,049
Short-term payables to related parties are detailed as follows:
2008 2009
ThCh$ ThCh$
Express de Santiago Uno S.A. (1) . . . . . . . . . . . . . . . . . . . . . . 31,321 177,589Dakota SPA (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 254,252
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,321 431,841
Long-term payables to related parties are detailed as follows:
2009 2008
ThCh$ ThCh$
Data Tools S.A. (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031,029 848,400Fanach Corp. (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643,212 529,257Aseo Capital S.A. (12) . . . . . . . . . . . . . . . . . . . . . . . . . . 319,594 262,988Carlos Toro (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,102 104,595Maraya E.U. (14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,061 88,926Dakota SPA (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,835,579
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,228,998 5,669,745
(1) As of December 31, 2008 and 2009, the receivable and payable balances recorded by the Company withExpress de Santiago Uno S.A., correspond to balances generated in the context of the allocation of expensesand operating costs, amount to ThCh$16,030 and ThCh$151,996, respectively.
Moreover, there exists an adjustment account for the financial years of 2005 and 2006, determined onconservative basis, which amounts to ThCh$1,515,343 (historic value), increasing the balance in favor ofInversiones Alsacia S.A. as of December 2009 to ThCh$1,531,373.
F-63
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
6. Related party disclosures—(Continued)
The value of the adjustment account is based on the instructions of the Official Letter No. 06354 datedJune 11, 2007, of the Superintendency of Securities and Insurance. The Company followed the guidelines ofthe granted Official Letter and altered the balances receivable from and payable to Express de Santiago UnoSA to the amounts of ThCh$611,317 and ThCh$2,126,660, respectively (historic net amount ofThCh$1,515,343 in favor of Inversiones Alsacia S.A.).
Adjusted balances originated from:
The pre-operational period: ThCh$611,317 (historic value) in favor of Express. referring to the periodbetween January 10 and December 31, 2005.
The operational period: ThCh$2,126,660 (historic value) in favor of Inversiones Alsacia S.A. referring tothe period between January 10 and August 31, 2006.
Inversiones Alsacia S.A. has 2 independent third party reports confirming the figures cited.
The companies involved have been in negotiations to resolve the situation, as of the period-end noresolution have been reached. For the fact that no agreement has yet been reached, the Company isconsidering submitting the matter for arbitration. In the meantime, following the instructions of the OrdinaryOfficial Letter (Oficio Ordinario) published by the Superintendency of Securities and Insurance, thebalances above are considered as contingent income, without bearing interest or readjustments.
(2) Carlos Rios: Funds payable not generating interests.(3) EDTM: Corresponds to a loan of US$350,965 taken on March 05, 2007, to finance the capitalization of Eco
Uno Ltda. On February 29, 2008, the loan was renewed with a 180-day payment term, and an agreed-uponmaturity date of August 05, 2008 with an annual interest rate of 7.7%. The loan will be renewedautomatically for another term of 180 days at the date of maturity.
On December 22, 2009, $437,873,476 was paid to EDTM to contract the warranty of EDTM in favor ofDakota SPA, which was incorporated as a pledge for part of its investments.
(4) Rioma Ltda.: Recovery of expenses not generating interest with a maturity date of December 31, 2010.(5) Desarrollo y Soluciones Informáticas: Accounts receivable of US$ 258,160.96 corresponding to interest
earned on external funding.(6) Eco Uno Ltda.: Corresponds to contribution for interest.(7) Holding Alsacia S.A.: Corresponds to recoveries of expenditures that do not generate interests with a
maturity date of 31/12/2010.(8) Dakota SPA: Corresponds to a credit to finance working capital in the amount of UF195,480.00; the amount
is to be paid in 110 monthly installments and successive quotas payable from January 2010 and accrues aninterest of 12.5% annually.
(9) Data Tools: Corresponds to three loans obtained to finance Transantiago Operating Plan totaling of US$1,610,000. The loans are in US dollars and accrue 1% of annual interest with a maturity date of 28/08/2012.
(10) Fanach: Corresponds to a credit in the amount of US$ 1,000,000 obtained to finance operations pursuant tothe Transantiago Operating Plan. The loan is in US dollars and accrue an annual interest of 1% with amaturity date of 28/08/2012.
(11) Aseo Capital: Corresponds to a credit in the amount of US$ 500,000 obtained to finance operations pursuantto the Transantiago Operating Plan. The loan is in US dollars and accrues an annual interest of 1% with amaturity date of 28/08/2012.
F-64
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
6. Related party disclosures—(Continued)
(12) Carlos Toro: Corresponds to a credit amounting to US$ 200,000 obtained to finance operations pursuant tothe Transantiago Operating Plan. This loan is in US dollars and accrues an annual interest of 1% with amaturity date of 28/08/2012.
(13) Maraya: Corresponds to a credit amounting to US$ 170,000 obtained to finance operations pursuant to theTransantiago Operating Plan. This loan is in US dollars and accrues an annual interest of 1% with a maturitydate of 28/08/2012.
Balances and transactions with related parties during the period January through December, 2008 and 2009are shown in tables below:
a) Documents and accounts receivable
Taxpayer IDNo. Corporation Short-term Long-term
2008 2009 2008 2009
ThCh$ ThCh$ ThCh$ ThCh$
99577390-2 Express de Santiago Uno S.A. . . . . . . . . . . . . . . . . . . . . . . . 183,317 193,619 — —48095921-3 Carlos Rios V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,509 46,076 — —
0-E Edtm Consultores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,370 742,245 — —76452480-2 Rioma Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,367 231,418 — —
0-E DSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,846 128,808 — —76195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . 168,252 172,213 — —
0-E Holding Alsacia S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 670 — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 955,661 1,515,049 — —
b) Notes and accounts receivable
Taxpayer IDNo. Corporation Short-term Long-term
2008 2009 2008 2009
ThCh$ ThCh$ ThCh$ ThCh$
99577390-2 Express de Santiago Uno S.A. . . . . . . . . . . . . . . . . . . 31,321 177,589 — —0-E Aseo Capital De Colombia . . . . . . . . . . . . . . . . . . . . . — — 319,594 262,9880-E Data Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,031,029 848,4000-E Fanach Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 643,212 529,2570-E Carlos Toro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 127,102 104,5950-E Maraya E.U. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 108,061 88,926
77080776-K Dakota Spa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 254,252 — 3,835,579
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,321 431,841 2,228,998 5,669,745
F-65
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
6. Related party disclosures—(Continued)
c) Transactions
CorporationTaxpayer id
no.Nature of therelationship Transaction description
2008 2009
Amount
Effects onIncome
(charge/credit) Amount
Effects onIncome
(charge/credit)
ThCh$ ThCh$ ThCh$ ThCh$
Express de Santiago UnoS.A. . . . . . . . . . . . . . . . . . . . 99577390-2 Related Company Shared Expenditures 83,893 83,893 203,695 (203,695)
Iasa de Colombia Ltda. . . . . . . 0-E Related Company Nib Credit Interests Diff. 80,572 — 133,213 —Edtm Consultores . . . . . . . . . . 0-E Related Company Current Account — — 410,089 —Dakota Spa . . . . . . . . . . . . . . . . 77080776-K Related Company Delivery Of Loan — — 4,099,876 —Holding Alsacia S.A . . . . . . . . 0-E Related Company Current Account — — 670 —Edtm Consultores . . . . . . . . . . 0-E Related Company Loan Accrued Interests — — 27,784 27,784Ruben Rios V. . . . . . . . . . . . . . 0-E Shareholder Board Of Directors’ Fees 6,208 (6,208) 6,012 (6,012)Carlos Rios V. . . . . . . . . . . . . . 21922672-1 Shareholder/Dirctor Various Payments 3,828 — 851 (851)Luis Videla V. . . . . . . . . . . . . . 7779468-9 Director Board Of Directors’ Fees 3,000 (3,000) 6,000 (6,000)Laurence Goldborne . . . . . . . . 8170562-3 Director Board Of Directors’ Fees — — 4,000 (4,000)Heriberto Urzua . . . . . . . . . . . . 6666825-8 Director Board Of Directors’ Fees 176 (176) 1,500 (1,500)Asesorias Vsa Ltda. . . . . . . . . . 77127320-3 Company Director Consultancies 36,000 (36,000) 20,000 (20,000)Sociedad De Inversiones Santa
Anita Ltda. . . . . . . . . . . . . . . 76939320-K Company Director Consultancies 9,000 (9,000) 24,000 (24,000)Heriberto Urzua Inversiones y
Asesorias Ltda. . . . . . . . . . . 76704540-9 Company Director Consultancies 36,000 (36,000) 33,500 (33,500)Rioma Ltda. . . . . . . . . . . . . . . . 76452480-2 Related Company Consultancies 110,727 (110,727) 133,333 (133,333)
Related Company Property, Plant And Equipment Purchase — — 22,000 —Related Company Back Office 150,751 150,751 75,394 75,394
F-66
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
7. Inventories
Includes the inventories owned by the Company, valued according to the accounting policy of the Companydescribed in Note 2i).
The balances as of December 31, 2008 and 2009 are detailed as follows:
2008 2009
ThCh$ ThCh$
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,361 43,498
8. Deferred and Income Taxes
General information:
As of December 31, 2008 and 2009 as stated in Note 2 o), the Company has made no provision for First Categoryincome tax ( “Impuesto al la Renta de Primera Categoría”), according to current legal regulations in force it hasnegative tax results.
Retained loss as of December 31, 2009 amounts to ThCh$52,253,463 (ThCh$70,313,039 in 2008).
Deferred taxes
Concepts 2008 2009
Temporary Differences
Deferred Tax Asset Deferred Tax Liability Deferred Tax Asset Deferred Tax Liability
Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$Allowance for doubtful accounts . . 20,724 — — — 158,236 — — —Deferred income . . . . . . . . . . . . . . . — — — — — — — —Vacation accrual . . . . . . . . . . . . . . . 132,296 — — — 131,809 — — —Amortization of intangible
assets . . . . . . . . . . . . . . . . . . . . . . — — 593,175 1,391,275 — — 195,540 1,687,966Finance lease assets . . . . . . . . . . . . — — — 128,455 — — — 77,797Manufacturing expenses . . . . . . . . . — — — — — — — —Depreciation of property,plant and
equipment . . . . . . . . . . . . . . . . . . — — — 6,552,722 — — — 6,117,319Staff Severance Indemnities . . . . . . — — — — — — — —Other events . . . . . . . . . . . . . . . . . . — — — — — 510,249 — —Amortization of other Assets . . . . . — — 31,278 971,443 — — 31,278 1,081,952Accrued Interests of Mutual
Funds . . . . . . . . . . . . . . . . . . . . . — — 1 — — — — —Prepayments . . . . . . . . . . . . . . . . . . — — 37,300 — — — 46,636 —Accrued Tax Loss . . . . . . . . . . . . . . — 11,953,216 — — — 8,883,089 — —Spare Parts Obsolescence
Provision . . . . . . . . . . . . . . . . . . . — — — — 21,777 — — —OthersComplementary accounts- net of
amortization . . . . . . . . . . . . . . . . — — — — — — — —Valuation allowance . . . . . . . . . . . . — — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . 153,020 11,953,216 661,753 9,043,895 331,822 9,393,338 273,454 8,965,034
F-67
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
8. Deferred and Income Taxes—(Continued)
Income Taxes
Item 2008 2009
ThCh$ ThCh$
Effect on assets and liabilities due to fiscal year’s deferred tax . . . . . . . . . . 1,083,969 (1,990,428)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,083,969 (1,990,428)
9. Other current assets
Other current assets balance as of December 2008 and 2009 is the following:
2008 2009
ThCh$ ThCh$
Short-term deposits (1) (2) . . . . . . . . . . . . . . . . . . . . . . . 7,681,903 6,911,527AFT Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,281 170,104Technical Reserve for Operations, short-term portion . . 963,865 980,131Transantiago’s guarantee (3) . . . . . . . . . . . . . . . . . . . . . . 211,528 —Rental Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 114,111 124,226HSBC Deferred Expenditures . . . . . . . . . . . . . . . . . . . . . 183,990 183,990
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,322,678 8,369,978
(1) Correspond to time deposits obtained from the HSBC Bank and Bancolombia, to assure the payment ofinterest for the loans granted by the same banks for the financial period between August 28, 2009 andFebruary 28, 2010. Details are as follows:
Bank or Financial Institution Start Due dateCurrencyof Origin
Value ofSubscription
AnnualRate
Bookvalue
31/12/2008
ThCh$ ThCh$HSBC BANK . . . . . . . . . . . . . . . . . . 11-08-2009 26-02-2010 US$ 358,800 0.110 331,035HSBC BANK . . . . . . . . . . . . . . . . . . 27-08-2009 26-02-2010 US$ 357,227 0.083 330,463HSBC BANK . . . . . . . . . . . . . . . . . . 11-09-2009 26-02-2010 US$ 305,254 0.070 281,560HSBC BANK . . . . . . . . . . . . . . . . . . 29-09-2009 26-02-2010 US$ 328,840 0.073 304,021HSBC BANK . . . . . . . . . . . . . . . . . . 02-10-2009 26-02-2010 US$ 81,345 0.100 73,638HSBC BANK . . . . . . . . . . . . . . . . . . 14-10-2009 26-02-2010 US$ 411,355 0.600 377,726HSBC BANK . . . . . . . . . . . . . . . . . . 27-10-2009 26-02-2010 US$ 3,738,374 0.550 3,561,877HSBC BANK . . . . . . . . . . . . . . . . . . 11-11-2009 26-02-2010 US$ 378,385 0.500 376,859HSBC BANK . . . . . . . . . . . . . . . . . . 27-11-2009 26-02-2010 US$ 371,644 0.580 376,519HSBC BANK . . . . . . . . . . . . . . . . . . 11-12-2009 26-02-2010 US$ 368,789 0.600 376,556HSBC BANK . . . . . . . . . . . . . . . . . . 29-12-2009 26-02-2010 US$ 376,381 0.450 375,867HSBC BANK . . . . . . . . . . . . . . . . . . 11-09-2009 26-02-2010 CH$ 3,850 0.070 3,859HSBC BANK . . . . . . . . . . . . . . . . . . 29-09-2009 26-02-2010 CH$ 3,860 0.100 3,871HSBC BANK . . . . . . . . . . . . . . . . . . 14-10-2009 26-02-2010 CH$ 3,850 0.720 3,856HSBC BANK . . . . . . . . . . . . . . . . . . 27-10-2009 26-02-2010 CH$ 3,750 0.108 3,757HSBC BANK . . . . . . . . . . . . . . . . . . 11-11-2009 26-02-2010 CH$ 3,950 0.600 3,953HSBC BANK . . . . . . . . . . . . . . . . . . 27-11-2009 26-02-2010 CH$ 3,850 0.960 3,853HSBC BANK . . . . . . . . . . . . . . . . . . 11-12-2009 26-02-2010 CH$ 3,850 0.480 3,851HSBC BANK . . . . . . . . . . . . . . . . . . 29-12-2009 26-02-2010 CH$ 20,500 0.480 20,501BANCOLOMBIA . . . . . . . . . . . . . . . 29-12-2009 12-06-2010 US$ 98,032 0.285 97,905
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,221,886 6,911,527
F-68
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
9. Other current assets—(Continued)
(2) Time deposit obtained from the HSBC Bank for the period of 2008 are the following:
Bank or Financial Institution Start EndCurrencyof Origin
Value ofSubscription
AnnualRate
Book value2008
ThCh$ ThCh$
HSBC BANK . . . . . . . . . . . 18/11/2008 12/01/2009 US$ 443,274 0.187 438,206HSBC BANK . . . . . . . . . . . 26/11/2008 27/02/2009 US$ 418,093 0.285 396,889HSBC BANK . . . . . . . . . . . 27/11/2008 27/02/2009 US$ 360,322 0.295 346,816HSBC BANK . . . . . . . . . . . 01/12/2008 27/02/2009 US$ 495,281 0.280 475,430HSBC BANK . . . . . . . . . . . 09/12/2008 27/02/2009 US$ 23,684 0.243 22,419HSBC BANK . . . . . . . . . . . 10/12/2008 27/02/2009 US$ 4,733,131 0.246 4,530,763HSBC BANK . . . . . . . . . . . 11/12/2008 27/02/2009 US$ 361,214 2.250 346,207HSBC BANK . . . . . . . . . . . 15/12/2008 27/02/2009 US$ 379,297 0.250 369,676HSBC BANK . . . . . . . . . . . 29/12/2008 27/02/2009 US$ 364,411 0.105 369,377HSBC BANK . . . . . . . . . . . 26/11/2008 27/02/2009 CH$ 81,059 0.700 81,722HSBC BANK . . . . . . . . . . . 10/12/2008 27/02/2009 CH$ 82,435 0.670 82,821HSBC BANK . . . . . . . . . . . 11/12/2008 27/02/2009 CH$ 27,356 0.700 25,707HSBC BANK . . . . . . . . . . . 29/12/2008 27/02/2009 CH$ 25,695 0.700 27,484BANCOLOMBIA . . . . . . . 19/12/2008 25/06/2009 US$ 23,158 0.209 23,553BANCOLOMBIA . . . . . . . 29/12/2008 25/06/2009 US$ 142,876 0.209 144,833
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,961,286 7,681,903
(3) Corresponds to the time deposits obtained from Banco Internacional in the amount of UF10,000, toguarantee the insurance contract obtained from Aseguradora Magallanes S.A., to comply with theTransantiago 2003 service contract. On November 2, 2009, according to the bid contract, the guarantee wasreturned for an amount of ThCh$210,894 and no new guarantees have been granted in exchange.
(4) Corresponds to the expenditures paid for commissions, fees and other expenditures to HSBC Bank fordisbursements of loans granted to the Company to finance the purchase of buses, operating costs andimplementation of terminals. The expenses are amortized over the debt duration period. As of December 31,2009 the amortization amounted to ThCh$183,990 (ThCh$182,455 in 2008).
F-69
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
10. Property, plant and equipment
Property, plant and equipment as of December 31, 2008 and 2009, valued according to what is stated inNote 2-k), is detailed as follows:
Property, plant andequipment, gross amount Accumulated Depreciation
2008 2009 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,675,230 3,659,461 — —
Buildings and Infrastructure . . . . . . . . . . . 13,389,388 15,577,834 — (685,988)
Machinery & equipment:Buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,203,404 62,203,404 (16,399,603) (23,313,989)Machinery & equipment . . . . . . . . . . . . . . 801,012 663,865 (321,447) (207,611)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 63,004,416 62,867,269 (16,721,050) (23,521,600)
OtherOffice furniture and equipment . . . . . . . . 226,989 302,374 (78,486) (119,787)Computer Equipment . . . . . . . . . . . . . . . . 552,000 920,779 (96,150) (290,331)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,949,666 1,964,910 (703,831) (1,049,814)Spare parts . . . . . . . . . . . . . . . . . . . . . . . . 1,375,824 1,174,669 — —Improvements for transition Terminals . . 1,165,019 1,194,862 (1,165,019) (1,194,862)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,269,498 5,557,594 (2,043,486) (2,654,794)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,338,532 87,662,158 (18,764,536) (26,862,382)
Total net property, plant andequipment . . . . . . . . . . . . . . . . . . . . . . 66,573,996 60,799,776
Depreciation charges for the respective fiscal years have been imputed to the following accounts:
2008 2009
ThCh$ ThCh$Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,060,409 7,758,263Administrative and sales expenditures . . . . . . . . . . . . . . 517,993 497,247
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,578,402 8,255,510
11. Sale-and-leaseback Transactions
As of December 31, 2009, the Company does not have sales-leaseback transactions.
On June 28, 2006, a sale-leaseback agreement was signed with Citi Leasing Ltda. in which Inversiones Alsaciasold and leased its computers and related equipment in the amount of UF 6,545.10, generating a loss ofThCh$9,834 (historic value).
The agreement has a par value of UF7,514.4, accrues an annual interests of 6.45% and is payable in 31 equal andsuccessive monthly installments.
On December 19, 2008, Inversiones Alsacia S.A. has exercised the option to purchase the leased assets.
F-70
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
12. Investment in associates
During the extraordinary shareholders’ meeting held on January 25, 2005, the shareholders agreed to modifyarticle one of the Company‘s statutes in order to pay 18,802 unpaid shares through contribution of non-monetaryassets. The shareholders’ meeting approved that the payment of above-mentioned shares would be made bycontributing a total of 16% of their rights in the Sociedad de Inversiones Eco Uno Ltda. (“Eco Uno”) in favor ofthe Company. At that date, shareholders Mr. Carlos Ríos V. and Mr. Francisco Ríos V. held 14% of the votingrights of Inversiones Eco Uno Ltda. The voting rights were valued at an amount of ThCh$ 1,880,202 (historic),based on the carrying value of Inversiones Eco Uno Ltda.
On March 2, 2007, a sum of $262,061,908 (historic)—a part of which consisted of capital owed by theCompany´s partners—was transferred to Eco Uno, in order to enable Eco Uno to increase the capital of itssubsidiary Express de Santiago Uno S.A.
The value of the investment in ECO Uno, was recognized on the basis of unaudited financial statements.
F-71
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
12. Investment in associates—(Continued)
Investment details
TaxpayerID No.
Nameof the Corpo
-rationCountryof origin
Invest-ment
controlcurrency
No. ofshares
SharePercentage
Cor-poration’s
equity Net income
Cor-poration’sequity atfair value
Netincomeat fairvalue
Accruedincome (loss) Equity Method
Unrealizedgains
Book value ofthe investment
2008 2009 2008 2009 2008 2009m 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 200976195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . . . . . . . CHILE PESOS — 16.00 16.00 28,753,763 26,229,000 3,069,756 (2,524,763) — — — — 491,160 (403,962) 4,600,602 4,196,640 — — 4,600,602 4,196,640
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600,602 4,196,640 — — 4,600,602 4,196,640
F-72
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
13. Other (assets)
Other assets as of December 31, 2008 and 2009 are detailed as follows:
2008 2009
ThCh$ ThCh$
Technical Reserve for Operations (1) . . . . . . . . . . . . . 9,440,949 8,460,818Reserve of Transantiago’s Financial Manager (2) . . . 1,638,496 1,468,393Other long-term deferred expenditures (3) . . . . . . . . . 1,435,560 1,251,569Capitalization of Financ. Expenditures Met Ing (4) . . 4,278,803 5,112,856
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,793,808 16,293,636
(1) Corresponds to the total amount of the contribution to the Technical Operating Reserve by the Trunk LineNo. 1 business unit, which is defined as an allowance incorporated into the tariff paid by the users to coverpossible temporary lags or mismatches between the revenue and costs. This amount is amortized inaccordance with the projected revenue curve, obtained from the transportation service rendering.
As of December 31, 2009, the accumulated amortization from the concept mentioned above amounted toThCh$3,509,279 (ThCh$2,545,413 in 2008). The annual amortization for the period amounted toThCh$963,865 (ThCh$996,111 in 2008) and it is part of the Company’s operating cost.
(2) From the start of Stage I defined in the Transantiago 2003 Bidding Conditions, FMT will be the only ticket,paid in coins, issuer that give access to the users of Transportation Services System. Inversiones AlsaciaS.A. buys the tickets from FMT at a price of $20 per ticket. Out of this amount, $16 correspond to a depositto increase the System’s OTR which FMT is supposed to deposit to the Temporary Account 2 of the system.The remaining amount of $4 resembles cash available to FMT. The reserve corresponds to the total amountrelated to all $16-deposits per ticket acquired by the Company during the financial years of 2006 and 2005.This amount is amortized according to the projected income curve for rendering services of transportation.As of December 31st, 2009, the amortization for this concept amounts to ThCh$167,281 (ThCh$190,259 in2008) and is presented as part of the Company’s operating costs.
According to the modification of the Concession Agreement signed on June 30, 2006, between theCompany and the Ministry for Transportation and Telecommunication, pursuant to Article 4, from July 1,2006, the $16-deposit per ticket bought from FMT is no longer needed to be paid.
(3) Corresponds to the deferred expenditures paid for commissions, fees and other expenditures to HSBC Bankfor disbursements of loans granted to the Company to finance the purchase of buses, operating costs andimplementation of terminals. As of December 31st, 2009 the amortization amounted to ThCh$183,990(ThCh$182,455 in 2008).
(4) In accordance with what is set forth in Note 2 (letter q) and according to the authorization of the Office ofthe Superintendency of Securities and Insurance No. 11,808 dated on October 31, 2006, the Companycapitalized borrowing costs directly associated with the purchase of the bus fleet. For this purpose, suchexpenditures are distributed based on the actual earnings obtained, considering the total of projectedearnings. This method is aimed at distributing the financial charge that the Company will have to cope withalong the period of debt amortization over the whole concession period, considering the remaining usefullife of the bus fleet. As of December 31, 2009 the activation in relation to this concept amounted toThCh$733,324 (ThCh$1,011,576 in 2008).
F-73
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
14. Short-term obligations with banks and other financial institutions
As of December 31, 2008 and 2009, short-term obligations with banks and other financial institutions include thefollowing:
Short-term payables to banks and other financial institutions:
Includes short-term loans obtained from the National Bank. Interests is calculated on the balance of principaloutstanding of the promissory notes as of their signing dates until the date of its full and effective payment.
The amount of accrued interests as of December 31st, 2009 amounts to ThCh$221,942. (ThCh$35,059 in 2008).
Long-term payables to banks and other financial institutions, short-term portion:
1. Installment: The total term of the HSBC EKN’s credit was modified from 20 to 19 installments with semi-annual installments on February 28 and August 28.
2. Accrued interests: Correspond to the long-term borrowings from HSBC EKN, NEXI, GNB Sudameris andBANCOLOMBIA.
Interests are calculated on the balance of principal outstanding of the promissory notes as of their signing datesuntil the date of its full and effective payment.
Interest expenses as of December 31, 2009 amount to ThCh$1,073,322 (ThCh$1,701,711 in 2008).
F-74
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
14. Short-term obligations with banks and other financial institutions—(Continued)Currency types and adjustment index
Taxpayer IDNo. Bank or Financial Institution Dollars Euros Yens
Other ForeignCurrencies UF Non Adjustable $ Totals
2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009
Short-Term (code 5.21.10.10) . . . . . . . . . . .97951000-4 HSBC BANK . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 4,447,514 4,752,782 4,447,514 4,752,78297011000-3 BANCO INTERNACIONAL . . . . . . . . . . . — — — — — — — — — — 566,519 1,150,539 566,519 1,150,53997006000-6 BANCO CRÉDITO E INVERSIONES . . . . — — — — — — — — — — 365,462 606,468 365,462 606,46897032000-8 BBVA BANK . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — 534,487 — 534,487
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — —TOTALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 5,379,495 7,044,276 5,379,495 7,044,276Amount of due capital 5,344,436 6,822,334 5,344,436 6,822,334Anual average interest rateLong-term—Short-term (code 5.21.10.20)
97951000-4 HSBC EKN BANK . . . . . . . . . . . . . . . . . . . 6,814,234 5,417,416 — — — — — — — — — — 6,814,234 5,417,4160-E NEXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,164 1,581,931 — — — — — — — — — — 183,164 1,581,9310-E BANCOLOMBIA . . . . . . . . . . . . . . . . . . . . 5,816,210 6,600,522 — — — — — — — — — — 5,816,210 6,600,5220-E GNB SUDAMERIS . . . . . . . . . . . . . . . . . . . 447,299 556,830 — — — — — — — — — — 447,299 556,8300-E HSBC NIB . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 194,691 199,275 194,691 199,275
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — —TOTALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,260,907 14,156,699 — — — — — — — — 194,691 199,275 13,455,598 14,355,974Amount of due capital . . . . . . . . . . . . . . . . . 11,753,887 13,282,652 — — — — — — — — — — 11,753,887 13,282,652Average annual interest rate . . . . . . . . . . . . . 6.73% 6.75%Percentage of payable foreign currency (%) . . . . . . . . . . . . . . . . . . . . . . 68.4440Percentage of payable national currency (%) . . . . . . . . . . . . . . . . . . . . . 31.5560
F-75
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
15. Other current liabilities
As of December 31, 2009, other current liabilities account does not have outstanding amounts.
As of December 31, 2008, the balance is detailed as follows:
2008
ThCh$
TOR payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537,350Promissory Notes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (484,722)
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,628
(1) On October 27, 2008, the Company paid the sum of UF 140.000 for the Technical Operating Reserve. Thebalance payable was deposited with the Notary Public of Santiago, Mr. Eduardo Avello Concha, withinstructions to be delivered to the MTT, as agreed between the parties:
Amounts given correspond to:
a) Two short-term deposits of ThCh$800,000 each and a short-term deposit of ThCh$756,499, all withmaturities of 7 days (renewable).
b) An original promissory note of UF 21,208, plus accrued interest in the amount of UF1.918.97.
On January 2, 2009, the Company completed the full deposit into the Technical Operating Reserve due atDecember 31, 2008.
16. Long-term obligations with banks and other financial institutions
At December 31, 2008, the movements in obligations with banks and financial institutions are detailed asfollows:
Between August 17, 2005 and March 28, 2006, HSBC Bank (EKN) made three disbursements amounting toThCh$41,724,306, which corresponded to six promissory notes for a total sum of US$77,347,446. The amountsmust be paid in nineteen equal and successive semi-annual installments on February 28 and August 28, as ofAugust 28, 2007, at fixed annual rate of 5.38%. With the credits the Company financed approximately 85% of itsbus purchases.
On March 30, 2006, a credit amounting to ThCh$12,191,344 (equivalent to US$22,600,000) was obtained fromHSBC Tokyo, Japan and Sumitomo Bank, together with NEXI, a Japanese credit and insurance corporation. Thiscredit has been agreed upon at an 8-year term with a 5 year grace period, and a 180-day floating Libor rate plus0.6%. The interests will be paid starting August 28, 2006 and the repayment will be in equal and successivesemi-annual installments on February 28 and August 28 starting from 2010.
On May 31, 2006, the Company obtained a credit from the HSBC—NIB (Nordic Investment Bank) in theamount of ThCh$6,360,000 at an 8-year term with 5 years of grace and at an interest rate of 6.36%. On June 13,2006, the bank granted another credit of ThCh$1,060,000 subject to the same terms and conditions. Interest willbe paid starting from August 28, 2006 and the repayment will be in equal and successive semi-annualinstallments on February 28 and August 28, starting from 2011.
F-76
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
16. Long-term obligations with banks and other financial institutions—(Continued)
On December 19, 2006, Bancolombia granted a credit of US$5,000,000, on December 20, 2006 other credit ofUS$4,500,000 and on March 1, 2007, additional for US$2,500,000, and on June 4, 2007 credit of US$3,000,000,all of them at a 5-year term with a 2-year grace period and at a 180-day Libor interest rate plus 3.5%, repaymentwill be in equal semi-annual and successive installments on June 19 and December 19, starting fromDecember 19, 2008.
On January 29, 2008, a loan from GNB Sudameris Colombia was obtained in the amount of ThCh$3,000,000with a grace period of one year, the loan installments will be paid in equal and successive semi-annualinstallments of US$500,000, the first with a maturity of July 28, 2009 and the last of January 28, 2012.
On October 30, 2009, a credit was obtained from GNB Sudameris in the amount of US$1,000,000 payable in oneinstallment on April 09, 2012.
On March 3, 2008, a loan was obtained from HSBC bank in the amount of ThUS$11,107,836 (equivalent to$5,042,401,694 historical). This loan has been agreed upon for a 10-year term, and at a floating rate of 6.81%.The loan installments will be paid in equal and successive semi-annual installments on February 28 andAugust 28.
On August 12, 2008 a loan was obtained from Bancolombia Puerto Rico Internacional INC. in the amount ofUS$17,000,000, with variable interest rate and monthly and successive installments starting from the 13 month.On August 28, 2008 and September 5, 2008 the Company received US$5,800,000 and US$11,200,000,respectively.
On September 25, 2009, the original credit conditions were modified, changing the spread Libor interest ratefrom 5% to 5.5% annually, the amount of monthly payments and the final payment date.
In case the subscriber does not pay the loan installments of these credits at any of their due dates, or in case theinterests of these promissory notes were not paid by the subscriber on the date they were due, and suchdelinquency or simple delay in payment of interests continued for three or more working days, the bearer of thepromissory notes will be entitled to demand the total balance of owed capital and interest debt immediately andintegrally under promissory notes, which will be considered expired and payable on demand for all pertinentpurposes. The bank will be entitled to demand payment of the entire debt as set forth in promissory notes inadvance as if it was the due date whenever the subscriber does not comply with effective legislation, does nothave the corresponding governmental authorizations, in case of any changes in Company controllingshareholders, in case of failure to comply with effective environmental regulations, whenever dividends aredistributed without the corresponding authorizations, or if the subscriber becomes notoriously insolvent,understanding for all purposes the existence of notorious insolvency on its part when the subscriber or one ormore of its creditors requests bankruptcy, or when judicial or out-of-court composition of creditors are executedor proposed. Restrictions have been satisfactorily met as of December 31, 2009.
F-77
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
16. Long-term obligations with banks and other financial institutions—(Continued)
Due in (years)Current period
closing datePrevious period
closing date
Taxpayer IDNo.
Bank Or FinancialInstitution
CurrencyReadjustment
Index
MoreThan 1Up To 2
MoreThan 2Up To 3
MoreThan 3Up To 5
MoreThan 5
Up To 10More Than 10
Years
LongTerm
Total AtBalanceClosing
AverageAnnualInterest
Rate
Long TermTotal AtBalanceClosing
AMOUNT TERM
97951000-4 HSBC BANK . . . . . . . . . . . . . . . . . Dollars 4,758,426 4,758,426 14,275,277 5,603,343 — 29,395,472 5,38 41,879,889Euros — — — — — — —Yens — — — — — — —UF — — — — — — —$ non readjusted — — — — — — —Other currencies — — — — — — —
97951000-4 HSBC BANK/ NEXI & NIB . . . . . Dollars 1,432,558 1,432,558 4,297,673 2,865,114 — 10,027,903 3,68 14,052,943Euros — — — — — 0 —Yens — — — — — — —UF — — — — — — —$ non readjusted 864,236 864,236 2,592,709 2,592,709 — 6,913,890 6,21 6,754,871Other currencies — — — — — — —
0-E BANCOLOMBIA . . . . . . . . . . . . . Dollars 6,179,376 — — — — 6,179,376 8,80 12,957,374Euros — — — — — — —Yens — — — — — — —UF — — — — — — —$ non readjusted — — — — — — —Other currencies — — — — — — —
0-E GNB BANCOLOMBIA . . . . . . . . . Dollars 507,100 760,650 — — — 1,267,750 9,56 1,554,529Euros — — — — — — —Yens — — — — — — —UF — — — — — — —$ non readjusted — — — — — — —Other currencies — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,741,696 7,815,870 21,165,659 11,061,166 — 53,784,391 77,199,606
PERCENTAGE OF PAYABLE FOREIGN CURRENCY (%) . . . . . . 89.6282PERCENTAGE OF PAYABLE NATIONAL CURRENCY (%) . . . . 10.3718
F-78
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
17. Provisions
The balance of accrued expenses and sanctions as of December 31, 2008 and 2009 is detailed as follows:
a) Short-term
2008 2009
ThCh$ ThCh$
Vacation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778,206 775,348Reserve for Labor Contingencies . . . . . . . . . . . . . . . . . . . . — 457,827Human resources reserves . . . . . . . . . . . . . . . . . . . . . . . . . 195,400 167,008Spare Parts Obsolescence Provision . . . . . . . . . . . . . . . . . — 128,099
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973,606 1,528,282
b) Long-term
Reserve for Overhaul of Buses (a) . . . . . . . . . . . . . . . . . . — 2,543,639
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,543,639
(a) Corresponds to a reserve for the maintenance of buses (overhaul), calculated on the basis of travelledkilometers of the buses with an estimate cost of maintenance of gearboxes and differentials estimated to beperformed when 450,000 kilometers are reached.
18. Minority interest
The Company consolidated its financial statements with those of its subsidiary Iasa de Colombia Ltda. Since thesubsidiary has negative shareholders’ equity, 100% of its loss has been consolidated in the current financialstatements.
19. Changes in Equity
Changes in equity for 2008 and 2009, are as follows:
Movements in Shareholders’ Equity:
Inversiones Alsacia S.A. was founded on November 22, 2004, through subscription and payment of ThCh$ 1,000divided into 10 ordinary nominal shares without par value, with each share being of equal value.
During the Shareholders’ Meeting held on December 9, 2004, it was agreed to increase share capital to ThCh$9,000,000, divided into 90,000 nominal shares, without par value and of a single series of common shares,through issuance of 89,999 shares of the same characteristics.
During the Stockholders’ Meeting held on December 20, 2004, it was agreed to increase the share capital toThCh$18,000,000, divided into 180,000 nominal shares, without par value and of a single series of commonshares, through issuance of 90,000 shares of the same characteristics. It was additionally agreed that theminimum price per shares should not be lower than ThCh$100.
F-79
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
19. Changes in Equity—(Continued)
During the Stockholders’ Meeting held on January 25, 2005, it was agreed to approve the payment of 18,802shares issued by the Company by means of the contribution of 16% of the voting rights of Inversiones Eco UnoLtda. It was also agreed to value the voting rights in the amount of ThCh$ 1,880,202 (historic), based on thebook value of the shares (see note No. 11).
In addition, during the accounting period of 2005, the amount of 20,234 stocks was paid in through contributionsin cash amounting to ThCh$2,023,377 (historic).
During the Extraordinary General Stockholders’ Meeting held on February 16, 2007, shareholders decided tolegally reduce the share capital from the amount of $18,000,000,000 to $1,916,000,000. In addition, it wasagreed to increase the share capital from the amount of $1,916,000,000 to $8,866,000,000 divided into 36,535shares, through issuance of 17,375 new shares that would be issued, subscribed, and paid for February 28, 2007,at a price per share not lower than $400,000. Later, as a result of a meeting of the Company’s Board of Directorsheld on February 20, 2007, the Board agreed to offer the 17,375 new shares on a preferred basis to the existingshareholders, who decided to waive the option to obtain the shares they had the right to. Furthermore, it wasagreed to offer the remaining shares not subscribed by the shareholders to a Colombian company calledDesarrollo y Soluciones Informáticas S.A.
2008
ItemsPaid-InCapital
CapitalRevaluat.Reserve
Retainedearnings (losses)
NetIncome (loss)for the year Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Initial Balance . . . . . . . . . . . . . . . . . . . . . . . . 9,688,741 — (18,065,410) 11,850,447 3,473,778Distribution income previous year . . . . . . . . — — 11,850,447 (11,850,447) —Revaluation of share capital . . . . . . . . . . . . . 862,298 — (553,131) — 309,167Fiscal year income . . . . . . . . . . . . . . . . . . . . . — — — (5,669,621) (5,669,621)
Final balance . . . . . . . . . . . . . . . . . . . . . . . . . 10,551,039 — (6,768,094) (5,669,621) (1,886,676)
Price-level restated . . . . . . . . . . . . . . . . . . . . 10,308,365 — (6,612,428) (5,539,220) (1,843,283)
2009
ItemsPaid-InCapital
CapitalRevaluat.Reserve
Retainedearnings (losses)
Netincome (loss)for the period Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Initial Balance . . . . . . . . . . . . . . . . . . . . . . . . 10,551,039 — (6,768,094) (5,669,621) (1,886,676)Distribution income previous year . . . . . . . . . — — (5,669,621) 5,669,621 —Revaluation of share capital . . . . . . . . . . . . . . (242,674) — 286,067 — 43,393Fiscal year income . . . . . . . . . . . . . . . . . . . . . — — — 6,564,811 6,564,811
Final balance . . . . . . . . . . . . . . . . . . . . . . . . . 10,308,365 — (12,151,648) 6,564,811 4,721,527
F-80
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
19. Changes in Equity—(Continued)
Number of shares
Series No. of subscribed sharesNo. of paid-in
shares No. of voting shares
ZZ 36,535 36,535 36,535
Capital (Amount—ThCh$)
Series Subscribed capital Fully-paid capital
ZZ 10,308,365 10,308,365
20. Other Non-Operating Income and Expenses
Other non-operating income and expenses as of December 31, 2008 and 2009 is detailed as follows:
2008 2009
ThCh$ ThCh$
Other non-operating income:Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,912 39,398Administrative Services Rioma Ltda. . . . . . . . . . . . . . . . . . . 150,751 75,394Recovery of Expenses with Related Parties . . . . . . . . . . . . . 44,596 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,453 78,083
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305,712 192,875
2008 2009
ThCh$ ThCh$
Other non-operating expensesOther interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,065 3,703Other taxes expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401,129 340,577Rejected expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,134 33,289Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 204,293
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436,526 581,862
F-81
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
21. Price-level Restatement
Adjustability index 2008 2009
ThCh$ ThCh$
Assets (charges)/ creditsInventory . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC — —Property, plant and equipment . . . . . . . . . . . IPC 5,640,833 (1,237,816)Investments in related companies . . . . . . . . IPC 329,048 (90,842)Other receivables . . . . . . . . . . . . . . . . . . . . . UF 37,916 —Other non-monetary assets . . . . . . . . . . . . . . IPC 1,413,473 (741,314)Accounts of expenses and costs . . . . . . . . . . IPC 2,460,785 (125,638)Total (charges) credits . . . . . . . . . . . . . . . . . — 9,882,055 (2,195,610)
Liabilities (charges) / creditsEquity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC (302,056) 43,393Non-monetary liabilities . . . . . . . . . . . . . . . . IPC (42,308) 359Non-monetary liabilities . . . . . . . . . . . . . . . . UF (574,448) 50,086Revenue accounts . . . . . . . . . . . . . . . . . . . . . IPC (2,573,187) 126,511Total (charges)/ credits . . . . . . . . . . . . . . . . . — (3,491,999) 220,349
(Loss) profit due to foreign exchangeadjustment . . . . . . . . . . . . . . . . . . . . . . . . 6,390,055 (1,975,261)
22. Foreign Exchange Differences
Items Currency Amount
2008 2009
ThCh$ ThCh$
Assets (charges) /creditsBank accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 7,029 (11,182)Short-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . US$ 1,594,183 (1,648,204)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 20,142 173,761
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . 1,621,354 (1,485,625)
Liabilities (charges)/ creditsBank obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (18,377,490) 16,206,718Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (656,833) 722,047Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ — 57,896
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . (19,034,322) 16,986,661
Net Income (loss) from foreign exchange ratedifferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,412,968) 15,501,036
F-82
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
23. Statements of Cash Flows
As of December 31, 2008 and 2009, the items that comprise the cash and cash equivalents balance is detailed asfollows:
2008 2009
ThCh$ ThCh$
Cash and bank account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,942 2,795,845Mutual funds units (marketable securities) . . . . . . . . . . . . 36,063 1,080,043
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,005 3,875,888
24. Contingencies and Restrictions
1) Concession Agreement:
On January 28, 2005, Inversiones Alsacia S.A. entered into a Concession agreement with the Ministry ofTransport and Telecommunications to use the roads of the city of Santiago to render public bus transportationservices for passengers. The Concession agreement is subscribed as the result of a public bid for the use of theroads of the city of Santiago according to article 30 of Law No.18,696.
The Company submitted an offer in the bidding process, where the Trunk line No. 1 business unit was awarded,according to Exempted Resolution No. 109 from 2005 of the Sub-Secretariat of Transportation published in theOfficial News on January 14, 2005.
The agreement was enforced from the publication date in the Official News of the administrative act thatapproved it and will be in force until the termination of the Concession period. The duration of the Concessionagreement shall be 156 months, in accordance with the article 3.4.4.2.1 of the Concession agreement.
Within the Concession agreement, the Company committed to pay 615,010 U.F. for a Technical Operatingreserve, which corresponds to an amount incorporated into the tariff paid by users that is used to cover possibletemporary lags or mismatches between the income and costs of the Transantiago passenger transportationsystem. On July 1, 2005, the Company paid the first of three installments on that contribution.
Non-payment of installments will lead to the use of the Warranty reserve set in accordance with the Concessionagreement.
Inversiones Alsacia has fully paid all the above-mentioned obligations. In fact, as of January 2, 2009, theCompany fully complied with the payment of the balance of the Technical Operating reserve, payable onDecember 31, 2008 by (a) Bank transfer in the amount of Ch$2,365,577,273 to account number 17385-1 ofBanco Estado on behalf of the Transantiago Financial Administrator (AFT) and, (b) By bank deposit, datedJanuary 2, 2009 of Ch$550,000,000 to account number 17385-1 of Banco Estado on behalf of the TransantiagoFinancial Administrator (AFT). Payments complied in full with the requirements and were certified by theMinistry of Transportation and Telecommunications by Ordinary Issue (Oficio Ordinario) N°2.783 dated July 2,2009.
F-83
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
2) Modifications to the Concession Agreement:
2.1) On June 30, 2006, the following modifications of the Concession Agreement were made:
a) Starting date of the new regimen stage will begin from February 10, 2007.
b) Modifications to the calendar of contributions to the Technical Operating reserve (TOR),:
Installment 2: 191,309 U.F. maturity date July 1, 2007.Installment 3: 170,836 U.F. maturity date July 1, 2008.
c) The elimination of the payment of $16 per ticket to FMT (Contribution to transitory account two of theTransantiago system), from July 1, 2006, to December 31, 2006.
d) For the start date of phase II at the latest, the operator should accredit with the Ministry of Transportation andTelecommunications before obtaining the planning permissions for different terminals. The dates of phase IIcannot be modified in any manner, additionally, within fifteen days after the termination of phase II, the Operatorshall provide the Ministry of Transportation and Telecommunications with a Gantt Chart or Schedule of the mainworks that will be constructed or implemented in each terminal. Likewise, 120 days at the latest after thecommissioning date of services of the regime stage, the operator should prove to the Ministry of Transportationand Telecommunications that it has obtained authorization for the operation of different terminals.
e) On June 30, 2006, the FMT signed a promissory note for 221,208 Unidades de Fomento (UF), in favor of theCompany, with a maturity date of October 31, 2009. UF 200,000 were transferred in January 2007, with aremaining balance of UF 21,208, which shall accrue daily interests at the ratio of a fixed annual rate of 3.56%.As stated in Note No 5, UF 200,000 was transferred in January 2007.
2.2) During February 2007, the Company signed a modification to the Road Use Concession Agreement with theMinistry of Transportation and Telecommunications. The main aspects of this modification and its addendumdated February 20, are detailed as follows:
1) For the period between February 10, 2007 and May 5, 2007, minimum guaranteed revenue is considered inaccordance with the referential demands in replacement of users’ validations.
2) mechanism is determined to regulate the fleet increase for the commencement of the regimen stage, as well asthe related payment.
3) Contributions to the Technical operating reserve (TOR) with maturity date of February 10, 2007 will be paidin 3 installments, correspondingly 55% at March 10th, 22.5% at April 10, and 22.5% in May 10, 2007.
4) A procedure is established to regulate the situation of terminals and deposits with respect to the additionalfleet.
2.3) On May 9, 2007, the Company subscribed a modification to the Concession Agreement and on June 4, 2007,an addendum to the modification to determine the Company’s income for the period between May 6, and June 5,2007, shall correspond 100% to the demand determined in the agreement and the Payment per PassengerTransported, adjusted in accordance with the Bidding Conditions.
F-84
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
2.4) On June 29, 2007, the Company subscribed a modification and two addendums to the ConcessionAgreement with the purpose of: i) altering the Company’s payment dates from July 10 to 12; ii) delaying thecontribution date to Technical Reserve from July 1 to July 16, 2007 and; iii) regulating the payment terms ofbuses without validating equipment.
2.5) On July 17 and August 17, 2007, the Company subscribed two new addendums related to the modificationsdated June 29 with the Ministry of Transport and Telecommunications, for which the payment date of theTechnical Reserve was postponed to August 17th and October 24, respectively.
2.6) On July 19, 2007, the Company subscribed an Agreement Protocol with the Ministry of Transport andTelecommunications for the modification of the Concession Agreement, a modification that was implemented onNovember 9, 2007 and two addendums to the modification, dated December 10 and 28, respectively andApril 21, June 30 and July 15 of 2008, respectively. In order to modify service hours; regulate payment of buseswithout validation equipment; delay payment of TOR for 12 months; incorporate a Service Fulfillment Index(ICPH [Índice de Cumplimiento de Plazas—Horas operativas]) to the formula; adjust calculation mechanism ofthe PPT; incorporate the Additional and/or Complementary Fleet to the base fleet and to increase the bus fleet,which in the transitional period do not necessarily need to be new.
2.7) On May 9, 2007, the Company subscribed a modification to the contract of Commercial Mandate ofCollection and Custody with the FMT.
2.8) On March 7, 2008, the Company subscribed a modification and addendum to the service and supply ofTechnology equipment contract with the AFT, which establishes the calculation of the payment that theconcessionaires must make for the services rendered by the AFT until this date; determines the general terms andconditions and the equipment remuneration of the denominated payment zones; adopts improvements oriented toincrease the actual service levels of the functionalities and; determined the transitory and permanent conditionsof the equipment, systems and services that the AFT has to supply and the conditions of remunerations derivedfrom rendering of services.
2.9) On March 18, 2008, the Company subscribed a contract amendment of Collection Mandate with the AFT inorder to authorize to the AFT the payment or reimbursement of costs, expenses or fees associated with the loanagreements.
2.10) On July 3, 2009, the Company subscribed a modification to the Road Use Concession Agreement of thecity of Santiago with the Ministry of Transport and Telecommunications for the provision public bustransportation services for passengers, which was aimed at formalizing the extension of the Concession term towhich the Company has rights from 48 months to 156 months. The foregoing was informed as an essential fact tothe Office of the Superintendency of Securities and Insurance.
3) Other Contracts:
The Company signed a contract with a specialized Spanish Company Goal in the amount of ThUS$1,150, toestablish a development program to manage bus operations system.
F-85
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
4) Restrictions for bank loans
The Company has obligations and restrictions for loans contracted with various foreign and national banks.
By virtue of the credit agreements of the Company that exist to ensure compliance with the obligations thereincontained, and the 36,535 shares in which the Company´s equity is divided are currently pledged. The pledgecontracts imply the prohibition to alienate, sale, promise to sell or dispose in any manner whatsoever of saidshares as far as the full compliance of the obligations resulting from the financing obligation with the HSBCBank are accredited. Likewise, each bus owned by the Company has been pledged, pledges that were dulyregistered in the Registry of Motorized Vehicles of the Civil Registry Office.
5) Pending Lawsuits:
The details of the Corporation’s main lawsuits are as follows:
Court: 18 Civil Court of Santiago; Rol 5,852-2007
Alsacia was sued for damages by a private person in an Ordinary Civil Trial. The compensation demandedamounts to $398,000,000. The accusation is still being tried by the Court (responses to the suit and the SIATreport are still pending). According to the background knowledge available, the matter has limited possibilities ofsuccess.
Court: 15 Civil Court of Santiago; Rol: 16,299-2007
Alsacia was jointly sued for damages with other operators—Buses Gran Santiago y Express de Santiago UnoS.A.—and the Financial Administrator of Transantiago (FMT) in an Ordinary Civil Trial by the I. Municipalityof Renca which accuses its counterparties of unfair enrichment. The compensation demanded amounts to$154,600,000. A verdict was dictated rejecting the claim of the plaintiff.
Court: 23 Civil Court of Santiago; Rol: 16956-2007
Alsacia was sued for damages by a private person in an Ordinary Civil Trial. The compensation demandedamounts to $25,500,000. The evidence stage is finished. A sentence was dictated requiring payment for a sum of$2,800,000 with no costs.
Court: 8 Civil Court of Santiago; Rol: 25.935-2007
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $273,955,375. A verdict was issued that ordered payment of Ch$105,000,000, for which reason it wasappealed. The Appellate Court modified the first instance verdict and ordered Alsacia to pay $60,000,000. Theissuance of the check by the insurance company is pending.
Court: 30 Civil Court of Santiago; Rol: 15.667-2007
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $15,000,000. A termination of the evidence period is still in effect.
F-86
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
Court: 2 Civil Court of Santiago; Rol: 66-2008 Alsacia was sued for damages in Ordinary Civil Trial by a thirdparty. The compensation demanded amounts to $110,550,000. The case is being tried. A sentence was dictated,but there is no access to it as it has not been notified.
Court: 5 Civil Court of Santiago; Rol: 16.327-2007
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $15,000,000. The suit was declared procedurally void because the Bus Operator (the respondent) was notlegally summoned. Currently, the case is being tried.
Court: 30 Civil Court of Santiago; Rol: 56.994-2008
Alsacia was sued for damages in an Ordinary Civil Trial by a third party. The compensation demanded amountsto $716,000,000. A verdict was dictated ordering a payment for $170,000,000, for which reason an appeal ispending.
Court: 21 Civil Court of Santiago; Rol: 2398-2008
Alsacia was sued for damages in Ordinary Civil Court by a third party. The sum requested amounts to$300,000,000. The evidence period has expired.
Court: 7 Civil Court of Santiago; Rol: 648-2009
Alsacia was sued for damages in Ordinary Civil Court by a third party. The sum requested amounts to$20,000,000. Termination of the evidence period is pending.
Court: 28 Civil Court of Santiago; Rol: 97-2009
Alsacia was sued for damages in Civil Ordinary Court. The sum demanded amounts to $56,850,000. The case iscurrently being tried.
Court: 30 Civil Court of Santiago; Rol: 8688-2009
The Company was sued for damages. The sum demanded amounts to $103,000,000. The Bus Operator has notyet been notified, for which reason this trial is not currently being tried.
Court: 17 Civil Court of Santiago; Rol: 16704-2009
The Company was sued for damages. The sum demanded amounts to $80,000,000 for moral damages. It is beingtried.
Court: 25 Civil Court of Santiago; Rol: 999-2009
The Company was sued for the damages. The sum demanded amounts to $180,000,000 for moral damages. It isbeing tried.
F-87
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
Court: 25 Civil Court of Santiago; Rol: 25258-2009
The Company was sued damages. The sum demanded amounts to $80,000,000 for moral damages. It is underdiscussion period.
Court: 27 Civil Court of Santiago; Rol 21723-2009
The Company was sued for damages in summary proceedings. The sum demanded amounts to $602,304,540 formoral damages. It is being tried and has a precautionary measure enacted, which is currently being appealed.
Court: 30 Civil Court of Santiago; Sheet: 39429-2009
The Company was sued for damages. The sum demanded amounts to $300,000,000. The case is being tried.
The Company Inversiones Alsacia S.A. is involved in other lawsuits of lower magnitude (in favor and against).The management and its legal advisorsconsider that the aforementioned trials will not have a material adverseeffect on the Company’s financial statements. Some of the lawsuits are covered by an insurance policy withRoyal Sun & Alliance, so Inversiones Alsacia S.A. will only have to pay the corresponding deductible.
Court: Santiago’s Illustrious Appellate Court
Inversiones Alsacia S.A. presented to Santiago’s Appellate Court, an appeal for protection against the Ministry ofTransport and Telecommunications in order to repeal Exempt Resolution No. 1985, which established a set ofunilateral sanctions not covered under the respective concession contracts held by the operators of Transantiago.
On January 15, 2009, the Company was notified of Exempt Resolution No.69, dated January 14, 2009 by meansof which the Ministry of Transportation completed Exempt Resolution No. 1985, to incorporate into theresolution, as an immediate continuation of the phrase “Supreme Decree No. 1178”, adding “and SupremeDecree No. 1 of 2009, the Ministry of Finance.”
Until August 21, 2009 the implementation of this arbitrary and illegal resolution caused a loss of 69,700 UF(approximately $1,453,212,241.00) for the Company, in relation to payments to which they are entitled to earnfor transport services.
The appeal was declared admissible, ordering the accumulation of resources among the other contractorsinvolved in the report, which was executed on December 24, 2008.
All non-innovation orders to not innovate that were submitted have been rejected in their entirety by theAppellate Court of Santiago.
The Court of Appeals rejected the appeal, for which reason the Company filed an appeal before the SupremeCourt, that finally confirmed the verdict of the Appellate Court.
F-88
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
6) Direct and Indirect Guarantees
A compliance policy has been granted for the Concession agreement in favor of MTT according to the sixthclause of the contract in the amount of UF 30,000.00. As a counter-guarantee to that policy, Inversiones AlsaciaS.A. took an indefinitely adjustable time deposit for an amount of UF 10,000.00 that was handed to AseguradoraMagallanes S.A. The policy was returned to the Company on November 2, 2009.
The Company was awarded by HSBC Bank (Chile) a time deposit equivalent to 5% of the total debt that remainsin force with EKN Bank, for the purchase of buses. The deposit is placed by HSBC Bank (Chile) in HSBC Bank(London) and the former undertakes to pay that value if the Company does not pay off its debt. The Company hasnot signed any documents relating to this deposit.
F-89
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
24. Contingencies and Restrictions—(Continued)
The Company has no knowledge of other prohibitions, encumbrances, or contingencies that affect these financial statements.
Direct Guarantees
Guarantee creditor
Debtor
Guarantee type
Assets involved
Outstanding payments ofoutstanding payment balances
as of the closing of financialstatements Release of guaranees
Name Relation TypeAccounting
value 2008 2009 2010 Assets 2011 Assets 2012 Assets
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
HSBC . . . . . . . . . . . . . . . InversionesAlsacia S.A.
— MORTGAGE Puente AltoTerminal Site
1,127,050 4,552,215 4,752,782 — — —
BANCOLOMBIA . . . . . InversionesAlsacia S.A.
— MORTGAGE Renca TerminalSite
604,238 19,002,578 12,764,432 — — —
BANCOLOMBIA . . . . . InversionesAlsacia S.A.
— MORTGAGE HuechurabaTerminal Site
1,928,132 19,002,578 12,764,432 — — —
BANCOLOMBIA . . . . . InversionesAlsacia S.A.
— MORTGAGE RencaConstruction
3,878,014 19,002,578 12,764,432 — — —
HSBC . . . . . . . . . . . . . . . InversionesAlsacia S.A.
— MORTGAGE Puente AltoConstruction
2,220,163 4,552,215 4,752,782 — — —
BANCOLOMBIA . . . . . InversionesAlsacia S.A.
— MORTGAGE HuechurabaConstruction
4,968,884 19,002,578 12,764,432 — — —
HSBC EKN . . . . . . . . . . InversionesAlsacia S.A.
— PLEDGE Buses 38,889,415 48,837,998 34,153,898 — — —
F-90
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
25. Securities obtained from third parties
As of December, 2009 and 2010 there are no effective securities granted by third parties in favor of theCompany, except for those mentioned in the notes to the financial statements.
26. Local and Foreign Currency
Assets
Currency 2008 2009
ThCh$ ThCh$
Line of businessCurrent AssetsCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 68,227 1,243,250Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollars 37,590 23,814Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollars 385,795 —Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 2,941,211 3,933,413Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unidad de Fomento 489,669 —Other Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 1,068,389 953,918Documents And Accounts Receivable From Related Parties . . . Non Adjusted $ 990,596 815,640Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 38,004 53,523Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 513,770 1,490,031Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unidad de Fomento 17,744 16,690Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non Adjusted $ 72,209 198,117Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unidad de Fomento 214,255 —Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 1,473,467 1,521,532Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollar 5,671,542 5,617,950Taxes Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 319,697 454,358Property, Plant And EquipmentProperty, Plant And Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 67,089,491 59,424,732Other AssetsInvestments In Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 4,122,963 3,269,234Long-Term Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 2,023,484 1,075,993Other Long-Term Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted $ 16,900,598 16,156,112Total Assets
Non Adjusted $ 5,178,636 7,197,861Dollars 6,094,927 5,641,764Adjusted $ 92,443,470 83,391,992Unidad de Fomento 721,668 16,690
F-91
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
26. Local and Foreign Currency—(Continued)
Current Liabilities
Description Currency
Up to 90 days 90 days to 1 year
2008 2009 2008 2009
Amount
Annualaver. Int.
Rate Amount
Annualaver. Int.
Rate Amount
Annualaver. Int.
Rate Amount
Annualaver. Int.
Rate
ThCh$ ThCh$ ThCh$ ThCh$Long -term obligations with
financial institutions—shortterm portion . . . . . . . . . . . . . . Dollars 2,917,418 6.73% 1,973,422 6.75% 10,538,180 6.73% 12,382,552 6.73%
Short term bank obligations . . . . Adjusted $ 5,379,495 8.12% 7,044,276 8.12% — — — —Accounts payable . . . . . . . . . . . . Non Adjusted $ 6,868,721 — 8,351,403 — — — — —Accounts payable . . . . . . . . . . . . Dollars 304,270 — 423,067 — — — — —Other payables . . . . . . . . . . . . . . Non Adjusted $ 615,275 — 858,511 — — — — —Other payables . . . . . . . . . . . . . . Unidad de Fomento 831,980 — 674,157 — — — — —Notes. And accounts receivable
from related parties . . . . . . . . . Non Adjusted $ 31,321 — 177,589 — — — — —Notes and accounts receivable
from related parties . . . . . . . . . Unidad de Fomento — — 254,252 — — — — —Accrued expenses . . . . . . . . . . . . Non Adjusted $ 973,606 — 1,528,282 — — — — —Withholdings . . . . . . . . . . . . . . . Non Adjusted $ 518,662 — 712,993 — — — — —Income tax . . . . . . . . . . . . . . . . . Non Adjusted $ 9,381 — — — — — — —Other current liabilities . . . . . . . . Unidad de Fomento 52,628 — — — — — — —Deferred taxes . . . . . . . . . . . . . . . Adjusted $ 508,734 — — — — — — —Total current liabilities
- Dollars 3,221,688 — 2,396,489 — 10,538,180 — 12,382,552 —- Adjusted $ 5,888,229 — 7,044,276 — — — — —- Non Adjusted $ 9,016,963 — 11,628,778 — — — — —- Unidad de Fomento 884,608 — 928,409 — — — — —
F-92
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
26. Local and Foreign Currency—(Continued)
Long Term Liabilities—Previous Period 31-12-2008
Line of business Currency
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate
ThCh$ ThCh$ ThCh$ ThCh$Obligations with
Banks & Fin.Inst. . . . . . . . . . Dollar 29,383,901 6.73% 15,493,811 6.73% 25,567,022 6.73% — —
Obligations withBanks & Fin.Inst. . . . . . . . . . Non Adjusted $ 844,359 6.73% 1,688,718 6.73% 4,221,794 6.73% — —
Other payables . . . Unidad de Fomento 976,730 — — — — — — —Other payables . . . Non Adjusted $ 28,724 — — — — — — —Docs. & accounts
payable withrel. Parties . . . . Dollars 2,228,998 — — — — — — —
Total long termliabilities —
- Dollar 31,612,899 — 15,493,811 — 25,567,022 — — —- Non Adjusted $ 873,083 — 1,688,718 — 4,221,794 — — —- Unidad de Fomento 976,730 — — — — — — —
Long Term Liabilities—Current period 31-12-2009
Line of business Currency
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate AmountAnnual aver.
Int. Rate
ThCh$ ThCh$ ThCh$ ThCh$L/t obligations with
banks & fin.Entities . . . . . . . . Dollars 19,829,094 6.75% 18,572,950 6.75% 8,468,458 6.75% — —
L/t obligations withbanks & fin.Entities . . . . . . . . Non Adjusted $ 1,728,472 6.75% 2,592,709 6.75% 2,592,708 6.75% — —
Other payables . . . . Unidad de Fomento 281,076 — — — — — — —Other payables . . . . Non Adjusted $ 794 — — — — — — —Docs. & accounts
payable with rel.Co. . . . . . . . . . . . Unidad de Fomento 3,835,579 — — — — — — —
Docs. & accountspayable with rel.Co. . . . . . . . . . . . Dollars 1,834,166 — — — — — — —
Long termprovision . . . . . . Non Adjusted $ 2,543,639 — — — — — — —
Total currentliabilities
- Dollars 21,663,260 — 18,572,950 — 8,468,458 — — —- Non Adjusted $ 4,272,905 — 2,592,709 — 2,592,708 — — —- Unidad de Fomento 4,116,655 — — — — — — —
F-93
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
27. Sanctions
Superintendency of Securities and Insurance (SVS).
A censuring sanction was applied on the Company to its Chief Executive Officer through Exempt ResolutionN°55 dated February 5, 2009, for failure to submit its list of shareholders, as required in section III of CircularN°1481, referring to the quarter ending March 31, 2008.
The Ministry of Transportation and Telecommunications applied the following penalties.
i) The Ministry of Transportation and Telecommunications imposed a UF 200 penalty on the Company bythe Exempted Res. No. 1335 dated August 27, 2008, for supposed non-compliance with Article 3.6.1.1No. 6 a) of Bidding Conditions, that is, for failure to comply with minimum frequency required. TheMinistry rejected appeals for reversal at all levels of jurisdiction. The Company is analyzing filing a claim inCourt.
ii) By resolution N°2319 of November 10, 2008, the Ministry of Transportation and Telecommunicationsdeducted from the revenue the Company has a right to, an amount equivalent to UF4,000 for allegednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008. The Company appealed for reconsideration in all levels of jurisdiction against Resolution2319 on November 24, 2008, and the Ministry of Transport and Telecommunications has declined to issue apronouncement due to the existence a pending judicial action—Protective Appeal—brought againstResolution 1985.
iii) By resolution N°2438 of November 25, 2008, the Ministry of Transportation and Telecommunicationsdeducted from the revenue the Company has a right to, an amount equivalent to UF4,000 for allegednon-compliance with the rates of frequency and regularity. prescribed by Exempt Resolution N°1985 ofOctober 17, 2008. The Company appealed for reconsideration in all levels of jurisdiction against Resolution2438, and was notified by the Ministry with respect to these appeals through Res. 2576, in which theMinistry declined to issue a pronouncement due to the existence of pending judicial action—a ProtectiveAppeal —brought against Res. 1985.
iv) The Ministry of Transportation and Telecommunications imposed a UF 200 penalty on the Company bythe Exempted Res. N°2601 dated December 9, 2008, for supposed non-compliance with Article 3.6.1.1No. 6 a) of Bidding Conditions, that is, for failure to comply with the minimum frequency required. TheCompany decided not to appeal, notwithstanding a review of the possibility of filing a suit.
v) By resolution N°2618 of December 10, 2008, the Ministry of Transportation and Telecommunicationsdeducted from the revenue the Company has a right to, an amount equivalent to UF3,500 for supposednon-compliance with rates of frequency and regularity prescribed by Exemption Resolution N°1985 ofOctober 17, 2008. The Company appealed for reconsideration in all levels of jurisdiction against Resolution2618 on December 23, 2008 and was notified on March 16, 2009, that the Ministry declined to issue apronouncement due to the existence of pending judicial action—a Protective Appeal—brought against Res.1985.
vi) By means of resolution N°2734 of December 23, 2008, the Ministry of Transportation andTelecommunications deducted from the revenue the Company has a right to, an amount equivalent toUF4,400 for supposed non-compliance with the rates of frequency and regularity, prescribed by Exempt
F-94
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
27. Sanctions—(Continued)
Resolution N°1985 of October 17, 2008. The Company appealed for reconsideration in all levels ofjurisdiction against Resolution 2734, pending resolution.
vii) By means of resolution N°138 on January 23, 2009, the Ministry of Transportation andTelecommunications deducted from the revenue the Company has a right to, an amount equivalent toUF3,800 for supposed non-compliance with the rates of frequency and regularity prescribed by ExemptResolution N°1985 of October 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009.The Company appealed for reconsideration in all levels of jurisdiction against in all levels of jurisdictionagainst Resolution 138, regarding which it was notified by resolution 294 of February 10, 2009 and also onMarch 24th, 2009 that the Ministry of Transport and Telecommunications is prohibited from to issuing astatement due to the existence of a pending judicial action—Protective Appeal Resource—filed againstResolution 1985.
viii) By means of resolution N°288 of February 10th, 2009 the Ministry of Transportation andTelecommunications deducted from the revenue the Company has a right to, an amount equivalent toUF3,600 for supposed non-compliance with the rates of frequency and regularity prescribed by ExemptResolution N°1985 of October 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009.
ix) By means of N°389 of February 25th, 2009 the Ministry of Transportation and Telecommunicationsdeducted from the revenue the Company has a right to, an amount equivalent to UF4,400 for supposednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company appealedfor reconsideration in all levels of jurisdiction against Resolution 389, for which and by resolution 464 ofMarch 6, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statementdue to the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution1985.
x) By resolution N°470 of March 10, 2009, the Ministry of Transportation and Telecommunicationsdeducted from the income that the Company has a right to, an amount equivalent to UF3,100 for supposednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company lodged anappeal for reconsideration against the hierarchical Resolution 470, for which and by resolution 672 ofMarch 31, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statementdue to the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution1985.
xi) By resolution N°609 of March 25, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF4,400 for supposednon-compliance to with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company filed anappeal for reconsideration in all levels of jurisdiction against Resolution 609, regarding which and byresolution 784 of April 17, 2009, the Ministry of Transport and Telecommunications is prohibited fromissuing a statement due to the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution 1985.
xii) By Resolution 420 of February 27, 2009, the Ministry of Transport and Telecommunications applied theCompany a fine of UF90 due to the verification of non-compliance with the instructions of the Ministry
F-95
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
27. Sanctions—(Continued)
regarding the delivery of the financial statements of the company, in FECU, within the deadline set inContract Agreement 200 on three occasions, for the quarter March, June and September 2008. Against theresolution, submitted application for reconsideration is not appropriate for the amount of the fine and thefundamentals of it, a remedy that is rejected through Resolution 1974. The Company is analyzing thefeasibility of presenting before the General Comptrollership of the Republic.
xiii) By resolution N°738 of April 13, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF3,800 for supposednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company appealedfor reconsideration in all levels of jurisdiction against Resolution 738, for which and by resolution 944 ofMay 11, 2009 the Ministry of Transport and Telecommunications is prohibited from issuing a statement dueto the existence of a pending jurisdictional action—Protective Appeal—lodged against Resolution 1985.
xiv) By resolution N°822 of April 27, 2009, the Ministry of Transportation and Telecommunicationsdeducted from the revenue the Company has a right to, an amount equivalent to UF4,100 for supposednon-compliance to the rates of frequency and regularity, such discount is imposed by Exemption ResolutionN°1985 of October 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Companyappealed for reconsideration in all levels of jurisdiction against Resolution 822, for which and by resolution1005 of May 22, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing astatement due to the existence of a pending jurisdictional action—Protective Appeal—lodged against theResolution 1985.
xv) By resolution N°932 of May 11, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF3,300 for supposednon-compliance to the rates of frequency and regularity, such discount is imposed by Exemption ResolutionN°1985 of October 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009.
xvi) By resolution N°1034 of May 25, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF2,500 for supposednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company appealedfor reconsideration in all levels of jurisdiction against Resolution 1034, for which and by resolution 1297 ofJune 26, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statementdue to the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution1985.
xvii) By resolution N°1165 of June 11, 2009, belatedly notified the Ministry of Transportation andTelecommunications, deducted from the revenue the Company has a right to, an amount equivalent toUF3,900 for supposed non-compliance to the rates of frequency and regularity, such discount is imposed byExemption Resolution N°1985 of October 17, 2008 and complementary Exempt Resolution 69 ofJanuary 14, 2009. The Company appealed for reconsideration the hierarchical in all levels of jurisdictionagainst Resolution 1165, claiming their legality and untimely, and through Resolution 1506 dated July 23,2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statement due to theexistence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution 1985.
F-96
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
27. Sanctions—(Continued)
xviii) By resolution N°1285 of June 25, 2009, the Ministry of Transportation and Telecommunicationsdeducted from the revenue the Company has a right to, an amount equivalent to UF1,300 for supposednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company appealedfor reconsideration in all levels of jurisdiction against Resolution 1285, and by Resolution 1503 datedJuly 23, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statement dueto the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution 1985.
xix) By Resolution Nº1381 dated July 10, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF5,000 for supposednon-compliance to the rates of frequency and regularity, such discount are imposed by ExemptionResolution N°1985 of October 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009.The Company appealed for reconsideration in all levels of jurisdiction against Resolution 1381, and throughResolution 1745 dated August 14, 2009, the Ministry of Transport and Telecommunications is prohibitedfrom issuing a statement due to the existence of a pending jurisdictional action—Protective Appeal—lodged against Resolution 1985.
xx) By Resolution Nº1544 dated July 28, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF2,900 for supposednon-compliance with the rates of frequency and regularity prescribed by Exemption Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company appealedfor reconsideration in all levels of jurisdiction against Resolution 1544, and by Resolution 1717 datedAugust 14, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statementdue to the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution1985.
xxi) By Resolution Nº1671 dated August 10, 2009, the Ministry of Transportation and Telecommunications,deducted from the revenue the Company has a right to, an amount equivalent to UF4,000 for supposednon-compliance with the rates of frequency and regularity prescribed by Exempt Resolution N°1985 ofOctober 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009. The Company appealedfor reconsideration in all levels of jurisdiction against Resolution 1671, and by Resolution 1850 datedAugust 28, 2009, the Ministry of Transport and Telecommunications is prohibited from issuing a statementdue to the existence of a pending jurisdictional action—Protective Appeal—lodged against Resolution 1985.
xxii) By Resolution Nº1812 dated August 24, 2009, the Ministry of Transportation andTelecommunications, deducted from the revenue the Company has a right to, an amount equivalent toUF1,700 for supposed non-compliance with the rates of frequency and regularity, imposed by ExemptResolution N°1985 of October 17, 2008 and complementary Exempt Resolution 69 of January 14, 2009.The Company filed an appeal for reconsideration in all levels of jurisdiction against Resolution 1812, and byResolution 1960 dated September 10, 2009, the Ministry of Transport and Telecommunications is prohibitedfrom issuing a statement due to the existence of a pending jurisdictional action—Protective Appeal—lodged against the Resolution 1985.
xxiii) Through Exempted Resolution Nº2244 dated October 14, 2009, pursuant to provisions stated inExempted Resolution Nº1938, complemented by Exempted Resolution Nº2230, the Ministry ofTransportation and Telecommunications applied deductions for ICR and ICF for a sum equivalent to UF
F-97
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
27. Sanctions—(Continued)
2,300 and for ICPKH for the sum of $178,013,796. With respect to the discount for ICPKH, the Companysubmitted a replacement remedy as per the index that did not consider at least 190,000 validations for badtiming in the discharge made by the AFT. Replacement remedy was rejected and civil processes wereforwarded to Senior Hierarchy.
xxiv) Through Exempted Resolution Nº2361 dated October 28, 2009, pursuant to provisions stated inExempted Resolution Nº1938, complemented by Exempted Resolution Nº2230, the Ministry ofTransportation and Telecommunications applied discounts for ICR and ICF for a sum equivalent to UF2,400 and for ICPKH for the sum of $210,632,397. The Company did not file remedies as there were nobackground determined to allow for reversal of the resolution.
xxv) Through Exempted Resolution Nº2480 dated November 11, 2009, pursuant to provisions stated inExempted Resolution Nº1938, complemented by Exempted Resolution Nº2230, the Ministry ofTransportation and Telecommunications applied discounts for ICR and ICF for a sum equivalent to UF1,000 and for ICPKH for the sum of $123,867,568. Determination of remedy is pending.
xxvi) Through Exempted Resolution Nº2788 dated December 14, 2009, pursuant to provisions stated inExempted Resolution Nº1938, complemented by Exempted Resolution Nº2230, the Ministry ofTransportation and Telecommunications applied discounts for ICR and ICF for a sum equivalent to UF2,300 and for ICPKH for the sum of $146,926,917. Determination of remedy is pending.
xxvii) Through Exempted Resolution Nº 69 dated January 11, 2010, pursuant to provisions stated inExempted Resolution Nº1938, complemented by Exempted Resolution Nº2230, the Ministry ofTransportation and Telecommunications applied discounts for ICR and ICF for a sum equivalent to UF2,700 and for ICPKH for the sum of $132,358,812. Determination of remedy is pending.
xxviii) Through Exempted Resolution Nº1148, the Ministry of Transportation and Telecommunicationssanctioned the Company for not having certified workshops through the international standard ISO9001:2000. The Company submitted replacement remedies but these were rejected.
xxix) Through Exempted Resolution Nº2739 dated December 4, 2009, the Ministry of Transportation andTelecommunications filed charges to the Company because bus N° ZN3248 had no updated technicalrevision. The Company did not submit discharges for not having backgrounds that allow impairing. It isexposed to a sum of 10UF.
c) Sesma
By resolution N°886 of March 6, 2009, (Exp. N°4975/2007) applied a fine of 30 UTM. The Company presentedan administrative reconsideration appeal. This fine was reduced to 25 UTM and has been paid.
By resolution N°457/09, the sanction process for non-compliance of the resolution that qualified environmentapproving the project “Depósito y Terminal de Vehículos Puente Alto Exp. N°016/2006” is resolved, a verdictwas issued that order the payment of the sum of 100 UTM. The Company presented an administrativereconsideration appeal, pending resolution.
By Resolution Nº 531/09 the sanction process followed against the Company for non-compliance of theresolution that qualified environment approving the project “Depósito y Terminal de Vehículos Puente Alto—Exp. N°016/2006” is resolved, a verdict was issued that ordered the payment of the sum of 200 UTM. TheCompany paid the fine on September 8, 2009.
F-98
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
28. Subsequent Events
On January 29, 2010, the Company subscribed an Agreement Protocol with the Ministry of Transportation andTelecommunications in order to incorporate a modification of the Road Use Concession Agreement to providepublic bus transportation services for the passengers.
Between December 31, 2009 and the date of issuance these financial statements, the Administration of theCompany has not been informed of any further events that could affect them.
29. Environment
No disbursements connected either directly or indirectly to environmental protection have been made as ofDecember 31, 2009 and 2008.
30. Operating Income
Operating income mainly consists of revenue related to public transportation corresponding to the Company´sTrunk line No. 1., which is detailed as follows:
2008 2009
ThCh$ ThCh$
Trunkline No. 1 service revenue . . . . . . . . . . . . . . . . . 65,137,790 60,415,076Static and dynamic advertisement on buses . . . . . . . . 175,168 188,498Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,552,609 6,054,655
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,865,567 66,658,229
31. Operating Costs and Expenses
Operating costs as of December 31 for each year are detailed as follows:
2008 2009
ThCh$ ThCh$
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,080,205 50,806,862Depreciation and amortization . . . . . . . . . . . . . . . . . . 9,448,105 9,422,829
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,528,310 60,229,691
Administrative and sales expenses as of December 31 of each year are detailed as follows:
2008 2009
ThCh$ ThCh$
Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,079,748 5,379,218Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 909,094 1,233,550
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,988,842 6,612,768
F-99
INVERSIONES ALSACIA S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(Restated for general price-level changes and expressed in millions of constant
Chilean pesos as of December 31, 2009)(A free translation from the original prepared in Spanish)
32. Accounts Payable
Accounts payable as of December 31 for each year are detailed as follows:
2008 2009
ThCh$ ThCh$
National suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,085,465 8,170,218Foreign suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,300 401,405Subsidiary suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,036 21,662Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786,186 181,185
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,172,987 8,774,470
F-100
Consolidated Financial StatementsInversiones Alsacia S.A.
December 31, 2007 and 2008
Ch$ = Chilean pesosThCh$ = Thousands of Chilean pesosUS$ = United States dollarsThUS$ = Thousands of United States dollarsUF = “Unidades de Fomento”, an inflation-indexed, peso-denominated monetary unit. The UF rate is set
daily based on changes in the Chilean Consumer Price Index.
(A free translation from the original prepared in Spanish)
F-101
Report of Independent Accountants(A free translation from the original report issued in Spanish)
To the Shareholders and Directors ofInversiones Alsacia S.A.:
We have audited the consolidated balance sheets of Inversiones Alsacia S.A. and Subsidiary (the “Company”) asof December 31, 2008 and 2007 and the related consolidated statements of income and cash flows for the yearsthen ended. These consolidated financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financial statements based on our audits. We did notaudit the financial statements of subsidiary IASA de Colombia Limitada which shows total assets of ThCh$260and ThCh$131,210 as of December 31, 2008 and 2007, respectively. In addition we did not audit the financialstatements of indirect associate Express de Santiago Uno S.A. (subsidiary of the direct associate InversionesEco Uno S.A.) which as a result of the application of the equity method shows a total investment ofThCh$4,708,907 and ThCh$4,206,182 as of December 31, 2008 and 2007, respectively and accrued equityincome of ThCh$502,723 and ThCh$2,078,450 for the years then ended. Those financial statements were auditedby other auditors whose reports have been furnished to us, and our opinion expressed herein, in reference to theamounts used to calculate the equity value of those companies, is based solely on the reports issued by thoseauditors.
We conducted our audits in accordance with generally accepted auditing standards in Chile. Those standardsrequire that we plan and perform our audit to obtain reasonable assurance that the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also involves assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statementsreferred to above present fairly, in all material respects, the financial position of Inversiones Alsacia S.A. andSubsidiary as of December 31, 2008 and 2007 and the results of their operations and their cash flows for theyears then ended, in conformity with generally accepted accounting principles in Chile.
/s/ KPMG Auditores Consultores Ltda.
Santiago, Chile, February 26, 2009
F-102
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Consolidated Balance Sheets(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)As of December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
Note 2008 2007
ThCh$ ThCh$
AssetsCurrent assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 282,437 166,248Marketable securities (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 36,912 196,120Trade receivables (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5,098,735 3,129,281Notes receivables (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 — 477,889Other receivables (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 547,764 1,254,619Due from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 978,160 331,207Inventories (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 91,465 80,086Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319,055 102,765Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 960,751 1,360,270Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 118,443 138,981Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9,353,826 7,448,563
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,787,548 14,686,029
Property, Plant and Equipment:Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3,761,750 3,745,610Buildings and infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 13,704,594 7,579,542Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 64,487,632 57,910,025Other fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5,393,550 4,967,635Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (19,206,280) (11,453,079)
Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 68,141,246 62,749,733
Other assets:Investments in related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4,708,907 4,206,182Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2,338,657 1,328,569Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 17,189,159 18,130,943
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,236,723 23,665,694
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,165,517 101,101,456
The accompanying notes 1 to 35 are an integral part of these financial statements.
F-103
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Consolidated Balance Sheets(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)As of December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
Note 2008 2007
ThCh$ ThCh$
LiabilitiesCurrent Liabilities:
Short-term loans with banks and financial institutions . . . . . . . . . . . . . . . 15 5,506,136 6,241,336Long-term borrowings—short-term portion . . . . . . . . . . . . . . . . . . . . . . . 15 13,772,362 6,726,348Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7,341,854 7,314,149Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1,481,326 1,397,542Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 32,058 34,912Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 996,524 2,103,247Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 530,872 559,127Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,602 —Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 53,867 7,738,616
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,724,601 32,115,277
Long-term liabilitiesObligations with banks and financial institutions . . . . . . . . . . . . . . . . . . . 17 79,016,996 63,078,970Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029,124 192,505Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2,281,472 1,931,759
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,327,592 65,203,234
Shareholders’ Equity (Deficit):Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10,551,039 10,551,039Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (6,768,094) (19,673,231)Net (loss) income for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (5,669,621) 12,905,137
Total shareholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . (1,886,676) 3,782,945
Total liabilities and shareholders’ equity (deficit) . . . . . . . . . . . . . . 110,165,517 101,101,456
The accompanying notes 1 to 35 are an integral part of these financial statements.
F-104
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Consolidated Statements of Income(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)For the years ended December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
Note 2008 2007
ThCh$ ThCh$
Operating incomeRevenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 72,533,847 51,093,057Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (57,859,069) (39,465,247)
Gross margin: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,674,778 11,627,810Administrative and selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (5,106,287) (4,299,914)
Total operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,568,491 7,327,896
Non operating income (expenses)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708,335 840,556Profit from investment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 502,723 2,078,450Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 312,909 60,222Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,142,354) (4,296,141)Other non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (446,803) (294,069)Price-level restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6,540,486 5,180,980Foreign exchange difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (17,822,895) 3,946,556
Total non-operating (expense) income . . . . . . . . . . . . . . . . . . . . . . . . (16,347,599) 7,516,554
(Loss) income before taxes and extraordinary items . . . . . . . . . . . . . . . . . . . . . (6,779,108) 14,844,450Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1,109,487 (1,939,303)(Loss) income before minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,669,621) 12,905,147
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (10)
Net (loss) income for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,669,621) 12,905,137
The accompanying notes 1 to 35 are an integral part of these financial statements.
F-105
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Consolidated Statements of Cash Flows(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)For the years ended December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
Note 2008 2007
ThCh$ ThCh$
Cash flows from operating activities:Collection of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,625,321 44,738,021Interest income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 812,085 840,556Other income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,965 78,771Paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56,079,084) (35,810,741)Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,017,111) (3,881,089)Other expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (301,364) (294,069)Value Added Tax and other taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (252,448) (835,388)
Total net cash flows provided by operating activities . . . . . . . . . . . . 4,962,364 4,836,061
Cash flows from financing activities:Loans obtained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,778,097 7,037,405Loans from related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (206,771)Other borrowings from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,820 —Other financing sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5,394,302Payment of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,360,841) (4,822,330)Payment of other loans from related companies . . . . . . . . . . . . . . . . . . . . (664,570) —
Total net cash flows provided by financing activities . . . . . . . . . . . . 8,227,506 7,402,606
Cash flows from investment activities:Sales of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,801Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . (13,144,714) (5,871,017)Investments in related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (285,386)Investments in financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,555,715) (8,148,673)Other investing disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (18,644)Other investments incomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,437,964 2,259,915
Total net cash flows used in investment activities . . . . . . . . . . . . . . . (13,262,465) (12,054,004)
Total net cash flows for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,595) 184,663Effect of inflation on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 29,596 (636)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . (42,999) 184,027Opening balance of cash & cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 362,348 178,340
Closing balance of cash & cash equivalents . . . . . . . . . . . . . . . . . . . 319,349 362,367
The accompanying notes 1 to 35 are an integral part of these financial statements.
F-106
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Consolidated Statements of Cash Flows(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)For the years ended December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
Note 2008 2007
ThCh$ ThCh$
Net income (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,669,621) 12,905,137(Proceeds) losses from sale of assets:Loss from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . — 10,243
Total (proceeds) loss from sale of assets . . . . . . . . . . . . . . . . . . . . . . . — 10,243
Charges (credits) to income that do not represent cash flows:Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7,756,809 4,417,241Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,611,016 1,087,848Write-offs and provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,783 203,639Profit from investments in related companies . . . . . . . . . . . . . . . . . . . . . . . 13 (502,723) (2,078,450)Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (6,540,486) (5,180,980)Foreign exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 17,822,895 (3,946,556)Credits to income which do not represent cash flows . . . . . . . . . . . . . . . . . (2,754,572) —Charges to income which do not represent cash flows . . . . . . . . . . . . . . . . . — 2,221,413
Total charges to income that do not represent cash flows . . . . . . . . . . 17,517,722 (3,275,845)
Changes in assets affecting cash flows decrease (increase):Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,885,037) (3,121,379)Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,924) (9,920)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931,255 3,590,129
Total changes in assets affecting cash flows decrease . . . . . . . . . . . . . 971,706 458,830
Changes in liabilities affecting cash flows increase (decrease):Accounts payable related to operating income . . . . . . . . . . . . . . . . . . . . . . . (221,425) (518,679)Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911,213 (3,812,038)Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,603 —Other accounts payable related to non-operating income . . . . . . . . . . . . . . . (6,613,422) (931,587)
Total changes in liabilities affecting cash flow (decrease) . . . . . . . . . . (5,914,031) (5,262,304)
Income (loss) of minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (9)
Total net cash flows provided by operating activities . . . . . . . . . . . . . 4,962,364 4,836,061
The accompanying notes 1 to 35 are an integral part of these financial statements.
F-107
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
1. Corporate Information
Registration with the Securities and Trade Registry:
Inversiones Alsacia S.A. is listed in the Securities and Trade Registry of the Office of the Superintendency ofSecurities and Insurance of Chile (SVS), under No 883 dated January 27, 2005, and is subject to the supervisionof the SVS.
Incorporation and operations:
Inversiones Alsacia S.A. was founded as a closely-held corporation by public deed on November 27, 2004. Theprincipal activity of the Company is providing public transportation services to passengers on the routes grantedto it in the Metropolitan region and any other related activity in connection with that service.
At the Shareholders’ Meeting held on December 9, 2004, it was agreed to extend the line of business to includestatic and dynamic advertisement through the use of advertising spaces on buses and other services related to themain activity.
On October 23, 2005, the Corporation started providing public transportation services associated with The TrunkLine No 1, which involved the operation of 533 buses at the beginning of the transition stage that reached thesame amount at the beginning of the Normal Operating Stage (February 2007).
2. Summary of Significant Accounting Principles
(a) Accounting period
These financial statements include the period January 1 to December 31, 2008 and 2007.
(b) Basis of preparation
The consolidated financial statements have been prepared in accordance with generally accepted accountingprinciples in Chile (Chilean GAAP), issued by the Chilean Institute of Certified Accountants A.G., and with thespecific rules and instructions issued by the Chilean Superintendency of Securities and Insurance.
The consolidated financial statements includes the assets, liabilities, results of operations and cash flows of theparent company and subsidiary. The subsidiary included in consolidation and its participation percentage is afollows:
Taxpayer No. Company Name
Owneraship Percentage
12-31-2008 12-31-2007
Direct Indirect Total Total
0-E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IASA de Colombia Ltda. 99.999 — 99.999 99.999
(c) Basis of presentation
For comparative purposes, the consolidated financial statements as of December 31, 2007 and its related noteshave been restated for inflation by 8.9%.
F-108
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
(d) Price-level restatement
The consolidated financial statements have been price-level restated in order to reflect the variation in purchasingpower of the Chilean peso during each period. The adjustments have been determined based on the official indexof the National Institute of Statistics, which shows a variation of 8.9% for 2008 (7.4% in 2007.).
The effect of the price-level restatement for the periods between January 1 and December 31, 2008, has beenrecorded in net income.
(e) Basis of foreign currency translation
The assets and liabilities in foreign currency and in “Unidades de Fomento” are valued at the exchange rateeffective as of the closing date of each period. Effects have been recognized directly in the income statement.The exchange rates effective as of the closing date of each fiscal year are the following:
2008 2007
Ch$ Ch$
US dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636.45 496.89Unidad de Fomento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,452.57 19,622.66
(f) Time deposits
Investments in time deposits are presented at the acquisition cost plus any readjustment and interest accrued as ofeach closing date.
(g) Inventories
The fuel stock is shown at its price-level restated cost, which does not exceed its net realizable value.
(h) Prepaid expenses
Prepaid expenses include expenses related to insurance policies, which are amortized over the insurance policyterm.
(i) Property, plant and equipment
The Company’s property, plant and equipment mainly corresponds to buses held for public transportation, whichare valued at price-level restated acquisition cost adjusted by inflation, including all the expenditures incurred upto the date in which they available for use. Other property, plant and equipment items are accounted for at theirpurchase cost adjusted by inflation.
Expenditures related to the purchase of software packages are recognized at price-level restated acquisition costand amortized over a three-year period.
Goods subject to a sale-and-leaseback agreement are capitalized as a property, plant and equipment of theCompany; corresponding obligations are accounted for as part of other short and long-term payables.
F-109
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
(j) Depreciation of property, plant and equipment
The annual depreciation has been estimated using the straight-line method, considering the remaining estimateduseful life of the respective assets.
During the third quarter of 2008, the Company carried out a technical study of the buses in order to determine theimpairment they may have been exposed to in the current operating situation. As a result of the study, theremaining useful life of the buses was reduced from 13 years—originally determined according to the duration ofthe concession contract—to 9 years.
This adjustment of the useful lives of the buses led to an increase in a depreciation charge for the financial periodof 2008 in the amount of ThCh$1,866,815. According to internal analysis the change in useful lives will have anegative impact on future income for the 2009 period and onwards in the amount of ThCh$2,309,741 annually.
(k) Property, plant and equipment under financial lease
Items of property, plant and equipment leased on the basis of contracts which include a purchase option andwhich fulfill all criteria of a financial lease agreement are capitalized as property, plant and equipment. The sumof the annual lease payments is recognized as liability and lease interest is recorded on accrual basis. Such assetsare not legally owned by the Company, so, as long as the purchase option is not exercised, the Company cannotfreely dispose of them.
(l) Investments in related parties
Investments in related parties are accounted for using the equity method.
The share in the related parties income is recognized in the Company’s income statement on an accrual basisover the corresponding holding period.
The investment in IASA Colombia S.A. is stated in accordance with Technical Bulletin No. 64 issued by theChilean Institute of Certified Accountants A.G.
(m) Income tax and deferred taxes
According to the current legal regulations, the Company has not accrued any provision for first-category incometax, because it shows a negative base in the respective periods.
In accordance with what is set forth in Technical Bulletin No. 60 and the complementary bulletins issued by theChilean Institute of Certified Accountants A.G., and the standards provided in Circular No. 1,466 of the ChileanSuperintendency of Securities and Insurance, the Company accounts for deferred taxes originated by timingdifferences, benefits due to tax losses and other events that generate differences between accounting and taxincome.
F-110
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
2. Summary of Significant Accounting Principles—(Continued)
(n) Vacation accrual
At each period end, the Company sets up an accrual for unused vacation days of its employees.
(o) Revenues
During the transition period between October 24, 2005 and February 9, 2007, revenues related to the publictransportation service and the right of use of roads under concession yellow buses is recognized as and whenearned. Revenue from static and dynamic advertising is recognized in the financial statements when serviceshave been provided.
On February 10, 2007, the new regimen period began, and from this date on earnings are calculated inaccordance with the concession agreement with the Ministry of Transportation and Telecommunications; that isthe price per transported passenger (PTP) multiplied by the adjusted demand.
Revenue from static and dynamic advertising originates from renting out advertising spaces on buses.
(p) Technical Operating Reserve (TOR)
The Technical Operating Reserve is an allowance incorporated in the fare paid by users to cover possibletemporary lags or mismatches between the income and costs of the Transantiago passenger transportationsystem. The amounts paid to the Transantiago Financial Administrator (AFT) for this concept in relation to theTrunk Line No.1 business unit, are recorded as a deferred asset that will be amortized with a charge to operatingincome, during the concession’s operating period, based on projected income to be obtained from providingtransportation services.
(q) Statements of cash flows
The Company considers as cash equivalents all highly-liquid financial investments with a maximum maturity of90 days. Cash flows from operating activities include all business-related cash flows, as well as interest paid,interest income and, in general, all cash flows not defined as from investment or financing activities. Theoperating concept used in the statements of cash flows is more comprehensive than the one considered in thestatement of income.
(r) Capital expenditures
According to the Ordinary Official letter No. 11,808 of October 31, 2006, the Chilean Superintendency ofSecurities and Insurance authorized the Company to accrue and subsequently amortize capital expendituresdirectly associated with the bank loans used to finance the purchase of the bus fleet. For this purpose, suchexpenditures are amortized based on the development of actual earnings obtained, considering the total projectedearnings. These expenditures are capitalized as part of the line item Other Long-Term Assets.
F-111
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
3. Accounting Changes
During the period from January 1 to December 31, 2008, no significant accounting changes have been made tothe generally accepted accounting principles in Chile in relation to prior year.
4. Marketable Securities
Book Value
Instruments 2008 2007
ThCh$ ThCh$
Mutual fund units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,912 196,120
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . 36,912 196,120
5. Short- and Long-term Trade Receivables
Composition of short and long-term receivables as of December 31, 2008 and 2007:
2008 2007
ThCh$ ThCh$
Trade receivables:AFT (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,999,684 2,877,272Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,018 41,041Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816 210,968Allowance for doubtful accounts . . . . . . . . . . . . . . (124,783) —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,098,735 3,129,281
Notes receivable:Promissory note Transantiago AFT (2) . . . . . . . . . . — 477,889
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 477,889
Other receivables:Accounts receivable from employees . . . . . . . . . . . 265,019 48,766Prepayment to suppliers . . . . . . . . . . . . . . . . . . . . . 217,428 190,289Accounts receivable from Volvo (3) . . . . . . . . . . . . 48,678 555,202Volvo of buses (4) . . . . . . . . . . . . . . . . . . . . . . . . . . — 251,155Insurance recoveries . . . . . . . . . . . . . . . . . . . . . . . . — 73,299Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,639 135,908
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547,764 1,254,619
(1) Corresponds mainly to the passenger revenue accrued by rendering public transportation services during theregimen period that are paid every two weeks by the Transantiago Financial Administrator.
(2) Corresponds to the compensation balance made to the Company by the Transantiago FinancialAdministrator (AFT) equivalent to UF 221,208 plus accrued interest, of which UF200,000 were in January2007. This amount offsets the lower revenue and higher costs resulting from the postponement of theregimen stage from October 23, 2006 to February 10, 2007.
F-112
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
5. Short- and Long-term Trade Receivables—(Continued)
(3) This line item relates to warranty claims against Volvo Sweden Co. in the form of spare parts for the busfleet.
(4) Relates to the payment of customs duties and taxes for the import of 10 B9 Volvo buses.
Short-term Long-term
Up to 90 days
More than< 90 days >
1 year Subtotal Total current (net)
2008 2007 2008 2007 2008 2008 2007 2008 2007
Trade receivables . . . . . . . . . . . . . . . . 5,223,518 3,129,281 — — 5,223,518 5,098,735 3,129,281 — —Allowance for doubtful accounts . . . . — — — — 124,783 — — — —Notes receivable . . . . . . . . . . . . . . . . . — 477,889 — — — — 477,889 — —Allowance for doubtful accounts . . . . — — — — — — — — —Other receivables . . . . . . . . . . . . . . . . 547,764 1,254,619 — — 547,764 547,764 1,254,619 — —Allowance for doubtful accounts . . . . — — — — — — — — —
Total long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
6. Related Party Disclosures
The sales to and purchases from related parties are made at terms intended to be equivalent to those prevailing inarm’s length transactions.
Short-term due from related parties are detailed as follows:
2008 2007
ThCh$ ThCh$
Express de Santiago Uno S.A. (1) . . . . . . . . . . . . . . . . . . . . . 187,633 46,602Carlos Rios V. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,180 3,981EDTM Consultores E.V. (3) . . . . . . . . . . . . . . . . . . . . . . . . . 304,371 193,157Rioma Ltda. (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,954 7,994Desarrollo y Soluciones Informáticas (5) . . . . . . . . . . . . . . . 128,808 79,473Inversiones Eco Uno Ltda. (6) . . . . . . . . . . . . . . . . . . . . . . . 172,214 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 978,160 331,207
Short-term due to related parties are detailed as follows:
2008 2007
ThCh$ ThCh$
Express de Santiago Uno S.A. (1) . . . . . . . . . . . . . . . . . . . . . . . 32,058 34,912
F-113
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
6. Related Party Disclosures—(Continued)
Long-term due to related parties are detailed as follows:
2008 2007
ThCh$ ThCh$
Data Tools S.A. (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,055,301 892,246Fanach Corp. (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658,354 554,190Aseo Capital S.A.(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,118 277,095Carlos Toro (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,094 110,837Maraya E.V. (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,605 94,213Inversiones Eco Uno Ltda. (12) . . . . . . . . . . . . . . . . . . . — 1,593Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,585
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,281,472 1,931,759
(1) As of December 31, 2008 and 2007, the due from and to balances recorded by the company Express deSantiago Uno S.A., corresponding to balances generated in the context of the allocation of expenses andoperating costs, amount to ThCh$155,575 and ThCh$11,690, respectively.
Moreover, there exists an Adjustment Account for the financial years of 2005 and 2006 which amounts toThCh$1,515,343 (historic value), increasing the balance in favor of Inversiones Alsacia to ThCh$1,670,918as of December 31, 2008.
The value of the Adjustment Account is based on the instructions in Official Letter No. 06354 datedJune 11, 2007 of the Chilean Superintendency of Securities and Insurance. The Company followed theguidelines of the Official Letter and altered the balances receivable from and payable to Express de SantiagoUno S.A. to the amounts of ThCh$2,126,660 and ThCh$611,317, respectively (historic net amount ofThCh$1,515,343 in favor of Inversiones Alsacia S.A.)
Adjusted balances originated from:
• The pre-operational period: ThCh$611,317 (historic value) in favor of Express, referring to the periodbetween January 10 and December 31, 2005.
• The operational period: ThCh$2,126,660 (historic value) in favor of Inversiones Alsacia S.A. referringto the period between January 10 and August 31, 2006.
Inversiones Alsacia S.A. has 2 independent third party reports confirming the amounts cited.
The companies involved have held negotiations to resolve this situation. As of period-end no resolution hasbeen reached. For the fact that no agreement could be reached, the Company is considering submitting thematter for arbitration. In the meantime, following the instructions of the Ordinary Official Letter publishedby the Superintendency of Securities and Insurance, the balances above are considered as contingentincome, without bearing any interest or readjustments.
(2) Carlos Rios: Claim expenses not generating any interest.(3) EDTM: Corresponds to a loan of US$350,965 taken on March 5, 2007, to finance the capitalization of Eco
Uno Ltda. On February 29, 2008, the loan was renewed with a 180-day payment term, and an agreed-upon
F-114
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
6. Related Party Disclosures—(Continued)
maturity date of August 5, 2008 with annual interest rate of 7.7%. The loan was be renewed automaticallyfor another term of 180 days at the date of maturity.
(4) Rioma Ltda.: Recovery of expenses not generating interest with a maturity date of December 31, 2009.(5) Desarrollo y Soluciones Informáticas: Accounts receivable of US$ 258,160.96 corresponding to interest
earned on external funding.(6) Inversiones Eco Uno Ltda.: Corresponds to contribution for interest on behalf of the Company.(7) Data Tools: Corresponds to three loans obtained to finance Transantiago Operating Plan totaling of
US$ 1,610,000. The loans are in US dollars and accrue 1% annual interest and has a maturity date ofAugust 28, 2012.
(8) Fanach: Corresponds to a credit in the amount of US$ 1,000,000 obtained to finance operations pursuant tothe Transantiago Operating Plan. The loan is in US dollars and accrues an annual interest of 1% and has amaturity date of August 28, 2012.
(9) Aseo Capital: Corresponds to a credit in the amount of US$ 500,000 obtained to finance operations pursuantto the Transantiago Operating Plan. The loan is in US dollars and accrues annual interest of 1% and has amaturity date of August 28, 2012.
(10) Carlos Toro: Corresponds to a credit amounting to US$ 200,000 obtained to finance operations pursuant tothe Transantiago Operating Plan. This loan is in US dollars and accrues annual interest of 1% and has amaturity date of August 28, 2012.
(11) Maraya: Corresponds to a credit amounting to US$ 170,000 obtained to finance operations pursuant to theTransantiago Operating Plan. This loan is in US dollars and accrues annual interest of 1% and has a maturitydate of August 28, 2012.
(12) Eco Uno Ltda.: Recovery of expenses not generating interest and has a maturity date December 31, 2008.
Balances and transactions with related parties during the period January through December 2008 and 2007 areshown in tables below:
(a) Due from Related Companies
Short-term Long-term
2008 2007 2008 2007
Taxpayer IDNo. Corporation ThCh$ ThCh$ ThCh$ ThCh$
99577390-2 Express de Santiago Uno S.A . . . . . . . . . . . . 187,633 46,602 — —48095921-3 Carlos Rios V . . . . . . . . . . . . . . . . . . . . . . . . 29,180 3,981 — —
0-E Edtm Consultores . . . . . . . . . . . . . . . . . . . . . 304,371 193,157 — —99999999-9 Rioma S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . 155,954 7,994 — —
0-E DSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,808 79,473 — —76195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . . . . . 172,214 — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 978,160 331,207 — —
F-115
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
6. Related Party Disclosures—(Continued)
(b) Due to Related Companies
Short-term Long-term
2008 2007 2008 2007
Taxpayer IDNo. Corporation ThCh$ ThCh$ ThCh$ ThCh$
76195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . — — — 1,59399577390-2 Express de Santiago Uno S.A . . . . . . . 32,058 34,912 — —
0-E Aseo Capital de Colombia . . . . . . . . . . — — 327,118 277,0950-E Data Tools . . . . . . . . . . . . . . . . . . . . . . — — 1,055,301 892,2460-E Fanach Corporation . . . . . . . . . . . . . . . — — 658,354 554,1900-E Carlos Toro . . . . . . . . . . . . . . . . . . . . . — — 130,094 110,8370-E Maraya . . . . . . . . . . . . . . . . . . . . . . . . . — — 110,605 94,2130-E Other . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 1,585
Total . . . . . . . . . . . . . . . . . . . . . . . 32,058 34,912 2,281,472 1,931,759
F-116
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
6. Related Party Disclosures—(Continued)
(c) Transactions
2008 2007
CorporationTaxpayer
ID No.Nature of therelationship Transaction description Amount
Effects onIncome
(charge/credit) Amount
Effects onIncome
(charge/credit)
Express de Santiago Uno S.A. . . . . . . 99577390-2 Related Company Provision for shared expenditures — — 34,912 (34,912)Express de Santiago Uno S.A. . . . . . . 99577390-2 Related Company Shared expenditures invoices 85,868 85,868 — —Data Tools . . . . . . . . . . . . . . . . . . . . . 0-E Related Company Loans — — 892,246 (21,054)Fanach Corporation . . . . . . . . . . . . . . 0-E Related Company Loans — — 554,190 (13,077)Aseo Capital de Colombia . . . . . . . . . 0-E Related Company Loans — — 277,095 (6,538)Carlos Toro . . . . . . . . . . . . . . . . . . . . . 0-E Related Company Loans — — 110,837 (2,616)Desarrollo y Soluciones
Informáticas . . . . . . . . . . . . . . . . . . 0-E Related Company Nib Credit Interests Diff. 636,450 — 79,474 (-58)
F-117
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
7. Inventories
Includes the inventories held by the Company, valued according to the accounting policy of the Companydescribed in Note 2(g).
The balances as of December 31, 2008 and 2007 are detailed as follows:
2008 2007
ThCh$ ThCh$
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,465 80,086
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,465 80,086
8. Deferred and Income Taxes
General Information
As of December 31, 2008 and 2007 as stated in Note 2 (l), the Company has made no provision for FirstCategory Income Tax according to current legal regulations in force as it has negative tax results.
Accumulated tax loss as of December 31, 2008 amounts to ThCh$71,968,310 (ThCh$27,224,827 in 2007).
F-118
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
8. Deferred and Income Taxes—(Continued)
(a) Deferred Taxes
2008 2007
Deferred tax asset Deferred tax liability Deferred tax asset Deferred tax liability
Concepts Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term
Temporarydifferences: . . . . . . . . . — — — — — — —Allowance for doubtful
accounts . . . . . . . . . . 21,212 — — — — — — —Deferred income (*) . . — — — — — — — —Vacation accrual . . . . . 135,410 — — — 138,981 — — —Amortization of
intangible assets . . . . — — — 2,031,167 — — — 1,017,863Finance lease assets . . . — — — 131,479 — — 137,197Manufacturing
expenses . . . . . . . . . . — — — — — — — —Depreciation of
property, plant andequipment . . . . . . . . — — — 6,706,983 — — — 1,446,234
Severance indemnities(*) . . . . . . . . . . . . . . — — — — — — — —
Other events . . . . . . . . . — — — — — 234,560 — —Amortization of other
assets . . . . . . . . . . . . — — — 1,026,326 — — — 932,918Acumulated tax
losses . . . . . . . . . . . . — 12,234,612 — — — 4,628,221 — —Prepaid expenses . . . . . — — 38,178 — — — —Mutual fund units . . . . — — 1 — — — — —
Others: . . . . . . . . . . . . . . . — — — — — — — —Complementary
accounts-net ofamortization . . . . . . . — — — — — — — —
Valuation allowance(*) . . . . . . . . . . . . . . — — — — — — — —
Total . . . . . . . . . . . . . 156,622 12,234,612 38,179 9,895,955 138,981 4,862,781 — 3,534,212
F-119
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
8. Deferred and Income Taxes—(Continued)
(b) Income Taxes
Item 2008 2007
Current income tax expense (provision)Tax expense adjustment (prior year)Effect for deferred tax assets or liabilities of the year . . . . 1,109,487 (1,939,303)Tax benefit from tax losses . . . . . . . . . . . . . . . . . . . . . . . . — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,109,487 (1,939,303)
9. Other Current Assets
Other current assets balance as of December 31, 2008 and 2007 is the following:
2008 2007
ThCh$ ThCh$
Time deposits (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,862,746 6,057,337Repurchase agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 261,551AFT Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,219 —Technical Reserve for Operations, short-term portion . . . . 986,556 1,061,314Transantiago’s guarantee (3) . . . . . . . . . . . . . . . . . . . . . . . . 216,508 —Rental security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,797 68,361
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,353,826 7,448,563
F-120
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
9. Other Current Assets—(Continued)
(1) Correspond to time deposits obtained from the Bank HBSC and Bancolombia, to assure the payment ofinterest for loans granted by the same banks for the financial period between August 28, 2008 andFebruary 28, 2009. Details are as follows:
Bank orFinancialInstitution Start Due date
Currencyof Origin
Value ofSubscription
AnnualRate
Book value12/31/2008
ThCh$ % ThCh$
HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 11-18-2008 01-12-2009 US$ 453,709 1.870 448,521HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 11-26-2008 02-27-2009 US$ 427,935 2.850 406,232HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 11-27-2008 02-27-2009 US$ 368,805 2.950 354,980HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-01-2008 02-27-2009 US$ 506,941 2.800 486,623HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-09-2008 02-27-2009 US$ 24,242 2.430 22,946HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-10-2008 02-27-2009 US$ 4,844,556 2.460 4,637,424HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-11-2008 02-27-2009 US$ 369,718 2.500 354,357HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-15-2008 02-27-2009 US$ 388,226 2.500 378,379HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-29-2008 02-27-2009 US$ 372,990 1.050 378,073HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 11-26-2008 02-27-2009 Ch$ 82,968 0.700 83,646HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-10-2008 02-27-2009 Ch$ 84,376 0.670 84,771HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-11-2008 02-27-2009 Ch$ 28,000 0.700 26,312HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-29-2008 02-27-2009 Ch$ 26,300 0.700 28,131Bancolombia . . . . . . . . . . . . . . . . . . . . . 12-19-2008 06-25-2009 US$ 23,703 2.085 24,108Bancolombia . . . . . . . . . . . . . . . . . . . . . 12-29-2008 06-25-2009 US$ 146,240 2.085 148,243
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,148,709 7,862,746
(2) Time deposit obtained from the HBSC Bank, BanColombia and Santander for 2007 is as follows:
Bank orFinancialInstitution Start Due date
Currencyof Origin
Value ofSubscription
AnnualRate
Book value12/31/2007
ThCh$ % ThCh$
HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-10-2007 02-28-2008 US$ 301,218 5.000 302,097HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-13-2007 02-28-2008 US$ 905,827 5.000 908,091HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-24-2007 02-28-2008 US$ 28,548 5.100 28,576HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-26-2007 02-28-2008 US$ 4,018,884 4.810 4,021,569HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-28-2007 02-28-2008 US$ 297,652 4.790 297,771HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-10-2007 02-28-2008 Ch$ 23,414 6.000 23,495HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-17-2007 02-28-2008 Ch$ 23,651 6.360 23,708HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-26-2007 02-28-2008 Ch$ 119,453 6.480 119,560HSBC Bank . . . . . . . . . . . . . . . . . . . . . . 12-28-2007 02-28-2008 Ch$ 23,196 6.480 23,208Bancolombia . . . . . . . . . . . . . . . . . . . . . 12-27-2007 06-19-2008 US$ 30,844 4.870 31,633Santander . . . . . . . . . . . . . . . . . . . . . . . . 09-25-2007 02-28-2008 US$ 273,262 5.930 277,629
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,045,949 6,057,337
F-121
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
9. Other Current Assets—(Continued)
(3) Corresponds to the time deposits obtained from the Banco Internacional in the amount of UF10,000, toguarantee the insurance contract obtained from Aseguradora Magallanes S.A., to comply with theTransantiago 2003 service contract.
10. Information on operations regarding purchase commitments, sales commitments, sales withrepurchase commitment and purchase with commitment to resell real estate titles or securities
Operations involving sales with repurchase commitment (VRC) and purchases with resale commitment(CRV)
Code StartExpiration
date CounterpartCurrencyof origin
Value ofsubscription Rate
Finalamount
Identificationof
instrumentsMarketvalue
— — — — — — — — — —— — — — — — — — — —
11. Property, Plant and Equipment
Property, plant and equipment as of December 2008 and 2007, presented in accordance with Note 2 (i) is detailedas follows:
Property, plant and equipment,gross amount Accumulated depreciation
2008 2007 2008 2007
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,761,750 3,745,610 — —
Buildings and Infrastructure . . . . . . . . . . . . . 13,704,594 7,579,542 — —
Machinery & equipment:Buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,667,762 57,196,625 (16,785,673) (9,522,564)Machinery & equipment . . . . . . . . . . . . . . . . 819,870 713,400 (329,014) (210,397)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,487,632 57,910,025 (17,114,687) (9,732,961)
OtherOffice furniture and equipment . . . . . . . . . . . 232,333 184,558 (80,334) (52,509)Computer equipment . . . . . . . . . . . . . . . . . . . 564,995 400,332 (98,413) (18,744)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,995,564 1,933,520 (720,411) (456,430)Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,408,223 1,256,790 — —Improvements for transition terminals . . . . . 1,192,435 1,192,435 (1,192,435) (1,192,435)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,393,550 4,967,635 (2,091,593) (1,720,118)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,347,526 74,202,812 (19,206,280) (11,453,079)
Total net property, plant and equipment . . . . 68,141,246 62,749,733
F-122
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
11. Property, Plant and Equipment—(Continued)
Depreciation charges for the respective fiscal years have been reconded in to the following accounts:
2008 2007
ThCh$ ThCh$
Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,226,621 4,239,439Administrative and sales expenditures . . . . . . . . . . . . . . 530,188 177,802
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,756,809 4,417,241
12. Sale-and-leaseback Transactions
On June 28, 2006, a sale-leaseback agreement was signed with Citi Leasing Ltda. in which Inversiones AlsaciaS.A. sold and leased back its computers and related equipment for the amount of UF 6,545.10, generating a lossof ThCh$9,834 (historic value) and leased back the assets.
The lease agreement has a discounted value of UF 7,514.4, accrues an annual interest of 6.45% and is payable in31 equal and successive monthly installments.
On December 19, 2008, Inversiones Alsacia S.A. has exercised the option to purchase the leased assets.
13. Investments in Associates
During the Extraordinary Shareholders’ meeting held on January 25, 2005, the shareholders agreed to modifyarticle one of the Company’s statutes in order to pay 18,802 unpaid shares contribution of non-monetary assets.The shareholders’ meeting approved that the issuance of above-mentioned shares would be made by contributinga total of 16% of their rights in the Sociedad de Inversiones Eco Uno Ltda. (“Eco Uno”) in favor of theCompany. At that date, shareholders Mr. Carlos Ríos V. and Mr. Francisco Ríos V. held 14% of the voting rightsof Inversiones Eco Uno Ltda. The voting rights were valued at an amount of ThCh$ 1,880,202 (historic), basedon the carrying value of Inversiones Eco Uno Ltda.
On March 2, 2007, a sum of Ch$262,061,908 (historic)—a part of which consisted of capital owed by theCompany’s partners—was transferred to Eco Uno, in order to enable Eco Uno to increase the capital of itssubsidiary Express de Santiago Uno S.A.
F-123
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
13. Investments in Associates—(Continued)
Investment Details
Taxpayer IDNo.
Name of theCorporation
Countryof origin
Investmentcontrol
currencyNo. ofshares
Sharepercentage Corporation’s equity Net income
Corporation’s equityat fair value
Net incomeat fair value
Accruedincome (loss)
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
76195710-4 Inversiones Eco UnoLtda. . . . . . . . . . . . . . . . . Chile Pesos — 16.00 16.00 29,430,668 26,288,638 3,142,023 12,990,314 — — — — 502,723 2,078,450
Total . . . . . . . . . . . . — — — — — — — — — —
TaxpayerID No. Name of the Corporation
Equity method Unrealized gains Book value of the investment
2008 2007 2008 2007 2008 2007
76195710-4 Inversiones Eco Uno Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,708,907 4,206,182 — — 4,708,907 4,206,182Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,708,907 4,206,182 — — 4,708,907 4,206,182
F-124
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
14. Other (Assets)
Other assets as of December 31, 2008 and 2007 are detailed as follows:
2008 2007
ThCh$ ThCh$
Technical Reserve for Operations (1) . . . . . . . . . . . . . . . 9,663,203 10,364,280Reserve of Transantiago’s Financial Manager (2) . . . . . 1,677,069 2,300,449Other long-term deferred expenditures (3) . . . . . . . . . . . 1,469,355 1,824,442Capitalization of Financial Expenditures Met Ing (4) . . . 4,379,532 3,641,772
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,189,159 18,130,943
(1) Corresponds to the total amount of the contribution to the Technical Operating Reserve by the Trunk LineNo. 1 business unit, which is defined as an allowance incorporated into the tariff paid by the users to coverpossible temporary lags or mismatches between the revenue and costs. This amount is amortized inaccordance with the projected revenue curve, obtained from the transportation service rendering. As ofDecember 31, 2008, the accumulated amortization amounted to ThCh$2,605,336 (ThCh$1,260,125 in2007). The annual amortization for the period amounted to ThCh$1,019,561 (ThCh$748,776 in 2007) and itis included in the Company’s operating cost.
(2) From the start of Stage I defined in the Transantiago 2003 Bidding Conditions, AFT will be the only issur offares, paid in coins, issuer that give access to the users of Transportation Services System. InversionesAlsacia S.A. buys the fares from AFT at a price of Ch$20 per fare. Out of this amount, Ch$16 correspond toa deposit to increase the System’s RTO which AFT is supposed to deposit to the Temporary Account 2 ofthe system. The remaining balance of Ch$4 is cash available to AFT. The reserve corresponds to the totalamount related to all Ch$16-deposits per fare acquired by the Company during the financial years 2006 and2005. This amount is amortized according to the projected income curve from rendering services oftransportation. As of December 31, 2008, the amortization for this concept amounts to ThCh$194,738(ThCh$158,076 in 2007) and is presented as part of the Company’s operating costs.
According to the modification of the Concession Agreement entered into on June 30, 2006, between theCompany and the Ministry of Transportation and Telecommunications, pursuant to Article 4, from July 1,2006, there is no need to pay the Ch$16 deposit per fare acquired from AFT.
(3) Corresponds to the deferred expenditures paid for commissions, fees and other expenditures to HSBC Bankfor disbursements of loans granted to the Company to finance the purchase of buses, operating costs andimplementation of terminals. As of December 31, 2008, the amortization amounted to ThCh$412,401(ThCh$180,996 in 2007.)
(4) In accordance with Note 2(q) and according to the authorization of the Office of the Superintendency ofSecurities and Insurance No. 11,808 dated October 31, 2006, the Company capitalized borrowing costsdirectly associated with the purchase of the bus fleet. For this purpose, such expenditures are amortizedbased on the actual earnings obtained, considering total of projected earnings. This method is aimed atdistributing the financial charge that the Company will have to incur with along the period of debtamortization over the whole concession period, considering the remaining useful life of the bus fleet. As ofDecember 31, 2008, the amortization in relation to this concept amounted ThCh$1,035,390(ThCh$1,705,577 in 2007).
F-125
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
15. Short-term Obligations with Banks and Financial Institutions
As at December 31, 2008 and 2007, short-term obligations with banks and other financial institutions include thefollowing:
Short-term payables to banks and other financial institutions:
Includes short-term loans obtained from local Banks. Interest is calculated on the balance of principaloutstanding of the promissory notes as of their signing dates until the date of their full and effective payment.
The amount of accrued interest as of December 31, 2008 is ThCh$35,884.
Long-term payables to banks and other financial institutions, short-term portion:
1. Installment: The total term of the HSBC EKN’s loan credit was modified from 20 to 19 installments withsemi-annual installments on February 28 and August 28 of each year.
2. Accrued interest: Correspond to the long-term borrowings from HSBC EKN, NEXI, GNB Bancolombia andBANCOLOMBIA. For the first two loans payment dates are February 28 and August 28 of each year whereas forthe latter payment dates are June 19 and December 19 of each year, starting from June 19, 2007.
Interest is calculated on the balance of principal outstanding of the promissory notes as of their signing datesuntil the date of their full and effective payment.
The amount of accrued interest as of December 31, 2008 is ThCh$1,741,772.
F-126
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
15. Short-term Obligations with Banks and Financial Institutions—(Continued)
TaxpayerID No. Bank or Financial Institution
Currency types and adjustment index
Non Adjustable Ch$ TotalsDollars Euros YensOther Foreign
Currencies UF
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Short-term97951000-4 HSBC Bank . . . . . . . . . . . . — — — — — — — — — — 4,552,215 4,916,552 4,552,215 4,916,55297011000-3 Banco Internacional . . . . . . — — — — — — — — — — 579,855 — 579,855 —97006000-6 Banco Credito e
Inversiones . . . . . . . . . . . . . — — — — — — — — — — — 251,882 251,88297051000-1 Banco del Desarrollo . . . . . — — — — — — — — — — 374,066 403,750 374,066 403,75099500410-0 Banco Monex . . . . . . . . . . . — — — — — — — — — — — 669,152 — 669,152
Others . . . . . . . . . . . . . . . . — — — — — — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 5,506,136 6,241,336 5,506,136 6,241,336
Principal Amount . . . . . . . . . . . . . . — — — — — — — — — — 5,470,252 6,164,120 5,470,252 6,164,120
Long-term—Short term97951000-4 HSBC EKN Bank . . . . . . . 6,974,651 4,476,533 — — — — — — — — — — 6,974,651 4,476,533
0-E Nexi . . . . . . . . . . . . . . . . . . 187,476 1,090,287 — — — — — — — — — — 187,476 1,090,2870-E HSBC NIB Bank . . . . . . . . — — — — — — — — — — 199,274 — 199,274 —0-E Bancolombia . . . . . . . . . . . 5,953,132 1,159,528 — — — — — — — — — — 5,953,132 1,159,5280-E GNB Bancolombia . . . . . . 457,829 — — — — — — — — — — — 457,829 —
Others . . . . . . . . . . . . . . . . — — — — — — — — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . 13,573,088 6,726,348 — — — — — — — — 199,274 — 13,772,362 6,726,348
Principal Amount . . . . . . . . . . . . . . 12,030,591 5,636,061 — — — — — — — — — — 12,030,591 5,636,061
Percentage of payable foreign currency (%) . . . . . . . 71.4400Percentage of payable national currency (%) . . . . . . . 28.5600
F-127
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
16. Other Current Liabilities
As of December 31, 2008 and 2007, other current liabilities are detailed as follows:
2008 2007
ThCh$ ThCh$
Technical Operating Reserve payables . . . . . . . . . . . . . . . 550,000 7,738,616Promissory notes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (496,133) —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,867 7,738,616
(1) On October 27, 2008, the Company paid the sum of UF140,000 for the Technical Operating Reserve. Thebalance payable was deposited with the Notary Public of Santiago Mr. Eduardo Avello Concha, withinstructions to be delivered to the MTT, as agreed between the parties:
Amounts given correspond to:
a) Two term deposits of ThCh$800,000 each and a short-term deposit of ThCh$756,499, all withmaturities of 7 days (renewable).
b) An original promissory note of UF 21,208 plus accrued interest in the amount of UF 1,918.97.
On January 2, 2009, the Company completed the full deposit into the Technical Operating Reserve due atDecember 31, 2008.
17. Long-term Obligations with Banks and Other Financial Institutions
At December 31, 2008, the movements in obligations with banks and financial institutions are detailed asfollows:
Between August 17, 2005 and March 28, 2006, the HSBC BANK (EKN) made three disbursements amounting toThCh$41,724,306, which corresponded to six promissory notes for a total sum of US$77,347,446. The amountsmust be paid in nineteen equal and successive semi-annual installments on February 28 and August 28, startingon August 28, 2007, at fixed annual rate of 5.38%. With the credits the Company financed approximately 85% ofits bus purchases.
On March 30, 2006, a credit amounting to ThCh$ 12,191,344 (equivalent to US$22,600,000) was obtained fromHSBC Tokyo, Japan and Sumitomo Bank, together with NEXI, a Japanese credit and insurance corporation. Thiscredit has been agreed upon at an 8-year term with a 5 year grace period, and a 180-day floating Libor rate plus0.6%. The interest will be paid starting August 28, 2006 and the principal repayment will be in equal andsuccessive semi-annual installments on February 28 and August 28 starting from 2010.
On May 31, 2006, the Company obtained a credit from the HSBC – NIB (Nordic Investment Bank) in theamount of ThCh$6,360,000 at an 8-year term with 5 years of grace and at an interest rate of 6.36%. Interest willbe paid starting from August 28, 2006 and the principal repayment will be in equal and successive semi-annualinstallments on February 28 and August 28, starting from 2011.
F-128
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
17. Long-term Obligations with Banks and Other Financial Institutions—(Continued)
On December 19, 2006, Bancolombia granted a credit of US$5,000,000, on December 20, 2006 another credit ofUS$4,500,000, on March 1, 2007 an additional for US$2,500,000, and on June 4, 2007 credit of US$3,000,000,all of them at a 5-year term with a 2-year grace period and at a 180-day Libor interest rate plus 3.5%, principalrepayment will be in equal semi-annual and successive installments on June 19 and December 19, starting fromDecember 19, 2008.
On January 29, 2008, a loan from GNB Sudameris Colombia was obtained in the amount of US$3,000,000 for aterm of 12 months and renewable for two periods.
On March 3, 2008, a loan was obtained from HSBC bank in the amount of US$11,107,836 (equivalent toCh$5,042,401,694 historical). This loan has been agreed upon for a 10-year term, and at an interest rate of6.81%. The loan installments will be paid in equal and successive semi-annual installments on February 28 andAugust 28 starting from 2008.
On August 12, 2008, a loan was obtained from Bancolombia Puerto Rico Internacional INC. in the amount ofUS$17,000,000 with variable interest rate and monthly and successive installments starting from the 13 month.On August 28, 2008 and September 5, 2008, the Company received US$5,800,000 and US$11, 200,000,respectively.
In case the borrower does not pay the loan installments of these credits at any of their due dates, or in case theinterest of these promissory notes is not paid by the borrower on the date they were due, and such delinquency orsimple delay in payment of interests continued for three or more working days, the bearer of the promissorynotes will be entitled to demand the total balance of owed principal and interest immediately under promissorynotes, which will be considered expired and payable on demand for all pertinent purposes. The bank will beentitled to demand payment of the entire debt as set forth in promissory notes in advance as if it was the due datewhenever the subscriber does not comply with effective legislation, does not have the correspondinggovernmental authorizations, in the event of any changes in Company controlling shareholders, in case of failureto comply with effective environmental regulations, whenever dividends are distributed without thecorresponding authorizations, or if the principal becomes insolvent, understanding for all purposes the existenceof insolvency on its part when the subscriber or one or more of its creditors initiates bankruptcy, or when judicialor out-of-court composition of creditors are appointed or proposed.
Restrictions have been satisfactorily met as of December 31, 2008.
F-129
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
17. Long-term Obligations with Banks and Other Financial Institutions—(Continued)
Taxpayer ID No.Bank Or Financial
InstitutionCurrency
Readjustment index
Due in (years) Current period closing datePrevious period
closing date
More than1 up to 2
More than2 up to 3
More than3 up to 5
More than5 up to 10
More than 10 years Long-TermTotal at Balance
Closing
AverageAnnual
Interest Rate
Long-TermTotal at Balance
ClosingAmount Term
97951000-4 . . . . HSBC Bank Dollars —Euros 5,972,195 5,972,195 11,944,390 18,977,022 42,865,802 5.38 35,812,262Yens — — — — — — — — —UF — — — — — — — — —Ch$ non-readjusted — — — — — — — — —Other currencies — — — — — — — — —
0-E . . . . . . . . . . . HSBC Bank/Nexi & NIB Dollars 1,797,971 1,797,971 3,595,943 7,191,885 14,383,770 3.68 12,229,159Euros — — — — — — — — —Yens — — — — — — — — —UF — — — — — — — — —Ch$ non-readjusted — 864,236 1,728,473 4,321,181 — — 6,913,890 6.21 8,080,379Other currencies — — — — — — — — —
0-E . . . . . . . . . . . Bancolombia Dollars 10,534,764 2,727,645 — — — — 13,262,409 8.80 6,957,170Euros — — — — — — — — —Yens — — — — — — — — —UF — — — — — — — — —Ch$ non-readjusted — —Other currencies — — — — — — — — —
0-E . . . . . . . . . . . GNB Bancolombia Dollars 636,450 636,450 318,225 1,591,125 9.56Euros — — — — — — — — —Yens — — — — — — — — —UF — — — — — — — — —Ch$ non-readjusted — — — — — — — — —Other currencies — — — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,941,380 11,998,497 17,587,031 30,490,088 79,016,996 63,078,970
Percentage of payable foreign currency (%) . . . . . . . . . . . . . . . . . . . . . . . 91.2500Percentage of payable national currency (%) . . . . . . . . . . . . . . . . . . . . . . 8.7500
F-130
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
18. Provisions
The balance of provisions as of December 31, 2008 and 2007 is detailed as follows:
2008 2007
ThCh$ ThCh$
Vacation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796,524 723,484Reserve for overhaul of buses (1) . . . . . . . . . . . . . . . . . . . — 1,155,429Reserve for labor contingencies . . . . . . . . . . . . . . . . . . . . . 200,000 224,334
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996,524 2,103,247
(1) Corresponds to a reserve for the maintenance of buses (overhaul) implemented in the first half of 2008, as aconsequence of greater wear of its supply and power systems because of operation conditions at thetransition stage (year 2006).
19. Minority Interest
The Company consolidated its financial statements with those of the subsidiary Iasa de Colombia Ltda. Since thesubsidiary has negative shareholders’ equity, 100% of its loss has been consolidated in the current financialstatements.
20. Changes in Equity
Changes in equity for 2008 and 2007 are as follows:
Movements in Shareholders’ Equity:
Inversiones Alsacia S.A. was founded on November 22, 2004, through subscription and payment of ThCh$ 1,000divided into 10 ordinary nominal shares without par value, with each share being of equal value.
During the Shareholders’ Meeting held on December 9, 2004, it was agreed to increase share capital toThCh$ 9,000,000, divided into 90,000 nominal shares, without par value and of a single series of commonshares, through issuance of 89,999 shares of the same characteristics.
During the Shareholders’ Meeting held on December 20, 2004, it was agreed to increase the share capital toThCh$18,000,000, divided into 180,000 nominal shares, without par value and of a single series of commonshares, through issuance of 90,000 shares of the same characteristics. It was additionally agreed that theminimum price per shares should not be lower than ThCh$100.
During the Shareholders’ Meeting held on January 25, 2005, it was agreed to approve the payment of 18,802shares issued by the Company in exchange for the contribution of 16% of the voting rights of Inversiones EcoUno Ltda. It was also agreed to value the voting rights in the amount of ThCh$ 1,880,202 (historic), based on thebook value of the shares (see Note 13).
In addition, during the accounting period of 2005, 20,234 shares were paid in through contributions in cashamounting to ThCh$2,023,377 (historic).
F-131
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
20. Changes in Equity—(Continued)
During the Extraordinary General Shareholders’ Meeting held on February 16, 2007, shareholders decided tolegally reduce the share capital from Ch$18,000,000,000 to Ch$1,916,000,000. In addition, it was agreed toincrease the share capital from the amount of Ch$1,916,000,000 to Ch$8,866,000,000 divided into 36,535 shares,through issuance of 17,375 new shares that would be issued, subscribed, and paid for February 28, 2007, at aprice per share not lower than Ch$400,000. Later, as a result of a meeting of the Company’s Board of Directorsheld on February 20, 2007, the Board agreed to offer the 17,375 new shares on a preferred basis to the existingshareholders, who decided to waive the option to obtain the shares they had the right to. Furthermore, it wasagreed to offer the remaining shares not subscribed by the shareholders to the Colombian company calledDesarrollo y Soluciones Informáticas S.A.
F-132
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
20. Changes in Equity—(Continued)
(a) Detail of movements
2008 2007
ItemsPaid-incapital
Capitalrevaluation
reserve
Contri-buted
surplusOther
reserves
Futuredividendreserves
Retainedearnings(accumu-
lateddeficit)
Provisio-nal
dividends
Develop-ment
perioddeficit
Netincome(loss)
for theyear
Paid-incapital
Capitalrevaluation
reserve
Contri-buted
surplusOther
reserves
Futuredividendreserves
Retainedearnings(accumu-
lateddeficit)
Provisio-nal
dividends
Develop-ment
perioddeficit
Netincome
(loss) forthe year
Initial balance . . . . . . . . . . . . . . . . . . . 9,688,741 — — — — (18,065,410) — — 11,850,447 4,072,525 — — — — (3,955,241) — — (12,865,438)Distribution income previous year . . . — — — — — 11,850,447 — — (11,850,447) — — — — — (12,865,438) — — 12,865,438Previous period final dividend . . . . . . — — — — — — — — — — — — — — — — — —Capital increase through share
issuance . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — 4,953,445 — — — — — — — —Capitalization of reserves and/or net
income . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — —Accumulated deficit from
development period . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — —Revaluation of share capital . . . . . . . . 862,298 — — — — (553,131) — — — 662,771 — — — — (1,244,731) — — —Fiscal year income . . . . . . . . . . . . . . . . — — — — — — — (5,669,621) — — — — — — — — 11,850,447Provisional dividends . . . . . . . . . . . . . — — — — — — — — — — —
Final balance . . . . . . . . . . . . . . . . . . 10,551,039 — — — — (6,768,094) — — (5,669,621) 9,688,741 — — — (18,065,410) — — 11,850,447
Price-level restated . . . . . . . . . . . . . — — — — — — — — — 10,551,039 — — — — (19,673,231) — — 12,905,137
F-133
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
20. Changes in Equity—(Continued)
(b) Number of Shares
SeriesNo. of subscribed
shares No. of paid-in shares No. of voting shares
ZZ 36,535 36,535 36,535
(c) Capital (amount ThCh$)
Series Subscribed capital Paid in capital
ZZ 10,551,039 10,551,039
21. Other Non-Operating Income and Expenses
Other non-operating income and expenses as of December 31, 2008 and 2007 is detailed as follows:
2008 2007
ThCh$ ThCh$
Other non-operating income:Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . 18,334 60,222Administrative Services . . . . . . . . . . . . . . . . . . . . . . . 154,300 —Recovery of shared expenditures . . . . . . . . . . . . . . . . 45,649 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,626 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,909 60,222
2008 2007
ThCh$ ThCh$
Other non-operating expenses:Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . (8,255) (56,552)Other taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . (410,572) (162,908)Rejected expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (27,773) (5,101)Loss from sale of property, plant and equipment . . . . — (10,243)Provision for labor contingencies . . . . . . . . . . . . . . . . — (30,066)Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (26,042)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203) (3,157)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (446,803) (294,069)
F-134
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
22. Price-level Restatement
Adjustabilityindex
Amount
2008 2007
ThCh$ ThCh$
Assets (charges) / credits:Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC 5,773,626 3,821,335Investments in related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC 336,794 146,412Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF 38,809 32,761Other non-monetary assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF — 14,138Other non-monetary assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC 1,446,748 1,105,474Accounts of expenses and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC 2,518,715 2,009,617
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,114,692 7,129,737
Liabilities (Charges) / Credits:Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC (309,167) 615,907Non-monetary liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC (43,304) (201)Non-monetary liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF (587,971) (321,284)Revenue accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPC (2,633,764) (2,243,179)
Total (charges)/ credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,574,206) (1,948,757)
Profit due to price level restatement . . . . . . . . . . . . . . . . . . . . . 6,540,486 5,180,980
23. Foreign Exchange Differences
Items Currency
Amount
2008 2007
ThCh$ ThCh$
Assets (charges) / credits:Bank accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 7,195 (836)Short-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 1,631,712 (552,843)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 20,616 (15,693)
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,659,523 (569,372)
Liabilities (charges) / credits:Bank obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (18,810,123) 4,515,928Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (672,295) —
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,482,418) 4,515,928
Total (loss) income from foreign exchange rate differences . . . . . (17,822,895) 3,946,556
F-135
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
24. Contingencies and Restrictions
1) Concession Agreement:
On January 28, 2005, Inversiones Alsacia S.A. entered into a Concession agreement with the Ministry ofTransport and Telecommunications to use the roads of the city of Santiago to render public bus transportationservices for passengers. The Concession agreement is subscribed as the result of a public bid for the use of theroads of the city of Santiago according to article 30 of Law No.18,696.
The Company submitted an offer in the bidding process, where the Trunk line No. 1 business unit was awarded,according to Exempted Resolution No. 109 from 2005 of the Sub-Secretariat of Transportation published in theOfficial News on January 14, 2005.
The agreement was enforced from the publication date in the Official News of the administrative act thatapproved it and will be in force until the termination of the Concession period. The duration of the Concessionagreement shall be 156 months, in accordance with the article 3.4.4.2.1 of the Concession agreement.
Within the Concession agreement, the Company committed to pay UF615,010 for a Technical Operating reserve,which corresponds to an amount incorporated into the tariff paid by users that is applied to cover possibletemporary lags or mismatches between the income and costs of the Transantiago passenger transportationsystem.
2) Modifications to the Concession Agreement:
2.1) On June 30, 2006, the following modifications of the Concession Agreement were made:
a) Starting date of the new regimen stage will begin from February 10, 2007.
b) Modifications to the calendar of contributions to the Technical Operating Reserve (TOR):
Installment 2: UF 191,309 maturity date July 1, 2007.Installment 3: UF 170,836 maturity date July 1, 2008.
c) The elimination of the payment of Ch$16 per purchase ticket to AFT (Contribution to transitory account twoof the Transantiago system), from July 1, 2006 to December 31, 2006.
d) No later than the start date of phase II, the operator should grant to the Ministry of Transportation andTelecommunications prior to obtaining the building permissions for different terminals. The dates of phase IIcannot be modified in any manner, additionally, within fifteen days after the termination of phase II, the Operatorshall provide the Ministry of Transportation and Telecommunications with a Gantt Chart or Schedule of the mainworks that will be constructed or implemented in each terminal. Likewise, 120 days at the latest after thecommencement date of services of the regimen stage, the operator should prove to the Ministry of Transportationand Telecommunications that it has obtained authorization for the operation of different terminals.
e) On June 30, 2006, the AFT signed a promissory note for UF221,208, in favor of the Company, with a maturitydate of October 31, 2009. UF 200,000 was transferred in January 2007, with a remaining balance of UF 21,208,which shall accrue daily interest at the ratio of a fixed annual rate of 3.56%. As stated in Note 5, UF 200,000 wastransferred in January 2007.
F-136
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
24. Contingencies and Restrictions—(Continued)
2.2) During February 2007, the Company signed a modification to the Road Use Concession Agreement with theMinistry of Transportation and Telecommunications. The main aspects of this modification and its addendumdated February 20, are detailed as follows:
1) For the period between February 10, 2007 and May 5, 2007, minimum guaranteed revenue is considered inaccordance with the referential demands in replacement of users’ validations.
2) Mechanism is established to regulate a fleet increase for the commencement of the regimen stage, as well asthe related payment.
3) Contributions to the Technical Operating Reserve (TOR) with maturity date of February 10, 2007 will bepaid in 3 installments, correspondingly 55% at March 10, 22.5% at April 10, and 22.5% at May 10, 2007.
4) A procedure is established to regulate the situation of terminals and deposits with respect to the transitionaladditional fleet.
2.3) On May 9, 2007, the Company subscribed a modification to the Concession Agreement and on June 4, 2007,an addendum to the modification to determine the Company’s income for the period between May 6 and June 5,2007, shall correspond to the product between 100% of the referential demand base and the Payment perPassenger Transported, adjusted in accordance with the Bidding Conditions.
2.4) On June 29, 2007, the Company subscribed a modification and two addendums to the ConcessionAgreement with the purpose of: i) altering the Company’s payment dates from July 10 to 12; ii) delaying thecontribution date to Technical Reserve from July 1 to July 16, 2007 and; iii) regulating the payment terms ofbuses without validating equipment.
2.5) On July 17 and August 17, 2007, the Company and the Ministry of Transportation and Telecommunicationssubscribed two new addendums related to the amendments dated June 29, through which the payment date of theTechnical Reserve was postponed to August 17 and October 24, respectively.
2.6) On July 19, 2007, the Company entered an Agreement Protocol with the Ministry of Transport andTelecommunications for the modification of the Concession Agreement, which was implemented onNovember 9, 2007 and two addendums to the modification dated December 10 and 28, respectively andApril 21, June 30 and July 15, 2008, respectively in order to modify service hours; regulate payment of buseswithout validation equipment; delay payment of TOR for 12 months; incorporating a Service Fulfillment Index—Operating Time (ICPH) to the formula; adjusting calculation mechanism of the PPT; incorporate the Additionaland/or Complementary Fleet to the base fleet, which in the transitional period do not necessarily need to be new.
2.7) On May 9, 2007, the Company subscribed a modification to the contract of Commercial Mandate ofCollection and Custody with the AFT.
2.8) On March 7, 2008, the Company subscribed a modification and addendum to the service and supply ofTechnology equipment contract with the AFT, which establishes the calculation method for the payment that theconcessionaires must make for the services rendered by the AFT until this date; determines the general terms andconditions and the equipment remuneration of the denominated payment zones; adopts improvements oriented to
F-137
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
24. Contingencies and Restrictions—(Continued)
increase the actual service levels of the functionalities and; determines the transitional and permanent conditionsof the equipment, systems and services that the AFT has to supply and the conditions of remunerations derivedfrom rendering of services.
2.9) On March 18, 2008, the Company subscribed a contract amendment of Collection Mandate with the AFT inorder to authorize to the AFT the payment or reimbursement of costs, expenses or fees associated with the loanagreements.
3) Other Contracts:
On January 27, 2005, the Corporation entered into a purchase and sale agreement related to 12 meter B9SALFand B7RLE articulated buses with Volvo Brasil Vehículos Ltda. For articulated chassis, the Company opted toselect Compañía Marco Polo S.A. Carrocerías and/or Omnibus as coach builder.
The Corporation entered into an agreement with the specialized Spanish company Goal for ThUS$1,150, toconduct a program for the development of a bus operation management system.
Through public deed dated August 11, 2006, granted at the Notary Office of Santiago of Ms. Antonieta Mendoza,registered on sheet 12.509 No. 9.119 of property record of the Real Estate Registrar of Santiago for 2006, theCompany acquired purchased the property Lot No. 49 in the Plazuela Los Toros Residential Complex, StageTwo, in the Puente Alto district in Santiago. The property has been mortgaged and pledged with a prohibition forliens or disposal in favor of HSBC Bank (Chile).
Through a public deed dated December 22, 2006, granted in the Notary Office of Santiago of Mr. HumbertoQuezada, registered on sheet 2791 No. 4510 of the property record of the Real Estate Registrar of Santiago for2007, the Company acquired the property located at 1707 Arturo Prat in the Renca district in Santiago. Theproperty has been mortgaged and pledged with a prohibition for liens or disposal in favor of Bancolombia PuertoRico Internacional Inc.
Through a public deed dated December 21, 2006, granted in the Notary Office of Santiago of Mr. PabloGonzález, registered on sheet 11.539 No.18.379 of the Real Estate Registrar of Santiago for 2007, the Companyacquired the property located at 555 Santa Clara in the Huechuraba district of Santiago. The property has beenmortgaged and pledged with a prohibition for liens or disposal in favor of Bancolombia Puerto RicoInternacional Inc.
On July 27, 2007, the Company entered a purchase agreement for 40 B9SALF 18.5-meter articulated buses withVolvo Brazil Company and Marco Polo bodywork.
4) Restrictions for bank loans
The Company has obligations and restrictions for loans assumed with several foreign and domestic banks. Byvirtue of the credit agreements of the Company that exist to secure compliance with the obligations containedtherein, the 36,535 shares in which the Company’s equity is divided are currently pledged. The pledge contracts
F-138
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
24. Contingencies and Restrictions—(Continued)
imply the prohibition for alienation, sell, promise to sell or dispose in any manner whatsoever of the said sharesas far as the full compliance of the obligations resulting from the financing obligation with the HSBC Bank areaccredited. Likewise, each bus owned by the Company has been pledged. These pledges were duly registeredwith the Registry of Motorized Vehicles of the Civil Registry Office.
5) Award and commencement of construction works in Bus Terminals/Depots
On July 7, 2008, Constructora Andreu Tirado Ltda. started the construction of the corporate building in theHuechuraba terminal station. This work was finished on August 15, 2008.
On November 25, 2008, Constructora Andreu Tirado Ltda. started the construction of the Human Resourcebuilding in the Huechuraba terminal station.
On September 1, 2008, Constructora Andreu Tirado Ltda. was awarded the construction of the administrativebuilding in the Peñalolen terminal station.
On December 15, 2008, Constructora Andreu Tirado Ltda. started the construction of the corporate building inthe Renca terminal station.
6) Pending Lawsuits:
The detail of the Company’s main lawsuits is as follows:
Court: 18 Civil Court of Santiago; Rol 5.852-2007
To “Company” was sued by a private person in an Ordinary Civil Trial. The compensation demanded amount isThCh$398,000,000. The accusation is at the trial stage and an official reply and the SIAT report are still pending.According to the background available, this action has limited possibilities of success.
Court: 15 Civil Court of Santiago; Rol: 16.299-2007
To “Company” was jointly sued for damages with other operators—Buses Gran Santiago and Express deSantiago Uno S.A.—and the Financial Administrator of Santiago (AFT) in an Ordinary Civil Trial by the I.Municipality of Renca which accuses its counterparts of unfair enrichment. The compensation demanded amountis ThCh$154,600,000. The Company is awaiting a verdict on this case by the Court. According to thebackground available for review, this action should not prevail.
Court: 23 Civil Court of Santiago; Rol: 16956-2007
To “Company” was sued for damages by a private person in an Ordinary Civil Trial. The compensationdemanded amount is ThCh$25,500,000. The evidence stage has finished. According to the background availablefor review, this action has limited possibilities of success.
Court: 8 Civil Court of Santiago; Rol: 25.935-2007
F-139
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
24. Contingencies and Restrictions—(Continued)
To “Company” was sued for damages in an Ordinary Civil Trial by a private person. The compensationdemanded amount is ThCh$273,955,375. The Company is awaiting a verdict on the case by the Court.
Court: 30 Civil Court of Santiago; Rol: 15.667-2007
To “Company” was sued for damages in an Ordinary Civil Trial by a private person. The compensationdemanded amount is ThCh$15,000,000. The Company is awaiting a verdict on the case by the Court and anappeal has been filed against the order to produce evidence.
Court: 2 Civil Court of Santiago; Rol: 66-2008
To “Company” was sued for damages in an Ordinary Civil Trial by a private person. The compensationdemanded amount is ThCh$110,550,000. The case is at the period allowed for producing evidence and an appealhas been filed against the order to produce evidence.
Court: 5 Civil Court of Santiago; Rol: 16.327-2007
To “Company” was sued for damages in an Ordinary Civil Trial by a private person. The compensationdemanded amount is ThCh$15,000,000. The case shows errors in its judicial formalities and procedures giventhat the bus operator was not notified and there is evidence of flaws in the notification to Inversiones AlsaciaS.A. The lawsuit should not prevail.
Court: 30 Civil Court of Santiago; Journal: 56.994-2008
To “Company” was sued for damages in an Ordinary Civil Trial by a private person. The compensationdemanded amount is ThCh$716,000,000. The Company discovery period has ended. However, a reply to writtencommunication requested by the plaintiff is pending.
The Company is involved in other lawsuits of lower magnitude (in favor and against). The management and itslegal advisors consider that the aforementioned trials will not have a material adverse effect on the Company’sfinancial statements. Some of the lawsuits are covered by an insurance policy. Accordingly, the Company willonly have to pay the corresponding deductible.
Court: Santiago’s Appellate Court
The Company presented to Santiago’s Appellate Court an appeal for protection against the Ministry of Transportand Telecommunications in order to repeal Exempt Resolution No. 1985, which established a set of unilateralsanctions not covered under the respective concession contracts held by the operators of Transantiago. UntilDecember 31, 2008, the implementation of this arbitrary and illegal resolution caused a loss of UF 16,600(approximately Ch$356,000,000) for the Company, in relation to payments which they are entitled to earn fortransport services.
F-140
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
24. Contingencies and Restrictions—(Continued)
The appeal was declared admissible, ordering the accumulation of resources among the other contractorsinvolved in the report, which was executed on December 24, 2008.
All non-innovation orders that were submitted have been rejected in their entirety by the Appellate Court ofSantiago.
This appeal is pending resolution by the Seventh Courtroom of the Appellate Court of Santiago.
7) Direct and Indirect Guarantees
A compliance policy has been granted for the Concession agreement in favor of the MTT according to the sixthclause of the contract in the amount of UF30,000. As a counter-guarantee to that policy, the Company took anindefinitely adjustable time deposit for an amount of UF10,000 that was handed to Aseguradora Magallanes S.A.
The Company was awarded by HSBC Bank (Chile) a time deposit equivalent to 5% of the total debt outstandingwith EKN Bank, for the purchase of buses. This deposit is placed by HSBC Bank (Chile) in HSBC Bank(London) and the former undertakes to pay that value if the Company does not pay off its debt. The Company hasnot signed any documents relating to this deposit.
The Company has no knowledge of other prohibitions, encumbrances, or contingencies that affect these financialstatements.
25. Securities obtained from third parties
As of December 31, 2008, there are no effective securities granted by third parties in favor of the Company,except for those mentioned in the notes to the financial statements.
F-141
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
26. Local and Foreign Currency
Assets
Line of business Currency
Amount
2008 2007
ThCh$ ThCh$
Current assets:Cash . . . . . . . . . . . . . . . . . . . . . . . . . Non-adjusted Ch$ 220,593 166,248Cash . . . . . . . . . . . . . . . . . . . . . . . . . US Dollars 61,844 535Marketable securities . . . . . . . . . . . . Adjusted Ch$ 36,912 196,120Other receivables . . . . . . . . . . . . . . . Non-adjusted Ch$ 547,764 1,254,619Due from related parties . . . . . . . . . . Non-adjusted Ch$ 978,160 331,207Inventories . . . . . . . . . . . . . . . . . . . . Non-adjusted Ch$ 91,465 80,086Prepaid expenses . . . . . . . . . . . . . . . Adjusted Ch$ 622,419 357,052
Deferred taxes . . . . . . . . . . . . . . . . . Adjusted Ch$ 118,443 138,981Other current assets . . . . . . . . . . . . . UF 1,491,080 68,361Other current assets . . . . . . . . . . . . . Adjusted Ch$ 222,860 1,061,314Other current assets . . . . . . . . . . . . . Non-adjusted Ch$ — 381,155Other current assets . . . . . . . . . . . . . US Dollars 7,639,886 5,937,733Taxes receivable . . . . . . . . . . . . . . . . Adjusted Ch$ 319,055 102,765Notes receivable . . . . . . . . . . . . . . . . Adjusted Ch$ — 477,889Accounts receivable . . . . . . . . . . . . . Non-adjusted Ch$ 5,098,735 3,129,281Prepaid expenses . . . . . . . . . . . . . . . UF 338,332 1,003,218Property, plant and equipmentProperty, plant and equipment . . . . . Adjusted Ch$ 68,141,246 62,749,733Other assetsInvestments in related companies . . Adjusted Ch$ 5,136,549 4,206,182Other long-term assets . . . . . . . . . . . Adjusted Ch$ 17,189,159 18,130,943Long-term deferred taxes . . . . . . . . . Adjusted Ch$ 2,338,657 1,328,569
Total assetsNon-adjusted Ch$ 6,936,717 5,342,061US Dollars 7,701,730 5,938,268Adjusted Ch$ 94,125,304 88,749,548UF 1,829,412 1,071,579
F-142
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
26. Local and Foreign Currency—(Continued)
Current Liabilities
Line of business Currency
Up to 90 days 90 days to 1 year
2008 2007 2008 2007
Amount
Annualaverageint. rate Amount
Annualaverageint. rate Amount
Annualaverageint. rate Amount
Annualaverageint. rate
Long-term obligations with financialinstitutions—short-term portion . . . . . . . US Dollars 2,986,098 1,674,667 10,786,264 5,051,681
Short-term bank obligations . . . . . . . . . . . . Non-adjusted Ch$ 5,506,136 — 6,241,336 — — — — —Accounts payable . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 7,163,523 — 7,268,415 — — — — —Other payables . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 629,760 — 848,494 — — — — —Other payables . . . . . . . . . . . . . . . . . . . . . . UF 851,566 — 549,048 — — — — —Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 996,524 — 2,103,247 — — — — —Withholdings . . . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 530,872 — 559,127 — — — — —Other current liabilities . . . . . . . . . . . . . . . . UF — — — — — — 7,738,616 —Notes and accounts payable to related
parties . . . . . . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 32,058 — 34,912 — — — — —Accounts payable . . . . . . . . . . . . . . . . . . . . US Dollars 178,333 — 45,912 — — — — —Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 9,602 — — — — — —
Total current liabilities . . . . . . . . . . . . — — — — — — —US Dollars 3,164,431 — 1,720,579 — 10,786,264 5,051,681 —Non-adjusted Ch$ 14,868,475 — 17,055,531 — — — — —UF 851,566 — 549,048 — — — 7,738,616 —
F-143
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
26. Local and Foreign Currency—(Continued)
Long-Term Liabilities—Current Period 31-12-2008
Line of business Currency
1 to 3 years 3 to 5 years 5 to 10 yearsMore than 10
years
Amount
Annualaverageint. rate Amount
Annualaverageint. rate Amount
Annualaverageint. rate Amount
Annualaverageint. rate
Obligations with banks and financialinstitutions . . . . . . . . . . . . . . . . . . . . . . . . . . US Dollars 30,075,641 — 15,858,558 — 26,168,907 — — —
Obligations with banks and financialinstitutions . . . . . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 864,236 — 1,728,476 — 4,321,181 — — —
Other payables . . . . . . . . . . . . . . . . . . . . . . . . . UF 999,724 — — — — — —Other payables . . . . . . . . . . . . . . . . . . . . . . . . . Non-adjusted Ch$ 29,400 — — — — — — —Due to related companies . . . . . . . . . . . . . . . . . US Dollars 2,281,472 — — — — — — —
Total current liabilities . . . . . . . . . . . . . . . — — — — — — —US Dollars 32,357,113 — 15,858,558 — 26,168,907 — — —Non-adjusted Ch$ 893,636 — 1,728,476 — 4,321,181 — — —UF 999,726 — — — — — — —
F-144
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
26. Local and Foreign Currency—(Continued)
Long-Term Liabilities—Prior Period 31-12-2007
Line of business Currency
1 to 3 years 3 to 5 years 5 to 10 yearsMore than 10
years
Amount
Annualaverageint. rate Amount
Annualaverageint. rate Amount
Annualaverageint. rate Amount
Annualaverageint. rate
Obligations with banks and financialinstitutions . . . . . . . . . . . . . . . . . . . . . . . . . . US Dollars 16,648,468 — 14,329,413 — 24,020,709 — — —
Obligations with banks and financialinstitutions . . . . . . . . . . . . . . . . . . . . . . . . . . Non- adjusted Ch$ 1,010,048 — 2,020,095 — 5,050,237 — —
Other payables . . . . . . . . . . . . . . . . . . . . . . . . . UF 191,630 — — — — — — —Other payables . . . . . . . . . . . . . . . . . . . . . . . . . Non-adjusted Ch$ 866 — — — — — —Due to related parties . . . . . . . . . . . . . . . . . . . . Non-adjusted Ch$ 1,593 — — — — — —Due to related companies . . . . . . . . . . . . . . . . . US Dollars 1,930,166 — — — — — — —
Total long term liabilities . . . . . . . . . . . . — — — — — —US Dollars 18,578,634 — 14,329,413 — 24,020,709 — — —Non- adjusted Ch$ 1,012,507 — 2,020,095 — 5,050,237 — — —UF 191,630 — — — — — — —
F-145
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
27. Sanctions
(a) Chilean Superintendency of Securities and Insurance (SVS)
During the year ended December 31, 2008, neither the Company, its Directors nor Managers have received anysanctions from the Chilean Superintendency of Securities and Insurance.
(b) The Ministry of Transportation and Telecommunications applied the following penalties:
i) UF 200 penalty on the Company by the Exempted Res. No. 1096 dated June 12, 2007, fornon-compliance with Article 3.6.1.1 No. 6 a) of Bidding Conditions, that is, for failure to comply withminimum frequency required. The penalty has been paid after rejection of the appeals for reversal at alllevels of jurisdiction. The Company is analyzing filing a claim in Court.
ii) UF 200 penalty on the Company by Exempted Res. No. 1716 dated September 13, 2007, for supposednon-compliance with Article 3.6.1.1 No. 6 a) of Bidding Conditions; that is, for failure to comply withminimum frequency required. The penalty has been paid after rejection of the appeals for reversal at alllevels of jurisdiction. The Company is analyzing filing a claim in Court.
iii) UF 200 penalty on the Company by Exempted Res. No. 2008 dated October 19, 2007, for supposednon-compliance with Article 3.6.1.1 No. 6 a) of Bidding Conditions; that is, for failure to comply withminimum frequency required. The fine has been paid after rejection of the appeals for reversal at alllevels of jurisdiction. The Company is analyzing filing a claim in Court.
iv) UF 200 penalty on the Company by Exempted Res. No. 2009 dated October 19, 2007, for supposednon-compliance with Article 3.6.1.1 No. 6 a) of Bidding Conditions; that is, for failure to comply withminimum frequency required. The fine has been paid after rejection of the appeals for reversal at alllevels of jurisdiction. The Company is analyzing filing a claim in Court.
v) UF 200 penalty on the Company by Exempted Res. No. 1335 dated August 27, 2008, fornon-compliance with Article 3.6.1.1 No. 6 a) of Bidding Conditions; that is, for failure to comply withminimum frequency required. The Ministry rejected appeals for reversal at all levels of jurisdiction.The Company is analyzing filing a claim in Court.
vi) By resolution No. 2319 of November 10, 2008, the Ministry of Transportation andTelecommunications deducted from the revenue the Company has a right to, an amount equivalent toUF 4,700 for alleged noncompliance with the rates of frequency and regularity, prescribed by ExemptResolution No. 1985 of October 17, 2008. The Company appealed for reconsideration in all levels ofjurisdiction against Resolution 2319 and was notified by the Ministry with respect to these appealsthrough Res. 2576, in which the Ministry declined to issue a pronouncement due to the existence ofpending judicial action—a Protective Appeal—brought against Res. 1985.
vii) By resolution No. 2438 of November 25, 2008, the Ministry of Transportation andTelecommunications deducted from the revenue the Company has a right to, an amount equivalent toUF 4,000 for alleged noncompliance with the rates of frequency and regularity, prescribed by ExemptResolution No. 1985 of October 17, 2008. The Company appealed for reconsideration in all levels ofjurisdiction against Resolution 2438 and the resolution is still pending.
F-146
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
27. Sanctions—(Continued)
viii) UF 200 penalty on the Company by Exempted Res. No. 2601 dated December 9, 2008, fornon-compliance with Article 3.6.1.1 No. 6 a) of Bidding Conditions; that is, for failure to comply withminimum frequency required. The Company opted not to file any appeals.
ix) By resolution No. 2618 of December 10, 2008, the Ministry of Transportation andTelecommunications deducted from the revenue the Company has a right to, an amount equivalent toUF 3,500 for alleged noncompliance with the rates of frequency and regularity, prescribed by ExemptResolution No. 1985 of October 17, 2008. The Company appealed for reconsideration in all levels ofjurisdiction against Resolution 2618 and the resolution is still pending.
x) By resolution No. 2734 of December 23, 2008, the Ministry of Transportation andTelecommunications, deducted from the revenue the Company has a right to, an amount equivalent toUF 4,400 for alleged noncompliance with the rates of frequency and regularity, prescribed by ExemptResolution No. 1985 of October 17, 2008. The Company appealed for reconsideration in all levels ofjurisdiction against Resolution 2734 and the resolution is still pending.
(c) Sesma
By resolution No. 05300 of November 8, 2007 (Exp. No. 2264/07/PRSL) applied a fine of 10 UTM. Thisfine was paid on June 12, 2008.
By resolution No. 1154 of February 4, 2008 (Exp. No. 5272/2007) applied a fine of 10 UTM. This fine waspaid on January 17, 2008.
By resolution No. 05388 of November 8, 2007 (Exp. No. 2265/07/PRSL) applied a fine of 10 UTM reducedto 5 UTM after resolution of the appeal for reversal of decisions by the Court. This fine was paid onJanuary 17, 2008.
By resolution No. 1980 of April 1, 2008 (Exp. No. 5635/2007) applied a fine of 5 UTM. This fine was paidon June 12, 2008.
By resolution No. 3364 of August 6, 2007 (Exp. No. 2263-2007) applied a fine of 10 UTM. This fine waspaid on June 12, 2008.
By resolution No. 3612 of August 20, 2007 (Exp. No. 2006-2007) applied a fine of 10 UTM. This fine waspaid on June 12, 2008.
By resolution No. 695 of January 28, 2008 (Exp. No. 5158/2007) applied a fine of 5 UTM. This fine waspaid on June 12, 2008.
By resolution No. 3377 of August 6, 2007 (Exp. No. 2005-2007) applied a fine of 10 UTM. This fine waspaid on June 12, 2008.
By resolution No. 6312 (Exp. No. 3895/2007) applied a fine of 30 UTM. This fine was paid on May 15,2008.
By resolution No. 2008 of April 1, 2008 (Exp. No. 4838/2007) applied a fine of 5 UTM. This fine was paidon June 12, 2008.
F-147
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
27. Sanctions—(Continued)
By resolution No. 2193 of April 10, 2008 (Exp. No. 5271/2007) applied a fine of 5 UTM. This fine was paidon August 13, 2008.
By resolution No. 8306 of November 21, 2008 (Exp. No. 4975/2007) applied a fine of 20 UTM. TheCompany filed an administrative reconsideration appeal the resolution of which is still pending.
28. Subsequent Events
On January 2, 2009 the Company complied in full with the payment of the balance of the Technical OperatingReserve payable on December 30, 2008, by:
(a) A bank transfer, dated December 30, 2008, for Ch$2,365,577,273 to account number 17385-1 BancoEstadoon behalf of the Transantiago Financial Administrator (AFT) and,
(b) a bank deposit, dated January 2, 2009, of Ch$550,000,000 on account number 17385-1 of BancoEstado onbehalf of the Transantiago Financial Administrator (AFT.)
On January 15, 2009, the Company was notified of the Exempt Resolution No. 69 dated January 14, 2009, bywhich the Ministry of Transportation and Telecommunications complemented Exempt Resolution No. 1985 toinclude the sentence “and Supreme Decree No. 1 dated 2009 issued by the Treasury Department” immediatelyafter the sentence “Supreme Decree No. 1178.”
Between December 31, 2008 and the date of issuance these financial statements, the Administration of theCompany has not been informed of any significant events that could affect significantly the interpretation andresults of these financial statements.
29. Other Payables
Other payables as of December 31 of each year are detailed as follows:
2008 2007
ThCh$ ThCh$
Insurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,083 848,494Installments payable to Volvo . . . . . . . . . . . . . . . . . . . . . 620,199 —Servicios y Construc. LKS S.A. . . . . . . . . . . . . . . . . . . . 10,128 11,029Epysa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,287 320,479Alvarez Hinzpeter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13,530Corsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,849 107,647Lease payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,284 93,316Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 3,047
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481,326 1,397,542
F-148
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
30. Revenue
Revenue mainly consists of revenue related to public transportation corresponding to the Company’s Trunk lineNo. 1, which is detailed as follows:
2008 2007
ThCh$ ThCh$Trunk line No. 1 collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,354,555 47,555,089Static and dynamic advertisements on buses . . . . . . . . . . . . . . . 179,292 236,108Lease of yellow buses routes . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 68,203Other income, AFT postponement of Regimen Stage . . . . . . . . — 3,233,657
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,533,847 51,093,057
31. Operating Costs and Expenses
Operating costs as of December 31 of each year are detailed as follows:
2008 2007
ThCh$ ThCh$Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,295,433 13,590,711Third party services . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,382,538 1,377,190Bus fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,346,688 10,367,301Fares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 14,111Spare parts and materials . . . . . . . . . . . . . . . . . . . . . . 3,698,769 3,922,569Maintenance services (overhaul) . . . . . . . . . . . . . . . . . 64,292 3,079Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,400,821 3,983,048Technical Operating Reserve amortization . . . . . . . . . 1,265,533 906,852Operating software amortization . . . . . . . . . . . . . . . . . 175,346 177,182Depreciation of buses . . . . . . . . . . . . . . . . . . . . . . . . . 7,461,390 4,239,439Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768,259 883,765
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,859,069 39,465,247
Administrative and selling expenses as of December 31 of each year are detailed as follows:
2008 2007
ThCh$ ThCh$Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,238,109 2,209,640Third party services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,115 910,766Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,864 54Maintenance services (overhaul) . . . . . . . . . . . . . . . . . . . 415 1,998General expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,669,288 689,295Amortization of intangible assets . . . . . . . . . . . . . . . . . . 461,297 36,124Repayment of terminal improvements . . . . . . . . . . . . . . — 173,846Depreciation of property, plant and equipment . . . . . . . . 334,287 177,802Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,912 100,389
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,106,287 4,299,914
F-149
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
32. Cash
Cash as of December of each year is detailed as follows:
2008 2007
ThCh$ ThCh$
Cash on hand in Chilean pesos . . . . . . . . . . . . . . . . . . . . . . . 3,259 3,843Cash on hand in U.S. dollars . . . . . . . . . . . . . . . . . . . . . . . . . 2,762 191Banks in Chilean pesos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,334 161,870Banks in U.S. dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,822 101Banks, subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 243
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,437 166,248
33. Prepaid Expenses
Prepaid expenses as of December of each year are detailed as follows:
2008 2007
ThCh$ ThCh$
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209,798 792,510Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,534 97,907Deferred expenses HSBC EKN-NEXI . . . . . . . . . . . . . . . . 188,321 21,538Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434,098 448,315
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960,751 1,360,270
34. Accounts Payable
As of December 31 of each year accounts payable are detailed as follows:
2008 2007
ThCh$ ThCh$
National suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,225,914 5,601,656Foreign suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,333 45,734Professional fee receipts . . . . . . . . . . . . . . . . . . . . . . . . . 29,067 9,199Provisions for issued, uncashed checks . . . . . . . . . . . . . 772,627 431,090Other provisions for invoices . . . . . . . . . . . . . . . . . . . . . 1,076,825 1,053,629Subsidiary suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,092 172,841
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,341,854 7,314,149
The Company has entered into a supply agreement with Copec S.A. as exclusive fuel supply and credit insuranceagreement for 87,208 cubic meters of fuel for a term of three years beginning on October 12, 2005.
F-150
INVERSIONES ALSACIA S.A. AND SUBSIDIARY
Notes to the Consolidated Financial Statements—(Continued)(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2008)December 31, 2008 and 2007
(A free translation of the original issued in Spanish)
35. Withholdings
Withholdings as of December 31 of each year are detailed as follows:
2008 2007
ThCh$ ThCh$
VAT fiscal debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,390 3,443Withholding tax on fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,845 2,545Additional taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,440 73,207Taxes on salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . 54,430 26,572Payroll payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 53,001Pension and health fund payments . . . . . . . . . . . . . . . . . . . . 305,005 395,906Other withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,762 4,453
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,872 559,127
F-151
Consolidated Financial StatementsExpress de Santiago Uno S.A.September 30, 2009 and 2010
Ch$ = Chilean pesosThCh$ = Thousands of Chilean pesosUS$ = United States dollarsThUS$ = Thousands of United States dollarsUF = “Unidades de Fomento”, an inflation-indexed, peso-denominated monetary unit. The UF rate is set
daily based on changes in the Chilean Consumer Price Index.
(A free translation from the original prepared in Spanish)
F-152
Report of Independent Accountants
(A free translation from the original prepared in Spanish, see Note 29)
To the Shareholders and Directors ofExpress de Santiago Uno S.A.:
1 We have reviewed the accompanying interim consolidated balance sheets of Express de Santiago Uno S.A.and subsidiary as of September 30, 2010 and 2009 and the related interim consolidated statements of incomeand cash flows for the nine-month periods then ended. These interim consolidated financial statements(including the notes thereto) are the responsibility of the Company’s management.
2 Except as explained in paragraph 3, we conducted our reviews in accordance with auditing standardsestablished in Chile for a review of interim financial information. A review of interim financial informationconsists mainly of applying analytical review procedures to the financial statements and making enquiries ofthe staff responsible for financial and accounting matters. It is substantially less in scope than an auditconducted in accordance with auditing standards generally accepted in Chile, whose objective is to expressan opinion on the financial statements taken as a whole. Consequently, the interim consolidated financialstatements as of September 30, 2010 and 2009 have not been audited and we are therefore not in a positionto express, nor do we express, such an opinion.
3 The net balance of accounts payable to the related entity Inversiones Alsacia S.A. (Alsacia) amounting toThCh$ 222,679 (ThCh$ 230,506 in 2009) includes items under dispute mainly arising from expensesincurred in prior years on account of this Company in relation to the joint operations performed up toAugust 2006. As described in Note 5, the analysis of the different items which make up the balance referredto above, and the determination of which adjustments are to be recorded, in order to properly recognize inthe financial statements the effect of expenses jointly incurred during 2005 and 2006, are still pending.
4 Based on our reviews of the interim consolidated financial statements as of September 30, 2010 and 2009,and except for the effects of those adjustments, if any, that might have been determined to be necessary as aconsequence of the facts described in paragraph 3, we are unaware of significant adjustments that should bemade in order for them to be in accordance with accounting principles generally accepted in Chile.
/s/ PricewaterhouseCoopers Consultores, Auditores y Compañía Ltda.
Santiago, Chile, December 14, 2010
F-153
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS(A free translation from the original prepared in Spanish, see Note 29)
At September 30,
2010 2009
ThCh$ ThCh$ASSETS
CURRENT ASSETSCash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,255 963,109Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,610 —Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,162,216 6,394,448Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,308 118,798Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121,016 900,157Notes and accounts receivable from related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,203 538,158Recoverable taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 39,695Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,777,874 654,454Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,701 1,068,648Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,866,277 22,521,044
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,954,460 33,198,511
FIXED ASSETSLand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,667,344 4,666,220Buildings and infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,937,594 20,833,092Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,096,451 94,015,204Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,463,690 2,729,815Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54,819,935) (41,215,593)
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,345,144 81,028,738
OTHER ASSETSLong-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,742,442 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,996,476 39,403,970
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,738,918 39,403,970
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,038,522 153,631,219
LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES
Short-term obligations with banks and financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,772,023 6,290,182Long-term bank borrowings—short-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,408,682 11,012,348Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,163,093 4,956,950Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,469 —Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,188,423 948,791Notes and accounts payable to related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645,100 661,881Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,433,908 3,092,941Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806,764 674,235Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,870 —
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,682,332 27,637,328
LONG-TERM LIABILITIESObligations with banks and financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,450,092 91,381,489Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,717,658 —Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,880,751 2,999,121Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,984,299 —
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,032,800 94,380,610
SHAREHOLDERS’ EQUITYPaid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,258,173 22,302,586Capital restatement reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425,162 (624,470)Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,202 97,179Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,542,853 9,837,986Accumulated profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,291,030 15,317,758Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,748,177) (5,479,772)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,323,390 31,613,281
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,038,522 153,631,219
The accompanying Notes 1 to 29 are an integral part of these consolidated financial statements.
F-154
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME(A free translation from the original prepared in Spanish, see Note 29)
For the nine moth periodended on September 30,
2010 2009
ThCh$ ThCh$
OPERATING INCOMERevenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,844,004 63,290,235Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,662,803) (56,604,173)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,181,201 6,686,062Administrative and selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,631,181) (4,820,875)
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (449,980) 1,865,187
NON-OPERATING INCOME (EXPENSES)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,394 620,148Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585,125 82,139Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,861,464) (4,929,136)Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156,610) (172,534)Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (805,622) (3,042,253)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,409 (1,134,609)
Non-operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,771,768) (8,576,245)
Result before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,221,748) (6,711,058)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473,571 1,231,286
NET LOSS FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,748,177) (5,479,772)
The accompanying Notes 1 to 29 are an integral part of these consolidated financial statements.
F-155
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS(A free translation from the original prepared in Spanish, see Note 29)
For the nine month periodended on September 30,
2010 2009
ThCh$ ThCh$
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIESCollection of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,863,672 66,448,145Interest income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,185 147,147Other income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529,325 914,420Payment to suppliers and personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53,606,521) (48,888,738)Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,664,814) (5,245,230)Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (12,876)Other expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,224,590) (10,405,976)Value added tax and other similar payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (446,772) (705,430)
Net cash flow provided by operating activities . . . . . . . . . . . . . . . . . . . . . . 6,454,485 2,251,462
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIESCapital increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 88Loans drawn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125,440 —Other loans drawn from related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,576Loans repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,401,665) (8,453,187)
Net cash flow used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (8,276,225) (8,450,523)
CASH FLOWS FROM (USED IN) INVESTMENT ACTIVITIESSales of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,352 49,819Sales of other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,653,852 7,612,220Purchase of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,027,468) (3,953,216)
Net cash flow provided by investment activities . . . . . . . . . . . . . . . . . . . . . 2,636,736 3,708,823
Total net cash flow for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814,996 (2,490,238)Effect of inflation on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (771,925) 64,855
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . 43,071 (2,425,383)OPENING BALANCE OF CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . 30,794 3,388,492
CLOSING BALANCE OF CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . 73,865 963,109
F-156
RECONCILIATION OF CASH FLOWS FROM OPERATINGACTIVITIES TO NET INCOME FOR THE YEAR
(A free translation from the original prepared in Spanish, see Note 29)
For the nine month periodended on September 30,
2010 2009
ThCh$ ThCh$
CASH FLOWS FROM OPERATING ACTIVITIESNet loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,748,177) (5,479,772)(Gain) loss on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,705) (218)
Principal non-cash charges (credits) to incomeDepreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,229,599 10,067,833Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,934,445 3,751,523Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805,622 3,042,253Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (394,409) 1,134,609
Total non-cash charges to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,575,257 17,996,218
Changes in assets affecting cash flows, (increase) decrease:Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,980,332) 3,157,323Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122,488) 359,503
Total charges in assets affecting cash flows . . . . . . . . . . . . . . . . . . . . . . . . . (5,102,820) 3,516,826
Changes in liabilities affecting cash flows, increase (decrease):Accounts payable related to operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,522,277 (1,284,703)Interests payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,977 (316,151)Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (473,571) (1,244,162)Other accounts payable related to non-operating result . . . . . . . . . . . . . . . . . . . . . (2,067,981) (10,231,146)Value added tax and other similar payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (446,772) (705,430)
Total changes in liabilities affecting cash flows . . . . . . . . . . . . . . . . . . . . . . 1,731,930 (13,781,592)
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 6,454,485 2,251,462
The accompanying Notes 1 to 29 are an integral part of these consolidated financial statements.
F-157
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSAT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 1—COMPANY’S REGISTRATION
a) Company’s registration
Express de Santiago Uno S.A. (here in after “the Company”) was registered under N° 884 in the OfficialCorporations Register of the Chilean Superintendence of Securities and Insurance (hereinafter “the S.V.S.”) onJanuary 27, 2005, as required by the tender conditions for the concession of the Trunk Line N° 4 business unit ofthe Transantiago system, issued by the Ministry of Transport and Telecommunications.
Once Law 20,382 of October 2009 came into force, the S.V.S. cancelled registration N° 884, which became partof the Special Register of Reporting Entities under N° 127 dated May 9, 2010.
b) Company’s incorporation and operations
Express de Santiago Uno S.A. was incorporated as a closely-held corporation through public deed datedNovember 22, 2004. The Company is basically engaged in the provision of public transport services on the routestendered in the Metropolitan Region of Santiago, Chile and any other activity related to its main line of business.
The annual shareholders meeting held on December 9, 2004 agreed to extend the Company’s purpose tobillboard and dynamic advertising activities through the exploitation of advertising spaces in buses and otherservices related to its main activity.
On October 22, 2005 the Company began to provide passenger public transport services associated with theTrunk Line N° 4 business unit, of Transantiago in Chile.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Accounting period
The accompanying interim consolidated financial statements cover the period from January 1 to September 30,2010 and 2009.
b) Basis of preparation
These interim consolidated financial statements have been prepared in accordance with accounting principlesgenerally accepted in Chile, issued by the Chilean Institute of Accountants, and the instructions of the ChileanSuperintendence of Securities and Insurance (S.V.S.). In the event of any differences, the S.V.S. regulationsprevail.
c) Basis of presentation
For comparison purposes, the financial statements for the period from January 1 and September 30, 2009 and therelated notes have been restated by 2.5%.
d) Basis of consolidation
The interim consolidated financial statements include assets, liabilities, income, cash flows of the Company andits subsidiary. Inter-company transactions and balances have been eliminated. The shareholding of minorityinvestors in the balance sheet and statement of income is shown as Minority Interest.
F-158
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
The consolidated financial statements include the following subsidiary:
Shareholding
2010 2009
RUT Company Direct Indirect Total Total
% % % %
0-E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXPS de Colombia Ltda. 99.9900 0.0000 99.9900 99.9900
e) Price-level restatements
The interim consolidated financial statements have been restated to reflect the effect of price-level changes in thepurchasing power of the Chilean peso during the respective periods, in accordance with accounting principlesgenerally accepted in Chile. These restatements have been determined on the basis of the percentage change inthe official consumer price index, which showed a rise of 2% from January to September in 2010 (negativechange of 2.8% in 2009).
f) Translation of the subsidiary’s financial statements
The interim consolidated financial statements of the foreign subsidiary have been translated to Chilean pesos asset out in Technical Bulletin N° 64 of the Chilean Institute of Accountants and official letters and circulars issuedby the S.V.S. on foreign investments.
g) Basis of translation
At each period-end, assets and liabilities in foreign currency and UF have been translated into Chilean pesos atthe following exchange rates:
2010 Ch$per unit
2009 Ch$per unit
United States dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483.65 550.36Unidad de Fomento (UF) . . . . . . . . . . . . . . . . . . . . . . . . 21,339.99 20,834.45
h) Time deposits
Investment in time deposits is shown at the value of the initial investment plus interest accrued to the end of theperiod.
i) Allowance for doubtful accounts
The Company’s policy is to make provisions for those doubtfully recoverable balances, which are determined onthe basis of the ageing of balances and the reports from legal and commercial advisors of the Company. Theseallowances are shown deducted from trade receivables, notes receivable and other receivables, as appropriate.
j) Inventories
Inventories of fuels and spare parts necessary for the operation of buses are valued at their restated cost and areshown in other current assets, net of the provisions for obsolescence of spare parts without turnover.
k) Prepaid expenses
The cost of insurance policies is included in the prepaid expenses account. This cost is amortized over the term ofthe policy.
F-159
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
l) Other current assets
This caption includes deposits and resale agreements, both with restrictions, since they are intended to guaranteethe payment of interest and capital installments on loans granted by the HSBC Bank (Chile), as described in Note10.
m) Fixed assets
Fixed assets basically refer to buses for the public transport of passengers and are valued at their restated cost,which includes all expenses incurred until the date on which the assets are ready for use and are shown inMachinery and equipment. The other fixed assets are shown at their restated acquisition cost.
Buildings and infrastructure includes bus terminals, which in essence have been completely finished, and worksin process corresponding to bus terminals not yet completely finished.
The disbursements for the acquisition of computer software packages are shown at restated cost and areamortized over a four-year period.
Leased assets refer to lease contracts of movable property with the characteristics of a finance lease. They arerecorded as purchases of fixed assets, recognizing the total obligation and interests on an accrual basis. Theseassets are not the legal property of the Company until it exercises the purchase option and it may not thereforefreely dispose of them.
As policy, the Company charges directly to income all charges incurred as part of the preventive and correctivemaintenance carried out on its fleet.
The maintenance provision recorded as of 2008 was made as a result of the postponement of cash disbursementsrelated to maintenance expenses which should have been performed in 2008 but were carried out in 2009.
n) Fixed asset depreciation
Depreciation for the period has been calculated using the straight-line method over the remaining useful lives ofthe respective assets.
Depreciation of buses has been estimated at nine years in accordance with technical studies performedconsidering the wear and tear of such vehicles.
o) Other assets—Other
This caption basically includes the following items:
i) Technical operative reserve (TOR)
The Technical Operative Reserve is defined as a provision incorporated in the fare paid by users, to covereventual temporary lags or mismatches between the income and costs of the Transantiago passengertransportation system. The amounts paid to the Transantiago Financial Administrator (AFT) for this conceptin relation to the Trunk Line N° 4 business unit are recorded as a deferred asset that will be amortized with acharge to operating income, during the concession’s operating period, based on projected income to beobtained from providing transportation services.
F-160
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
ii) Derivative contracts
The Company maintains contracts to hedge against risks of fluctuation in both the exchange and interestrates. These contracts have been valued and recorded as set forth in Technical Bulletin N° 57 of the ChileanInstitute of Accountants.
p) Income taxes and deferred taxes
The Company has recorded income taxes on the basis of the net taxable income, determined in accordance withthe regulations contained in the Chilean Income Tax Law.
Deferred taxes arising from timing differences are shown in accordance with Technical Bulletins N° 60 and N°71 of the Chilean Institute of Accountants and the regulations contained in Circular N° 1,466 of the S.V.S.
q) Provision for staff vacations
The Company shows the cost of personnel vacations and benefits on an accrual basis at each period-end.
r) Income recognitions
Revenues include the collection of public transport fares and sales of billboard and dynamic advertising on theinterior and exterior of buses with the support of two trading firms that promote the sale of alternative advertisingmedia contacting agencies and potential customers.
s) Statement of cash flows
The Company and its subsidiary consider as cash equivalents mutual fund and all highly-liquid financialinvestments agreed with a maximum maturity of 90 days, and with minimum risk of loss in value. Cash flowsfrom operating activities include all business-related cash flows, as well as paid interest, interest income and, ingeneral, all cash flows not defined as from financing or investment activities. The operating concept used in thisstatement is more comprehensive than that used in the interim consolidated statement of income.
t) Long-term receivables
This heading basically includes the discounts withheld by the AFT whose collectability exceeds one year,considering that the recoverability in 2009 was estimated in the short term (less than twelve month), as ofSeptember 30, 2009, was presented in Other receivables.
NOTE 3—ACCOUNTING CHANGES
There have been no accounting changes during the period from January 1 to September 30, 2010 as compared tothe previous period.
F-161
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 4—SHORT-AND LONG-TERM RECEIVABLES
At September 30, 2010 and 2009, this comprised the following:
Current assets
Up to 90 daysOver 90 up to 1
year Current assets Long-term
September 30, September 30, September 30, September 30,
Item 2010 2009 2010 2009 Subtotal 2010 2009 2010 2009
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,162,216 6,394,448 — — 5,162,216 5,162,216 6,394,448 — —Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,308 118,798 — — 134,308 134,308 118,798 — —Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121,016 900,157 — — 1,121,016 1,121,016 900,157 1,742,442 —
Total long-term receivables . . . . . . . . . . . . . . . . . . 1,742,442 —
F-162
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
Short-term receivables:
For the period ended onSeptember 30,
2010 2009
ThCh$ ThCh$
Trade receivables:Advertising in buses . . . . . . . . . . . . . . . . . . . . . . . . 379,844 256,387Provision for passenger revenue (1) . . . . . . . . . . . . 2,923,772 2,312,706AFT differences, collection income (2) . . . . . . . . . 1,858,600 2,039,352AFT discounts on passenger revenue (3) . . . . . . . . — 1,786,003
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,162,216 6,394,448
Notes receivable:Performance bonds . . . . . . . . . . . . . . . . . . . . . . . . . 121,018 112,337Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,290 6,461
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,308 118,798
Other receivables:Personnel accounts . . . . . . . . . . . . . . . . . . . . . . . . . 14,454 49,798Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . 69,417 305,780AFT, TAGs receivable . . . . . . . . . . . . . . . . . . . . . . 854,689 533,465Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,456 11,114
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121,016 900,157
Long-term receivables:AFT discounts on passenger revenue (3) . . . . . . . . 1,742,442 —
Total long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 1,742,442 —
(1) Provision for passenger revenue accrued between June 22 and 30, 2010 (same period in 2009), which werepaid by the Transantiago Financial Administrator (AFT), on July 12, 2010 (for same prior period, July 10,2009), in accordance with the bidding conditions of the concession contract and subsequent amendments.
(2) Referred to passenger revenue pending payment by the AFT, in conformity with settlements N° 79,corresponding to the period from September 6 to 21, 2010 (for the 2009 period, it corresponds to the balancepending payment by the AFT relating to settlement N° 55, which was paid by the AFT on October 2, 2009.
(3) Referred to discounts withheld by the AFT (in the 2009 period, it was recorded in the short term, butreclassified to the long term due to their collectability) in passenger revenue settlements N°s 34 to 55 (fromOctober 2008 to September 2009), according to Resolutions 1985 and 69 of the Ministry of Transport.These discounts were applied every two weeks to each payment settlement made by the AFT, throughExempt Resolution issued by the ministry, which also mentions that these discounts are to be recognized asa liability by the system.
The Company’s management is making the relevant arrangements to obtain the refund of the withhelddiscounts.
F-163
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 5—BALANCES AND TRANSACTIONS WITH RELATED COMPANIES
The balances and transactions with related companies refer to customary operations of the business performed inaccordance with the regulations, under equitable conditions and at market prices. There are no contracts for suchpurposes, except for the bus rental contract with Inversiones Alsacia S.A., effective from August 27, 2005 toAugust 26, 2006. Transactions are in local currency (Chilean pesos) and accrue no interest.
As instructed by Official Letter N° 06353 dated June 11, 2007 of the S.V.S., the balance as of December 31,2006 with Inversiones Alsacia S.A. was changed, reversing a contingent gain of ThCh$ 1,074,889 (historic). Thisgain had been originally recorded as lower Administrative and selling expenses in the statement of income forthe year ended December 31, 2006. The reversed amount originates from an adjustment made to the financialstatements of the Company as of June 30, 2006, for which Express de Santiago Uno S.A. had recorded anaccount receivable from Inversiones Alsacia S.A. amounting to ThCh$ 611,317 (historic). Through the reversionof the referred adjustments, as requested by the S.V.S., the financial statements as of December 31, 2006 reflectsan account payable to Inversiones Alsacia S.A of ThCh$ 463,572 (historic).
This account payable to Inversiones Alsacia S.A. of ThCh$ 463,572 (historic) and other subsequent differencesin accounts between both companies are still under discussion.
On April 3, 2008, as instructed by Ordinary Official Letter N° 8703 of the S.V.S., the Company was required toreport the actions taken to clarify the net payable balance of ThCh$ 88,338 (historic) it has with InversionesAlsacia S.A. and which originates the qualification in the audit report as of December 31, 2007, and the timeestimated to complete the analysis of the different items composing the referred balance, and determine theadjustments to be made in order to properly recognize the effect of the expenses incurred in the financialstatements.
In response to Ordinary Official Letter N° 8703, on April 9, 2008 it was reported in this respect that, according tothe information the Company’s management has available, the parties to the contract are in direct discussionsintended to settle the differences existing in this regard, which are expected to be definitely solved in the nextmonths. Both parties accept that, in the event they do not reach an agreement on every point, the remainingdifferences will be submitted to any mechanism for settlement of disputes within the current year.
On April 14, 2010, as instructed by Ordinary Official Letter N° 5479 of the S.V.S. the company was required toreport what measures were adopted as well as those being adopted to correct the differences in balance with therelated party Inversiones Alsacia S.A. for all expenses incurred during the years 2005 and 2006, resulting in theissuance of a qualified opinion on the Company´s financial statements as of December 31, 2009 by our externalauditors.
In response to the Ordinary Official Letter submitted to the S.V.S. on April 16, 2010, it was reported thataccording to the background knowledge of the Company, they have carried out direct negotiations withInversiones Alsacia S.A., but no agreement has been reached, however, negotiations are currently beingdeveloped and a final decision is expected this year.
During 2009 and 2010 to date, the Company’s management continued direct discussions with InversionesAlsacia S.A. in order to settle the differences existing between both companies, with the agreement mentioned inthe previous paragraph remaining valid. These discussions have not yet been concluded.
The Company discloses all transactions with related companies and parties.
F-164
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
Balances and Transactions with related companies are shown in tables below:
a) Notes and accounts receivable
Short-termSeptember 30,
Tax registration N° Company 2010 2009
ThCh$ ThCh$
99.577.400-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Alsacia S.A. 419,591 428,47776.195.710-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Eco Uno Ltda. 109,815 107,899Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Express del Futuro S.A. 797 1,782
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,203 538,158
b) Notes and accounts payable
Short-termSeptember 30,
Tax registration N° Company 2010 2009
ThCh$ ThCh$
99.577.400-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Alsacia S.A. 642,270 658,98376.195.710-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Eco Uno Ltda. 2,830 2,898
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645,100 661,881
c) Transactions
AmountEffect on income(charge/credit)
For the period betweenJanuary 1st toSeptember 30,
For the period betweenJanuary 1st toSeptember 30
Company Tax N° Relationship Transaction 2010 2009 2010 2009
ThCh$ ThCh$ ThCh$ ThCh$Inversiones Alsacia
S.A. . . . . . . . . . . . . . . 99.577.400-3 Related company Expense recovery invoice 409 37,120 (409) (38,048)Express del Futuro
S.A. . . . . . . . . . . . . . . Foreign Related company Expense recovery 99 1,781 (99) —
NOTE 6—INCOME TAXES AND DEFERRED TAXES
a) Company tax
At September 30, 2010 and 2009, the Company has made no provision for income tax as its shows negative tax resultsamounting to ThCh$ 37,375,931.
F-165
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
b) Recoverable taxes:
Recoverable taxes are detailed as follows:
For the periodended on
September 30,
2010 2009
ThCh$ ThCh$
Deductible training expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 39,695
Total recoverable taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 39,695
c) Tax payable
Less:Recoverable tax, 2009 income tax filing . . . . . . . . . . . . . . . . . 4,917 —Recoverable tax, 2010 income tax filing . . . . . . . . . . . . . . . . . 7,305 —Income tax provision, Exps de Colombia Ltda. . . . . . . . . . . . . 53 —Provision for additional income tax, disallowable expenses . . . (22,145) —
Total taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,870) —
The subsidiary has not recorded deferred taxes, since there are no temporary differences between the accountingand tax results.
d) Deferred taxes:
September 30, 2010 September 30, 2009
Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Concept Short term Long term Short term Long term Short term Long term Short term Long term
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Temporary differences:Provision for staff
vacations . . . . . . . 242,326 — — — 200,903 — — —Leased assets . . . . . — — — — — — 12,007 —Fixed asset
depreciation . . . . — — — 3,135,946 — — — 2,769,257Other events . . . . . . 50,484 — 4,109 5,860,552 317,098 — — 6,487,212Accumulated tax
loss . . . . . . . . . . . — 6,353,908 — — — 6,257,348 — —Depreciation
provision . . . . . . . — 761,839 — — 562,654 — — —
Total . . . . . . . . 292,810 7,115,747 4,109 8,996,498 1,080,655 6,257,348 12,007 9,256,469
F-166
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
e) Effect on income
For the period ended onSeptember 30,
Item 2010 2009
ThCh$ ThCh$Effect in the results of deferred taxes . . . . . . . . . . . . . . . . . . 473,571 1,231,286
NOTE 7—OTHER CURRENT ASSETS
The following table shows the detail of other current assets as of September 30, 2010 and 2009:
2010 2009
ThCh$ ThCh$Rental guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,038 7,172Time deposits and repurchase agreements (1) . . . . . . . . 8,550,416 7,728,433Spares in warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,714 2,630,478Allowance for spare part obsolescence . . . . . . . . . . . . . (249,421) (255,657)Other guarantees (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,185,630 —Deposit, HSBC Bank Colombia (3) . . . . . . . . . . . . . . . . 10,640,300 12,410,618Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,600 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,866,277 22,521,044
(1) Refers to the fixed-term deposits with the HSBC Bank (Chile) for guaranteeing and provisioning thepayments of principal and interest in relation to the loans described in Note 11. At September 30, 2010deposits are detailed as follows:
Guaranteed deposits:
Effective date Expiry date Bank Type CurrencySubscription
value Book valueMonthly
rate
ThCh$ ThCh$ %08/26/2010 11/24/2010 HSBC DPF US$ 519,949 518,875 1.6508/31/2010 10/04/2010 HSBC DPF US$ 2,953,262 2,956,289 1.2309/14/2010 02/28/2011 HSBC DPF US$ 269,630 274,619 1.5509/28/2010 02/24/2011 HSBC DPF US$ 487,642 505,259 1.5409/30/2010 12/29/2010 HSBC DPF US$ 2,662,802 2,662,802 1.2308/26/2010 11/24/2010 HSBC DPF Ch$ 57,331 57,411 1.2009/01/2010 10/01/2010 HSBC DPF Ch$ 200,000 200,213 1.3209/01/2010 10/01/2010 HSBC DPF Ch$ 163,725 163,852 0.9609/15/2010 10/13/2010 HSBC DPF Ch$ 146,961 147,020 0.9609/28/2010 02/24/2011 HSBC DPF Ch$ 114,071 114,076 0.96
Total deposits at September 30, 2010 . . . . . . . . . . . . . . . . . 7,575,373 7,600,416
FTD: Fixed time deposit30/09/2010 01/10/2010 BCI 950,000 950,000 0.18
Non-guaranteed repurchase deposits in Chilean pesos: . . . . . . . . 950,000 950,000
Total non-guaranteed repurchase deposits atSeptember 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,523,373 8,550,416
F-167
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
At September 30, 2009 time deposits and repurchase agreements are detailed as follows:
Effectivedate
Expirydate Bank Type Currency
Subscriptionvalue
Bookvalue
Monthlyrate
ThCh$ ThCh$ %
08/27/2009 02/26/2010 HSBC DPF US$ 551,156 565,529 0.8308/28/2009 10/26/2009 HSBC DPF US$ 2,194,200 2,257,478 0.5008/28/2009 10/27/2009 HSBC DPF US$ 2,742,750 2,821,849 0.5008/28/2009 10/28/2009 HSBC DPF US$ 909,887 936,127 0.0509/11/2009 11/10/2009 HSBC DPF US$ 479,776 485,029 0.3609/29/2009 02/26/2010 HSBC DPF US$ 628,438 650,146 1.1509/11/2009 11/10/2009 HSBC DPF Ch$ 5,980 6,147 0.4009/29/2009 10/29/2009 HSBC DPF Ch$ 5,979 6,128 0.08
Total deposit at September 30, 2009 . . . . . . . . . . . . . . . . . 7,518,166 7,728,433
FTD: Fixed time deposit(2) Refers to funds delivered to the Credit Suisse, equivalent to ThUS$ 4,513 (initial guarantee of ThUS$ 5,197
less rate adjustment of ThUS$ 684) to hedge against the mark-to-market value as of November 10, 2009 forthe swap contract with that bank. (For further information see Note 20—Derivative Contracts).
(3) Refers to a US$ 22 million deposit held by the subsidiary Exps de Colombia Ltda. with the HSBC BankPLC. The deposit is to guarantee the collateral loan granted to Express de Santiago Uno S.A. by HSBCBank (Chile) for the same amount.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 8—FIXED ASSETS
The detail of fixed assets, valued as described in Note 2 m) and n) at September 30 each period, is as follows
Gross fixed assets Accumulated depreciation
2010 2009 2010 2009
ThCh$ ThCh$ ThCh$ ThCh$
LandLand for terminals . . . . . . . . . . . . . . . . . . . . . . . . 4,667,344 4,666,220 — —
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,667,344 4,666,220 — —
Buildings and infrastructureBuildings and infrastructure . . . . . . . . . . . . . . . . . 21,262,451 — (5,407,085) —Works in process . . . . . . . . . . . . . . . . . . . . . . . . . 1,675,143 20,833,092 — (3,302,191)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,937,594 20,833,092 (5,407,085) (3,302,191)
Machinery and equipmentTransport equipment . . . . . . . . . . . . . . . . . . . . . . . 93,479,483 93,461,520 (47,262,881) (36,450,880)Machinery and equipment . . . . . . . . . . . . . . . . . . 616,968 553,684 (336,155) (225,218)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,096,451 94,015,204 (47,599,036) (36,676,098)
Other fixed assetsFurniture and office equipment . . . . . . . . . . . . . . 352,234 328,857 (155,850) (98,870)Computer equipment . . . . . . . . . . . . . . . . . . . . . . 478,725 397,707 (279,981) (206,195)Other fixed assets (1) . . . . . . . . . . . . . . . . . . . . . . 4,267,721 1,672,070 (1,256,761) (902,713)Improvements leased offices . . . . . . . . . . . . . . . . 281,660 281,624 (118,470) (23,038)Leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,350 49,557 (2,752) (6,488)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,463,690 2,729,815 (1,813,814) (1,237,304)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,165,079 122,244,331 (54,819,935) (41,215,593)
Total net fixed assets . . . . . . . . . . . . . . . . . . 72,345,144 81,028,738
(1) Other fixed assets refers basically to 15% advance payment to fund 193 new buses amounting to ThCh$2,545,285 (ThCh$ 0 in 2009) and software which, at September 30, 2010 has a net value of ThCh$ 366,348(ThCh$ 612,306 in 2009). The remaining balance refers to tools and other minor assets.
The charge for depreciation for the period has been shown in the following accounts:
For the period ended onSeptember 30,
2010 2009
ThCh$ ThCh$
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,920,863 9,799,799Administrative and selling expenses . . . . . . . . . . . . . . 308,735 268,034
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,229,599 10,067,833
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 9—OTHER ASSETS
For the period ended onSeptember 30,
2010 2009
ThCh$ ThCh$
Technical Operative Reserve (1) . . . . . . . . . . . . . . . . . 33,093,389 36,929,077Reserve for AFT (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 554,432 618,694Lease guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,412 38,439Derivative contracts (3) . . . . . . . . . . . . . . . . . . . . . . . . — 1,817,760Deferred interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,243 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,996,476 39,403,970
(1) Refers to the total amount of the financial contribution to the technical operative reserve (TOR) for theTrunk Line N° 4 business unit, to cover eventual differences or temporary mismatches between systemrevenues and expenses. This amount is amortized according to the revenue curve projected to be obtainedfrom the provision of transport services. As of September 30, 2010, the accumulated amortization for thisconcept amounts to ThCh$ 17,887,255 (ThCh$ 14,039,289 in 2009) and the effect on income for the period2010 amounts to ThCh$ 2,886,093 (ThCh$ 2,896,059 in 2009).
(2) From the beginning of phase 1, defined in the Transantiago 2003 bidding conditions, the AFT will be theexclusive issuer of the tickets relating to the collection of the money paid by passengers in order to use thetransport system. The AFT provides these tickets to the Company, the latter paying a total of Ch$ 20 foreach ticket, from which Ch$ 16 belong to a deposit to increase the system’s TOR and should be credited bythe AFT to the System Transitory Account 2. The AFT can use freely the other Ch$ 4. This reservecorresponds to the total amount of Ch$ 16 per ticket that the Company has acquired from the beginning ofthe operation until June 30, 2006. This amount is amortized according to the curve of projected revenue tobe obtained from the provision of transport services. As of September 30, 2010, the accumulatedamortization for this concept amounts to ThCh$ 299,675 (ThCh$ 235,208 in 2009) and the effect on incomefor the period 2010 amounts to ThCh$ 48,352 (ThCh$ 48,352 in 2009).According to the amendment to the concession contract, clause 4, signed on June 30, 2006, between theCompany and the Ministry of Transport and Telecommunications, effective July 1, 2006, the Ch$ 16 pereach ticket ceased to be payable to the AFT.
(3) Refers to the cross-currency swap contracts subscribed with HSBC Bank (Chile) and Credit Suisse, London,to hedge the dollar loans against fluctuations in the exchange rate and interest rate. (Further information inNote 20 Derivative Contracts).
F-170
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 10—SHORT-TERM OBLIGATIONS WITH BANKS AND FINANCIAL INSTITUTIONS
a) Short-term obligations with banks and financial institutions:
At September 30, 2010 the loans obtained from the HSBC Bank Chile are as follows:
Loan numberSigning
dateMaturity
dateInitial
amountBookvalue
Interestrate
202180 25/06/2010 26/07/2010 465,000 466,386 0.47202181 25/06/2010 26/07/2010 2,590,000 2,597,719 0.47202247 25/06/2010 26/07/2010 735,000 737,190 0.47202508 25/06/2010 26/07/2010 2,342,000 2,348,980 0.47
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,132,000 6,150,275
BBVA Bank9600010000 06/17/2010 12/14/2010 540,000 551,952 0.63
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,000 551,952
Itaú Bank00010000 07/13/2010 10/12/2010 1,060,000 1,069,796 0.36
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,060,000 1,069,796
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,732,000 7,772,023
At September 30, 2009 the loans obtained from the HSBC Bank Chile are as follows:
Loan numberSigning
dateMaturity
dateInitial
amountBookvalue
Interestrate
202180 11/28/2007 10/23/2010 465,000 476,996 0.33202181 11/28/2007 10/23/2010 2,590,000 2,656,809 0.33202247 11/28/2007 10/23/2010 735,000 753,965 0.33202508 12/05/2007 10/23/2010 2,342,000 2,402,412 0.33
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,132,000 6,290,182
b) Long-term obligations with banks and financial institutions, short-term portion:
This caption includes the principal due within one year and accrued interest corresponding to the loans grantedby HSBC Bank PLC (EKN NEXI), payable in semi-annual installments on February 28, and August 28 of eachyear. At September 30, 2010, the installments payable amount to ThCh$ 9,401,775 (ThCh$ 11,012,348 in 2009).
Interest is calculated on the balance of principal outstanding of the promissory notes, from their respectivesigning dates to closing date, payable semi-annually on February 28 and August 28.
At September 30, 2010, the accrued interest amounted to ThCh$ 211,504 (ThCh$ 293,013 in 2009).
Banco HSBC Bank (NIB), installments payable semi-annually on February 28 and August 28 of each year. AtSeptember 30, 2010, the installments amount to ThCh$ 1,341,888.
F-171
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
Interest is calculated on the balance of principal outstanding of the promissory notes, from their respectivesigning dates to the closing date, payable in advance semi-annually on February 28 and August 28.
Interest paid in advance on February 28, 2010, corresponding to the semester August-February 2011 amounted toThCh$ 270,478 (ThCh$ 74,777 at September 2009).
c) At September 30, 2010 and 2009, short-term obligations with banks and financial institutions are follows:
Short term:
Tax registration N°Bank or financial
institution
Non-indexed Chilean pesosSeptember 30,
TotalSeptember 30,
2010 2009 2010 2009
ThCh$ ThCh$ ThCh$ ThCh$
97.951.000-4 . . . . . . . . . . . . . . . . . . . . . . HSBC Bank (Chile) 6,150,275 6,290,182 6,150,275 6,290,18281.496.800-6 . . . . . . . . . . . . . . . . . . . . . . BBVA 551,952 — 551,952 —76.645.030-K . . . . . . . . . . . . . . . . . . . . . Itaú 1,069,796 — 1,069,796 —
Total . . . . . . . . . . . . . . . . . . . . . . . . 7,772,023 6,290,182 7,772,023 6,290,182
Principal outstanding . . . . . . . . . . . . . . . . 7,732,000 6,132,000 7,732,000 6,132,000
Average annual interest rate (%): . . . . . . 4.00 9.36
Long term:
Tax registration N°Bank or financial
institution
DollarsSeptember 30,
Non-indexed Chilean pesosSeptember 30,
TotalSeptember 30,
2010 2009 2010 2009 2010 2009
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
97.951.000-4 . . . HSBC Bank(Chile) EKN-NEXI 9,401,775 11,012,348 — — 9,401,775 11,012,348
97.951.000-4 . . . HSBC Bank (Chile)NIB — — 1,341,888 — 1,341,888 —
0-E . . . NORDICINVESTMENT BANK 665,019 — — — 665,019 —
Total . . . . . 10,066,794 11,012,348 1,341,888 — 11,408,682 11,012,348
Principaloutstanding . . 9,190,271 10,719,335 1,341,888 — 10,532,159 10,719,335
Average annual interest rate (%) . . . . . . . . 5.87 5.87 5.93Percentage obligations in local
currency (%) . . . . . . . . . . . . . . . . . . . . . 55.3000Percentage obligations in foreign
currency (%) . . . . . . . . . . . . . . . . . . . . . 44.7000
F-172
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 11—LONG-TERM OBLIGATIONS WITH BANKS AND FINANCIAL INSTITUTIONS
At September 30, 2010 the loans outstanding are as follows:
At September 30, 2010 Years to maturity At September 30, 2009 Average
Tax registration N° Institution CurrencyOver 1up to 2
Over 2up to 3
Over 3up to 5
Over 5up to 10
Over 10 Totallong-term
annualinterest rate
Totallong termAmount Maturity
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ % ThCh$97.951.000-4 . . . . . . . HSBC Bank PLC/EKN-1 Dollar 12,755,934 6,377,967 12,755,934 — — 5 years 31,889,835 5.38 44,634,74497.951.000-4 . . . . . . . HSBC Bank Tokio -NEXI Dollar 4,352,850 2,176,425 4,352,850 2,176,425 — 6 years 13,058,550 1.38 17,769,74997.951.000-4 . . . . . . . HSBC Bank (Chile) NIB Non-indexed Ch$ 2,683,775 1,341,888 2,683,775 2,683,775 — 7 years 9,393,213 0.51 11,003,47997.984.000-4 . . . . . . . HSBC Bank PLC /Enk – 2 Dollar 1,271,758 635,879 1,271,758 953,818 — 7,5 years 4,133,213 6.38 5,562,899
0-E . . . . . . Nordic Investment Bank Dollar 665,019 1,330,037 3,990,112 3,990,113 — 7.5 years 9,975,281 0.38 12,410,618
Total . . . . . . . . . 21,729,336 11,862,196 25,054,429 9,804,131 — 68,450,092 91,381,489
Total in foreign currency (%) . . . 84.4300Total in local currency (%) . . . . . 15.5700
F-173
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
a) Loan from HSBC BANK PLC (London) EKN-1:
Between August 17, 2005 and August 1, 2006 thirteen disbursements corresponding to thirteen promissory notestotaling ThUS$ 125,278 were received, which are payable in twenty equal and consecutive semi-annualinstallments on February 28 and August 28 of each year, starting on February 28, 2007, at a 5.38% fixed interestrate annually. This loan funded and paid the purchase of 606 buses, equivalent to approximately 85% of the totalbus sale contract signed with Volvo. On March 6, 2007 the principal repayment schedule was changed from 20 to19 equal semi-annual and consecutive installments payable from August 28, 2007 to August 30, 2016, with theother terms and conditions of the respective loan agreement remaining unchanged. At September 30, 2010, thebalances of long-term principal outstanding are ThCh$ 39,687,334, equivalent to ThUS$ 72,529.
On February 28, 2008 a cross-currency swap contract was signed with the Credit Suisse International, London, tohedge the above loan against fluctuations in the exchange rate and interest rate, amounting to ThUS$ 112,091, toUF 2,648,010.00 (Further information on this contract in Note 20, Derivative Contracts).
b) Joint loan from HSBC Bank of Tokyo—Sumitomo Bank—NEXI, Japanese Loan and InsuranceCorporation:
Between March 30, 2006 and July 7, 2006 three disbursements totaling ThUS$ 36,000 were received. This loanhas a term of 8 years with five years’ grace (between February 28, 2010 and August 28, 2017), payable semi-annually on February 28 and August 28 at a floating interest rate of Libor 180 days, plus a spread of 0.6%annually, payable semi-annually between August 28, 2006 and August 28, 2017. As of September 30, 2010, theprincipal outstanding shown under long term amounts to ThCh$ 16,005,308, equivalent to ThUS$ 29,250.
On December 12, 2007, a swap contract was signed with HSBC Bank (Chile) to hedge the loan from HSBC-NEXI of ThUS 36,000 against fluctuations in the exchange rate and interest rate. (See Note N° 20, DerivativeContracts).
c) Loan from HSBC Bank (Chile):
On June 13, 2006 a loan was obtained from HSBC Bank (Chile) amounting to ThCh$ 11,660,000 (historic)payable over 8 years (between February 28, 2011 and February 28, 2018). Interest is payable in advance everysix months from August 28, 2006 and be calculated on the balance of principal outstanding. The respectivepromissory note will accrue interest at a nominal TAB rate for 180-day operations, plus 0.38% annually. OnFebruary 28, 2008, a prepayment of principal was made of ThCh$ 914,949 (historic). As of September 30, 2010,the principal outstanding at long term amounts to ThCh$ 10,064,156.
This obligation is guaranteed by a stand-by letter of credit of US$ 22 million in favor of HSBC Bank (Chile)issued by HSBC Bank Plc, London, at the request of Exps Colombia Limitada. The guarantee has a term of oneyear and is automatically renewed each year, until the Company’s obligations with HSBC Bank (Chile) areextinguished.
d) Loan from HSBC Bank PLC (London) EKN-2:
On December 26, 2007, a total of ThUS$ 8,158 was drawn against four promissory notes, and on April 10, 2008a total of ThUS$ 4,779 was drawn, corresponding to two promissory notes; the EKN-2 loan totals ThUS$ 12,937,
F-174
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
payable in 19 equal and consecutive semi-annual installments on February 28 and August 28 of each year,starting in August 2008, at a fixed annual interest rate of 6.38%. The first disbursement of ThUS$ 8,158 made onDecember 26, 2007 financed the purchase of 59 buses and the second disbursement financed the purchase ofanother 25 buses, model B-7, from Volvo Brazil. On September 30, 2010, the principal outstanding at long termamounts to ThCh$ 5,036,248, equivalent to ThUS$ 9,204.
On February 28, 2008 a cross-currency swap contract was signed with the Credit Suisse International, London, tohedge against fluctuation in the exchange rate and interest rate, amounting to ThUS$ 8,243 equivalent to UF194,731. (Further information on this contract in Note 20, Derivative Contracts).
e) Loan from Nordic Investment Bank:
On March 28, 2006, the subsidiary EXPS. Colombia Ltda. obtained a loan from HSBC-NIB (NIB-NordicInvestment Bank) amounting to US$ 22 million, equivalent to ThCh$ 11,538,120 at March 31, 2010, payableover 8 years (from February 28, 2011 to February 28, 2018). Interest is payable in advance semi-annually fromAugust 28, 2006, at 180-day Libor plus 6.228% per annum. This loan will guarantee the collateral loan thatHSBC Bank (Chile) granted to the Company (Loan, letter c).
All the loans referred to above have the following clause:
Should the signor not pay the principal of these loans on any of their maturities, or should the interest on thesepromissory notes not be paid by the signor on their due date and such default or simple delay in the payment ofinterest is maintained for three or more business days, the bearer of the promissory notes shall have the right todemand immediate payment of the full balance of the debt of principal and interest due on the promissory notes,which shall be considered due and payable for all intents and purposes. The bank shall have a right to demand inadvance the whole debt due under the promissory notes as if it were due and payable, if the signor were tobecome insolvent, understanding for all purposes that there is insolvency if the signor or one or more of itscreditors files for bankruptcy, or if judicial or non-judicial restructuring agreement proposals are signed orformulated.
The loans referred to above did not specify any financial covenants, but only non-financial covenants, being thefollowing the most important.
i) Corporate existence:
The debtor must preserve its legal existence, its rights, privileges, licenses and franchises of Express de SantiagoUno S.A. and its subsidiaries, which are material to the performance of their business.
ii) Compliance with law, insurance:
The debtor must comply with all applicable laws, regulations, rules imposed by any government authority, thetimely payment of all taxes, as well as maintain its assets insured and in good working conditions.
iii) Government authorizations:
The debtor must maintain all licenses, authorizations or consents from the government up to date for thefulfillment of its activities.
F-175
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
iv) Reporting requirements:
The debtor must provide the administrative agent with the following information to be distributed to thecreditors:
• The financial statements of the Company and report any event of default within five days.
• Acceleration of any debt of over ThUS$ 750,000.
• Report any legal action against the debtor and/or subsidiaries that involves the government and whichmight have a material adverse effect.
• Report semi-annually on the status of both the concession and the transport services.
v) Ranking:
The debtor must take all the necessary actions so that its obligations with the creditor maintain their ranking overother obligations, as well as keeping the accumulation and reserve accounts for the prepayment of its obligationsup to date.
vi) Negative pledge:
The debtor cannot mortgage and/or pledge assets other than those specified in the loan agreement.
vii) Transactions with affiliates:
The debtor cannot carry out transactions with affiliates unless they are within the normal course of the business.
viii) Line of business:
The debtor cannot make a material change in the nature or management of its business.
ix) Merger, change in control:
The debtor cannot make changes in the ownership and control of the Company without the creditors’ consent.
x) Environmental obligations:
The debtor must ensure that the loan proceeds are not allocated to activities that damage the environment.
xi) Dividend payment:
The debtor must request authorization from the creditors prior to a dividend payment.
F-176
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 12—PROVISIONS AND WRITE-OFFS
Provisions:
a) At September 30, 2010 and 2009 provisions are detailed as follows:
September 30,
2010 2009
ThCh$ ThCh$
Personnel vacations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425,448 1,181,7844% interest remittance . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,460 11,721Bus maintenance (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,523,800Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 375,636
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,433,908 3,092,941
(1) Even though the company’s policy is to record the maintenance as incurred, as of December 31, 2008 therewas the obligation to perform certain maintenance, which was postponed until the second semester of 2009.Accordingly, the company recorded a provision which balance, as of September 30, 2009 wasThCh$ 1,523,800.
During the 2010 period, the maintenance has been carried out on the scheduled dates, with the result beingbooked when incurred.
b) Asset allowances:
At September 30, 2010 and 2009, the following allowances have been made, which are shown deducted from therespective asset accounts:
September 30,
2010 2009
ThCh$ ThCh$
Spare part inventories (1) . . . . . . . . . . . . . . . . . . . . . . . . (249,421) (255,657)Depreciation, work in process (2) . . . . . . . . . . . . . . . . . . — (3,302,190)
(1) Deducted from Spare part inventories classified in Other current assets.(2) Deducted from Accumulated depreciation classified in Fixed assets.
c) Write offs:
No write-offs are made as of September 30, 2010 and 2009.
NOTE 13—OTHER LONG-TERM LIABILITIES
At September 30, 2010 and 2009, these were as follows:
September 30,
2010 2009
ThCh$ ThCh$
Derivative contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,968,871 —Leasing obligations, long term . . . . . . . . . . . . . . . . . . . . . . . 15,428 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,984,299 —
F-177
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
Refer to the cross-currency swap contracts (at net value) signed with the HSBC Bank (Chile) and Credit Suisse,London, to hedge loans in dollars against fluctuations in the exchange rate and interest rate. (Further informationin note 20 Derivatives Contracts).
NOTE 14—MINORITY INTEREST
The minority interest shown in the consolidated balance sheet and consolidated income statement, is equal to nilsince the calculation of such an interest is lower than ThCh$ 1, corresponding to 0.01% of the equity of Exps deColombia Ltda.
NOTE 15—CHANGES IN EQUITY
The movement in equity accounts in the 2009 and 2010 periods is shown as follows:
ItemsPaid incapital
Reserve forequity
restatementCapital in excess
of par valueRetained
resultsResult
for the period Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Opening balance . . . . . . . . . . . . 21,758,534 — 97,540 11,466,767 3,907,876 37,230,717Distribution of prior-year
results . . . . . . . . . . . . . . . . . . — — — 3,907,876 (3,907,876) —Increase in capital . . . . . . . . . . . 86 — — — — 86Price-level restatement . . . . . . . — (609,239) (2,731) (430,489) — (1,042,459)Reserve for equity
restatement . . . . . . . . . . . . . . — — — — — —Loss for the period . . . . . . . . . . — — — — (5,346,119) (5,346,119)
Balance at September 30,2009 . . . . . . . . . . . . . . . . . . . 21,758,620 (609,239) 94,809 14,944,154 (5,346,119) 30,842,225
Restated balance . . . . . . . . . . . . 22,302,586 (624,470) 97,179 15,317,758 (5,479,772) 31,613,281
Opening balance . . . . . . . . . . . . 21,258,173 — 95,296 15,021,027 (3,951,389) 32,423,107Distribution of prior-year
results . . . . . . . . . . . . . . . . . . — — — (3,951,389) 3,951,389 —Price-level restatement . . . . . . . — — 1,906 221,392 — 223,298Reserve for equity
restatement . . . . . . . . . . . . . . — 425,162 — — — 425,162Loss for the period . . . . . . . . . . — — — — (3,748,177) (3,748,177)
Balance at September 30,2010 . . . . . . . . . . . . . . . . . . . 21,258,173 425,162 97,202 11,291,030 (3,748,177) 29,323,390
F-178
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
a) The shareholding is comprised as follows:
Single-seriessubscribed voting
shares September 30,ShareholdingSeptember 30,
2010 2009 2010 2009
N° N° % %
Carlos Rios Velilla . . . . . . . . . . . . . . . . . . . . . 3 3 0.002 0.002Sociedad Eco Uno Ltda. . . . . . . . . . . . . . . . . . 188,717 188,717 99.998 99.998
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,720 188,720 100.000 100.000
b) Number of shares:
Subscribed shares Paid-in shares Voting shares
N° N° N°
Single series . . . . . . . . . . . . . . . . . . . . . . . . 188,720 188,720 188,720
c) Capital
Subscribed capital Paid-in capital
ThUS$ ThUS$
Single Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,258,173 21,258,173
NOTE 16—OTHER NON-OPERATING INCOME AND EXPENSES
At September 30, 2010 and 2009, this caption is detailed as follows:
September 30,
2010 2009
ThCh$ ThCh$
Other non-operating income:Income from scrap sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,788 1,736Income from damage to buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,109 372Income from paramedics’ contribution, safety insurance company . . . . . . . . 15,088 —Other miscellaneous income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549,782 80,031Sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,358 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585,125 82,139
(1) Other miscellaneous income are mainly comprised by the reimbursement of communication expenses madefor the AFT account at the beginning of operations (ThCh$ 494,142).
F-179
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
September 30,
2010 2009
ThCh$ ThCh$
Other non-operating expenses:Other taxes (stamp taxes, etc) . . . . . . . . . . . . . . . . . . . . 93,582 121,481Disallowed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,070 33,023Other miscellaneous expenses . . . . . . . . . . . . . . . . . . . . — 3,403Loss on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . 8,654 —Miscellaneous fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,304 14,627
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,610 172,534
NOTE 17—PRICE-LEVEL RESTATEMENTS
The detail is as follows at September 30, 2010 and 2009:
(Charges)/creditsSeptember 30,
Indexation Unit 2010 2009
ThCh$ ThCh$
AssetsFixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 1,562,725 (2,599,545)Investments in related companies . . . . . . . . . . . . . . . . . . . . . . . . . . CPI — (32)Other non-monetary assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF (1,752,827) (3,076,907)Other non-monetary assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 719,583 (1,169,034)Expenditure accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 751,788 (747,407)
Total credits (charges) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281,269 (7,592,925)
LiabilitiesShareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI (648,471) 1,068,552Other no-monetary liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI — 36Non-monetary liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF (613,140) 2,678,701Income accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI (825,280) 803,383
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,086,891) 4,550,672
Loss on price-level restatements . . . . . . . . . . . . . . . . . . . . . . . (805,622) (3,042,253)
CPI: Consumer price indexUF : Unidad de fomento
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 18—EXCHANGE DIFFERENCES
The detail is as follows at September 30, 2010 and 2009:
(Charges)/creditsSeptember 30,
Currency 2010 2009
ThCh$ ThCh$
AssetsBank current accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (4,875) (36,361)Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (145,018) (1,513,444)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (2,582,591) (12,864,271)
Total credits (charges) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,732,484) (14,414,076)
LiabilitiesLong-term bank liabilities, short-term portion . . . . . . . . . . . . . . . . . . . US$ 449,164 2,060,687Long-term bank liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 2,194,110 11,203,820Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (110,188) 14,960Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 593,807 —
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,126,893 13,279,467
Loss from exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . 394,409 (1,134,609)
NOTE 19—STATEMENT OF CASH FLOWS
As of September 30, 2010 and 2009, cash and cash equivalents are as follows:
September 30,
2010 2009
ThCh$ ThCh$
Cash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,255 963,109Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,610 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,865 963,109
NOTE 20—DERIVATIVE CONTRACTS
At September 30, 2010, the Company maintains cross-currency swap and forward contracts to hedge againstfluctuations in exchange rates and interest rates.
SWAP CONTRACTS
a) On December 12, 2007, the Company signed a derivative contract (cross-currency swap from US$ to UFand from floating to a fixed interest rate) with HSBC Bank (Chile) amounting to US$ 36 million. Thepurpose of the contract is to hedge against exchange and interest-rate risks on the loan of US$ 36 millioncontracted with BSBC-NEXI Bank. The main financial conditions of the contract are:
(1) Amount contracted by the Bank ThUS$ 36,000.
(2) Amount contracted by the Company UF 918,387.09.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
(3) Start date December 12, 2007.
(4) Maturity date August 28, 2017.
(5) Interest rate agreed by the bank: 6-month Libor plus 0.6% p.a./360.
(6) Interest rate agreed by the Company: Fixed rate, 3.900% p.a./360.
(7) Payment method: Semi-annual compensations in Chilean pesos.
b) On February 28, 2008, the Company signed derivatives contracts (cross-currency swap) from US$ to UFand from floating to a fixed interest rate) with Credit Suisse International, London. The purpose of thecontract is to hedge against exchange and interest-rate risks on the loans incurred with HSBC Bank, London(ENK-1-2), for the syndicated loans of ThUS$ 112,091 and ThUS$ 12,937, respectively. The main financialconditions of the contract are:
To cover the loan with the HSBC Bank-EKN-1:
(1) Amount contracted in ThUS$ 112,091.
(2) Amount contracted in UF 2,648,010.
(3) Start date: February 28, 2008.
(4) Maturity date: August 28, 2018.
(5) Interest rates payable to the bank: 5.55% (from August 28, 2008 until February 28, 2009). For thesecond year TAB UF + 1.82%.
(6) Interest rates payable by the bank: 5.38% (from August 28, 2008 until February 28, 2009). For thesecond year 180-day Libor + 1.87%.
To cover the loan with the HSBC Bank-EKN-2
(1) Amount contracted in ThUS$ 8,243.
(2) Amount contracted in UF 194,731.00
(3) Start date: February 28, 2008.
(4) Maturity date: August 28, 2018.
(5) Interest rates payable to the bank: 6.55% (from August 28, 2008 until February 28, 2009). For thesecond year TAB UF + 2.83%
(6) Interest rates payable by the bank: 6.38% (from August 28, 2008 until February 28, 2009). For thesecond year, 180-day Libor + 2.87%
This swap contract only covers the first disbursement of ThUS$ 8,243 made by HSBC. Consequently, theoperation is not completely matched with the total disbursements made by HSBC Bank, which amounted toThUS$ 12,937.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
The swap contracts include certain conditions, the most important being:
To hedge against eventual negative changes of the derivative contracts as a consequence of the market variables,a credit line was established which is reviewed on a quarterly basis according to the respective statutory financialstatements format, and whose amount depends on the financial ratios: Debt/Ebitda; Ebitda/Financial expensesshown in the respective financial statements.
On November 10, 2009, the Company delivered ThUS$ 5,197 to Credit Suisse to cover the mark-to-market valueof the swap as of that date, which was in favor of this bank up to the amount.
On that same date, Credit Suisse performed a re-couponing of the swap, modifying the interest rate of the CSINII paid by the bank for the second year, from 180-day Libor + 1.87% to 180-day Libor + 3.42%.
On March 22, 2010, Credit Suisse reversed the re-couponing of the swap with which a collateral account wascredited with ThUS$ 4,520 which accrues interest and guarantees eventual marks-to-market in favor of CreditSuisse. The difference of that credited to the account of ThUS$ 677 arises from the reversal of the rates that thebank pays of the CSIN II from 180-day Libor + 3.42% to 180-day Libor + 1.87%, with respect to the settlementof February 26, 2010.
FORWARD CONTRACTS
The Company maintained forward contract with Credit Suisse International, London, to hedge against theexchange risk of the swap contracts. The forward contract amounting to USD$ 92,994,272 was paid onSeptember 21, 2010. The conditions agreed in the contract, which stated that upon settlement the Companywould pay a rate of Ch$ 494.70 and the Bank the value of the “observed dollar”, were maintained. Consequently,when determining the differences between rates, the Company would receive USD 27,479.55
As of September 30, 2010 there are no other derivative contracts signed by the Company.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
Type of derivativeType ofcontract
Value ofthe
agreement Term
Description of contracts Accounts affected
Specificitem
Positionpurchase/
sale
Hedged entry ortransaction Value of item
hedged
Assets / liabilities Effect on results
Name Amount Name Amount Realized Unrealized
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$Cross Currency Swap /
HSBC . . . . . . . . . . . . . . . . CCPE 17,933,400 III-2017Exchange /interest rate p
Syndicatedloan US$ 17,888,040 15,234,975
Other long-term liabilities 2,149,044 595,256 (365,504)
Cross Currency Swap / C.Suisse . . . . . . . . . . . . . . . . CCPE 52,916,872 III-2018
Exchange /interest rate P
Syndicatedloan US$ 52,222,468 41,257,849
Other longterm liabilities 5,819,827 (248,953) 69,956
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 21—CONTINGENCIES AND RESTRICTIONS
Demands:
a) Claim for damages filed by the Municipality of Renca:
On October 23, 2007 a claim for damages filed by the Municipality of Renca against certain operators of theTransantiago system, the Company among them was notified. The amount claimed is ThCh$ 154,600.
b) On December 3, 2009, the 15th Civil Court of Santiago rejected in the first instance the demand of theMunicipality of Renca against the Company and other Transantiago operators. The sentences were appealedagainst by the Municipality of Renca on January 19, 2010. The management and its legal advisers believethat the claim will have no adverse effects on the financial statements as of September 30, 2010.
c) On August 26, 2009, a claim for damages was notified for ThCh$ 448,000 by María Loreto Galiano Gálvezfor injuries suffered through being run over, before the 1st Civil Court of Santiago. The management isarranging the respective insurance claim.
On January 18, 2010, a claim for damages was notified for ThCh$ $285,326 by the family of Juan ToledoCabello, killed by being run over in October 2008. This case is before the 15th Civil Court of Santiago. Themanagement is arranging the respective insurance claim.
d) On October 15, 2010, a claim for damages was notifies for ThCh$ 450,000, by the family of Marian DanielaPeña Torres, killed by bein run over on August 6, 2009. This case is before the 25th Civil Court of Santiago.The management is arranging the respective insurance claim.
e) Writ of Protection for application of Resolution N° 1985 of the Ministry of Transport andTelecommunications:
As per Exempt Resolution N° 1985, the Ministry of Transport and Telecommunications imposed withholdings in2008 and 2009 to be applied by the AFT to passenger revenue settlements. These deductions were applied everytwo weeks to each payment settlement.
1. On November 30, 2009 a sentence from second instance was pronounced in the writ of protection (the“Writ”) lodged by Express de Santiago Uno S.A. (“Express”) against the Ministry of Transport andCommunications (“MTT”) as a consequence of the issue of Exempt Resolution N° 1985/2008, (the “Res.N°1985”), dated October 17, 2008 which imposed deductions to the concessionaires of road use fornon-compliance with certain indicators established therein.
2. To reject the Writ, the judgment of the Court of Appeals (“Ca”) basically argues on the basis that there isnot unquestioned right of Express (i); that the MTT has legal and contractual authority to act as it did(ii) and that Res. N°1985 is not arbitrary (iii). To the foregoing, the Supreme Court (the “SC”) added anargument based on the nature of concessions (iv).
3. The sentence supports MTT’s position essentially based on the nature of public service of the concession, aswell as on the exceptional nature of the funds used. This is without prejudice to making also reference tovarious legal and contractual requirements.
4. The classification of the concession as a “public service” concession that moves away from the contractualstandards ruling civil contracts increases the risk of future interventions by the authority in the contractscurrently valid through the imposition of conditions negotiated on a non-contractual basis.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
5. Given that the ruling adopts the MTT’s argument concerning the fact that the payments the concessionairesare entitled to are those self-generated by the system, the MTT’s decision is legally legitimized in order toimpose new conditions unilaterally relating to those extraordinary funds which cover the system’s deficit, acategory within which the authority could attempt to include the funds coming from the permanent subsidyto the public transport contained in Law 20,378 (the “subsidy”).
6. Notwithstanding the above, it should be mentioned that the reference that persistently is made to theextremely exceptional nature of the constitutional 2% and its regime -both by the decision concerning theWrit and by the defense itself of the MTT and the circumstance that the ruled case involved temporarydiscounts, would allow to argue against an extensive interpretation of the grounds of the sentence.
7. The judgment validates the thesis that the Resolution is in line with the provisions of the tender conditionswhich stipulate that the current regulations and those announced in the future are applicable to theconcessionaires in which concerns the operation conditions of the remunerated passenger transport servicesand road use. From this perspective, the extensive treatment that is given to which should be considered as“operation conditions”, can serve as a basis for future impositions on the concessionaires which –accordingto the authority’s interpretation- would be consistent with the concept of “operation conditions”.
However, the management and its legal counsel consider that collectability of the asset should not be affected.Consequently, it maintains the account receivable from the AFT in full (See Note 4).
b) Other lawsuits
The Company currently maintains labor lawsuits, whose current procedural status are pending; therefore we areawaiting the final judgment of each case, which could be conviction or acquittal. The total amount involved inthese cases is ThCh$ 486,901.
There are other legal actions which are not worth detailing, since they are covered by insurance against accidentand civil liability. Should these legal actions be successful against the Company, they will not have adverseeffects on the financial statements.
Guarantees:
a) Insurance policy
The Company has a concession contract guarantee in the form of Insurance Policy N° 01-20-044493 fromAseguradora Magallanes (an insurance company), issued in favor of the Undersecretary’s Office of Transport inaccordance with the terms of article 3.4.6 of the Transantiago 2003 tender conditions, amounting to UF167,000.00 effective from November 11, 2009 until November 11, 2010.
b) The Company has granted the guarantees listed in the accompanying table.
As of September 30, 2010 the Company and subsidiary are not aware of any other prohibitions, liens,contingencies and restrictions which might affect these financial statements, except as described in Note 11(Long-term obligations with banks), covenants and those indicated in Note 20 (Derivative contracts).
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
Direct guarantees:
Committed assets
Balances pendingpayment at closing offinancial statements
Guarantee creditor Debtor Name Guarantee type Book typeSeptember 30,
Value
September 30,
2010 2009
ThCh$ ThCh$ ThCh$
HSBC Bank . . . . . . . . . . . . . . . . . . . . . . . . . . Express de Santiago Uno S.A. Pledge Buses 46,064,928 46,064,928 93,702,955HSBC Bank . . . . . . . . . . . . . . . . . . . . . . . . . . Express de Santiago Uno S.A. Mortgage Land Maipú 980,324 980,324 980,089HSBC Bank . . . . . . . . . . . . . . . . . . . . . . . . . . Express de Santiago Uno S.A. Pledge Shares 21,258,173 21,258,173 22,302,586Municipality of La Reina . . . . . . . . . . . . . . . Express de Santiago Uno S.A. Performance bond Guarantee 121,017 121,017 112,337Banco HSBC . . . . . . . . . . . . . . . . . . . . . . . . . Express de Santiago Uno S.A. Mortgage Land ENEA 2,095,021 2,095,021 2,095,516
F-187
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 22—GUARANTEES FROM THIRD PARTIES
At September 30, 2010 the Company has received the following performance bonds, to ensure faithfulcompliance with terminal building contracts, and to guarantee service contracts.
Company Date Expiry Amount Bank
UF
Citymovil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07/01/2010 07/01/2011 430.00 BancoBiceQueylen S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07/29/2010 09/21/2011 1,638.81 BancoChileQueylen S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07/29/2010 09/21/2011 2,136.65 BancoChileQueylen S.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07/29/2010 09/21/2011 2,136.65 BancoChile
Company Date Expiry Amount Bank
ThCh$
Worldwide Security S.A. . . . . . . . . . . . . . . . . . . . . . . 07/20/2010 09/20/2011 41,915.029 BancoChile
At September 30, 2009 the Company has received the following performance bonds, to ensure faithfulcompliance with terminal building contracts, and to guarantee service contracts.
Company Date Expiry Amount Bank
ThCh$
Construtora Con Pax . . . . . . . . . . . . . . . . . . . . . . . . . 07/04/2008 05/30/2010 9,259.00 Banco SantanderJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01/27/2009 02/03/2010 1,253.34 Banco BCIConstructora Trébol Ltda. . . . . . . . . . . . . . . . . . . . . . 07/15/2009 10/25/2010 1,356.21 BancoChile
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 23—LOCAL AND FOREIGN CURRENCY
Assets and liabilities in local and foreign currency and in Unidades de Fomento are shown in the financialstatements at the exchange rates stated in Note 2 g), summarized as follows:
a) September 30, Assets:
Currency 2010 2009
ThCh$ ThCh$
Current assetsCash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 12,954 931,064Cash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 31,248 32,046Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 29,610 —Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 5,162,216 6,394,448Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . UF 121,018 112,337Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ — 6,461Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 1,121,016 900,157Recoverable taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ — 39,695Notes and accounts receivable from related
companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 529,405 538,158Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 1,777,875 654,454Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 288,701 1,068,648Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 2,471,893Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 1,650,609 2,394,268Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . US$ 19,743,775 20,126,777Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 13,290 —
Notes and accounts receivable from relatedcompanies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 798 —
Fixed assetsFixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 72,345,144 81,028,738Other assets
Other assets, long-term . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 310,243 —Other assets, long-term . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 33,686,233 37,547,771Other assets, long-term . . . . . . . . . . . . . . . . . . . . . . US$ — —Other assets, long-term . . . . . . . . . . . . . . . . . . . . . . UF — 1,856,199Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 1,742,442 —
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 11,350,169 8,809,983
US$ 19,818,721 20,158,823
UF 121,018 1,968,536
Indexed Ch$ 109,748,562 122,693,879
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
b) Current liabilities:
Up to 90 days 90 days to 1 year
2010 2009 2010 2009
Item Currency Amount
Averageinterest
rate Amount
Averageinterest
rate Amount
Averageinterest
rate Amount
Averageinterest
rate
ThCh$ % ThCh$ % ThCh$ % ThCh$ %
Bank borrowing, short-term . . . . . . . . . US$ 665,019 — — — — — — —Bank borrowing, short-term . . . . . . . . . Non-indexed Ch$ 7,772,023 12.29 6,290,182 11.16 — — — —Bank borrowing long-termshort-term
portion . . . . . . . . . . . . . . . . . . . . . . . . US$ — — — — 10,743,663 4.71 11,012,348 5.93Accounts payable . . . . . . . . . . . . . . . . . Non-indexed Ch$ 7,132,998 — 4,900,957 — — — — —Accounts payable . . . . . . . . . . . . . . . . . US$ 30,094 — 55,994 — — — — —Other payables . . . . . . . . . . . . . . . . . . . US$ 7,107 — 6,870 — — — — —Other payables . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ — 470,052 — — — — —Other payables . . . . . . . . . . . . . . . . . . . UF — — 471,870 — — — — —Notes and accounts payable to related
companies . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 645,100 — 661,881 — — — — —Provisions . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 1,433,908 — 3,092,941 — — — — —Current and deferred income tax . . . . . . Indexed Ch$ 9,870 — —Withholdings . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 806,764 — 674,235 — — — — —Notes payable . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 254,469 — — — — — — —
Total current liabilities . . . . . . . . . US$ 702,220 62,864 10,743,663 11,012,348 —
Non-indexed Ch$ 19,226,578 16,090,248 — — —
UF — 471,870 — 18,042,562 —
Indexed Ch$ 9,870 — — — —
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
c) Long-term liabilities at September 30, 2010:
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
Caption Currency Amount
Averageinterest
rate Amount
Averageinterest
rate Amount
Averageinterest
rate Amount
Averageinterest
rate
ThCh$ % ThCh$ % ThCh$ % ThCh$ %
Bank borrowing . . . . . . . . . . . . . . . . . . . . . . . US$ 27,570,813 4.71 18,380,542 4.71 3,130,243 4.71 — —Bank borrowing . . . . . . . . . . . . . . . . . . . . . . . Ch$ 4,025,663 4.57 2,683,775 4.57 2,683,775 4.57 — —Bank borrowing, Colombia subsidiary . . . . . US$ 9,975,281 6.228 — — — — — —Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 1,880,751 — — — — — — —Other long-term liabilities . . . . . . . . . . . . . . . U.F. 7,968,871 — — — — — — —Other long-term liabilities . . . . . . . . . . . . . . . Non-indexed Ch$ 2,561,358 — — — — — — —Other long-term liabilities . . . . . . . . . . . . . . . US$ 171,728 — — — — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 37,717,822 — 18,380,542 — 3,130,243 — — —
Ch$ 4,025,663 — 2,683,775 — 2,683,775 — — —
Indexed Ch$ 1,880,751 — — — — — — —
U.F 7,968,871 — — — — — — —
Non-indexed Ch$ 2,561,358 — — — — — — —
F-191
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
d) Long-term liabilities at September 30, 2009:
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
Caption Currency AmountAverage
interest rate AmountAverage
interest rate AmountAverage
interest rate AmountAverage
interest rate
ThCh$ % ThCh$ % ThCh$ % ThCh$ %Bank borrowing . . . . . . . . . . . . . . . . . US$ 21,438,671 5.93 21,438,670 5.93 25,090,053 5.93 — —Bank borrowing . . . . . . . . . . . . . . . . . Non-indexed Ch$ 2,750,870 5.81 2,750,869 5.81 5,501,739 5.81 — —Deferred taxes . . . . . . . . . . . . . . . . . . . Indexed Ch$ 2,999,121 — — — — — — —Bank borrowing, Colombia
Subsidiary . . . . . . . . . . . . . . . . . . . . US$ 4,964,248 — 3,350,866 — 4,095,504 — — —Total . . . . . . . . . . . . . . . . . . US$ 24,402,919 — 24,789,536 — 29,185,557 — —
Non-indexed Ch$ 2,750,870 2,750,869 5,501,739 —
Indexed Ch$ 2,999,121 — — —
F-192
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 24—PENALTIES AND FINES
2010, penalties and fines
1) Express de Santiago Uno S.A.
On January 19, 2010 it paid a fine of ThCh$ 3,668 imposed by the Labor Inspectorate (Santiago South East) fornot correctly maintaining an attendance register and for driving for more than four continuous hours.
On January 18, 2010 it paid a fine of ThCh$ 86 imposed on January 6 by the Seventh Santiago Labor Court.
On February 19, 2010 it paid a fine of ThCh$ 150 imposed on January 25 by the 6th Santiago Labor Court.
On February 19, 2010 it paid a fine of ThCh$ 1,463 imposed on January 26 by the Labor Inspectorate (WestSantiago).
On March 9, 2010 it paid an administrative fine of ThCh$ 2,650 as per resolution N° 1014 dated February 23,2010, imposed by the Labor Inspectorate, Settlement and Mediation Center.
On March 9, 2010 it paid a fine of ThCh$ 2,900 imposed on February 25 by the Labor Inspectorate Conciliationand Mediation Center.
On March 9, 2010 it paid a fine of ThCh$ 1,468 imposed on March 3 by the 2nd Labor Court.
On March 11, 2010 it paid a fine of ThCh$ 1,093 imposed on February 23 by the Labor Inspectorate Conciliationand Mediation Center.
On March 11, 2010 it paid a fine of ThCh$ 1,921 imposed on March 5 by the Santiago Labor and Social-SecurityCollection Court.
On May 19, 2010 it paid a fine of ThCh$ 1,549 imposed on August 21, 2009 by the Labor Inspectorate (WestSantiago).
On May 31, 2010 it paid two thirds of a fine amounting to ThCh$ 493 imposed on July 23, 2008 by the LaborInspectorate of Maipu.
On May 31, 2010 it paid two thirds of a fine amounting to ThCh$ 1,389 imposed on August 10, 2007 by theLabor Inspectorate (West Santiago).
On June 18, 2010 it paid a fine amounting to ThCh$ 723 imposed on December 23, 2008 by the LaborInspectorate of Maipu.
On June 18, 2010 it paid a fine amounting to ThCh$ 2,077 imposed on July 3, 2008 by the Labor Inspectorate ofMaipu.
On July 6, 2010 it paid a fine amounting to ThCh$ 1,489 imposed on August 13, 2009 by the Labor Inspectorate(Santiago South East).
F-193
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
On July 6, 2010 it paid a fine amounting to ThCh$ 745 imposed on August 13, 2009 by the Labor Inspectorate(Santiago South East).
On July 6, 2010 it paid a fine amounting to ThCh$ 447 imposed on August 13, 2009 by the Labor Inspectorate(Santiago South East).
On July 26, 2010 it paid a fine amounting to ThCh$ 745 imposed on October 15, 2009 by the Labor Inspectorate(Santiago West).
On July 26, 2010 it paid a fine amounting to ThCh$ 1,489 imposed on January 20, 2009 by the LaborInspectorate (Santiago West).
On July 26, 2010 it paid a fine amounting to ThCh$ 1,489 imposed on September 15, 2009 by the LaborInspectorate (Santiago West).
On July 30, 2010 it paid a fine amounting to ThCh$ 931 imposed on February 17, 2009 by the LaborInspectorate, Conciliation and Mediation Center.
On August 2, 2010 it paid a fine amounting to ThCh$ 7,335 imposed on August 24, 2009 by the LaborInspectorate, (Santiago West).
On August 16, 2010 it paid a fine amounting to ThCh$ 2,334 imposed on January 4, 2010 by the LaborInspectorate, (Santiago West).
On August 16, 2010 it paid a fine amounting to ThCh$ 1,117 imposed on November 3, 2009 by the LaborInspectorate, (Santiago West).
On August 16, 2010 it paid a fine amounting to ThCh$ 2,234 imposed on July 2, 2010 by the Labor Inspectorate,(Santiago West).
On August 20, 2010 it paid a fine amounting to ThCh$ 1,489 imposed on April 14, 2010 by the LaborInspectorate, (Santiago East).
On August 20, 2010 it paid a fine amounting to ThCh$ 745 imposed on January 6, 2010 by the LaborInspectorate of Maipu.
On September 2, 2010 it paid a fine amounting to ThCh$ 2,247 imposed on October 7, 2010 by the LaborInspectorate (Santiago West).
On September 10, 2010 it paid a fine amounting to ThCh$ 1,498 imposed on May 25, 2010 by the LaborInspectorate (Santiago West).
On September 10, 2010 it paid a fine amounting to ThCh$ 749 imposed on January 26, 2010 by the LaborInspectorate (Santiago West).
F-194
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
2009, penalties and fines
On February 10, 2009 one third of the fine imposed by the Labor Inspectorate (Estación Central) amounting toThCh$ 483, as per resolution N° 00487 dated December 2, 2008, was paid.
On February 11, 2009 an administrative fine of Ch$ 149 imposed by the Settlement and Mediation Center of theLabor Administration, as per resolution N° 166 dated February 3, 2009, was paid.
On March 9, 2009 a fine of ThCh$ 492 imposed by the Labor Inspectorate (Maipú) as per resolutionN° 4353-08-129 dated December 13, 2008 and resolution of fine reconsideration N° 99 dated February 24, 2009,was paid.
On March 9, 2009 one third of the fine of ThCh$ 737 imposed by the Labor Inspectorate (Maipú-Cerrillos) as perresolution N° 101 dated February 24, 2009, was paid.
On April 3, 2009 one third of a fine of ThCh$ 3,671 imposed by the Labor Inspectorate (South-East Santiago) asper resolution N° 3751/08/52 dated August 13, 2008 and resolution N° 43 dated February 27, 2009, was paid.
On April 14, 2009 an administrative fine of ThCh$ 147 imposed by Labor Inspectorate (Maipú) as per resolutionN° 74 dated January 9, 2008, was paid.
On April 14, 2009 an administrative fine of ThCh$ 734 imposed by Labor Inspectorate (East Santiago) as perresolution N° 3322-08-034, was paid.
On June 10, 2009 an administrative fine of ThCh$ 147 imposed by Settlement and Mediation Center of the LaborAdministration as per resolution N° 4327/09/62 dated April 29, 2009, was paid.
On June 10, 2009 an administrative fine of ThCh$ 552 imposed by Settlement and Mediation Center of the LaborAdministration as per resolution N° 512 dated May 4, 2009, was paid.
On June 15, 2009 an administrative fine of ThCh$ 245 imposed by Labor Inspectorate (West Santiago) as perresolution N° 292 dated June 4, 2009, was paid.
On June 23, 2009 one third of the fine amounting to ThCh$ 491 imposed by Labor Inspectorate (West Santiago)as per resolution N° 00159 dated May 25, 2009, was paid.
On June 25, 2009 one third of the fine of ThCh$ 246 imposed by Labor Inspectorate (West Santiago) as perresolution N° 00170 dated June 2, 2009, was paid.
On June 25, 2009 one third of the fine of ThCh$ 3,434 imposed by Labor Inspectorate (West Santiago) as perresolution N° 00200 dated June 4, 2009, was paid.
On August 20, 2009 an administrative fine of ThCh$ 367 imposed by Settlement and Mediation Center of theLabor Administration as per resolution N° 594 dated August 4, 2009, was paid.
On August 2, 2009 an administrative fine of ThCh$ 1,064 imposed by the Labor Inspectorate (East Santiago) asper resolution N° 3322 dated April 4, 2009, was paid.
F-195
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
On October 26, 2009 a fine of ThCh$ 730 imposed by the Regional Undersecretary’s Office of the MetropolitanHealth Ministry as per resolution N° 5186 dated August 17, 2009, was paid.
On October 26, 2009 an administrative fine of ThCh$ 730 imposed by the Labor Inspectorate (Maipú-Cerrillos)as per resolution N° 365 dated September 14, 2009, was paid.
On December 10, 2009 a fine of ThCh$ 369 imposed by the Regional Undersecretary’s Office of theMetropolitan Health Ministry as per resolution N° 7182 dated October 6, 2009, was paid.
On December 10, 2009 an administrative fine of ThCh$ 1,106 imposed by the Labor Inspectorate (WestSantiago) as per resolution N° 7756 dated March 24, 2009, was paid.
On December 10, 2009 an administrative fine of ThCh$ 737 imposed by the Labor Inspectorate (West Santiago)as per resolution N° 474 dated November 16, 2009, was paid.
On December 10, 2009 an administrative fine of ThCh$ 387 imposed by the Labor Inspectorate (West Santiago)as per resolution N° 463 dated November 14, 2009, was paid.
On December 10, 2009 an administrative fine of ThCh$ 1,475 imposed by the Labor Inspectorate (WestSantiago) as per resolution N° 443 dated October 21, 2009, was paid.
On December 10, 2009 an administrative fine of ThCh$ 1,659 imposed by the Labor Inspectorate (Providencia)as per resolution N° 588 dated August 18, 2009, was paid.
Other Fines:
On January 6, 2009 the Superintendency of Securities and Insurance is reported on the payment of the fineamounting to ThCh$ 322 (equivalent to 15 U.F.) in favor of the Treasury, applied to the General ManagerMr. Alberto Hadad Lemos for failing to present the share register of the quarter referred to March 31, 2008 ondue time.
On January 19, 2009 a fine of ThCh$ 188 imposed on July 23 was paid to the Sanitary Authority of theMatropolitan Region.
Administrative fines mentioned above have not impacted the compliance of covenants according to Note 11.
As of September 30, 2010 and 2009 there are no other sanctions imposed on the Company, its directors or itsgeneral manager by other institutions or administrative authorities.
2) Subsidiary
No sanctions have been imposed on the subsidiary by administrative authorities.
NOTE 25—SUBSEQUENT EVENTS
As of the date on which these consolidated financial statements were issued (December 14, 2010), theCompany’s management is not acquainted with any other subsequent event which might have a significant effecton their interpretation.
F-196
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 26—ENVIRONMENT
The Company operates under environmental standards set out in Chilean laws and regulations and in accordancewith standard community relations, and health, safety and environmental policies.
As of September 30, 2010 and 2009, there are disbursements directly or indirectly related to protection of theenvironment, in waste-water treatment, spares waste, garbage, etc. amounting to ThCh$ 164,323 in 2010(ThCh$ 199,902 in 2009), which have been charged directly to income for the period.
NOTE 27—OPERATING COSTS AND EXPENSES
At September 30, 2010 and 2009, operating costs are detailed as follows:
September 30,
2010 2009
ThCh$ ThCh$
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,807,495 43,180,837Amortization and depreciation . . . . . . . . . . . . . . . . . . 12,855,308 13,423,336
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,662,803 56,604,173
Administrative and selling expenses at September 30, 2010 and 2009 are detailed as follows:
September 30,
2010 2009
ThCh$ ThCh$
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 4,322,445 4,424,855Amortization and depreciation . . . . . . . . . . . . . . . . . . . . 308,736 396,020
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,631,181 4,820,875
NOTE 28—OPERATING REVENUES
These basically comprise passenger transport revenue corresponding to Trunk line N° 4 realized during themonths from January to September 2010 and 2009, detailed below:
September 30,
2010 2009
ThCh$ ThCh$
Revenue collection, trunk line N° 4 . . . . . . . . . . . . . . 70,334,330 62,986,855Billboard and dynamic publicity in buses . . . . . . . . . . 509,674 303,380
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,844,004 63,290,235
These revenues are all denominated in Chilean pesos.
F-197
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT SEPTEMBER 30, 2010 AND 2009
(A free translation from the original prepared in Spanish, see Note 29)
NOTE 29—TRANSLATION FROM THE ORIGINAL PREPARED IN SPANISH
The Company has issued its interim consolidated financial statements in Spanish and in conformity withaccounting principles generally accepted in Chile. The financial statements presented herein represent a freetranslation from the original prepared in Spanish, and may include some minor changes which were made inorder to provide a better understanding to users of these financial statements.
F-198
Consolidated Financial StatementsExpress de Santiago Uno S.A.
December 31, 2007, 2008 and 2009
Ch$ = Chilean pesosThCh$ = Thousands of Chilean pesosUS$ = United States dollarsThUS$ = Thousands of United States dollarsUF = “Unidades de Fomento”, an inflation-indexed, peso-denominated monetary unit. The UF rate is set
daily based on changes in the Chilean Consumer Price Index.
(A free translation from the original prepared in Spanish)
F-199
Report of Independent Accountants(A free translation from the original prepared in Spanish)
To the Shareholders and Directors ofExpress de Santiago Uno S.A.:
1 We have audited the accompanying consolidated balance sheets of Express de Santiago Uno S.A. andsubsidiary as of December 31, 2009 and 2008, and the related consolidated statements of income and ofcash flows for each of the three years in the period ended December 31, 2009. These financial statements(including the notes thereto) are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.
2 Except as expressed in paragraph 3, we conducted our audits in accordance with auditing standardsgenerally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit 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 areasonable basis for our opinion.
3 The net balance of accounts payable to the related entity Inversiones Alsacia S.A. (Alsacia) amounting toThCh$ 223,745 (ThCh$ 183,215 in 2008) includes items under dispute mainly arising from expensesincurred in prior years on account of this Company in relation to the joint operations performed up toAugust 2006. As described in Note 6, the analysis of the different items which make up the balance referredto above, and the determination of which adjustments are to be recorded, in order to properly recognize inthe financial statements the effect of the expenses jointly incurred during 2005 and 2006, are still pending.
4 In our opinion, except for the effects of the eventual adjustments, that might have been determined to benecessary, as a consequence of mentioned information including paragraph 3, the consolidated financialstatements referred to above present fairly, in all material respects, the financial position of Express deSantiago Uno S.A. and subsidiary as of December 31, 2009 and 2008, the results of their operations andtheir cash flows for each of the three years in the period ended December 31, 2009 in conformity withaccounting principles generally accepted in Chile.
/s/ PricewaterhouseCoopers Consultores, Auditores y Compañía Ltda.
Santiago, Chile, February 24, 2010
F-200
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS(A free translation from the original prepared in Spanish)
At December 31,
2009 2008
ThCh$ ThCh$
ASSETS
CURRENT ASSETSCash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,943 29,612Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,540,200Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 753,038Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,520,255 4,910,264Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,384 11,042,279Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556,177 1,005,706Notes and accounts receivable from related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,294 510,510Recoverable taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,476 26,908Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435,588 540,647Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,129 823,684Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,183,258 30,677,334
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,715,504 52,860,182
FIXED ASSETSLand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,575,828 4,575,828Buildings and infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,981,891 17,784,535Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,269,169 92,091,361Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,697,051 2,012,429Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (43,742,339) (30,489,188)
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,781,600 85,974,965
OTHER ASSETSLong-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,742,442 1,443,840Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,902,664 55,902,505
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,645,106 57,346,345
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,142,210 196,181,492
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIESShort-term obligations with banks and financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,187,778 6,072,760Long-term bank borrowing - short-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,689,450 10,661,919Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,913,762 5,537,844Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,539 701,990Notes and accounts payable to related companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,599 594,390Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,336,946 3,075,417Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699,602 624,566Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,377 17,798,121
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,198,053 45,067,007
LONG-TERM LIABILITIESObligations with banks and financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,988,808 110,902,097Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,436,498 3,837,977Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,095,743 —
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,521,049 114,740,074
SHAREHOLDERS' EQUITYPaid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,258,174 21,258,088Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,296 95,296Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,021,027 11,203,031(Loss) income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,951,389) 3,817,996
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,423,108 36,374,411
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,142,210 196,181,492
The accompanying Notes 1 to 31 are an integral part of these consolidated financial statements.
F-201
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME(A free translation from the original prepared in Spanish)
For the years ended onDecember 31,
2009 2008 2007
ThCh$ ThCh$ ThCh$
OPERATING INCOMERevenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,065,122 91,182,870 66,923,712Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75,172,113) (79,578,430) (59,269,639)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,893,009 11,604,440 7,654,073Administrative and selling expenses . . . . . . . . . . . . . . . . . . . . . . . (6,464,027) (5,634,891) (5,981,163)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,428,982 5,969,549 1,672,910
NON-OPERATING INCOME (EXPENSES)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622,135 2,057,047 2,005,353Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,983 155,992 10,524,707Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,005,289) (10,115,522) (8,435,507)Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218,633) (347,659) (1,241,144)Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,343,677) (157,353) 6,881,685Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,346,835) 6,963,219 5,393,888
Non-operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . (9,252,316) (1,444,276) 15,128,982
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (4,823,334) 4,525,273 16,801,893Income taxes (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 871,945 (707,277) (3,085,001)
NET (LOSS) INCOME FOR THE YEAR . . . . . . . . . . . . . . (3,951,389) 3,817,996 13,716,891
The accompanying Notes 1 to 31 are an integral part of these consolidated financial statements.
F-202
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS(A free translation from the original prepared in Spanish)
For the years ended onDecember 31,
2009 2008 2007
ThCh$ ThCh$ ThCh$
CASH FLOWS FROM OPERATING ACTIVITIESCollection of trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,037,803 98,089,658 81,358,532Interest income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711,876 2,045,636 1,913,022Other income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,981 154,633 565,089Payment to suppliers and personnel . . . . . . . . . . . . . . . . . . . . . . . (64,479,774) (73,013,195) (50,848,894)Interests paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,191,697) (7,083,176) (7,152,624)Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,638) — —Other expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (344,002) (18,278,474)Value added tax and other similar payments . . . . . . . . . . . . . . . . (151,116) (130,462) —
Net cash flows provided by operating activities . . . . . . . . . . 27,954,435 19,719,092 7,556,651
CASH FLOWS FROM FINANCING ACTIVITIESCapital increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 — 7,680,699Loans drawn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,211,557 13,099,938Other financing sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 125,225Loans paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,483,042) (7,433,565) (8,343,159)
Net cash flows (used in) provided by financing activities . . (8,482,956) (5,222,008) 12,562,704
CASH FLOWS FROM INVESTMENT ACTIVITIESSales of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4,037Sales of other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,962,193 — 5,310,995Purchase of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,141,490) (10,222,235) (16,051,907)Investment in financial instruments . . . . . . . . . . . . . . . . . . . . . . . (2,707,235) (4,242,695) —Other investment disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . (17,940,155) — (6,142,639)
Net cash flows used in investment activities . . . . . . . . . . . . . (22,826,687) (14,464,930) (16,879,514)
Total net cash flows for the year . . . . . . . . . . . . . . . . . . . . . . (3,355,208) 32,154 3,239,841Effect of inflation on cash and cash equivalents . . . . . . . . . . . . . . . . . . 57,301 (271,274) (396,068)
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (3,297,907) (239,120) 2,843,773OPENING BALANCE OF CASH AND CASH EQUIVALENTS . . . 3,322,850 3,561,970 718,197
CLOSING BALANCE OF CASH AND CASH EQUIVALENTS . . . 24,943 3,322,850 3,561,970
F-203
RECONCILIATION OF CASH FLOWS FROM OPERATINGACTIVITIES TO NET INCOME FOR THE YEAR
(A free translation from the original prepared in Spanish)
For the years ended onDecember 31,
2009 2008 2007
ThCh$ ThCh$ ThCh$
CASH FLOWS FROM OPERATING ACTIVITIESNet (loss) income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,951,389) 3,817,996 13,716,891Loss from sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 12,477 166,906Loss from sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 628,732
Charges (credits) to income which do not represent cash flows:Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,205,202 12,598,053 7,274,662Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . 3,842,978 3,939,159 3,560,024Write-offs and provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,569,499 2,086,927 2,338,042Price-level restatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343,677 157,353 (6,881,685)Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,346,835 (6,963,219) (5,393,888)Other credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,881,383) — (842,963)Other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,732,869 3,914,640
Changes in assets which affect cash flows, (increase) decrease:Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,850,112 6,784,314 14,436,429Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,346 2,150,960 (1,728,554)
Changes in liabilities with affect cash flows, increase (decrease):Accounts payable related to operating income . . . . . . . . . . . . . . . . 391,279 (8,135,554) (14,348,282)Interests payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (186,466) (637,760) —Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,045,696) 239,495 —Other accounts payable related to non-operating results . . . . . . . . . 225,470 936,022 (9,284,303)Value added tax and other similar payments . . . . . . . . . . . . . . . . . . (94,061) — —
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES . . . 27,954,435 19,719,092 7,556,651
The accompanying Notes 1 to 31 are an integral part of these consolidated financial statements.
F-204
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 1—COMPANY’S REGISTRATION
a) Company’s registration
“Express de Santiago Uno S.A.” (hereinafter “the Company”) was registered under N° 884 in the OfficialCorporations Register of the Chilean Superintendency of Securities and Insurance (hereinafter “the S.V.S.”) onJanuary 27, 2005, as required by the Bidding Conditions for the concession of the Trunk Line N° 4 business unitof the Transantiago system, issued by the Ministry of Transport and Telecommunications.
b) Company’s incorporation and operations
“Express de Santiago Uno S.A.” was incorporated as a closely-held corporation through public deed datedNovember 22, 2004. The Company is basically engaged in the rendering of public transport services in routes ofthe Metropolitan Region of Santiago which were awarded through a concession and any other activity related toits main line of business.
The annual shareholders meeting held on December 9, 2004 agreed to extend the Company’s purpose tobillboard and dynamic advertising activities through the exploitation of advertising zones in buses and otherservices related to its main activity.
On October 22, 2005 the Company began to provide passenger public transport services associated with theTrunk Line N° 4 business unit, of Transantiago.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Accounting period
The accompanying consolidated financial statements cover the period from January 1 to December 31, 2009,2008 and 2007.
b) Basis of preparation
These financial statements have been prepared in accordance with accounting principles generally accepted inChile, issued by the Chilean Institute of Accountants, and the instructions of the Chilean Superintendency ofSecurities and Insurance (S.V.S.). In the event of any differences, the S.V.S. regulations will prevail.
The Company has issued its year end consolidated financial statements in Spanish and in conformity withaccounting principles generally accepted in Chile. The financial statements presented herein represent a freetranslation from the original prepared in Spanish, and may include some minor changes which were made inorder to provide a better understanding to users of these financial statements.
c) Basis of presentation
For comparison purposes, the consolidated financial statements for 2008 and 2007 and the amounts disclosed inthe related notes have been restated in terms of Chilean pesos of December 31, 2009 purshasing power.
d) Basis of consolidation
The consolidated financial statements include assets, liabilities, income, cash flows of the Company and itssubsidiary. Inter-company transactions or balances have been eliminated. The shareholding of minority investorsin the balance sheet and statement of income is shown as Minority Interest.
F-205
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
The consolidated financial statements include the following subsidiary:
Shareholding
2009 2008
RUT Company Direct Indirect Total Total
% % % %
0-E . . . . . . . . . . . . . . . EXPS de Colombia Ltda. 99.9900 0.0000 99.9900 99.9900
e) Price-level restatements
The financial statements have been restated to reflect the effect of price-level changes in the purchasing power ofthe Chilean peso during the respective years, in accordance with accounting principles generally accepted inChile. These restatements have been determined on the basis of the percentage change in the official consumerprice index, which showed a negative change of 2.3% from January to December in 2009 (positive change of8.9% and 7.4 % in 2008 and 2007, respectively).
f) Translation of the Subsidiary’s financial statements
The financial statements of the foreign subsidiary have been translated to Chilean pesos as set out in TechnicalBulletin N° 64 of the Chilean Institute of Accountants, official letters and circulars issued by the S.V.S. onforeign investments.
g) Basis of translation
At each year-end, assets and liabilities in foreign currency and UF have been translated into Chilean pesos at thefollowing exchange rates:
Ch$ per unit2009
Ch$ per unit2008
Ch$ per unit2007
United States dollar . . . . . . . . . . . . . . . . . . . . . . . . 507.10 636.45 496.89Unidad de Fomento (UF) . . . . . . . . . . . . . . . . . . . 20,942.88 21,452.57 19,662.66
h) Time deposits
Investment in time deposits is shown at the value of the initial investment plus interests accrued at each year-end.
i) Marketable securities
Investment in marketable securities refers to mutual fund quotas shown at the value of the respective quota at theyear end.
j) Allowance for doubtful accounts
The Company´s policy is to make provisions for the doubtfully recoverable balances, which are determined onthe basis of the ageing of balances and reports from the Company’s legal and commercial advisors. Theseprovisions are shown net of Trade receivables, Notes receivable and Other receivables, as appropriate.
k) Inventories
Inventories of fuels and spare parts necessary for the operation of buses are valued at price-level acquisition costand shown in Other current assets, net of provision for obsolescence of spare parts without turnover, which hasbeen made over items exceeding one year.
F-206
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
l) Prepaid expenses
The cost of insurance policies is included in the prepaid expenses account. This cost is amortized over the term ofthe policy.
m) Other current assets
This caption basically includes deposits and transactions under repurchase agreement, both with restrictions,since they are intended to guarantee the payment of interests and capital installments for the loans granted by theHSBC Bank, as described in Note 14 and short-term forward contracts in 2008, which hedged against foreignexchange risk. These contracts have been valued and accounted for as set forth in Technical Bulletin N° 57 of theChilean Institute of Accountants.
n) Fixed assets
Fixed assets basically refer to buses for the public transport of passengers and are valued at price-levelacquisition cost, which includes all expenses incurred until the date on which such assets are available for useand are shown in Machinery and equipment. The other fixed assets are shown at price-level acquisition cost.
Buildings and infrastructure includes bus terminals, which in essence have been completely finished, and thosework in process corresponding to bus terminals not completely finished yet.
The disbursements for the acquisition of computer software packages are shown at restated acquisition cost andamortized over a four-year period.
Leased assets refer to lease contracts of movable property with the characteristics of a finance lease. They arerecorded as purchases of fixed assets, recognizing the total obligation and interests on an accrual basis. Theseassets are not the legal property of the Company until it exercises the purchase option and it may not, therefore,freely dispose them of.
As a policy, the Company charges to net income for the year preventive and corrective maintenance performed toits fleet.
The maintenance provision recorded as of December 31, 2008 was made as a result of the postponement of cashdisbursements which had to be made in the fleet in 2008, and which were actually carried out during 2009.
o) Fixed asset depreciation
Depreciation for the year has been calculated using the straight-line method in accordance with the remaininguseful lives of the respective assets.
Buses of depreciation have been estimated at nine years in accordance with a technical study performed todetermine the wear and tear of such vehicles.
F-207
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
p) Other assets—Other
This caption includes the following items:
i) Technical operative reserve (TOR)
The Technical Operative Reserve is defined as a provision incorporated in the fare paid by users, to covereventual temporary lags or mismatches between the income and costs of the Transantiago passengertransportation system. The amounts paid to the Transantiago Financial Administrator (AFT) for this itemrelation to the Trunk Line N° 4 business unit are recorded as deferred assets. They will be amortized,charging to operating income, during the concession’s operating period, based on projected income to beobtained from providing transportation services.
The debt originally incurred with the System was reflected in short- and long-term liabilities, and as ofDecember 31, 2008 the balance due was included in Other current liabilities (Note 13).
ii) Derivatives contracts
The Company maintains contracts to hedge against risks of fluctuation in both the exchange and interestrates. These contracts have been valued and recorded as set forth in Technical Bulletin N° 57 of the ChileanInstitute of Accountants.
q) Income taxes and deferred taxes
The Company has recorded income taxes on the basis of the net taxable income, determined in accordance withthe regulations contained in the Income Tax Law.
Deferred taxes arising from temporary differences are shown in accordance with Technical Bulletins N° 60 andN° 71 of the Chilean Institute of Accountants and the regulations contained in SVS Circular Letter N° 1,466.
r) Provision for staff vacations
The Company recognizes the cost of staff vacation and benefits on an accrual basis at year-end.
s) Operating income
The income from the public transport fare is included in the operating income account. Income coming frombuses rental, billboard and dynamic advertising are included in the financial statements once services have beenrendered.
t) Cash Flow Statement
The Company´s policy is to consider as cash and cash equivalent mutual funds and all highly liquid financialinvestments maturing in 90 days or less, and with minimum risk of loss in value. Cash flows from operatingactivities include all business-related cash flows, as well as paid interest, interest income and, in general, all cashflows not defined as from financing or investment activities. The operating concept used in this statement is morecomprehensive than that used in the consolidated statement of income.
F-208
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 3—ACCOUNTING CHANGES
There have been no accounting changes during the year 2009 as compared to the previous year.
NOTE 4—MARKETABLE SECURITIES
At December 31, 2009 this caption shows no balances.
At December 31, 2008 the balance refers to:
Instrument Institution CurrencyFinalvalue
ThCh$
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco BCI Dollar 197,469Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Banco BCI Pesos 555,569
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753,038
NOTE 5—SHORT—AND LONG-TERM RECEIVABLES
At December 31, 2009 and 2008 this caption is as follows:
Short-term receivables:
2009 2008
ThCh$ ThCh$
Trade receivablesAdvertising in buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,096 251,212Provision for passenger revenue (1) . . . . . . . . . . . . . . . . . . . 2,197,159 1,928,198AFT differences, collection income (2) . . . . . . . . . . . . . . . . — 2,730,854
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,520,255 4,910,264
Notes receivableAFT promissory notes (IMG) (3) . . . . . . . . . . . . . . . . . . . . . — 10,842,967Performance bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,388 104,796Checks for collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 94,516
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,384 11,042,279
F-209
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
2009 2008
ThCh$ ThCh$
Other receivablesPersonnel accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,299) 47,858Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,035 91,685AFT, TAGs receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456,687 866,163Volvo, bus guarantees, spare parts (4) . . . . . . . . . . . . . . . . . . 10,941 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,813 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556,177 1,005,706
Long-term receivablesAFT passenger revenue (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . — 887,940AFT discounts on passenger revenue (5) . . . . . . . . . . . . . . . . 1,742,442 555,900
Total long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 1,742,442 1,443,840
(1) Provision for passenger revenue accrued between December 22 and 31, 2009 (same period in 2008 and2007), which were paid by the Transantiago Financial Administrator (AFT), on January 11, 2010 (for thesame period, January 10, 2009), in accordance with the Bidding Conditions of the concession contract andsubsequent amendments.
(2) Referred to passenger revenue pending payment by the AFT, in conformity with settlement N° 37,corresponding to the period from December 6, 2008 to December 21, 2008. Such settlement was paid by theAFT on January 2, 2009.
(3) Referred to the promissory notes signed with the AFT, for the balance of Minimum Guaranteed Income(IMG) as of December 31, 2008 amounting to ThCh$ 3,705,066 (equivalent to UF 176,775.49) andpromissory notes for compensation of lower revenue and higher costs derived from the postponement ofentry into full operation of the Transantiago system, whose balance as of December 31, 2008 was ThCh$7,137,901 (equivalent to UF 313,389).
These promissory notes were compensated through the RTO installment payable to the AFT, on July 1,2009.
(4) Referred to the balance receivable from the AFT, as per Official letter N° 1048 dated March 26, 2007 of theMinistry of Transport, which states that the minimum guaranteed income for the operation period fromOctober 22, 2005 to December 21, 2006, amounts to ThCh$ 5,472,170. On April 16, 2007, the AFT paid theamount of ThCh$ 4,584,230, with a balance of ThCh$ 887,940 pending collection.
Official Letter N° 2740 paragraph N°2 dated June 28, 2009 issued by the Ministry of Transport, authorizedto compensate the balance of ThCh$ 887,940, corresponding to IMG and equivalent to UF 49,399.27 plusthe respective interests accrued at a 3.56% interest rate annually, calculated between March 10, 2007 and thepayment date, amounting to UF 53,616.10 (ThCh$ 1,096,529), against the RTO installment payable to theAFT, which was paid on July 1, 2009 to the AFT.
(5) Refers to discounts withheld by the AFT in passenger revenue settlements N° 34 to 55 (from October 2008to September 2009), according to Resolutions N° 1985 and 69 of the Ministry of Transport. These discountsare applied every two weeks in each payment settlement made by the AFT, through Exempt Resolutionissued by said Ministry of Transport, which also mentions that these discounts are to be recognized as aliability by the system.
The Company’s management is making the relevant arrangements to obtain the refund for the withhelddiscounts.
F-210
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
Current assets
Up to 90 daysOver 90
up to 1 year Current assets Long-term
Item 2009 2008 2009 2008 Subtotal 2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$Trade receivables . . . . 2,520,255 4,910,264 — — 2,520,255 2,520,255 4,910,264 — —Notes receivable . . . . 111,384 3,059,438 — 7,982,841 111,384 111,384 11,042,279 — —Other receivables . . . . 556,177 1,005,706 — — 556,177 556,177 1,005,706 1,742,442 1,443,840
Total . . . . . . . . . . 3,187,816 16,958,249 1,742,442 1,443,840
NOTE 6—BALANCES AND TRANSACTIONS WITH RELATED COMPANIES
The balances and transactions with related companies refer to customary operations of the business performed inaccordance with the legal regulations, under equitable conditions and at market prices. There are no contracts forsuch purposes, except for the bus rental contract with Inversiones Alsacia S.A., effective from August 27, 2005to August 26, 2006. Transactions are in local currency (Chilean pesos) and accrue no interest rate for suchoperations.
As instructed by Official Letter N° 06353 dated June 11, 2007 of the S.V.S., the balance as of December 31,2006 with Inversiones Alsacia S.A. was changed, reversing a contingent gain of ThCh$ 1,074,889 (historic). Thisgain had been originally recorded as lower Administrative and selling expenses under the income statement forthe year ended December 31, 2006. The reversed amount originates from an adjustment made to the financialstatements of the Company as of June 30, 2006, for which Express de Santiago Uno S.A. had recorded anaccount receivable from Inversiones Alsacia S.A. amounting to ThCh$ 611,317 (historic). Through the reversionof the referred adjustments, as requested by the S.V.S., the financial statements as of December 31, 2006 reflectan account payable to Inversiones Alsacia S.A of ThCh$ 463,572 (historic).
This account payable to Inversiones Alsacia S.A. of ThCh$ 463,572 (historic), and other subsequent differencesin accounts between both companies are still under discussion.
On April 3, 2008, as instructed by Ordinary Official Letter N° 8703 of the S.V.S., the Company has had to reportthe actions taken to clarify the net payable balance of ThCh$ 88,338 (historic) it had with Inversiones AlsaciaS.A. and which originated the qualification in the audit report as of December 31, 2007, and the due dateestimated to complete the analysis of the different items composing the referred balance, and determine theadjustments to be made in order to properly recognize the effect of the expenses incurred in the financialstatements.
In response to the Ordinary Official Letter N° 8703, on April 9, 2008 it was reported that, according to theinformation, the Parent company’s management had available, the parties to the contract are in direct discussionsintended to settle the differences existing in this regard, which are expected to be definitely solved in the nextmonths. Both parties accepted that, in the event they would not reach an agreement in every point, the remainingdifferences would be subjected to any mechanism for settlement of disputes within the current year.
During 2008 and 2009 to date, the Company’s management continued the direct discussions with InversionesAlsacia S.A. in order to settle the differences existing between both companies, with the agreement mentioned inthe previous paragraph remaining valid. The said discussions have not concluded yet. The Company disclosesevery transaction with related companies and parties.
F-211
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
Balances and transactions with related companies are shown in tables below:
a) Notes and accounts receivable
Tax Registration N° Company
Short-term Long-term
2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$
99.577.400-3 . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Alsacia S.A 418,026 408,412 — —76.195.710-4 . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Eco Uno Ltda. 105,268 102,098 — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,294 510,510 — —
b) Notes and accounts payable
Tax Registration N° Company
Short-term Long-term
2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$
99.577.400-3 . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Alsalcia S.A. 641,771 591,627 — —76.195.710-4 . . . . . . . . . . . . . . . . . . . . . . . . . . Inversiones Eco Uno Ltda. 2,828 2,763 — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,599 594,390 — —
c) Transactions
AmountEffect on income(charge/credit)
Company Tax N° Relationship Transaction 2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$Inversiones Alsacia S.A. . . . . . 99,577,400-3 Related company Expense recovery invoice 33,515 (33,515) 88,116 (88,116)Inversiones Eco Uno Ltda. . . . . 76,195,710-4 Parent Expense recovery — — 99,335 —Express del futuro S.A. . . . . . . 0-E Related company Expense recovery 1,230 (1,230) 20,384 (4,413)
NOTE 7—INCOME TAXES AND DEFERRED TAXES
a) Company tax
At December 31, 2009, the Company has made no provisions for income tax, as it showed negative tax resultsamounting to ThCh$ 35,034,112.
At December 31, 2009 the subsidiary made provisions for income tax of ThCh$ 39 (ThCh$ 234 in 2008)
F-212
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
b) Recoverable taxes:
Recoverable taxes are detailed as follows:
2009 2008
ThCh$ ThCh$
Deductible training expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,865 38,926Recoverable tax, 2009 Income Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,927 —Recoverable tax, Exps de Colombia Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 5
Total recoverable taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,884 38,931
Less:Provision for additional income tax, disallowable expenses . . . . . . . . . . . . . . . . . (15,369) (11,789)Income tax provision, Exps de Colombia Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . (39) (234)
Total taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,408) (12,023)
Recoverable taxes balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,476 26,908
The subsidiary has not recorded deferred taxes, since there are no temporary differences between the accountingand tax results.
c) Deferred taxes:
2009 2008
Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilitiesConcept Short term Long term Short term Long term Short term Long term Short term Long term
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Temporary differences:Provision for staff
vacations . . . . . . . . . . 220,079 — — — 198,328 — — —Fixed asset
depreciation . . . . . . . . — — — 2,764,644 — — — 2,225,322Other events . . . . . . . . . . 90,050 — — 6,190,981 372,172 — 40,211 3,820,657Accumulated tax loss . . . — 5,955,799 — — — 2,208,002 — —Depreciation
provision . . . . . . . . . . — 563,328 — — 293,395 — — —
Total . . . . . . . . . . . . 310,129 6,519,127 — 8,955,625 863,895 2,208,002 40,211 6,045,979
d) Effect on income
Item 2009 2008 2007
ThCh$ ThCh$ ThCh$
Current tax expense (tax provision) . . . . . . . . . . . . . . . (15,408) (12,023) (19,582)Deferred tax assets or liabilities for the year . . . . . . . . 887,353 (695,254) (3,120,464)Tax expense adjustment . . . . . . . . . . . . . . . . . . . . . . . . — — 71,737Other changes and credits . . . . . . . . . . . . . . . . . . . . . . . — — (16,692)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871,945 (707,277) (3,085,001)
F-213
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 8—OTHER CURRENT ASSETS
At each year-end this caption is detailed as follows:
2009 2008
ThCh$ ThCh$
Rental guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,033 7,037Time deposits and repurchase agreements (1) . . . . . . 12,279,408 15,038,977Spare part and tool warehouse . . . . . . . . . . . . . . . . . . 2,354,541 2,195,148Provision for spare part obsolescence . . . . . . . . . . . . . (249,421) (243,684)Other guarantees (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 2,635,497 —Deposit, HSBC Bank Colombia (3) . . . . . . . . . . . . . . 11,156,200 13,679,856
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,183,258 30,677,334
(1) Refers to fixed-term deposits with HSBC Bank (Chile) for guaranteeing and provisioning the payment of theprincipal, and the interest installments in relation to the loans described in Note 14. At December 31, 2009deposits are detailed as follows:
Guaranteed deposits:
Effective dateExpiration
date Bank Type currencyOriginvalue
Subscriptionvalue
Bookvalue Monthly rate
%
08/27/2009 02/26/2010 HSBC DPF US$ 551,156 508,332 0.8309/29/2009 02/26/2010 HSBC DPF US$ 628,438 584,974 1.1510/14/2009 02/26/2010 HSBC DPF US$ 637,780 584,810 0.8010/26/2009 02/26/2010 HSBC DPF US$ 2,129,544 2,031,246 0.7010/27/2009 02/26/2010 HSBC DPF US$ 2,666,670 2,539,093 0.7010/27/2009 02/26/2010 HSBC DPF US$ 616,724 584,684 0.7010/28/2009 02/26/2010 HSBC DPF US$ 884,594 842,337 0.7011/10/2009 02/26/2010 HSBC DPF US$ 443,554 436,350 0.4611/11/2009 02/26/2010 HSBC DPF US$ 587,887 583,986 0.5011/27/2009 02/26/2010 HSBC DPF US$ 573,407 583,581 0.5812/11/2009 02/26/2010 HSBC DPF US$ 571,051 583,672 0.6012/29/2009 02/26/2010 HSBC DPF US$ 582,820 582,605 0.4510/14/2009 02/26/2010 HSBC DPF Pesos 5,977 5,981 0.0710/27/2009 02/26/2010 HSBC DPF Pesos 5,866 5,871 0.0910/29/2009 02/26/2010 HSBC DPF Pesos 5,984 5,988 0.0811/10/2009 02/26/2010 HSBC DPF Pesos 5,985 5,987 0.0411/11/2009 02/26/2010 HSBC DPF Pesos 6,082 6,085 0.0511/27/2009 02/26/2010 HSBC DPF Pesos 5,970 5,975 0.0812/11/2009 02/26/2010 HSBC DPF Pesos 5,969 5,971 0.0412/29/2009 02/26/2010 HSBC DPF Pesos 31,872 31,874 0.04
Total deposits at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . 10,947,330 10,519,402
F-214
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
Non-guaranteed repurchase agreement:
Effectivedate
Expirationdate Bank
Typecurrency
Originvalue
Subscriptionvalue
Bookvalue
12/30/09 01/04/10 HSBC Repo Pesos 1,760,000 1,760,006
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760,000 1,760,006
Total deposits and repurchase agreements at December 31, 2009 . . . . . . . . . 12,707,330 12,279,408
At December 31, 2008 time deposits and repurchase agreements are detailed as follows:
Guaranteed deposits:
Effective dateExpiration
date Bank Type currency Origin valueSubscription
valueBookvalue Monthly rate
%
11/25/2008 02/27/2009 HSBC DPF US$ 387,713 373,797 0.2411/26/2008 02/27/2009 HSBC DPF US$ 3,284,234 3,115,019 0.2411/26/2008 02/27/2009 HSBC DPF US$ 1,804,269 1,711,284 0.2411/26/2008 02/27/2009 HSBC DPF US$ 2,504,318 2,373,761 0.2411/28/2008 02/27/2009 HSBC DPF US$ 203,577 193,752 0.2412/10/2008 02/27/2009 HSBC DPF Pesos 2,393,916 2,292,641 0.2412/11/2008 02/27/2009 HSBC DPF Pesos 590,622 572,248 0.2412/29/2008 02/27/2009 HSBC DPF Pesos 563,313 572,070 1.0511/28/2008 02/27/2009 HSBC DPF Pesos 41,499 41,814 0.6912/10/2008 02/27/2009 HSBC DPF Pesos 212,609 213,604 0.6712/12/2008 02/27/2009 HSBC DPF Pesos 41,379 41,541 0.6212/29/2008 02/27/2009 HSBC DPF Pesos 41,331 41,350 0.70
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,068,780 11,542,881
Non-guaranteed repurchase agreement:
Effective dateExpiration
date BankType
currencyOriginvalue
Subscriptionvalue
Bookvalue
Monthlyrate
%
28/12/07 15/01/08 HSBC Repo Pesos 3,484,388 3,496,096 0.63
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,484,388 3,496,096
Total deposits and repurchase agreements . . . . . . . . . . . . . . . . . . . 15,553,168 15,038,977
(2) Refers to funds held with the Credit Suisse Bank, equivalent to ThUS$ 5,197 to hedge the market value asof November 10, 2009 of the swap contract entered into with the referred bank. (For further information seeNote 23—Derivatives Contracts).
(3) Refers to a US$ 22 million deposit held by the subsidiary Exps de Colombia Ltda. with HSBC Bank PLC.The deposit is for guaranteeing the collateral loan granted to Express de Santiago Uno S.A., for equalamount, through HSBC Bank (Chile).
F-215
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 9—INFORMATION ON REPURCHASE AND RESALE TRANSACTIONS
The Company maintains a resale agreement, signed on December 30, 2009 with the HSBC Bank, at a 0.01% monthly rate, and maturing on January 4,2010. The resale agreement is classified under Other current assets, whose subscription value and book value as of December 31, 2009 areThCh$ 1,760,000 and ThCh$ 1,760,006, respectively.
Dates
Code Effective Expiration Counterparty Currency Agreed price Instrument Book valueSubscription
valueMarketvalue Provision
Resale agreementOperation
CV . . . 12/30/2009 01/04/2010 HSBC Bank (Chile) Pesos 1,760,333 Repo 1,760,006 1,760,000 1,760,000 6 Matched
F-216
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 10—FIXED ASSETS
At each year-end, fixed assets are as follows:
Gross fixed assets Accumulated depreciation
2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$
LandLand for terminals . . . . . . . . . . . . . . . . . . . . . . . . 4,575,828 4,575,828 — —
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,575,828 4,575,828 — —
Buildings and infrastructureBuildings and infrastructure . . . . . . . . . . . . . . . . . 20,922,259 — (4,538,838) (1,725,865)Works in process . . . . . . . . . . . . . . . . . . . . . . . . . 1,059,632 17,784,535 — —
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,981,891 17,784,535 (4,538,838) (1,725,865)
Machinery and equipmentTransport equipment . . . . . . . . . . . . . . . . . . . . . . . 91,699,608 91,618,972 (38,405,231) (27,787,983)Machinery and equipment . . . . . . . . . . . . . . . . . . 569,561 472,389 (171,911) (109,722)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,269,169 92,091,361 (38,577,142) (27,897,705)
Other fixed assetsFurniture and office equipment . . . . . . . . . . . . . . 347,761 238,760 (111,526) (66,053)Computer equipment . . . . . . . . . . . . . . . . . . . . . . 425,838 342,562 (218,692) (156,211)Other fixed assets (1) . . . . . . . . . . . . . . . . . . . . . . 1,647,315 1,366,759 (248,562) (641,072)Improvements leased offices . . . . . . . . . . . . . . . . 276,137 — (47,579) —Leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 64,348 — (2,282)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,697,051 2,012,429 (626,359) (865,618)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,523,939 116,464,153 (43,742,339) (30,489,188)
Total net fixed assets . . . . . . . . . . . . . . . . . . 77,781,600 85,974,965
(1) Other fixed assets basically refers to computer software which, at December 31, 2009 has a net value ofThCh$ 552,576. The remaining balance refers to tools and other minor assets.
The charge for depreciation for the year has been recognized in the following accounts:
2009 2008 2007
ThCh$ ThCh$ ThCh$
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,841,331 12,315,232 7,071,031Administrative and selling expenses . . . . . . . . . . . 363,871 282,821 203,631
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,205,202 12,598,053 7,274,662
F-217
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 11—OTHER ASSETS
2009 2008
ThCh$ ThCh$
Technical Operative Reserve (1) . . . . . . . . . . . . . . . . . 35,274,002 39,035,896Reserve for AFT (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 590,965 672,049Lease guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,697 37,727Derivatives contracts (3) . . . . . . . . . . . . . . . . . . . . . . . — 16,156,833
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,902,664 55,902,505
(1) Refers to the total amount of the financial contribution to the technical operative reserve (TOR) for theTrunk Line N° 4 business unit, to cover eventual differences or temporary mismatches between income andexpenses. This amount is amortized according to the curve of forecast income to be obtained from theprovision of transport services. As of December 31, 2009, the accumulated amortization for this itemamounts to ThCh$ 14,707,021 (ThCh$ 10,945,039 in 2008) and the effect on income for the period 2009amounts to ThCh$ 3,779,655 (ThCh$ 3,879,723 in 2008 and ThCh$ 3,660,180 in 2007).
(2) From the beginning of phase one, defined in the Transantiago 2003 Bidding Conditions. AFT will be theexclusive issuer of the tickets related to the collection of the coins paid by passengers in order to use thetransport system. The AFT provides these tickets to the Company, who pays a total of Ch$ 20 for eachticket, from which Ch$ 16 belong to a deposit to increase the system’s TOR and should be credited by theAFT to the two temporary account of the system. The AFT can use freely the other Ch$ 4. This reservecorresponds to the total amount of Ch$ 16 per ticket that the Company has acquired from the beginning ofthe operation until June 30, 2006. This amount is amortized according to the curve of projected incomeobtained from the provision of transport services. As of December 31, 2009, the amortization for this itemamounts to ThCh$ 246,395 (ThCh$ 165,399 in 2008) and the effect on income for the period 2009 amountsto ThCh$ 63,323 (ThCh$ 59,437 in 2008 and ThCh$ 48,088 in 2007).
According to the amendment to the concession contract, article 4, signed on June 30, 2006, between theCompany and the Ministry of Transport and Telecommunications, effective July 1, 2006, the Ch$ 16 pereach ticket ceased being paid to the AFT.
(3) Refers to the Cross Currency Swap contracts subscribed with HSBC Bank (Chile) and Credit Suisse Bank ofLondon, to hedge the loans in dollars from the fluctuation in the exchange rate and interest rate (furtherinformation in note 23 Derivatives Contracts).
NOTE 12—SHORT-TERM OBLIGATIONS WITH BANKS AND FINANCIAL INSTITUTIONS
a) Short-term obligations with banks and financial institutions:
At December 31, 2009 the loans obtained from HSBC Bank Chile are as follows:
Loannumber
Subscriptiondate
Maturitydate
Initialamount
Bookvalue
Interestrate
202180 11/28/2007 02/08/2010 465,000 469,233 0.44202181 11/28/2007 02/08/2010 2,590,000 2,613,556 0.44202247 11/28/2007 02/08/2010 735,000 741,688 0.44202508 12/05/2007 02/08/2010 2,342,000 2,363,301 0.44
Total . . . . . . 6,132,000 6,187,778
F-218
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
At December 31, 2008 the loans obtained from the HSBC Bank Chile are as follows:
Loannumber
Subscriptiondate
Maturitydate
Initialamount
Bookvalue
Interestrate
202180 11/28/2007 01/28/2009 454,305 460,508 1.28202181 11/28/2007 01/28/2009 2,530,430 2,564,979 1.28202247 11/28/2007 01/28/2009 718,098 727,899 1.28202508 12/05/2007 01/28/2009 2,288,134 2,319,374 1.28
Total . . . . . . 5,990,967 6,072,760
b) Long-term obligations with banks and financial institutions, short-term portion:
This caption includes the principal installments maturing within one year and the accrued interests correspondingto the loans granted by HSBC Bank PLC (EKN-1 and NEXI) to be paid in equal consecutive semi-annualinstallments on February 28, and August 28 of each year. At December 31, 2009, the installments payableamounted to ThCh$ 9,635,866 (ThCh$ 9,017,453 in 2008).
These interests are determined by the unpaid balance of the principal of the promissory notes, from the respectivesubscription date and up to the closing date, and payable on a semi-annually basis on February 28 and August 28of each year.
At December 31, 2009, accrued interests payable amounted to ThCh$ 1,053,584 (ThCh$ 1,644,466 in 2008).
c) At December 31, 2009 and 2008, short-term obligations with banks and financial institutions are as follows:
Short term:
Tax registration N°Bank of financial
institution
Non-indexed Chileanpesos Total
2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$97.951.000-4 . . . . . . . . . . . . . . . . . . . . . . HSBC Bank (Chile) 6,187,778 6,072,760 6,187,778 6,072,760
Total . . . . . . . . . . . . . . . . . . . . . . . . 6,187,778 6,072,760 6,187,778 6,072,760
Principal outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,132,000 5,990,964 6,132,000 5,990,964
Average annual interest rate (%): . . . . . . . . . . . . . . . . . . . . . . . . 9.36 11.16
Long term:
Tax registration N°Bank of financial
institution
Dollars Total
2009 2008 2009 2008
ThCh$ ThCh$ ThCh$ ThCh$97.951.000-4 . . . . . . . . . . . . . . . . . . HSBC Bank (Chile)
EKN-NEXI 10,689,450 10,661,919 10,689,450 10,661,919
Total . . . . . . . . . . . . . . . . . . . . 10,689,450 10,661,919 10,689,450 10,661,919
Principal outstanding . . . . . . . . . . . . 9,635,866 9,017,453 9,635,866 9,017,453
Average annual interest rate . . . . . . . . . . . . . . . . . . . . . . . . 5.87 5.87Percentage local currency obligation (%) . . . . . . . . . . . . . . 63.3400Percentage foreign currency obligation (%) . . . . . . . . . . . . 36.6600
F-219
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 13—OTHER CURRENT LIABILITIES
At December 31, 2009 and 2008, this caption is detailed as follows:
2009 2008
ThCh$ ThCh$
Technical operative reserve (TOR) (1) . . . . . . . . . . . . . . — 17,798,121Forward contracts (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,377 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,377 17,798,121
(1) Refers to installment N° 4 for the contribution to the Technical Operative Reserve (TOR) amounting to UF849,181 maturing on July 1, 2009, which was paid to the AFT on that same date.
(2) Refers to forward contracts, signed with the Credit Suisse Bank of London. (For further information seeNote 23, Derivative Contracts).
NOTE 14—LONG-TERM OBLIGATIONS WITH BANKS AND FINANCIAL INSTITUTIONS
At December 31, 2009 the outstanding loans are as follows:
a) Loan from HSBC BANK PLC (London) EKN-1:
Between August 17, 2005 and August 1, 2006 thirteen disbursements corresponding to thirteen promissory notestotaling ThUS 125,278 were received, and will be paid in twenty equal and consecutive semi-annual installments,each payable on February 28 and August 28 of each year, starting on February 28, 2007, at a 5.38 fixed annualrate. This loan funded and paid the purchase of 606 buses, equivalent to approximately 85% of the total bus salecontract signed with Volvo. On March 6, 2007, the capital payment schedule was changed from 20 to 19 equalsemi-annual and consecutive installments, payable semi-annually from August 28, 2007 until August 30, 2016,the other terms and conditions of the respective loan contract remaining unchanged. At December 31, 2009, theprincipal balances shown in long term are ThCh$ 40,123,235 equivalent to ThUS 79,123.
On February 28, 2008, a cross currency swap contract was signed with Credit Suisse International Bank ofLondon to hedge the loan referred to above against the fluctuation of the exchange rate and interest rate,amounting to ThUS$ 112,091, equivalent to UF 2,614,010 (Further information on this contract in Note 23,Derivative Contracts).
b) Joint loan with HSBC Bank of Tokyo—Sumitomo Bank—NEXI, Japanese Loan and InsuranceCorporation:
Between March 30, 2006 and July 7, 2006 three disbursements totaling ThUS$ 36,000 were received. This loanhas been agreed at 8 years, with five grace years (between February 28, 2010 and August 28, 2017, payable semi-annually on February 28 and August 28 of each year), at a floating interest rate Libor 180, plus 0.6% annually,payable semi-annually between August 28, 2006, until August 28, 2017. As of December 31, 2009 the principalbalance presented in long-term amounts to ThCh$ 15,973,650 equivalent to ThUS$ 31,500.
On December 12, 2007, a swap contract was entered into with HSBC Bank (Chile), to hedge the loan fromHSBC-NEXI of ThUS 36,000 against the fluctuations of the exchange rate and interest rate. (See Note N° 23,Derivative Contracts).
F-220
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
c) Loan from HSBC Bank (Chile):
On June 13, 2006 a loan was obtained through HSBC Bank (Chile) amounting to ThCh$ 11,660,000 (historic)payable at an 8-year term (between February 28, 2011 and February 28, 2018). Interests will begin to be paid inadvance every six months, from August 28, 2006 and will be estimated over the principal or its balance. Therespective promissory note will accrue interests at a Nominal TAB rate for 180-day operations, plus 0.38%annually. On February 28, 2008, a principal prepayment of ThCh$ 914,949 was made (historic). As ofDecember 31, 2009, the capital balance shown in long-term amounts to ThCh$ 10,735,098.
This obligation is guaranteed by a Stanby Letter of Credit of US$ 22 millions in favor of the HSBC Bank (Chile)issued by HSBC Bank Plc, London, at the request of Exps Colombia Limitada. The guarantee expires within oneyear and is automatically renewed each year, until the Company’s obligations with HSBC Bank (Chile) areextinguished.
d) Loan from HSBC Bank PLC (London) EKN-2:
On December 26, 2007 the total of ThUS$ 8,158 corresponding to four promissory notes was received, and onApril 10, 2008 a total of ThUS$ 4,779 was received, corresponding to two promissory notes; the EKN-2 loantotals ThUS$ 12,937, which will be paid in 19 equal and consecutive semi-annual installments each, payable onFebruary 28 and August 28 of each year, starting in August 2008, at a fixed annual rate of 6.38%. The firstdisbursement of ThUS$ 8,158 made on December 26, 2007 financed the purchase of 59 buses and the seconddisbursement financed the purchase of other 25 buses, model B-7, from Volvo Brazil. At December 31, 2009, theprincipal balance shown in the long-term amounts to ThCh$ 5,000,624 equivalent to ThUS$ 9,861.
On February 28, 2008 the Cross Currency Swap contract was signed with the Credit Suisse International Bank ofLondon, to hedge the loan referred to above against the fluctuation of the exchange rate and interest rate,amounting to ThUS$ 8,243 equivalent to UF 194,731 (further information on this contract in Note 23, DerivativeContracts).
e) Loan from Nordic Investment Bank:
On March 28, 2006, our subsidiary EXPS Colombia Ltda. obtained a loan through HSBC-NIB (NordicInvestment Bank) amounting to US$ 22 millions, equivalent to ThCh$ 11,156,200 at December 31, 2009,payable over an 8-year term (from February 28, 2011 until February 28, 2018). Interests will begin to be paid inadvance every six months, starting on August 28, 2006, at a 180-day Libor rate, plus a 6.228% annual interest.This loan will guarantee collateral loan that HSBC Bank (Chile) granted to Express de Santiago Uno S.A. (see,letter c).
All the loans referred to above have the following clause:
Should the subscriber not pay the principal of these loans on any of their due dates, or should the interest of thesepromissory notes not be paid by the subscriber on the date when they should have been paid and such default orsimple delay in the payment of interest is maintained for three or more business days, the bearer of thepromissory notes will have the right to demand immediate payment of the full balance of the debt of principal,and interest owed with respect to the promissory notes, which will be considered due and payable for all intentsand purposes. The bank will have a right to demand in advance all the debt on account of the promissory notes asif it was due and payable, if the subscriber were to become insolvent, understanding for all purposes that there isinsolvency if the subscriber, or one of its creditors files for bankruptcy, or if judicial or non-judicial agreementproposals are signed or formulated.
F-221
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
The loans referred to above did not specify financial covenants, but only non-financial covenants, among them:
i) Corporate existence:
The debtor must preserve its legal existence, its rights, privileges, licenses and franchises of Express de SantiagoUno S.A. and its subsidiaries, which should be material in the conduction of its activity.
ii) Compliance with law, insurance:
The debtor must comply with all the applicable laws, regulations, rules imposed by any government authority,and every tax payment, and must as well maintain assets insured and in good working conditions.
iii) Government authorizations:
The debtor must maintain all licenses, authorizations or consents from the government up to date for thefulfillment of activities.
iv) Reporting requirements:
The debtor must provide the administrative agent with the following information to be distributed to thecreditors:
• The financial statements of the Company and the report of any default event within a five-day period
• Speedup of any debt over ThUS$ 750,000.
• Report of any legal action against the debtor and/or subsidiaries which involve the government andwhich might have a material adverse effect.
• Semi-annual report over the status of both the concession and the transport services.
v) Ranking:
The debtor must take all the necessary actions so that its obligations with the creditor maintain their quality overother obligations, as well as keep the accumulation and reserve accounts for the prepayment of its obligations upto date.
vi) Negative pledge:
The debtor cannot mortgage and/or pledge assets other than those specified in the loan contract.
vii) Transactions with affiliates:
The debtor cannot make transactions with affiliates unless they are within the normal course of the business.
viii) Line of business:
The debtor cannot make any material change in the nature or conduction of its business.
F-222
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
ix) Merger, change in control:
The debtor cannot make any changes in the ownership and control of the Company without the creditors’consent.
x) Environmental obligations:
The debtor must ensure that the loans’ funds are not allocated to activities which damage the environment.
xi) Dividend payment:
The debtor must request authorization from the creditors prior to add dividend payment.
F-223
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
Tax registration N° Institution Currency
At December 31, 2009 years to maturity At December 31, 2008 average
Over 1up to 2
Over 2up to 3
Over 3up to 5
Over 5up to 10
Over 10 Totallong-term
annualinterest rate
Totallong termAmount Maturity
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ % ThCh$97.951.000-4 . . . . . . . . . . . . . . . . . . HSBC Bank
PLC/EKN-1Dollar 6,687,206 6,687,206 10,030,809 16,718,015 — 7 years 40,123,236 5.38 57,399,482
97.951.000-4 . . . . . . . . . . . . . . . . . . HSBC BankTokio -NEXI
Dollar 2,281,950 2,281,950 3,422,925 7,986,825 — 7 years 15,973,650 1.38 22,385,219
97.951.000-4 . . . . . . . . . . . . . . . . . . HSBC Bank(Chile) NIB
Non-indexed Ch$ 1,341,887 1,341,887 2,012,830 6,038,494 — 8 years 10,735,098 1.33 10,488,194
97.951.000-4 . . . . . . . . . . . . . . . . . . HSBC BankPLC /EKN-2
Dollar 666,710 666,710 1,000,065 2,667,139 — 8 years 5,000,624 6.38 6,949,345
0-E . . . . . . . . . . . . . . . . . . . . . . . . . NordicInvestmentBank
Dollar 1,450,306 1,450,306 4,462,480 3,793,108 — 7.5 years 11,156,200 6.228 13,679,857
Tota1 . . . . . . . . . . . . . . . . . . . . 12,428,059 12,428,059 20,929,109 37,203,581 — 82,988,808 110,902,097
Total in foreign currency (%) . . . . . . . . . . . . . . . . 87.0600Total in local currency (%) . . . . . . . . . . . . . . . . . . 12.9400
F-224
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 15—PROVISIONS AND WRITE-OFFS
Provisions:
a) At December 31, 2009 and 2008 provisions are detailed as follows:
2009 2008
ThCh$ ThCh$Staff vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,294,584 1,166,6374% interest remittance . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,362 65,538Bus maintenance (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,843,242
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,336,946 3,075,417
(1) Refers to the provision for bus maintenance as of December 31, 2008, which should have incurred in 2008.The provision was used in 2009.
b) Asset provisions:
At December 31, 2009 and 2008, the following provisions have been made, which are shown net of therespective assets accounts:
2009 2008
ThCh$ ThCh$Spare part inventories (1) . . . . . . . . . . . . . . . . . . . . . . . . (249,421) (243,684)Depreciation, work in process (2) . . . . . . . . . . . . . . . . . . — (1,725,864)
(1) Deducted from Spare part inventories classified in Other current assets.(2) Deducted from Accumulated depreciation classified in Fixed assets.
c) Write-offs:
At December 31, 2009 and 2008 the Company has recorded the following provision write-offs in short- and long-term asset accounts:
(1) Tag provision (short term) receivable from the AFT decreased by ThCh$ 151,091.
(2) Provision for Exempt Resolution N° 1938 of the Ministry of Transport, recorded in Other receivables,long term, decreased by ThCh$ 1,418,410.
NOTE 16—OTHER LONG-TERM LIABILITIES
At December 31, 2009 and 2008, this caption is detailed as follows:
2009 2008
ThCh$ ThCh$Derivative contracts (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,095,743 —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,095,743 —
(1) Refers to the Cross Currency Swap contracts subscribed with the HSBC Bank (Chile) and the Credit SuisseBank of London, to hedge the loans in dollars from the fluctuation in the exchange rate and interest rate.(Further information in note 23 Derivatives Contracts).
F-225
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 17—MINORITY INTEREST
The minority interest shown is equal to 0, since the calculation of such interest is lower than ThCh$ 1,corresponding to 0.01% of the equity of Exps de Colombia Ltda. At December 31, 2009 said equity is equal toThCh$ 547 (ThCh$ 592 at December 31, 2008).
NOTE 18—SHAREHOLDERS’ EQUITY
a) At December 31, 2009 and 2008, the movement in equity accounts is shown in the following table:
ItemsPaid incapital
Capital in excessof par value
Retainedearnings
(Loss) incomefor the year Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
Opening balance . . . . . . . . . . . . . . . . . . . 19,980,288 89,568 (2,362,756) 12,892,386 30,599,486Distribution of prior-year income . . . . . . — — 12,892,386 (12,892,386) —Price-level restatement . . . . . . . . . . . . . . 1,778,246 7,972 937,137 — 2,723,355Income for the year . . . . . . . . . . . . . . . . . — — — 3,907,876 3,907,876
Balance at December 31, 2008 . . . . . . . . 21,758,534 97,540 11,466,767 3,907,876 37,230,717
Restated balances . . . . . . . . . . . . . . . . . . 21,258,088 95,296 11,203,031 3,817,996 36,374,411
Opening balance . . . . . . . . . . . . . . . . . . . 21,758,534 97,540 11,466,767 3,907,876 37,230,717Distribution of prior-year income . . . . . . — — 3,907,876 (3,907,876) —Capital increase . . . . . . . . . . . . . . . . . . . . 86 — — — 86Price-level restatement . . . . . . . . . . . . . . (500,446) (2,244) (353,616) — (856,306)Loss for the year . . . . . . . . . . . . . . . . . . . — — — (3,951,389) (3,951,389)
Balance at December 31, 2009 . . . . . . . . 21,258,174 95,296 15,021,027 (3,951,389) 32,423,108
b) At December 31, 2009 and 2008, the equity composition is as follows:
Single-seriessubscribed voting
shares Shareholding
2009 2008 2009 2008
N° N° % %
Carlos Rios Velilla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 0.002 0.002Sociedad Eco Uno Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . 188,717 188,717 99.998 99.998
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,720 188,720 100.000 100.000
c) Number of shares:
Subscribedshares
Paid-inshares
Votingshares
N° N° N°
Single series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,720 188,720 188,720
d) Capital
Subscribed capital Paid-in capital
ThUS$ ThUS$
Single series . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,258,174 21,258,174
F-226
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
e) Capital movements:
On September 14, 2009 Mr. Carlos Rios Velilla paid one share of ThCh$ 86 which had been subscribed butpending payment.
NOTE 19—OTHER NON-OPERATING INCOME AND EXPENSES
At December 31, 2009, 2008 and 2007 this caption is detailed as follows:
2009 2008 2007
ThCh$ ThCh$ ThCh$Other non-operating income:
Amortization of AFT promissory note, unearned income . . . . . . . . . . . . . — — 10,300,299Penalties and interests received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 39,580Income from scrap sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,120 5,621 —Income from damage to buses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,012 — —Income from paramedics’ contribution,safety insurance company . . . . . . 7,327 4,500 —Other miscellaneous income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,524 145,871 184,828
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,983 155,992 10,524,707
Other non-operating expenses:Other taxes (stamp tax, etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,909 243,209 596,139Disallowable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,910 41,492 55,859Other miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 46,408 116,865Miscellaneous penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,460 4,073 267,633Loss on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 12,477 166,906Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 37,742
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,633 347,659 1,241,144
NOTE 20—PRICE-LEVEL RESTATEMENTS
At December 31, 2009, 2008 and 2007, this caption is as follows:
(Charges)/creditsRestatement index 2009 2008 2007
ThCh$ ThCh$ ThCh$AssetsFixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI (2,075,179) 7,683,920 6.138,640Other non-monetary assets . . . . . . . . . . . . . . . . . . . . . UTM (1,508,268) 1,172,424 —Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF — — 1,178,931Other non-monetary assets . . . . . . . . . . . . . . . . . . . . . CPI (960,256) 3,787,569 2,835,276Expenditure accounts . . . . . . . . . . . . . . . . . . . . . . . . . CPI (1,352,633) 10,162,457 2,436,271
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . (5,896,336) 22,806,370 12,589,118
LiabilitiesShareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 856,306 (2,660,718) (1,144,229)Other non-monetary liabilities . . . . . . . . . . . . . . . . . . CPI 70,997 (1,707,732) —Non-monetary liabilities . . . . . . . . . . . . . . . . . . . . . . . UF 2,256,736 (7,990,766) (1,147,508)Income accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CPI 1,368,620 (10,604,507) (3,415,696)
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . 4,552,659 (22,963,723) (5,707,433)
(Loss) gain on price-level restatements . . . . . . . . . . . . (1,343,677) (157,353) 6,881,685
F-227
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 21—EXCHANGE DIFFERENCES
At December 31, 2009, 2008 and 2007, this caption is as follows:
(Charges)/credits
Currency 2009 2008 2007
ThCh$ ThCh$ ThCh$
AssetsBank current accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (40,649) 2,238 (75)Time deposits and investments . . . . . . . . . . . . . . . . . . . . . . . . US$ — 73,426 (44,104)Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (2,138,524) (47,974) (719,219)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ (19,163,329) 27,697,828 (14)
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,342,502) 27,725,518 (763,412)
LiabilitiesLong-term bank liabilities, short-term portion . . . . . . . . . . . . US$ 2,832,448 (2,448,623) 586,899Long-term bank liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 16,142,700 (18,220,716) 5,331,596Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 20,519 (37,394) 239,569Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ — (55,566) (764)
Total (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,995,667 (20,762,299) 6,157,300
(Loss) gain from exchange differences . . . . . . . . . . . . . . . . . . (2,346,835) 6,963,219 5,393,888
NOTE 22—STATEMENT OF CASH FLOWS
At December 31, 2009 and 2008, cash and cash equivalents is as follows:
2009 2008
ThCh$ ThCh$
Cash and bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,943 29,612Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,540,200Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 753,038
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,943 3,322,850
NOTE 23—DERIVATIVE CONTRACTS
At December 31, 2009, the company maintains cross currency swap and forward contracts, to hedge againstfluctuations of exchange rates and interest rate.
a) On December 12, 2007, the Company has entered into a derivative contract (cross currency swap) withHSBC Bank (Chile) amounting to US$ 36 million. The purpose of the contract is to hedge against the risksof exchange rates and interest rate over the loan of US$ 36 million contracted with BSBC-NEXI Bank.
The main financial conditions of the contract are:
(1) Amount contracted by the Bank ThUS$ 36,000.
(2) Amount contracted by the Company UF 918,387.0997.
F-228
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
(3) Start date December 12, 2007.
(4) Maturity date August 28, 2017.
(5) Interest rate agreed by the bank 6-month Libor, plus 0.6% current/360.
(6) Interest rate agreed by the Company Fixed rate, 3.900% current/360.
(7) Payment mode Semi-annual compensations in Chilean pesos.
b) On February 28, 2008, the Company has entered into a derivative contract (cross currency swap) with CreditSuisse International Bank of London. The purpose of the contract is to hedge against the risks of exchangerates and interest rate over the loans incurred with HSBC Bank of London (ENK-1-2), for the syndicatedloans of ThUS$ 112,091 and ThUS$ 12,937, respectively.
The main financial conditions of the contract are:
To cover the loan with the HSBC Bank-EKN-1:
(1) Amount contracted in ThUS$ 112,091.
(2) Amount contracted in UF 2,648,010.
(3) Start date February 28, 2008.
(4) Maturity date August 28, 2018.
(5) Interest rates payable to the bank: 5.55% (from August 28, 2008 until February 28, 2009). For thesecond year TAB UF + 1.82%.
(6) Interest rates payable by the bank: 5.38% (from August 28, 2008 until February 28, 2009). For thesecond year 180-day Libor + 1.87%.
To cover the loan with the HSBC Bank-EKN-2
(1) Amount contracted in ThUS$ 8,243.
(2) Amount contracted in UF 194,731.
(3) Start date February 28, 2008.
(4) Maturity date August 28, 2018.
(5) Interest rates payable to the bank: 6.55% (from August 28, 2008 until February 28, 2009). For thesecond year TAB UF + 2.83%
(6) Interest rates payable by the bank: 6.38% (from August 28, 2008 until February 28, 2009). For thesecond year,180-day Libor + 2.87%.
This swap contract hedges against the first disbursement of ThUS$ 8,243 by the HSBC only. Consequently, theoperation is not completely balanced with the total disbursements made by the HSBC Bank, which amounted toThUS$ 12,937.
The Swap contract includes certain conditions, among others:
To hedge against eventual negative changes of the derivative contracts as a consequence of the market variables.A credit line was established which is reviewed on a quarterly basis according to the respective statutoryfinancial statement form, and whose amount depends on the financial ratios: Debt/Ebitda; Ebitda/Financialexpenses shown in the respective financial statements.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
On November 10, 2009 the Company delivered ThUS$ 5,197 to the Credit Suisse Bank to hedge against themark-to-market value of the swap as of that date, which was in favor of this Bank up to that amount. On thatsame date, the Credit Suisse Bank performed a re-couponing of the swap, modifying the interest rate of the CSINII paid by the Bank for the second year, from 180-day Libor + 1.87% to 180-day Libor + 3.42%.
With the changes referred to above the Company is in the process of obtaining reimbursement of the fundsdelivered to the Credit Suisse Bank.
The Company subscribed four forward contracts with the Credit Suisse International of London, to hedge againstrisks in the exchange rates of the swap contracts and the main financial conditions are:
a) Contract N° 25880680
Effective date : November 20, 2009Maturity date : January 20, 2010Amount ThUS$ : 40,000Amount in ThCh$ : 20,020,000Exchange rate agreed : 500.50
b) Contract N° 25914783
Effective date : November 24, 2009Maturity date : January 21, 2010Amount ThUS$ : 20,000Amount in ThCh$ : 9,820,000Exchange rate agreed : 491.00
c) Contract N°26072939
Effective date : December 3, 2009Maturity date : January 21, 2010Amount ThUS$ : 20,000Amount in ThCh$ : 10,000,000Exchange rate agreed : 500.00
d) Contract N° 25914783
Effective date : December 4, 2009Maturity date : January 21, 2010Amount ThUS$ : 20,000Amount in ThCh$ : 10,000,000Exchange rate agreed : 500.00
As of December 31, 2009 there are no other derivative contracts signed by the Company.
F-230
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
Type of derivativeType ofcontract
Value ofthe
agreement Term
Description of contractsValue of
itemhedged
Accounts affected
Specificitem
Positionpurchase/sale
Hedged entry or transaction Assets / liabilities Assets / liabilities
Name Amount Name Amount Realized Unrealized
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Cross Current CY Swap /HSBC . . . . . . . . . . . . . . . CCPE 17,933,400 III-2017
Exchange /interestrate C Syndicated loan US$ 17,888,040 17,946,900
Otherlong-termassets 1,552,797 993,146 (4,810,295)
Cross Current CY Swap / C.Suisse . . . . . . . . . . . . . . . . CCPE 52,222,468 III-2018
Exchange/ interestrate
C Syndicated loan US$ 52,222,468 51,173,973Otherlong termassets
1,955,878 (20,403) (12,296,556)
Forward DS . . . . . . . . . . . . . CCTE 20,020,000 I-2010 Exchangerate
C Forward contract — 20,284,000 Derivativecontractcurrentliabilities
264,000 — 264,000
Forward DS . . . . . . . . . . . . . CCTE 9,820,000 Exchangerate
C Forward contract — 10,142,000 Derivativecontractcurrentliabilities
322,000 — 322,000
Forward DS . . . . . . . . . . . . . CCTE 10,000,000 Exchangerate
C Forward contract — 10,142,000 Derivativecontractcurrentliabilities
142,000 — 142,000
Forward DS . . . . . . . . . . . . . CCTE 10,000,000 Exchangerate
C Forward contract — 10,142,000 Derivativecontractcurrentliabilities
142,000 142,000
F-231
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 24—CONTINGENCIES AND RESTRICTIONS
The Company has a Guarantee of Fulfillment of Concession Contract, in the form of Insurance PolicyN° 01-20-044493 from Aseguradora Magallanes (insurance company), issued in favor of the Undersecretary’sOffice of Transport, in accordance with the terms set forth in article 3.4.6 of the Transantiago 2003 BiddingConditions, amounting to UF 167,000 effective from November 11, 2009 until November 11, 2010.
Complaint for damages caused by labor accident, filed by Ms. Yazmín Espinoza Merino:
On September 28, 2007, the complaint for damages caused by labor accident, filed by Ms. Yazmín EspinozaMerino against HR Service (ex contractor of Express), was notified and, alternatively, against Express deSantiago. The amount claimed is ThCh$ 228,420. Management, jointly with its counsels, estimates that thecomplaint will have no adverse effects on the financial statements as of December 31, 2009.
Complaint for damages, filed by the Municipality of Renca:
On October 23, 2007, the complaint for damages filed by the Municipality of Renca against given operators ofthe Transantiago system, Express de Santiago among them, was notified. The amount claimed is ThCh$ 154,600.Management, jointly with its counsels, estimates that the complaint will have no adverse effects on the financialstatements as of December 31, 2009.
On January 20, 2009, the complaint for damages files, issued by Juan Vasser Aguirre on behalf of Rafaela TapoaGonzález against the Company was notified. The amount claimed is ThCh$ 45,000.
Writ of Protection for application of Resolution N° 1985 of the Ministry of Transport and Telecommunications:
As per Exempt Resolution N° 1985, the Ministry of Transport and Telecommunications imposed withholdings in2008 and 2009, which should be applied by the AFT to passenger revenue settlements. These discounts wereapplied every two weeks for each payment settlement.
1. On November 30, 2009, a sentence from second instance was pronounced in the writ of protection (the“Writ”) lodged by Express de Santiago Uno S.A. (“Express”) against the Ministry of Transport andCommunications (“MTT”) as a consequence of the issue of Exempt Resolution N° 1985/2008, (the “Res.N°1985”), dated October 17, 2008 which imposed discounts to the concessionaires of road use fornon-compliance with certain indicators established therein.
2. To reject the Writ, the judgment of the Court of Appeals (“Ca”) argues on the basis that there are nounquestioned rights of Express (i); that the MTT has legal and contractual authority to act as it did (ii) andthat Res. N°1985 is not arbitrary (iii). To the foregoing, the Supreme Court (the “SC”) added an argumentbased on the nature of concessions (iv).
3. The sentence supports the MTT’s position essentially based on the nature of public service of theconcession, as well as on the exceptional nature of the funds used. This is without prejudice in reference tovarious legal and contractual requirements.
4. The classification of the concession as a “public service” concession that moves away from the contractualstandards ruling the civil contracts increases the risk of future intervening by the authority in the contractscurrently valid through the imposition of conditions negotiated on a non-contractual basis.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
5. Given that the ruling adopts the MTT’s argument concerning the fact that the payments the concessionairesare entitled to are those self-generated by the system, the MTT’s decision is legitimized in order to imposenew conditions unilaterally relating to those extraordinary funds which cover the system’s deficit, acategory within which the authority could attempt to include the funds coming from the permanent subsidyto the public transport contained in Law 20,378 (the “subsidy”).
6. Ignoring the above, it should be mentioned that the reference that continuously made to the exceptionalnature of the constitutional 2% and its regime -both by the decision concerning the Writ and by the defenseitself of the MTT- and the circumstance that the ruled case involved temporary discounts, would allow toargue against an extensive interpretation of the sentences grands.
7. The judgment validates the thesis that the Resolution is in line with the regulation of the BiddingConditions. This stipulates that the current regulations and those announced in the future are applicable tothe concessionaires in which concerns the operation conditions of the remunerated passenger transportservices and road use. From this perspective, the extensive treatment that is given to which should beconsidered as “operation conditions”, can serve as a basis for future impositions to the concessionaireswhich—according to the authority’s interpretation—would be consistent with the concept of “operationconditions”.
Ignoring the above, management and its counsels consider that collectability of the assets should not be affected.Consequently, it maintains the account receivable from the AFT in full (See Note 5).
There are other legal actions which are not worth detailing since they are covered by the insurance againstaccident and civil liability. Should these legal actions be successful against the Company, they will not haveadverse effects on the financial statements.
As of December 31, 2009, the Company and subsidiary are not acquainted with any other ban, lien, contingencyand restriction which might have an effect on these financial statements, except as described in Note 14 (Long-term obligations with banks and financial institutions) covenants and those indicated in Note 23 (Derivativecontracts).
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
Direct guarantees:
Committed assets
Unpaid balancesas of the closing thefinancial statements
Guarantee creditor Debtor Name Relationship Guarantee TypeBookType Value 2009 2008
ThUS$ ThUS$ ThUS$
HSBC Bank . . . . . . . . . . . . . . . . . . . Express de Santiago Uno — Pledge Buses 53,093,780 53,093,780 91,417,517HSBC Bank . . . . . . . . . . . . . . . . . . . Express de Santiago Uno — Mortgage Land Maipú 961,102 961,102 727,899HSBC Bank . . . . . . . . . . . . . . . . . . . Express de Santiago Uno — Pledge Shares 21,258,174 21,258,174 21,258,088I. Municipalidad de La Reina . . . . . Express de Santiago Uno — Performance bond Guarantee 110,388 110,388 104,796Banco HSBC . . . . . . . . . . . . . . . . . . Express de Santiago Uno — Mortgage Land ENEA 2,053,430 2,053,430 2,564,979
F-234
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 25—GUARANTEES FROM THIRD PARTIES
At December 31, 2009, the Company has received the following performance bonds, to ensure faithfulfulfillment of the terminal building contracts, and to guarantee service contracts.
Company Date Maturity Amount Bank
UF
Constructora Con Pax . . . . . . . . . . . . . . . . . . . . . . . . . . 04/07/2008 30/05/2010 9,259.00 Banco SantanderJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27/01/2009 03/02/2010 1,253.34 Banco BCIConstructora Queylen . . . . . . . . . . . . . . . . . . . . . . . . . . 19/05/2009 24/04/2010 1,172.90 Banco Estado
At December 31, 2008, the Company has received the following performance bonds, to ensure faithfulfulfillment of the terminal building contracts, and to guarantee service contracts.
Company Date Maturity Amount Bank
UF
Constructora Con-Pax . . . . . . . . . . . . . . . . . . . . . . . . . . 01/02/2008 09/08/2009 4,245.70 Banco BBVAConstructora Agua Santa . . . . . . . . . . . . . . . . . . . . . . . . 01/03/2008 06/28/2009 3,582.75 Banco BiceCruz y Dávila Ing. Ltda. . . . . . . . . . . . . . . . . . . . . . . . . 06/09/2008 02/03/2009 682.00 Banco SecurityConstructora Con Pax . . . . . . . . . . . . . . . . . . . . . . . . . . 07/04/2008 05/30/2009 9,259.00 Banco SantanderConstructora Con Pax . . . . . . . . . . . . . . . . . . . . . . . . . . 07/04/2008 05/30/2010 9,259.00 Banco SantanderJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/12/2008 05/12/2009 3,000.00 Banco BCIJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/12/2008 05/12/2009 3,000.00 Banco BCIJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/12/2008 05/12/2009 3,000.00 Banco BCIJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/12/2008 05/12/2009 3,000.00 Banco BCIJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/12/2008 06/08/2009 3,777.40 Banco BCIJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/12/2008 05/12/2009 664.40 Banco BCIJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/19/2008 06/08/2009 2,886.00 Banco ItaúJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/19/2008 05/12/2009 2,500.00 Banco ItaúJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/19/2008 05/12/2009 2,500.00 Banco ItaúJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/19/2008 05/12/2009 2,500.00 Banco ItaúJorge Orellana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/19/2008 05/12/2009 2,500.00 Banco ItaúConstructora Con-Pax . . . . . . . . . . . . . . . . . . . . . . . . . . 08/28/2008 07/10/2009 2,645.24 Banco BCIConstructora El Trébol . . . . . . . . . . . . . . . . . . . . . . . . . 09/25/2008 03/02/2009 1,000.00 Banco ChileConstructora El Trébol . . . . . . . . . . . . . . . . . . . . . . . . . 09/25/2008 03/02/2009 1,000.00 Banco ChileConstructora El Trébol . . . . . . . . . . . . . . . . . . . . . . . . . 09/25/2008 03/02/2009 1,000.00 Banco ChileConstructora El Trébol . . . . . . . . . . . . . . . . . . . . . . . . . 09/25/2008 03/02/2009 1,000.00 Banco ChileConstructora El Trébol . . . . . . . . . . . . . . . . . . . . . . . . . 09/25/2008 03/02/2009 1,431.00 Banco ChileConstructora El Trébol . . . . . . . . . . . . . . . . . . . . . . . . . 09/25/2008 03/02/2009 1,723.00 Banco ChileConstructora Icafal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10/15/2008 03/10/2009 172.32 Banco SantanderCruz y Dávila Ltda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12/24/2008 09/30/2009 882.00 Banco Security
F-235
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 26—LOCAL AND FOREIGN CURRENCY
Assets and liabilities in local and foreign currency and in Unidades de Fomento are shown in the financialstatements at the exchange rates stated in Note 2 g), summarized as follows:
a) Assets:
Currency 2009 2008
ThCh$ ThCh$
Current assetsCash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 4,691 11,245Cash and banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 20,252 18,367Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ — 2,540,200Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ — 555,569Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ — 197,469Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 2,520,255 4,910,264Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF 110,388 10,947,763Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 996 94,516Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 556,177 1,005,706Recoverable taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 50,476 26,908Notes and accounts receivable from related companies . . . Non-indexed Ch$ 523,294 510,510Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 435,588 540,647Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 310,129 823,684Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF 7,033 7,037Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 2,136,629 3,832,912Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 1,833,737 1,951,464Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 24,205,859 24,885,921
Fixed assetsFixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 77,781,600 85,974,965
Other assetsOther assets, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indexed Ch$ 35,864,967 39,707,945Other assets, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ — 16,156,818Other assets, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . UF 37,697 37,742Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 1,742,442 1,443,840
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 7,534,960 14,931,670
US$ 24,226,111 41,258,575
UF 155,118 10,992,542
Indexed Ch$ 116,226,021 128,998,705
F-236
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
b) Current liabilities:
Up to 90 days 90 days to 1 year
2009 2008 2009 2008
Item Currency Amount
Averageannual
interest rate Amount
Averageannual
interest rateAmount
interest rate
Averageannualamount
Averageannual
interest rate
ThCh$ % ThCh$ % ThCh$ % ThCh$ %
Bank borrowing, short-term . . . . . . US$ 10,689,450 5.87 10,661,919 5.87 — — — —Bank borrowing, short-term . . . . . . Non-indexed Ch$ 6,187,778 9.36 6,072,760 11.16 — — — —Accounts payable . . . . . . . . . . . . . . . Non-indexed Ch$ 5,857,837 5,505,390 — — — —Accounts payable . . . . . . . . . . . . . . . US$ 55,925 32,454 — — — —Other payables . . . . . . . . . . . . . . . . . US$ 6,175 269,981 — — — —Other payables . . . . . . . . . . . . . . . . . Non-indexed Ch$ 670,546 386,743 — — — —Other payables . . . . . . . . . . . . . . . . . UF 258,818 45,266 — — — —Notes and account payable to
related companies . . . . . . . . . . . . Non-indexed Ch$ 644,599 594,390 — — — —Provisions . . . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 1,336,946 3,075,417 — — — —Withholdings . . . . . . . . . . . . . . . . . . Non-indexed Ch$ 699,602 624,566 — — — —Other current liabilities . . . . . . . . . . UF — — — — 17,798,121 —Other current liabilities . . . . . . . . . . US$ 790,377 — — — — —
Total current liabilities . . . . . . US$ 11,541,927 10,964,354 — — — —
Non-indexed Ch$ 15,397,308 16,259,266
UF 258,818 45,266 17,798,121
F-237
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
c) Long-term liabilities at December 31, 2009:
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
Caption Currency Amount
Averageannual
interest rate Amount
Averageannual
interest rate Amount
Averageannual
interest rate Amount
Averageannual
interest rate
ThCh$ % ThCh$ % ThCh$ % ThCh$ %
Bank borrowing . . . . . . . . . . . . . . . . . US$ 19,271,731 4.38 19,271,731 4.38 22,554,045 4.38 —Bank borrowing . . . . . . . . . . . . . . . . . Ch$ 2,683,775 1.33 2,683,775 1.33 5,367,551 1.33 —Bank borrowing, Colombia
subsidiary . . . . . . . . . . . . . . . . . . . US$ 1,450,306 6,228 4,127,794 6.228 5,578,100 6.228 —Deferred taxes . . . . . . . . . . . . . . . . . . Indexed Ch$ 2,436,498 — — —Other long-term liabilities . . . . . . . . . UF 3,095,743 — — —Other long-term liabilities . . . . . . . . . Non-indexed
Ch$ — — — —
Total . . . . . . . . . . . . . . . . . . . . . US$ 20,722,037 23,399,525 28,132,145 —
Ch$ 2,683,775 2,683,775 5,367,551 —
Indexed Ch$ 2,436,498 — — —
UF 3,095,743 — — —
F-238
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
d) Long-term liabilities at December 31, 2008:
1 to 3 years 3 to 5 years 5 to 10 years More than 10 years
Caption Currency Amount
Averageannual
interest rate Amount
Averageannual
interest rate Amount
Averageannual
interest rate Amount
Averageannual
interest rate
ThCh$ % ThCh$ % ThCh$ % ThCh$ %
Bank borrowing . . . . . . . . . . . . . US$ 23,631,211 5.93 23,631,210 5.93 39,471,626 5.93 —Bank borrowing . . . . . . . . . . . . . Non-indexed Ch$ 1,302,518 5.81 2,624,479 5.81 6,561,196 5.81 —Bank borrowing,
Colombia Subsidiary . . . . . . . US$ 1,709,983 6.228 5,129,946 6.228 6,839,928 6.228 —Deferred taxes . . . . . . . . . . . . . . . Indexed Ch$ 3,837,977 — — — — —
Total . . . . . . . . . . . . . . . . . . US$ 25,341,194 28,761,156 46,311,554 —
Non-indexed Ch$ 1,302,518 2,624,479 6,561,196 —
Indexed Ch$ 3,837,977 — — —
F-239
EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 27—SANCTIONS
1) Company
2009:
On January 6, 2009, the SVS has been informed of the payment of a penalty amounting to ThCh$ 322(equivalent to UF 15) imposed on the General Manager, Mr. Alberto Hadad Lemos for out-of-time presentationof the share register for the quarter referred to March 31, 2008.
On January 19, 2009, a penalty amounting to ThCh$ 188 was paid, according to sentence N° 00544 datedJuly 23, 2008 announced by the Sanitary Authority of the Metropolitan Region.
On February 10, 2009, one third of the penalty imposed by the Labor Board (Estación Central) amounting toThCh$ 483, as per resolution N° 00487 dated December 2, 2008, was paid.
On February 11, 2009, an administrative penalty amounting to ThCh$ 149 imposed by the Settlement andMediation Center of the Labor Administration, as per resolution N° 166 dated February 3, 2009, was paid
On March 9, 2009, a penalty amounting to ThCh$ 492 imposed by the Labor Board (Maipú) as per resolution N°4353-08-129 dated December 13, 2008 and resolution of penalty reconsideration N° 99 dated February 24, 2009,was paid.
On March 9, 2009, one third of the penalty amounting to ThCh$ 737 imposed by the Labor Board (Maipú-Cerrillos) as per resolution N° 101 dated February 24, 2009, was paid.
On April 3, 2009, one third of a penalty amounting to ThCh$ 3,671 imposed by the Labor Board (South-EastSantiago) as per resolution N° 3751/08/52 dated August 13, 2008 and resolution N° 43 dated February 27, 2009,was paid.
On April 14, 2009, an administrative penalty amounting to ThCh$ 147 imposed by Labor Board (Maipú) as perresolution N° 74 dated January 9, 2008, was paid.
On April 14, 2009, an administrative penalty amounting to ThCh$ 734 imposed by Labor Board (East Santiago)as per resolution N° 3322/08/034, was paid.
On June 10, 2009, an administrative penalty amounting to ThCh$ 147 imposed by Settlement and MediationCenter of the Labor Administration as per resolution N° 4327/09/62 dated April 29, 2009, was paid.
On June 10, 2009, an administrative penalty amounting to ThCh$ 552 imposed by Settlement and MediationCenter of the Labor Administration as per resolution N° 512 dated May 4, 2009, was paid
On June 15, 2009, an administrative penalty amounting to ThCh$ 245 imposed by Labor Board (West Santiago)as per resolution N° 292 dated June 4, 2009, was paid.
On June 23, 2009, one third of the penalty amounting to ThCh$ 491 imposed by Labor Board (West Santiago) asper resolution N° 00159 dated May 25, 2009, was paid.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
On June 25, 2009, one third of the penalty amounting to ThCh$ 246 imposed by Labor Board (West Santiago) asper resolution N° 00170 dated June 2, 2009, was paid.
On June 25, 2009, one third of the penalty amounting to ThCh$ 3,434 imposed by Labor Board (West Santiago)as per resolution N° 00200 dated June 4, 2009, was paid.
On August 20, 2009, an administrative penalty amounting to ThCh$ 367 imposed by Settlement and MediationCenter of the Labor Administration as per resolution N° 594 dated August 4, 2009, was paid.
On August 2, 2009, an administrative penalty amounting to ThCh$ 1,064 imposed by the Labor Board (EastSantiago) as per resolution N° 3322 dated April 4, 2009, was paid.
As per Exempt Resolution N° 1814 dated August 24, 2009 of the Ministry of Transport, an UF 400 discount wasapplied for non-compliance of the frequency rate, in conformity with the measurement parameters established inthe Concession Agreement in relation to said indicators.
On October 26, 2009, a penalty amounting to ThCh$ 730 imposed by the Regional Undersecretary’s Office ofthe Metropolitan Health Ministry as per resolution N° 5186 dated August 17, 2009, was paid.
On October 26, 2009, an administrative penalty amounting to ThCh$ 730 imposed by the Labor Board (Maipú-Cerrillos) as per resolution N° 365 dated September 14, 2009, was paid.
On December 10, 2009, a penalty amounting to ThCh$ 369 imposed by the Regional Undersecretary’s Office ofthe Metropolitan Health Ministry as per resolution N° 7182 dated October 6, 2009, was paid.
On December 10, 2009, an administrative penalty amounting to ThCh$ 1,106 imposed by the Labor Board (WestSantiago) as per resolution N° 7756 dated March 24, 2009, was paid.
On December 10, 2009, an administrative penalty amounting to ThCh$ 737 imposed by the Labor Board (WestSantiago) as per resolution N° 474 dated November 16, 2009, was paid.
On December 10, 2009, an administrative penalty amounting to ThCh$ 387 imposed by the Labor Board (WestSantiago) as per resolution N° 463 dated November 14, 2009, was paid.
On December 10, 2009, an administrative penalty amounting to ThCh$ 1,475 imposed by the Labor Board (WestSantiago) as per resolution N° 443 dated November 14, 2009, was paid.
On December 10, 2009, an administrative penalty amounting to ThCh$ 1,659 imposed by the Labor Board(Providencia) as per resolution N° 588 dated August 18, 2009, was paid.
The penalties referred to above have not embodied non-compliance with covenants as per Note 15.
As of December 31, 2009, there are no other sanctions imposed on the Company, its Directors or its GeneralManager by other institutions or administrative authorities.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
2008:
On February 19, 2008, one third of the administrative penalty imposed by the Labor Board (West Santiago),Resolution N° 6223-07-161, amounting to ThCh$ 2,648, was paid. The payment was intended to oppose to thepenalty before the appropriate court, which has been accepted for reconsideration. The reasons for the penaltyare: Failure to keep the proper attendance register and failure to deliver voucher of internal by-laws.
On February 19, 2008 one third of the administrative penalty imposed by the Labor Board (North Santiago),Resolution N° 4374-07-47, amounting to ThCh$ 497, was paid. The payment was intended to oppose to thepenalty before the appropriate court, which has been accepted for reconsideration. The reasons for the penaltyare: Failure to have the proper attendance register, failure to add hours on a weekly basis, and failure to grantdays for weekly rest.
On March 19, 2008 one third of the administrative penalty imposed by the Labor Board (North Santiago),Resolution of reconsideration N° 1619 dated November 27, 2007, was paid. The reasons for the penalty are:Failure to deliver internal by-laws, failure of provision of water for both drinking and toilets, and failure to haveenough toilets.
On March 31, 2008 the sum of ThCh$ 348 corresponding to a penalty imposed by the Regional Secretary’sOffice of the Ministry o Health, Metropolitan Region of Santiago, was paid, Resolution N° 001783 datedMarch 25, 2008, record 4871/7/UIS. Reason of the penalty: The inspection performed on October 25, 2007 to thePudahuel bus terminal confirmed that the terminal lacks respective sanitary authorization for disposal of wastewater.
On March 31, 2008 Exempt Resolution N° 535 issued by the Ministry of Transport and Telecommunicationsdated March 24, 2008 was notified. The resolution rejected appeal before higher administrative authority lodgedby the Company against Exempt Resolution N° 102 issued by the Undersecretary’s Office of Transport datedJanuary 14, 2008, and imposes a penalty of UF 130, for non-compliance with the obligation to report claimswithin the term set forth in Exempt Resolution N° 2,351 of 2005, issued by said Undersecretary’s Office,immediately notifying the AFT for it to deduct the respective amount from the Company’s collection.
On June 18, 2008, one third of the penalty amounting to ThCh$ 705 (UTM 20) was paid, relating to the record ofResolution N° 3433/07/53 issued by the Labor Board (La Florida) dated August 13, 2007. Said resolution wasaccepted for reconsideration on June 6, 2008.
On June 18, 2008, one third of the penalty amounting to ThCh$ 2,170 (UTM 52) was paid, relating to the recordof Resolution N° 3433/07/46 issued by the Labor Board (La Florida) dated July 30, 2007. Said resolution wasaccepted for reconsideration on April 4, 2008.
On July 23, 2008, the sum of ThCh$ 178 (UTM 5) was paid in relation to the record of Sanitary Investigation N°4814/07/DAS of the Sanitary Authority. The request for reconsideration submitted is dismissed and sentence N°1789 issued by the Regional Secretary’s Office of the Ministry of Health dated March 26, 2008 was ratified.
On July 23, 2008 ThCh$ 178 (UTM 5) was paid, relating to the record of Sanitary Investigation N° 4886/07/DASof the Sanitary Authority. The request for reconsideration submitted is dismissed and sentence N° 1721 issued bythe Regional Secretary’s Office of the Ministry of Health dated March 12, 2008 was ratified.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
On July 23, 2008 one third of the penalty amounting to ThCh$ 2,583 (UTM 72) was paid, relating to the recordof acceptance for reconsideration of the penalty, Resolution N° 384 issued by the Labor Board (Providencia)dated July 14, 2008.
On July 11, 2008 one third of the penalty amounting to ThCh$ 3,208 (UTM 90) was paid, relating to the recordof acceptance for reconsideration of the penalty, Resolution N° 384 dated July 14, 2008 issued by the LaborBoard (South East Santiago).
On August 1, 2008 one third of the penalty amounting to ThCh$ 1,930 (UTM 53) was paid, relating to the recordof acceptance for reconsideration of the penalty, Resolution N° 310 dated June 30, 2008 issued by the LaborBoard (Maipú-Cerrillos).
On August 27 and 28, 2008, sixteen Exempt Resolutions N° 1261, 1295, 1302 to 1309, 1374 to 1379 issued bythe Ministry of Transport and Telecommunications, amounting to UF 200 were each notified. The resolutionslodged charges for alleged non-compliance with frequencies of buses leaving the respective bus terminals. TheCompany has lodged the respective discharges which are pending. From the mentioned penalties, the Ministry ofTransport has freed the Company from charges in two of them, through Exempt Resolution N° 2486 datedNovember 28, 2008 and Exempt Resolution N° 2810 dated January 15, 2009.
On October 24, 2008, Exempt Resolutions N° 1631, 1632 and 1633 issued by the Ministry of Transport andTelecommunications, amounting to UF 200 were each notified. The resolutions lodged charges for allegednon-compliance with frequencies of buses leaving the respective bus terminals. The Company has lodged therespective discharges which are pending. From the mentioned penalties, the Ministry of Transport has freed theCompany from charge in one of them, through Exempt Resolution N° 2792 dated December 31, 2008.
On November 5, 2008, Exempt Resolutions N° 2241, 2442, 2443 and 2444 issued by the Ministry of Transportand Telecommunications, amounting to UF 200 each were notified. The resolutions lodged charges for allegednon-compliance with frequencies of buses leaving the respective bus terminals. The Company has lodged therespective discharges which are pending.
On October 20, 2008, a penalty of ThCh$ 2,239 (UTM 60) imposed by the Labor Board (Providencia), as perresolution N° 649 dated October 17, 2008, was paid.
On October 20, 2008, a penalty of ThCh$ 369 (UTM 10) imposed by the Labor Board (Maipú), as per resolutionN° 383 dated September 4, 2008, was paid.
On December 19, 2008, as per Exempt Resolution N° 721 issued by the SVS, a penalty of UF 15 is imposed onthe General Manager, Mr. Alberto Hadad Lemos for out-of-time presentation of the share register for the quarterreferred to March 31, 2008. Said penalty was paid to the Chilean General Treasury of the Republic on January 5,2009, in the amount of ThCh$ 322. The payment of said penalty was reported to the SVS on January 6, 2009,thus enforcing compliance with the obligation of article 30, Decree Law N° 3538.
2) Subsidiary
No sanctions have been imposed on the subsidiary by administrative authorities.
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EXPRESS DE SANTIAGO UNO S.A. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)AT DECEMBER 31, 2009 AND 2008
(A free translation from the original prepared in Spanish)
NOTE 28—SUBSEQUENT EVENTS
During the period from December 31, 2009 up to the date on which these financial statements were issued(February 24, 2010), the Company’s management was not aware of any subsequent events which couldsignificantly affect the interpretation of these consolidated financial statements.
NOTE 29—ENVIRONMENT
The Company operates under environmental standards set forth in the Chilean laws and regulations and inaccordance with community relations, health and environmental policies.
As of December 31, 2009 and 2008, there are disbursements directly or indirectly related to protection ofenvironment, in wastewater treatment, spare part waste, etc. amounting to ThCh$ 261,528 in 2009(ThCh$ 142,992 in 2008), which have been directly taken to net income for the year.
NOTE 30—OPERATING COSTS AND EXPENSES
At December 31, 2009, 2008 and 2007, operating costs are detailed as follows:
2009 2008 2007
ThCh$ ThCh$ ThCh$
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . 58,645,942 63,494,604 48,673,451Amortization and depreciation . . . . . . . . . . . . . . 16,526,171 16,083,826 10,596,188
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,172,113 79,578,430 59,269,639
At December 31, 2009, 2008 and 2007 administrative and selling expenses are detailed as follows:
2009 2008 2007
ThCh$ ThCh$ ThCh$
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . 5,942,017 5,181,505 5,504,843Amortization and depreciation . . . . . . . . . . . . . . . . . 522,010 453,386 476,320
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,464,027 5,634,891 5,981,163
NOTE 31—OPERATING REVENUES
This caption basically comprises passenger transport revenue corresponding to Trunk line N° 4 realized duringthe years from January to December 2009, 2008 and 2007, respectively, and is detailed below:
2009 2008 2007
ThCh$ ThCh$ ThCh$
Collection, trunk line N° 4 . . . . . . . . . . . . . . . . . 85,559,664 90,719,985 66,299,789Billboards dynamic publicity in buses and
others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505,458 462,885 623,923
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,065,122 91,182,870 66,923,712
This revenue is fully denominated in Chilean pesos.
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APPENDIX A:SIGNIFICANT DIFFERENCES BETWEEN CHILEAN GAAP AND IFRS
Our unaudited condensed consolidated interim financial statements as of September 30, 2010 and for thenine-month periods ended September 30, 2009 and 2010 contained elsewhere in this Offering Memorandum havebeen prepared in Chilean pesos (Ch$) in accordance with Chilean GAAP. Significant measurement anddisclosure differences exist between IFRS and Chilean GAAP, and those differences may be material to thefinancial information that we have provided in this Offering Memorandum.
The matters described below summarize certain significant differences between IFRS and Chilean GAAPas they relate to us. The differences in accounting policies highlighted below reflect only those differences in forceat the time of the preparation of the relevant IFRS financial information. We have not attempted to identify futuredifferences between IFRS and Chilean GAAP as a result of prescribed changes in accounting standards ortransactions or events that may occur in the future and that could have a significant impact on the presentationbelow. In making an investment decision, you must rely upon your own examination of our business and financialcondition, the terms of the offering of the Notes and our financial information. You should consult your ownprofessional advisor for an understanding of the differences between IFRS and Chilean GAAP, and how thesedifferences might affect the financial information presented in this Offering Memorandum.
Price-Level Restatement
IFRS
• In agreement with IFRS (IAS 29), the Chilean economy does not reflect any characteristics of ahyper-inflation and therefore price-level restatement does not apply.
Chilean GAAP
• Chilean GAAP requires restating the financial statements to reflect the effects of variations in thepurchasing power of the local currency. For this purpose, and in conformity with current Chileanregulations, non-monetary assets and liabilities and equity accounts are restated by charges orcredits to income. Furthermore, the income and expense accounts are restated in terms of year-endconstant pesos.
Property, Plant and Equipment
IFRS
• Property, plant and equipment is initially recorded at its acquisition cost. Acquisition cost includesthe borrowing costs, asset retirement obligations. Subsequently property, plant and equipment canbe measured either at cost or using the revaluation method.
• Depreciation is calculated on a straight-line basis over the estimated useful life of the assets usingthe components approach of property, plant and equipment—calculating the depreciation to eachsignificant part separately.
• The residual value and the useful life of an asset shall be reviewed at least at each financial year-end. Price-level restatements of prior GAAP should be eliminated.
• In accordance with IFRS 1 a first-time adopter may elect to use a previous GAAP revaluation of anitem of property, plant and equipment at, or before, the date of transition to IFRSs as deemed cost atthe date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparableto: (i) fair value; or (ii) cost or depreciated cost in accordance with IFRSs.
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Chilean GAAP
• Property, plant and equipment is booked at acquisition cost plus price-level restatements. It is notmandatory to capitalize borrowing costs according to Chilean GAAP.
• Depreciation of assets is calculated using the straight-line method over the restated cost of assets,considering the remaining useful lives of assets. The component approach method of property, plantand equipment in not required by Chilean GAAP.
Provision for Overhaul of the Buses
IFRS
• IFRS (IAS 37) defines provisions as liabilities of uncertain timing or amount. A provision should berecognized when, and only when:
An entity has a present obligation (legal or constructive) as a result of a past event;
It is probable (i.e., more likely than not) that an outflow of resources embodying economic benefitswill be required to settle the obligation; and
A reliable estimate can be made of the amount of the obligation.
• IFRS does not allow recording a provision for regular maintenances even if there is a legislativerequirement to perform the maintenances. IAS 37 permits to capitalize the maintenance costs to thevalue of the specific item of property, plant and equipment and depreciate the amount until the nextmaintenance.
Chilean GAAP
• According to Chile GAAP the Company can account a provision at the end of every financialperiod and record the amount of provision on a linear basis into income statement.
Intangible Assets
IFRS
• According to IFRS (IAS 38) An intangible asset is an identifiable non-monetary asset withoutphysical substance.
• An intangible asset shall be recognized if, and only if:
It is probable that the expected future economic benefits that are attributable to the asset will flowto the entity; and
The cost of the asset can be measured reliably
• According to IFRS the Company has two models according to what how to account the intangibleassets:
Cost model
Revaluation method
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• An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, iffinite, the length of, or number of production or similar units constituting, that useful life. Anintangible asset shall be regarded by the Company as having indefinite useful life when, based onan analysis of all of the relevant factors, there is no foreseeable limit to the period over which theasset is expected to generate net cash inflows for the entity.
• The depreciable amount of an intangible asset with a finite useful life shall be allocated on asystematic basis over its useful life. Amortization shall begin when the asset is available for use(i.e., when it is in the location and condition necessary for it to be capable of operating in themanner intended by management).
• An entity shall assess at the end of each reporting period whether there is any indication that anasset may be impaired. If any such indication exists, the entity shall estimate the recoverableamount of the asset according to IAS 36.
• Impairment for this type of assets is the amount by which the carrying value of the asset exceeds itsrecoverable amount.
Chilean GAAP
• According to Technical Bulletin N°55 Chile GAAP allows similar treatment of intangible assetswith the following exceptions:
According to Chile GAAP the Company is not permitted to use revaluation method. The intangibleassets are recorded at cost.
Chile GAAP does not require performing impairment tests at the end of each reporting period.
Service Concession Agreements
IFRS
• IFRS (IFRIC 12) applies to public-to-private service concession arrangements if:
The grantor controls or regulates what services the operator must provide with the infrastructure, towhom it must provide them and at what price and
The grantor controls—through ownership, beneficial entitlement or otherwise—any significantresidual interest in the infrastructure at the end of the term of the arrangement.
• Infrastructure within the scope of IFRIC 12 is not recognized as property, plant and equipment ofthe operator. The operator recognizes a financial asset to the extent that it has an unconditionalcontractual right to receive cash or another financial asset from or at the direction of the grantor.
• The operator recognizes an intangible asset to the extent that it receives a right (a license) to chargeusers of the public service.
Chilean GAAP
• Technical Bulletin No. 67, the Chilean Association of Accountants establishes the accountingtreatment for concession contracts:
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• The standard states that:
During the construction period, the Concessioner may not record any profits or losses, and onlymay record the asset at its construction and investment cost
Costs are defined as construction expenses, interest expenses, price-level restatement anddepreciation
The earnings are recognized from the beginning of the operation period, and the asset is recordedas PPE and depreciated over the concession term
• According to the law, concession arrangements can be used for all types of public works, butexclusions for example include concessions for:
Electricity generation and transmission
Casinos
Mines
Financial Instruments
IFRS
Derivative instruments and hedging activities
• IFRS (IAS 39), “Financial Instruments: Recognition and Measurement”, establishes accounting andreporting standards for derivative instruments, including certain derivative instruments embedded inother contracts (collectively referred to as derivatives) and for hedging activities. IAS 39 requiresentities to recognize all derivatives as either assets or liabilities in the financial statements and tomeasure those instruments at fair value. If certain conditions are met, a derivative may bedesignated specifically as (a) a hedge of the exposure to changes in the fair value of a recognizedasset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cashflows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investmentin a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreigncurrency-denominated forecasted transaction. The effective portion of the gain or loss on aderivative designated as a cash flow hedge is reported in other comprehensive income, and theineffective portion is reported in earnings. In the case of fair value hedges, the hedging instrumentand the hedged item are marked to market and unrealized gains and losses on both the hedginginstrument and the hedged item are reported in earnings.
Embedded derivatives
• For IFRS purposes, certain implicit or explicit terms included in host contracts that affect some orall of the cash flows or the value of other exchanges required by the contract in a manner similar toa derivative instrument, must be separated from the host contract and accounted for at fair valueonly if all the criteria in IAS 39 paragraph 11 are met. An entity separately would measureembedded derivatives as freestanding derivative instruments at their estimated fair valuesrecognizing changes in such fair values based on the appropriate accounting as defined under IAS39 when they occur. The gain or loss on a derivative instrument not designated as a hedginginstrument will be recognized currently in earnings.
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Financial instruments disclosure
• IFRS (IFRS 7), “Financial Instruments”, requires disclosure of qualitative and quantitativeinformation about exposure to risks arising from financial instruments, including specifiedminimum disclosures about credit risk, liquidity risk and market risk. The qualitative disclosuredescribes management’s objectives, policies and processes for managing those risks. Thequantitative disclosure provides information about the extent to which the entity is exposed to risk,based on information provided internally to the entity’s key management personnel. Together, thesedisclosures provide an overview of the entity’s use of financial instruments and the exposures torisks they create. Under Chilean GAAP, there is no such requirement.
Chilean GAAP
Derivative instruments and hedging activities
• Under Chilean GAAP, derivative instruments are classified as either hedging contracts ornon-hedging contracts. Derivative instruments classified as non-hedging contracts are recorded atfair value, with changes in fair value recognized in earnings. Those derivative instruments classifiedas hedging contracts can be designated either as (a) a fair value hedge of the exposure to changes inthe fair value of a recognized asset or liability or an unrecognized firm commitment or (b) a cashflow hedge of the exposure to variable cash flows of a forecasted transaction. Under a fair valuehedge, unrealized losses are to be included in earnings and unrealized gains are deferred until therelated contract matures. Under a cash flow hedge, unrealized gains and losses are deferred until therelated forecasted transaction takes place or the related derivative contract matures. In addition, thedocumentation and hedge effectiveness requirements under Chilean GAAP are not as burdensomeas under IAS 39.
Embedded derivatives
• Chilean GAAP accounting rules do not consider the existence of derivative instruments embeddedin other contracts and therefore they are not reflected in the financial statements.
• For IFRS purposes, certain implicit or explicit terms included in host contracts that affect some orall of the cash flows or the value of other exchanges required by the contract in a manner similar toa derivative instrument, must be separated from the host contract and accounted for at fair valueonly if all the criteria in IAS 39 paragraph 11 are met. An entity separately would measureembedded derivatives as freestanding derivative instruments at their estimated fair valuesrecognizing changes in such fair values based on the appropriate accounting as defined under IAS39 when they occur. The gain or loss on a derivative instrument not designated as a hedginginstrument will be recognized currently in earnings.
Financial instruments disclosure
• IFRS 7, Financial Instruments, requires disclosure of qualitative and quantitative information aboutexposure to risks arising from financial instruments, including specified minimum disclosures aboutcredit risk, liquidity risk and market risk. The qualitative disclosure describes management’sobjectives, policies and processes for managing those risks. The quantitative disclosure providesinformation about the extent to which the entity is exposed to risk, based on information providedinternally to the entity’s key management personnel. Together, these disclosures provide anoverview of the entity’s use of financial instruments and the exposures to risks they create. UnderChilean GAAP, there is no such requirement.
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Impairment of Assets
IFRS
• IFRS (IAS36), “Impairment of Assets” an entity must assess at the end of each reporting periodwhether there is any indication that an asset may be impaired. If any such indication exists, theentity shall estimate the recoverable amount of the asset. However IAS 36 also requires that (a) therecoverable amount of an intangible asset with an indefinite useful life to be measured annually,irrespective of whether there is any indication that it may be impaired. The most recent detailedcalculation of recoverable amount made in a preceding period may be used in the impairment testfor that asset in the current period, provided specified criteria are met. ; b) the recoverable amountof an intangible asset not yet available for use to be measured and (c) goodwill acquired in abusiness combination to be tested for impairment annually.
• An asset is impaired when its carrying amount exceeds its recoverable amount. The recoverableamount is defined as the higher of an asset’s or a cash generation unit’s fair value less costs to selland its value in use. Value in use is the present value of the estimated future cash flows expected tobe derived from continuing use of the asset and from its ultimate disposal.
Chilean GAAP
• Under Chilean GAAP, an impairment loss must be recognized when there is evidence that an entitywould be permanently unable to generate enough revenue to absorb all its costs, includingdepreciation.
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APPENDIX B:ALSACIA OUTSTANDING INDEBTEDNESS
TO BE REPAID IN CONNECTION WITHTHE OFFERING OF NOTES
The terms of Alsacia’s debt that will be repaid or purchased using the proceeds of this offering areestimated in the table below as of February 22, 2011. The original use of proceeds for all debt listed below thatwas incurred within the last year was for general working capital.
Lender Currency
CurrentPrincipalAmount
(U.S.$) (1)Interest
Rate
InterestAccrued
(estimatedthrough
(2/22/2011) Maturity DatePrepaymentPenalties (6)
HSBC Bank plc (EKN I) (7) . . . . . . . . . U.S.$ $ 49,636,926 5.38% $1,320,397 August 28, 2016 $4,404,381HSBC Bank plc (EKN II) (7) . . . . . . . . U.S.$ $ 8,330,876 6.81% $ 280,514 February 28, 2018 $1,132,568HSBC Bank plc (EKN III) (7) . . . . . . . U.S.$ $ 7,593,205 2.31% $ 70,564 February 28, 2019 $ 93HSBC Bank Tokyo (NEXI) . . . . . . . . . U.S.$ $ 19,775,000 1.11% $ 108,263 August 28, 2017 $ 21,185HSBC Bank (Chile) (NIB) (3) . . . . . . . Ch$ $ 14,387,751 4.93% $ 444,669 August 28, 2018 $ 42,660Bancolombia Puerto Rico Int.
Inc. (I) . . . . . . . . . . . . . . . . . . . . . . . .U.S.$ $ 7,771,431 8.76% $ 52,949 December 25, 2013 None
Bancolombia Puerto Rico Int.Inc. (II) . . . . . . . . . . . . . . . . . . . . . . .
U.S.$ $ 14,580,000 8.76% $ 99,338 September 25, 2013 None
HSBC Bank (Chile) . . . . . . . . . . . . . . . CH$ $ 9,465,048 6.48% $ 10,222 February 16, 2011 $ 38,911Banco GNB Sudameris (I) . . . . . . . . . . U.S.$ $ 1,000,000 5.20% $ 3,611 January 28, 2012 NoneBanco GNB Sudameris (II) . . . . . . . . . U.S.$ $ 1,000,000 6.95% $ 26,256 April 9, 2012 NoneBanco Itaú (I) (5) . . . . . . . . . . . . . . . . . CH$ $ 1,467,100 6.48% $ 1,584 February 16, 2011 NoneBanco Itaú (II) (5) . . . . . . . . . . . . . . . . . CH$ $ 738,752 6.36% $ 914 February 15, 2011 NoneBanco Crédito e Inversiones (4)(5) . . . CH$ $ 1,735,151 6.54% $ 2,207 June 15, 2012 $ 6,194Banco BBVA (5) . . . . . . . . . . . . . . . . . CH$ $ 996,795 7.89% $ 5,680 October 27, 2011 $ 19,588Banco Internacional . . . . . . . . . . . . . . . CH$ $ 5,202,481 6.36% $ 20,220 February 21, 2011 NoneInversiones Dakota SpA (2) . . . . . . . . . UF$ $ 8,146,547 12.50% $ 87,689 February 22, 2019 $1,215,300Data Tools S.A. (2) . . . . . . . . . . . . . . . . U.S.$ $ 1,610,000 1.00% $ 88,148 August 28, 2012 NoneFanach Corp. (2) . . . . . . . . . . . . . . . . . . U.S.$ $ 1,000,000 1.00% $ 54,750 August 28, 2012 NoneVedeve Trading S.A. (Volvo I) . . . . . . U.S.$ $ 211,267 6.28% $ 3,133 February 27, 2011 $ 12,500Vedeve Trading S.A. (Volvo II) . . . . . . $ 1,243,809 5.21% $ 10,440 June 3, 2015 $ 1,450Consorcio Aseo Capital S.A. (2) . . . . . U.S.$ $ 500,000 1.00% $ 24,847 August 28, 2012 NoneCarlos Toro (2) . . . . . . . . . . . . . . . . . . . U.S.$ $ 200,000 1.00% $ 8,750 August 28, 2012 NoneMaraya Enterprises LLC (2) . . . . . . . . . U.S.$ $ 170,000 1.00% $ 7,442 August 28, 2012 None
Total Alsacia . . . . . . . . . . . . . . . . . . . . $156,762,138 $2,732,589 $6,894,831
(1) All borrowings denominated in currency other than U.S.$ have been converted to U.S.$ using the followingexchange rates:
Ch$ / U.S.$ = 480.54Ch$ / UF = 21,483.24
(2) These borrowings are included in the Alsacia’s balance sheet under “Accounts Payables to RelatedEntities.”
(3) This loan is guaranteed by a standby letter of credit issued by HSBC Bank (London) in the amount ofU.S.$15 million, which in turn is guaranteed by a time deposit of IASA de Colombia S.A., an affiliate ofAlsacia. This time deposit was funded by a long-term loan from Nordic Investment Bank to IASA deColombia S.A. with Alsacia as a guarantor.
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(4) Comprised of three loans with materially similar terms.
(5) The principal amount of these loans may vary between the date of this Offering Memorandum and the timeof the Escrow Closing Date due to principal repayments or new borrowings.
(6) Prepayment penalties are estimated as of the date of this Offering Memorandum. Actual penalties coulddiffer and will be based on the date we give notice to our lenders and prevailing market conditions andnegotiations with those lenders at that time.
(7) In addition to the amounts shown, Alsacia and Express will be required to pay, together, an aggregate breakfee of U.S.$614,000 in connection with these three facilities.
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APPENDIX C:EXPRESS OUTSTANDING INDEBTEDNESS
TO BE REPAID IN CONNECTION WITHTHE OFFERING OF NOTES
The terms of Express’s debt that will be repaid or purchased using the proceeds of this offering areestimated in the table below as of February 22, 2011. The original use of proceeds for all debt listed below thatwas incurred within the last year was for general working capital.
Lender Currency
CurrentPrincipalAmount
(U.S.$) (1)Interest
Rate
InterestAccrued
(estimatedthrough
2/22/2011) Maturity DatePrepaymentPenalties (4)
HSBC Bank plc (EKN I) (5) . . . . . . U.S.$ $79,122,925 5.38% $2,104,758 August 28, 2017 $7,020,732HSBC Bank plc (EKN II a) (5) . . . . U.S.$ $6,067,314 6.38% $191,397 February 28, 2018 $ 735,332HSBC Bank plc (EKN II b) (5) . . . . U.S.$ $3,793,312 6.09% $114,223 February 28, 2018 $ 421,991HSBC Bank plc (EKN III) (5) . . . . . U.S.$ $31,005,037 2.08% $95,058 February 28, 2019 $ 0HSBC Bank Tokyo (NEXI) . . . . . . . U.S.$ $31,500,000 1.11% $172,454 August 28, 2017 $ 33,750HSBC Bank (Chile)(NIB) (2) . . . . . . CH$ $22,339,660 4.93% $692,193 August 28, 2018 $ 67,037HSBC Bank (Chile) . . . . . . . . . . . . . CH$ $12,760,644 6.48% $314,677 March 1, 2011 $ 52,459Vedeve Trading S.A. (Volvo) . . . . . CH$ $5,131,092 4.65% $11,261 May 05, 2015 $ 19,872Banco Itaú (3) . . . . . . . . . . . . . . . . . . CH$ $2,205,852 6.48% $14,294 March 18, 2011 NoneBanco BBVA (3) . . . . . . . . . . . . . . . CH$ $1,123,736 7.41% $9,252 April 19, 2011 None
Express Total . . . . . . . . . . . . . . . . . $195,049,571 $3,719,567 $8,351,173
(1) All borrowings denominated in currency other than U.S.$ have been converted to U.S.$ using the followingexchange rates:
Ch$ / U.S.$ = 480.54Ch$ / UF = 21,483.24
(2) This loan is guaranteed by a standby letter of credit issued by HSBC Bank (London) in the amount ofU.S.$23 million, which in turn is guaranteed by a time deposit of EXPS Colombia, an affiliate of Express.This time deposit was funded by a long-term loan from Nordic Investment Bank to EXPS Colombia withExpress as a guarantor.
(3) The principal amount of these loans may vary between the date of this Offering Memorandum and the timeof the Escrow Closing Date due to principal repayments or new borrowings.
(4) Prepayment penalties are estimated as of the date of this Offering Memorandum. Actual penalties coulddiffer and will be based on the date we give notice to our lenders and prevailing market conditions andnegotiations with those lenders at that time.
(5) In addition to the amounts shown, Alsacia and Express will be required to pay, together, an aggregate breakfee of U.S.$614,000 in connection with these three facilities.
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APPENDIX D:CERTAIN DEFINITIONS
Unless otherwise indicated or the context otherwise requires, all references in this Offering Memorandumhave the meanings below.
“Accelerated Hedge Payments” means the present value of the premiums payable over the remaining life ofthe Notes Hedge Agreement, net of the present value of any premium payments payable to Alsacia, if any, ascalculated by the Notes Hedge Counterparty in accordance therewith.
“Accounts” means collectively the Chilean Accounts, the NY Accounts, the Additional Payment Accounts,the Open Market Purchases Account and the Additional Reserve Accounts.
“Acquisition” means the pending acquisition of Express by our Principal Shareholder and other affiliates ofAlsacia as described below under “Use of Proceeds—The Acquisition.”
“Act of Required Debtholders” is defined under “Description of Notes and Finance Agreements—TheSecured Party Agents.”
“Additional Agreements” means all agreements or contracts (as amended from time to time) entered into by,or the benefits of which run to, the Concessionaires in connection with the Concession Agreements, the AFTAgreement, the Collection Mandate Agreements and the Technology Services Agreements (including, withoutlimitation, each service contract, publicity contract, supply contract, lease or other agreement contemplated orpermitted by the Operating Agreements), the gross value (measured by either liabilities or receivables at the timesuch agreements or contracts are entered into, amended or supplemented in any manner) of which (eitherindividually or in the aggregate with any other contracts comprising the same transaction or series of relatedtransactions) equals or exceeds U.S.$3.0 million per annum.
“Additional Amounts” is defined under “Description of Notes and Finance Agreements—AdditionalAmounts.”
“Additional Coverage Reserve Accounts” is defined under “Description of Notes and FinanceAgreements—Early Amortization.”
“Additional Notes” is defined under “Description of Notes and Finance Agreements—Additional Notes.”
“Additional Payment Amounts” is defined under “Description of Notes and Finance Agreements—Semi-annual and Special Distributions.”
“Additional Reserve Accounts” is defined under “Description of Notes and Finance Agreements—Semi-annual and Special Distributions.”
“Affiliate” means, with respect to any specified person, any other person directly or indirectly controlling orcontrolled by or under direct or indirect common control with such specified person. For purposes of thisdefinition, “control”, when used with respect to any specified person, means the power to direct the managementand policies of such person, directly or indirectly, whether through the ownership of voting securities, by contractor otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Affiliate Transaction” is defined under “Description of Notes and Finance Agreements—AffirmativeCovenants of the Issuer and the Guarantors—Limitations on Affiliate Transactions.”
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“AFT” means the Transantiago Financial Administrator (Administrador Financiero de Transantiago S.A.),the collection agent and custodian of funds for Transantiago.
“AFT Agreement” means the Financial Administration Complementary Services Agreement, dated July 28,2005, between the Administrador Financiero Transantiago S.A. (including any successor entity, the “AFT”) andthe Ministerio de Transporte y Telecomunicaciones (the “Ministry of Transportation”), as amended from time totime.
“Alsacia” or the “Issuer” means Inversiones Alsacia S.A., which holds rights under one of the Concessions.
“Annual Budget” is defined under “Description of Notes and Finance Agreements—Affirmative Covenantsof the Issuer and the Guarantors—Budgets.”
“Applicable Premium” means with respect to any Note on any redemption date, the difference (not to beless than zero) between (a) the present value (compounded on a semi-annual basis) to such date of the scheduledfuture principal and interest cash flows from the beneficial interests in the Notes being redeemed discounted at aper annum rate equal to the then-current bid side yield (as most recently published in the New York edition ofThe Wall Street Journal) on the U.S. Treasury Note having a maturity date closest to the remaining weightedaverage life on the Notes calculated at the time of the prepayment, plus 0.75% per annum and (b) the aggregateprincipal amount of Notes (or portion thereof) to be redeemed.
“Asset Disposition” is defined under “Description of Notes and Finance Agreements—AffirmativeCovenants of the Issuer and the Guarantors—Limitations on Sale of Assets.”
“Asset Pledge Agreements” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Assigned Receivables” means certain receivables that the Issuer expects to collect from a dispute withExpress and which the Issuer assigned to GPS International pursuant to an agreement dated October 12, 2010, inan aggregate amount not to exceed Ch$2,127 million, which payment will be subject to “Description of Notesand Finance Agreements—Limitations on Restricted Payments” and will be made pursuant to “Description ofNotes and Finance Agreements—Deposits of Funds to and Distribution of Funds from the Revenue Account—Semi-annual and Special Distributions—seventeenth”.
“Available Funds” means all the funds available on each Transfer Date for transfer from the RevenueAccount to the Payment Account after deduction of the aggregate amount of funds transferred on such TransferDate from the Revenue Account pursuant to “—Bi-monthly Distributions—first” through “—fifth”.
“Base Case Model” means the financial model, certified as having been prepared in good faith by an Officerof the Issuer in accordance with the Annual Budget, as set forth in an exhibit to the Indenture, as such Base CaseModel may be revised from time to time pursuant to the Indenture.
“Base Revenue” means the predetermined monthly amount set forth in the Concession Agreements,adjusted for monthly seasonality and changes in the Cost Index. For a complete description of the formula forBase Revenue, see “The Concessions—Concession Revenue—Revenue Formulas.”
“BI” is defined under “The Escrow.”
“Bidding Guidelines” (Bases de Licitación) means the guidelines that establish the parameters of theConcessions, set forth by the Ministry in the public bidding process for concessions.
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“BONYM” is defined under “Description of Notes and Finance Agreements.”
“Bus Network” means the bus transportation and related operating systems subject to the ConcessionAgreements.
“Bus Terminal Loan” means a U.S.$12.5 million loan from BI to Alsacia, guaranteed by the Guarantors andLorena SpA and secured by the Excluded Depot and the capital stock of Lorena SpA.
“Business Day” means any day other than a Saturday, Sunday or other day on which banking institutions inNew York City, New York, or Santiago, Chile, are permitted or required by applicable law to remain closed.
“CAPEX Budget” is defined under “Description of Notes and Finance Agreements—Affirmative Covenantsof the Issuer and the Guarantors—CAPEX Costs.”
“CAPEX Costs” means the aggregate amount of capital expenditures of the Concessionaires for fixed orcapital assets for the Bus Network or a Permitted Business which, in accordance with Chilean GAAP, would beclassified as capital expenditures, to be incurred by the Concessionaires in good faith, on an arm’s-length basisand in the ordinary course of business, but excluding any such expenditures that are Repair Payments orOverhaul Costs.
“Capital Lease Obligations” means, with respect to any person, any obligation which is required to beclassified and accounted for as a capital lease on the face of a balance sheet of such person prepared inaccordance with GAAP; the amount of such obligation will be the capitalized amount thereof, determined inaccordance with GAAP; and the stated maturity thereof will be the date of the last payment of rent or any otheramount due under such lease prior to the first date upon which such lease may be terminated by the lesseewithout payment of a penalty.
“Capital Stock” means: (i) in the case of a corporation, corporate stock of any class; (ii) in the case of anassociation or business entity, any and all shares, interests, participations, rights or other equivalents (howeverdesignated) of corporate stock; (iii) in the case of a partnership or limited liability company, partnership ormembership interests (whether general or limited); and (iv) any other interest or participation that confers on aperson the right to receive a share of the profits and losses of, or distributions of assets of, the issuing person.
“Capped Call Option” is defined under “Management’s Discussion and Analysis of Financial Condition andResults of Operations for Alsacia and Express—Quantitative and Qualitative Disclosures About Market andOperating Risks—Exchange Rate Hedge.”
“Cash Trapping Period” is defined under “Description of Notes and Finance Agreements—Cash TrappingUpon any Event of Default.”
“Change of Control” is defined under “Description of Notes and Finance Agreements—Repurchase ofNotes upon a Change of Control.”
“Change of Control Date” is defined under “Description of Notes and Finance Agreements—Repurchase ofNotes upon a Change of Control.”
“Change of Control Offer” is defined under “Description of Notes and Finance Agreements—Repurchase ofNotes upon a Change of Control.”
“Change of Control Payment Date” is defined under “Description of Notes and Finance Agreements—Repurchase of Notes upon a Change of Control.”
“Change of Control Purchase Price” is defined under “Description of Notes and Finance Agreements—Repurchase of Notes upon a Change of Control.”
“Chile” means the Republic of Chile.
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“Chilean Accounts” means collectively the Revenue Account, the O&M Accounts, the Overhaul Accounts,the Transfer Accounts and the Transaction Checking Accounts.
“Chilean Central Bank” (Banco Central de Chile) means the Central Bank of Chile, an autonomous entitycreated by the Chilean Government and given authority over the country’s monetary policy.
“Chilean Collateral Agent” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Chilean Government” means the government of Chile.
“Chilean Money Pledges” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Chilean Security Documents” means the Security Documents other than the NY Account PledgeAgreements.
“Closing Conditions” is defined under “Description of Notes and Finance Agreements.”
“Collateral” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Collateral Trust Agreement” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Collection Mandate Agreements” means, collectively, the Collection Mandate Agreement, datedOctober 19, 2005, between Alsacia and the AFT, as amended from time to time, and the Collection MandateAgreement, dated October 19, 2005, between Express and the AFT, as amended from time to time.
“Compliance Certificate” means a certificate executed by the chief financial officer of the Issuer and eachGuarantor certifying that such officer has made or caused to be made a review of the transactions and financialcondition of the Issuer and each Guarantor as of the last day of the period covered by such financial statementsand that such review did not disclose the existence of any event or condition that constitutes a Default or anEvent of Default under any Transaction Document to which the Issuer and each Guarantor is a party, or if anysuch event or condition existed or exists, the nature thereof and the corrective actions that Issuer and eachGuarantor has taken or proposes to take with respect thereto, and also certifying that the Issuer and eachGuarantor is in compliance with its obligations under the Indenture and each other Transaction Document towhich it is a party or, if such is not the case, stating the nature of such noncompliance and the corrective actionsthat the Issuer has taken or proposes to take with respect thereto.
“Concession Agreements” means, collectively, the Concession Agreement, dated January 28, 2005, betweenAlsacia and the Ministry of Transportation, as amended from time to time, and the Concession Agreement, datedJanuary 28, 2005, between Express and the Ministry of Transportation, as amended from time to time, and anyother similar concession agreements between the Ministry of Transportation or any other Governmental Authorityand either Concessionaire in respect of the operation of public bus services in the Transantiago System entered intofrom time to time in accordance with the Indenture, in all cases as certified to by the Issuer and the Guarantors.
“Concession Pledge Agreements” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Concessions” means collectively the rights of Alsacia and Express under their Concession Agreements andthe Bidding Guidelines to operate their bus systems on their designated routes. See “The Concessions.”
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“Concessionaires” is defined under “Description of Notes and Finance Agreements.”
“Contingent Hedge Payments” means, with respect to any contract, agreement or arrangement giving rise toHedging Obligations, any amounts paid or to be paid by the Concessionaires to the related Hedge Counterpartyas a result of the early termination, breakage or mark-to-market determinations or similar contingent amountsunder such contract, agreement or arrangement other than Excluded Contingent Hedge Payments. ContingentHedge Payments do not constitute a part of any Hedge Payments.
“Controlling Party” means, as of any date of determination, the Noteholders and the Notes HedgeCounterparty that, in the aggregate, hold more than 50% of the Voting Balances; provided that, with respect tocertain waivers and amendments, the consent of each affected Noteholder and affected Notes HedgeCounterparty will also be required. Notes held by the Issuer, the Guarantors or any of their respective affiliatesare excluded from this definition.
“Corrupt Practices Laws” means, to the extent applicable with respect to the Issuer or any Guarantor, (a) theUnited States Foreign Corrupt Practices Act of 1977 (Pub. L. No. 95-213, §§101-104), as amended and (b) anyother applicable law having the force of law, applicable to the Issuer or any Guarantor and relating to bribery,kick-backs or similar business practices.
“Cost Index” means the weighted average of various price and cost indices, as specified in the ConcessionAgreements, used in the revenue formulas for Alsacia and Express. For a complete description of the formula forcalculating the Cost Index, see “The Concessions—Concession Revenue—Revenue Formulas.”
“Coverage Reserve Account” is defined under “Description of Notes and Finance Agreements—EarlyAmortization.”
“Coverage Reserve Account Deposit Amount” is defined under “Description of Notes and FinanceAgreements—Early Amortization.”
“Debt” means, with respect to any person, without duplication:
(a) the principal of and premium, if any, in respect of (i) indebtedness of such person for borrowed moneyand (ii) indebtedness evidenced by notes, debentures, bonds or other similar instruments for thepayment of which such person is responsible or liable;
(b) all Capital Lease Obligations of such person;
(c) all obligations of such person issued or assumed as the deferred purchase price of property, allconditional sale obligations of such person and all obligations of such person under any title retentionagreement (but excluding trade accounts payable or other short-term obligations to suppliers payablewithin 180 days, in each case arising in the ordinary course of business);
(d) all obligations of such person for the reimbursement of any obligor on any Letter of Credit, banker’sacceptance or similar credit transaction (other than obligations with respect to letters of credit securingobligations (other than obligations described in clauses (a) through (c) above) entered into in the ordinarycourse of business of such person to the extent such letters of credit are not drawn upon or, if and to theextent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt bysuch person of a demand for reimbursement following payment on the Letter of Credit);
(e) all Hedging Obligations of such person;
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(f) all obligations of the type referred to in clauses (a) through (e) of other persons and all dividends ofother persons for the payment of which, in either case, such person is responsible or liable, directly orindirectly, as obligor, guarantor or otherwise, including by means of any guarantee (other thanobligations of other persons that are customers or suppliers of such person for which such person is orbecomes so responsible or liable in the ordinary course of business to (but only to) the extent that suchperson does not, or is not required to, make payment in respect thereof);
(g) all obligations of the type referred to in clauses (a) through (e) of other persons secured by any Lien onany property or asset of such person (whether or not such obligation is assumed by such person), theamount of such obligation being deemed to be the lesser of the value of such property or assets or theamount of the obligation so secured; and
(h) any other obligations of such person which are required to be, or are in such person’s financialstatements, recorded or treated as debt under GAAP.
“Debt Service” means, for any period, the sum of all cash principal and cash interest payments (includingcash withholding tax payments in connection therewith) and any fees, expenses, breakage costs, termination costsand other amounts in respect of all Debt other than Subordinated Indebtedness, in each case taking into accountthe actual amount payable or receivable under any Hedging Obligations related thereto for purposes of theforegoing calculation.
“Debt Service Coverage Ratio” means, for any period, the result obtained by dividing (a) the aggregateamount of funds deposited into the Revenue Account (excluding any funds transferred from the other Accountsto the Revenue Account) minus the aggregate amount of funds transferred pursuant to “first” through “fifth”under “—Deposits of Funds to and Distribution of Funds from the Revenue Account” (other than ContingentHedge Payments and cash withholding tax payments made in connection with Debt Service), for such period by(b) the total Debt Service for such period, in each case as reflected in certifications reasonably acceptable to theTrustee and, in the case of future Reporting Periods, estimates of such deposits and Debt Service then scheduledto be due and payable for such future periods, in the forms provided in the Indenture or in the most recentconsolidated financial statements of the Issuer presented in U.S. dollars and submitted to the Trustee pursuant tothe provisions of the Indenture. Calculations shall exclude payments of expenses and fees in respect of theTransactions or the Acquisition.
“Debt Service Reserve Amount” is defined under “Description of Notes and Finance Agreements—Depositsof Funds to and Distribution of Funds from the Reserve Account.”
“Debt to Equity Ratio” means, as of the date of calculation, the ratio of (a) the aggregate outstandingamount of Senior Indebtedness, without duplication, of the Issuer and the Guarantors, taken as a whole, as ofsuch date to (b) the aggregate amount of Equity of the Concessionaires, taken as a whole, as of such date.
“Discharge of Parity Lien Obligations” is defined under “Description of Notes and Finance Agreements—The Secured Party Agents.”
“Disposition” is defined under “Description of Notes and Finance Agreements—Affirmative Covenants ofthe Issuer and the Guarantors—Dispositions.”
“Disqualified Stock” means, with respect to any person, any Capital Stock that, by its terms (or by the termsof any security into which it is convertible, or for which it is exchangeable, in each case at the option of theholder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant
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to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in wholeor in part, prior to the date that is one year after the date on which the Notes mature. Notwithstanding thepreceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of theCapital Stock have the right to require the Issuer or any Guarantor to repurchase such Capital Stock upon theoccurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of suchCapital Stock provide that the Issuer or any Guarantor may not repurchase or redeem any such Capital Stockpursuant to such provisions unless such repurchase or redemption complies with the Restricted Payment test orotherwise requires the prior repayment in full of the Notes. The term “Disqualified Stock” will also include anyoptions, warrants or other rights that are convertible into Disqualified Stock or that are redeemable at the optionof the holder, or required to be redeemed, prior to the date that is one year after the date on which the Notesmature.
“Early Amortization Debt Service Coverage Ratio” is defined under “Description of Notes and FinanceAgreements—Early Amortization.”
“Early Amortization Event” is defined under “Description of Notes and Finance Agreements—EarlyAmortization.”
“Early Amortization Period” is defined under “Description of Notes and Finance Agreements—EarlyAmortization.”
“Early Amortization Principal Amounts” is defined under “Description of Notes and Finance Agreements—Early Amortization.”
“EEA” is defined under “Plan of Distribution—Notice to Prospective Investors in the EEA.”
“Eco Uno” means Inversiones Eco Uno S.A., which is an intermediate holding company expected to becontrolled by our Principal Shareholder that owns 99.998% of the equity of Express and will be a Guarantor ofthe Notes.
“Equity” means, as of the date of calculation, the sum of the present value (compounded on a semi-annualbasis) of the aggregate amount of funds deposited and projected to be deposited into the Revenue Account(excluding any funds to be transferred from the other Accounts to the Revenue Account) minus the aggregateamount of funds transferred and projected to be transferred from the Revenue Account pursuant to “first” through“fourteenth” under “—Deposits of Funds to and Distribution of Funds from the Revenue Account” until, andincluding, August 18, 2018, as projected in the Base Case Model as updated to such date of calculation,discounted at a per annum rate equal to 12%.
“Equity Offerings” means any public or private sale of equity securities of the Issuer or any Guarantor(other than Disqualified Stock) other than: (a) offerings related to equity securities issuable under any employeebenefit plan of the Issuer or any Guarantor; and (b) issuances to any subsidiary of the Issuer or any Guarantor.
“ERISA affiliate” means any corporation or person that is a member of any group of organizations(a) described in Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended (the “Code”), of whichthe Issuer is a member, and (b) solely for purposes of potential liability under Section 302(c)(11) of ERISA andSection 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of theCode, treated as a single employer under Section 414(m) or (o) of the Code of which the Issuer is a member.
“Escrow” is defined under “The Escrow.”
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“Escrow Agent” is defined under “The Escrow.”
“Escrow Agreement” is defined under “The Escrow.”
“Escrow Closing Date” is defined under “The Escrow.”
“Escrow Redemption Date” is defined under “The Escrow.”
“Escrowed Amounts” is defined under “The Escrow.”
“Event of Default” is defined under “Description of Notes and Finance Agreements—Events of Default.”
“Excess Additional Amounts” is defined under “Description of Notes and Finance Agreements—Redemption Solely for Tax Reasons.”
“Excluded Contingent Hedge Payments” means, in relation to any contract, agreement or arrangementgiving rise to Hedging Obligations that is in effect with respect to the Notes or any other Senior Indebtedness, anamount equal to the amount of any termination payment due and payable under such contract, agreement orarrangement to the relevant Hedge Counterparty as a result of a Hedge Counterparty Default with respect to suchHedge Counterparty.
“Existing Indebtedness” is defined under “The Escrow.”
“Expense Budget” is defined under “Description of Notes and Finance Agreements—Deposits of Funds toand Distributions of Funds from the O&M Accounts.”
“Express” means Express de Santiago Uno S.A., which holds rights under one of the Concessions and is aGuarantor of the Notes.
“Express Share Pledge Agreements” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Expropriation Compensation” means all value (whether in the form of money, securities, property orotherwise) paid or payable by any Governmental Authority in Chile, in whole or partial settlement of claims,whether or not resulting from judicial proceedings and whether paid or payable within or outside Chile, ascompensation for or in respect of any Expropriatory Action.
“Expropriatory Action” means any action or series of actions taken, authorized, ratified or acquiesced in byany Governmental Authority in Chile, or any person purporting to act as a Governmental Authority in Chile orany governing authority which is in de facto control of part of Chile or arising under any Chilean Law, for theappropriation, confiscation, expropriation, seizure or nationalization (by intervention, condemnation or otherform of taking), whether with or without compensation and whether under color of law or otherwise (includingthrough confiscatory taxation or imposition of confiscatory charges), of ownership or control of the Concessionrights, the Operating Agreements or the Bus Network, or any substantial portion thereof, held by Concessionairesor any substantial portion of the Concessionaires’ economic benefits therefrom.
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“Fair Market Value” means, with respect to any asset, the price which could be negotiated in an arm’s-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is undercompulsion to complete the transaction, (i) if such asset has a price of at least U.S.$1.0 million and less thanU.S.$10.0 million, as such price is determined in good faith by the board of directors of the relevantConcessionaire as evidenced by a resolution of such board of directors; or (ii) if such asset has a price of at leastU.S.$10.0 million, as such price is determined by an opinion as to the fairness of such price to suchConcessionaire from a financial point of view issued by an investment banking firm of international standing.
“Finance Agreements” means, collectively, the Notes, the Indenture, the Supplemental Indenture, theEscrow Agreement, the Notes Hedge Agreement, the Guarantees and the Security Documents.
“Fitch” means Fitch, Inc. and Rating and Investment Information, Inc.
“GAAP” means generally accepted accounting principles in Chile or IFRS to the extent then applicable, ineach case as in effect on the date of the Indenture.
“Governmental Authority” means any government, governmental department, ministry, commission, board,bureau, agency, regulatory authority, instrumentality of any government (central or local), judicial, legislative oradministrative body, domestic or foreign, federal, state or local, having jurisdiction over the person or matter inquestion.
“GPS Group” or “Principal Shareholder” means Global Public Services “GPS”, S.A., a Panama corporationbeneficially owned by Carlos Ríos, Javier Ríos and entities controlled by them and members of their family.Upon completion of the Acquisition, GPS Group will directly or indirectly own 100% of Panamerican, 99.695%of Eco Uno, 99.998% of Express and 99.997% of Alsacia. See “Principal Shareholders.”
“GPS International” means GPS International of Panamá (Chile) S.A.
“Grupo Transportador” is defined under “Introductory Note.”
“Guarantee” is defined under “Description of Notes and Finance Agreements—Guarantees.”
“Guarantors” means, collectively, Express, Panamerican and Eco Uno.
“Hedge Counterparty” means the counterparty to any contract, agreement or arrangement giving rise toHedging Obligations in each case in the ordinary course of business for the purpose of fixing, hedging orswapping interest rate, foreign currency exchange rate or fuel cost risk, and not for speculative purposes, andwhich counterparty is entitled to receive the Hedge Payments under such contract, agreement or arrangement.
“Hedge Counterparty Default” means the occurrence of a default or an event of default (as defined in therelevant contract, agreement or arrangement giving rise to Hedging Obligations) with respect to the relevantHedge Counterparty, where the relevant Hedge Counterparty is the defaulting party (as defined in such contract,agreement or arrangement) or such default or event of default has been caused by an action or omission of suchHedge Counterparty.
“Hedge Interest Amounts” means, with respect to the Notes and any other Senior Indebtedness, the amounts(if any) specified to be paid by the Concessionaires to the Hedge Counterparty in accordance with the Indenture
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or the agreement related to such other Senior Indebtedness which are calculated by reference to a rate of interest.For the avoidance of doubt, the term Hedge Interest Amounts does not include any amounts of Contingent HedgePayments.
“Hedge Payments” means payments (other than Contingent Hedge Payments) due by or to Concessionairesunder Hedging Obligations, in each case in the ordinary course of business for the purpose of fixing, hedging orswapping interest rate, foreign currency exchange rate or fuel cost risk (or to reverse or amend any suchagreements previously made for such purposes), and not for speculative purposes, and that do not increase theDebt of the obligor outstanding at any time other than as a result of fluctuations in interest rates, foreign currencyexchange rates or fuel cost, or by reason of fees, indemnities and compensation payable thereunder. For theavoidance of doubt, the term Hedge Payments in respect of the Notes and any other Senior Indebtedness includesHedge Interest Amounts.
“Hedging Obligations” means, with respect to any specified Person, the obligations of such Person under(i) any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interestrate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement orarrangement; (ii) any commodity forward contract, commodity swap agreement, commodity option agreement orother similar agreement or arrangement; or (iii) any foreign exchange contract, option, currency swap agreementor other similar agreement or arrangement.
“ICF” means the frequency fulfillment index (Índice de Cumplimiento de Frecuencia), which, along withthe ICR, is used by the Ministry to measure the performance of Alsacia and Express in relation to their respectiveOperating Plans. Deviations from Operating Plans decrease ICF, which in turn leads to discounts in funds to bereceived from the AFT. Alsacia currently accounts for such discounts as reductions to its revenue and Expresscurrently accounts for such discounts as expenses.
“ICR” means the regularity fulfillment indices (Índices de Cumplimiento de Regularidad), which, alongwith the ICF, is used by the Ministry to measure the performance of Alsacia and Express in relation to theirrespective Operating Plans. Deviations from Operating Plans decrease ICR, which in turn leads to discounts infunds to be received from the AFT. Alsacia currently accounts for such discounts as reductions to its revenue andExpress currently accounts for such discounts as expenses.
“IFRS” means the International Financial Reporting Standards as promulgated by the InternationalAccounting Standards Board.
“Incurrence Date” is defined under “Description of Notes and Finance Agreements—Affirmative Covenantsof the Issuer and the Guarantors—Incurrence of Senior Indebtedness.”
“Indenture” is defined under “The Escrow.”
“INE” means the Chilean National Institute of Statistics (Instituto Nacional de Estadísticas).
“Initial Temporary Issuer” means BRT Escrow Corporation SpA, a special purpose company formed in2011 under the laws of the Republic of Chile and owned by two corporations formed in 2011 under the laws ofthe British Virgin Islands, which in turn are owned by a trust formed in 2011 under the laws of the British VirginIslands independent of the Issuer or the Principal Shareholder. The Initial Temporary Issuer will initially issue
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the Notes because Alsacia and Express are restricted from incurring indebtedness under their existing debt whichwill be repaid with the proceeds of this offering.
“Insurance Appointments” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Interest Payment Date” is defined under “Description of Notes and Finance Agreements—General.”
“Investments” means, with respect to any Person, all direct or indirect investments by such Person in otherPersons (including affiliates) in the form of loans or other extensions of credit (including guarantees), advances,capital contributions (by means of any transfer of cash or other property to others or any payment for property orservices for the account or use of others), purchases or other acquisitions for consideration of Debt, equityinterests or other securities, together with all items that are or would be classified as investments on a balancesheet prepared in accordance with GAAP.
“L/C Bank” is defined under “Description of Notes and Finance Agreements—Deposits of Funds to andDistribution of Funds from the Reserve Account.”
“Letter of Credit” is defined under “Description of Notes and Finance Agreements—Deposits of Funds toand Distribution of Funds from the Reserve Account.”
“Lien” means any mortgage, lien, pledge, charge, security interest, easement or encumbrance of any kind inrespect of an asset, whether or not filed, recorded or otherwise perfected or effective under applicable law, aswell as (a) the interest of a vendor or lessor under any conditional sale agreement, capital lease or other titleretention agreement relating to such asset and (b) except as contemplated by the Indenture or any otherTransaction Document, any designation of loss payees or beneficiaries or any similar arrangement under anyinsurance policy.
“Loan Proceeds” is defined under “The Escrow.”
“Material Adverse Change” means (a) a material adverse change in, or a material adverse effect on, thefinancial position, results of operations or business of the Issuer and the Guarantors, taken as a whole, (b) amaterial adverse change in, or a material adverse effect on, the ability of the Issuer or any Guarantor to performtheir (i) respective non-payment obligations under any Finance Agreement having due regard to the interest ofthe Noteholders and (ii) payment obligations under any Finance Agreement, taking the Issuer and the Guarantorsas a whole, (c) a material adverse change in, or a material adverse effect on, the rights of the Trustee or theNoteholders under any Finance Agreement, or (d) either (i) any Transaction Document shall no longer be valid,effective or enforceable, or (ii) the obligation of the AFT and/or any Governmental Authority to make paymentsin respect of any subsidies or otherwise as contemplated on the date hereof in connection with the ConcessionAgreements, the AFT Agreement, the Collection Mandate Agreements and/or the Technology ServicesAgreement shall be changed or affected, provided that either (i) or (ii) results in any of the events in (a) through(c) above.
“Maturity Date” is the final payment date of the note expected to be made on August 18, 2018.
“Metro” means Metro S.A., a state-owned enterprise that controls the subway system in the Santiago, Chilemetropolitan area.
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“Ministry” means the Ministry of Transportation and Telecommunication (Ministerio de Transportes yTelecomunicaciones), which regulates Transantiago, is our counterparty under the Concessions and is responsiblefor the administration, regulation and operation of the Concessions.
“Moody’s” means Moody’s Investors Service, Inc.
“Mortgages” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Net Available Cash” from an Asset Disposition means cash payments received (including any cashpayments received by way of deferred payment of principal pursuant to a note or installment receivable orotherwise and proceeds from the sale or other disposition of any securities received as consideration, but only asand when received, but excluding any other consideration received in the form of assumption by the acquiringPerson of Debt or other obligations relating to the Properties or assets that are the subject of such AssetDisposition or received in any other non-cash form) therefrom, in each case net of:
(i) all legal fees and expenses, title and recording tax expenses, commissions and other fees and expensesIncurred, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as aliability under GAAP, as a consequence of such Asset Disposition;
(ii) all payments, including any prepayment premiums or penalties, made on any Debt that is secured byany assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or othersecurity agreement of any kind with respect to such assets, or that must by its terms, or in order toobtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of theproceeds from such Asset Disposition; and
(iii) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against anyliabilities associated with the property or other assets disposed of in such Asset Disposition andretained by the Issuer or any Guarantor after such Asset Disposition.
“Note Closing Date” is defined under “The Escrow.”
“Note Proceeds” is defined under “The Escrow.”
“Noteholder” means the Person in whose name a Note is registered in the Register.
“Notes” is defined under “Description of Notes and Finance Agreements.”
“Notes Hedge Agreement” means each Chilean peso-U.S. dollar currency hedge in respect of the Notes.
“Notes Hedge Counterparty” means each Hedge Counterparty, including its successors and assigns, that willenter into a Notes Hedge Agreement with the Issuer.
“Notes Hedge Value” means, with respect to any Notes Hedge Agreement on any date of determination, (a)prior to the termination of such Notes Hedge Agreement, an amount (which will be zero if negative) that wouldbe payable by the Company under such Notes Hedge Agreement if (i) such Notes Hedge Agreement were beingterminated early on such date of determination due to a termination event or event of default, (ii) the Companywere the sole affected party or defaulting party and (iii) the applicable Notes Hedge Counterparty were the sole
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party determining such payment amount, and (b) from and after the termination of such Notes Hedge Agreement,an amount equal to the Contingent Hedge Payments as of such date of determination (other than any amountspaid prior to such date). In determining the amount of any “Notes Hedge Value”, the Trustee and each CollateralTrustee may conclusively rely upon reasonably detailed good faith calculations supplied by the relevant NotesHedge Counterparty pursuant to and in accordance with the Indenture as to the amount of such Notes HedgeValue in respect of the Notes Hedge Agreement to which such Notes Hedge Counterparty is a party; providedthat if the relevant Notes Hedge Counterparty shall have failed to deliver such good faith calculations within 2Business Days following receipt by the Notes Hedge Counterparty of the Trustee’s request therefor in accordancewith the terms of the Indenture, then such Notes Hedge Values shall be deemed to be zero.
“NY Account Pledge Agreements” is defined under “Description of Notes and Finance Agreements—Collateral.”
“NY Accounts” means collectively the Payment Account, the Reserve Account, the Open Market PurchasesAccount and the Coverage Reserve Account.
“O&M Accounts” is defined under “Description of Notes and Finance Agreements—Establishment ofAccounts.”
“O&M Costs” means cash operations and maintenance costs, including payments required to be made underthe Operating Agreements (including CAPEX Costs for an aggregate amount not to exceed U.S.$4.0 million in2011 and U.S.$3.0 million in any later fiscal year), payments for insurance, employee salaries, contractors andsuppliers, wages and other employment-related costs, taxes, administrative expenses, legal and accounting fees,settlement of legal proceedings in connection with the operation of the Bus Network or any Permitted Business,professional and consulting services (provided that no more than U.S.$150,000 of such amount in any fiscal yearmay be paid to an affiliate of the Concessionaires, with any excess thereof being payable from “Description ofNotes and Finance Agreements—Treatment of Funds—Deposits of Funds to and Distribution of Funds from theRevenue Account—Semi-annual and Special Distributions—seventeenth”) (excluding professional andconsulting services directly related to the Acquisition or the Transactions), consumables, fuel, spare parts, lease’sobligations and other similar costs, in each case incurred and paid by the Concessionaires in good faith, on anarm’s-length basis and in the ordinary course of business; in addition, O&M Costs will include taxes andadministrative expenses of Panamerican and Eco Uno for an aggregate amount not to exceed U.S.$150,000 inany fiscal year.
“O&M Transaction Checking Accounts” is defined under “Description of Notes and Finance Agreements—Establishment of Accounts.”
“Officer” means, with respect to any Person, the chairman of the board, the chief executive officer, thepresident, the chief operating officer, the chief financial officer, the treasurer, the controller or any vice-presidentof such Person.
“Officers’ Certificate”, of any Person, means a certificate signed on behalf of such Person by at least twoOfficers of such Person, one of whom must be the principal executive officer, the principal financial officer, thetreasurer or the principal accounting officer of such Person, unless otherwise provided.
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“Official Gazette of Chile” (Diario Oficial de la República de Chile) means the official publication of theChilean government in which Chilean laws, decrees and regulations are published.
“Open Market Purchase” means the purchase of any Notes available for sale in the secondary marketthrough broker-dealers or similar intermediaries, in each case for total consideration less than the sum of theprincipal amount thereof plus accrued and unpaid interest thereon, provided that any Notes so purchased aresurrendered immediately to the Trustee for cancellation.
“Open Market Purchases Account” is defined under “Description of Notes and Finance Agreements—Establishment of Accounts.”
“Operating Agreements” means, collectively, the Concession Agreements, the AFT Agreement, theCollection Mandate Agreements, the Technology Services Agreements and all the Additional Agreements.
“Operating Plan” means an operating plan agreed upon by all Transantiago bus concessionaires with theMinistry on a quarterly basis, which includes scheduled bus routes, route distances, times of service and numberand types of buses on each route on weekdays, weekends and holidays. Adherence to our Operating Plans is acritical factor in our revenue formulas under the Concession Agreements that impacts our Variable Revenue andour Service Fulfillment Ratio. For a more complete discussion regarding our Operating Plans, see “TheConcessions—Operating Plans.”
“Operating Technical Reserve” (Reserva Técnica Operativa) is a reserve fund that was established to buffershort-term differences between actual passenger fares collected by Transantiago and the costs incurred byTransantiago. All Transantiago bus concessionaires, including Alsacia and Express, initially contributed a fixedamount to the Operating Technical Reserve under the terms of their respective concession agreements. TheOperating Technical Reserve has been exhausted, and since September 2009, Transantiago deficits have beenfunded by direct subsidies from the Chilean Government.
“Opinion of Counsel” means a written opinion of counsel, who may be counsel to the Issuer or to theGuarantors, as applicable, and who will be reasonably acceptable to the Trustee.
“Other Pledge Agreements” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Overhaul Accounts” is defined under “Description of Notes and Finance Agreements—Establishment ofAccounts.”
“Overhaul Budget” is defined under “Description of Notes and Finance Agreements—Deposits of Funds toand Distribution of Funds from the Overhaul Accounts.”
“Overhaul Costs” means the aggregate amount required and necessary for the major maintenance on thegear box, engine or transmission overhaul of the buses comprising the Bus Network during the following sixmonths on a rolling basis to be incurred by the Concessionaires in good faith, on an arm’s-length basis and in theordinary course of business.
“Overhaul Transaction Checking Accounts” is defined under “Description of Notes and FinanceAgreements—Establishment of Accounts.”
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“Panamerican” means Panamerican Investments Ltd., which is a newly-formed holding company owned byGPS Group that will directly or indirectly hold 99.695% of Eco Uno upon completion of the Acquisition and is aGuarantor of the Notes.
“Passenger Validations” (Validaciones) means the number of passengers who use our buses, as recorded byelectronic payment card readers on our buses and at bus stops when passengers swipe, or use, stored valuepayment cards.
“Payment Account” is defined under “Description of Notes and Finance Agreements—Establishment ofAccounts.”
“Payment Date” is defined under “Description of Notes and Finance Agreements—General.”
“Payment Default” is defined under “Description of Notes and Finance Agreements—Events of Default.”
“Payment Period” is defined under “Description of Notes and Finance Agreements—Semi-annual andSpecial Distributions.”
“Payment Transfer Date” is defined under “Description of Notes and Finance Agreements—Semi-annualand Special Distributions.”
“Permitted Business” means (a) any business conducted or proposed to be conducted (as described in thisOffering Memorandum) by the Concessionaires on the Note Closing Date, or (b) other businesses (i) reasonablyrelated or ancillary thereto or (ii) which require a concession for rendering public services and as permitted bythe Concession Agreements (including by waiver or amendment), in each of (i) and (ii) so long as at the time anysuch Permitted Business is proposed to be commenced or acquired by either Concessionaire, the assets orliabilities associated therewith shall not, on a pro forma basis, exceed 35% of the consolidated assets orliabilities, respectively, of the Concessionaires considered together (except, for the avoidance of doubt, anyUnrestricted Subsidiary).
“Permitted Chilean Investments” means any of the following, and which may include investments in respectof which the Trustee acts as investment advisor or manager: (a) fixed income securities issued by the ChileanTreasury, the Chilean Central Bank, Chilean banks or corporations with an international rating of at least “A” byS&P, “A” by Fitch or “A2” by Moody’s, or a Chilean domestic rating of at least “AA” or equivalent by any ofsuch rating agencies; (b) repurchase agreements (i) with any of the entities mentioned in (a) above and (ii) withrespect to which the collateral consist of fixed income securities issued by the Chilean Treasury, the ChileanCentral Bank or any of the entities mentioned in (a) above; and (c) time deposit accounts, certificates of depositand money market deposits denominated and payable in Chilean pesos maturing within 180 days of the date ofacquisition thereof issued by Chilean banks mentioned in (a) above.
“Permitted Disposition” means: (a) any Disposition of Capital Stock of the Issuer or any Guarantor pursuantto a public offering of securities registered on a recognized stock exchange; or (b) any other Disposition ofCapital Stock of the Issuer or any Guarantor that, after giving effect to any such Disposition, the followingconditions as to the transferee and the Disposition will be satisfied: (i) no Default or Event of Default wouldresult from such Disposition; (ii) no violation of applicable law or any Transaction Document would result fromsuch Disposition; (iii) the Issuer or any Guarantor would not forfeit any of its material rights under any Operating
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Document as a result of such Disposition; and (iv) if such Disposition is of any Capital Stock pledged pursuant toa Security Document, the proposed transferee will have executed and delivered a pledge and security agreementin substantially similar form as the Stock Pledge Agreements together with an Officers’ Certificate in form andsubstance reasonably acceptable to the Trustee.
“Permitted Investments” means (a) cash, Permitted Chilean Investments and Permitted U.S. Investments;(b) receivables in respect of Hedge Payments; (c) stock, obligations or securities received in settlement of (orforeclosure with respect to) debts created in the ordinary course of business and owing to either Concessionaireor in satisfaction of judgments or compromise of claims; (d) payroll, travel and similar advances to cover mattersthat are expected at the time of such advances ultimately to be treated as expenses for accounting purposes andthat are made in the ordinary course of business; (e) guarantees of Senior Indebtedness or SubordinatedIndebtedness permitted by the Indenture; (f) Receivables owing to either Concessionaire if created or acquired inthe ordinary course of business; (g) Investments in an affiliate of the Issuer and/or any Guarantor, provided thatthe Issuer and the Guarantors shall have delivered to the Trustee at least 30 days in advance of making suchInvestment an Officers’ Certificate executed by its respective chief financial officer and chief executive officersetting forth: (i) that such affiliate will only engage in a business that, if conducted by either Concessionaire,would be a Permitted Business, (ii) that such affiliate will be an Unrestricted Subsidiary for purposes of theIndenture, (iii) in reasonable detail, the agreements, contracts and transactions that are expected to be entered intoby and between such affiliate and the Issuer or any Guarantor, (iv) that there will be no other liability of any kindor obligation to invest or transfer assets by the Issuer or any Guarantor in connection therewith, (v) that anytransactions between such affiliate and the Issuer or any Guarantor will comply with the “limitations on affiliatetransactions” covenant, (vi) that such Investment in the affiliate will be funded with a cash common equity orcapital contribution to, or Subordinated Indebtedness incurred by, the Issuer or any Guarantor (which cashcommon equity or capital contribution or Subordinated Indebtedness proceeds shall not be required to bedeposited into the Revenue Account), and (vii) that the Issuer and the Guarantors shall deliver to the Trusteewithin ten days after the end of each fiscal quarter an Officers’ Certificate executed by its respective chieffinancial officer and chief executive officer indicating compliance with clauses (i) through (vi) above; (h) anequity Investment in any Person received by the Issuer or any Guarantor solely in consideration for provision bythe Concessionaires of technical, management or other related support services to such Person (or itssubsidiaries), provided that the Issuer and the Guarantors shall have delivered to the Trustee at least 30 days inadvance of making such Investment an Officers’ Certificate executed by its respective chief financial officer andchief executive officer to the same effect as clauses (ii) through (vi) of the preceding clause (g) of this definition(whether or not such Person is an affiliate) and in addition setting forth (i) that such Person (and its subsidiaries)will exonerate the Issuer and the Guarantors for any liability in connection therewith to the full extent permittedby applicable law, and (ii) that the Issuer and the Guarantors shall deliver to the Trustee within ten days after theend of each fiscal quarter an Officers’ Certificate executed by its respective chief financial officer and chiefexecutive officer indicating compliance with clauses (ii) through (vi) and (i) above; (i) Investments by the Issueror any Guarantor in the Issuer or any Guarantor; and (j) additional Investments having an aggregate Fair MarketValue, taken together with all other Investments made pursuant to this clause (j) that are at the time outstanding,not to exceed U.S.$1.0 million at the time of such Investment (with the Fair Market Value of each Investmentbeing measured at the time made and without giving effect to subsequent changes in value).
“Permitted Liens” has meaning as defined in “Description of Notes and Finance Agreements—NegativeCovenants of the Issuer and the Guarantors”.
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“Permitted Refinancing Indebtedness” means any Debt of the Concessionaires issued in exchange for, or thenet cash proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of theConcessionaires (other than Debt owed to the Issuer or any Guarantor); provided that:
(i) the amount of such Permitted Refinancing Indebtedness does not exceed the amount of the Debt soextended, refinanced, renewed, replaced, defeased or refunded (plus all accrued and unpaid interestthereon and the amount of any reasonably determined premium necessary to accomplish suchrefinancing and reasonable fees and expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of,and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life toMaturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded;
(iii) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in rightof payment to the Notes or the Guarantees, such Permitted Refinancing Indebtedness is subordinated inright of payment to the Notes or the Guarantees, as applicable, on terms at least as favorable, taken as awhole, to the Noteholders as those contained in the documentation governing the Indebtedness beingextended, refinanced, renewed, replaced, defeased or refunded;
(iv) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is pari passu Debt,such Permitted Refinancing Indebtedness ranks equally in right of payment with, or is subordinated inright of payment to, the Notes or such Guarantees;
(v) such Permitted Refinancing Indebtedness has an interest rate lower than or equal to the Debt beingextended, refinanced, renewed, replaced, defeased or refunded;
(vi) the Debt Service Coverage Ratio, after giving pro forma effect to the incurrence of such PermittedRefinancing Indebtedness and the application of the proceeds thereof, is not worse off than if the Debtbeing extended, refinanced, renewed, replaced, defeased or refunded had not been so extended,refinanced, renewed, replaced, defeased or refunded; and
(vii) such Debt is Incurred by either or both Concessionaires (and in any such case, if guaranteed,guaranteed only by the Issuer and any Guarantor).
Notwithstanding the foregoing, if (i) the Permitted Refinancing Indebtedness is incurred to defease orredeem the Notes in full in accordance with the Indenture, and (ii) the proceeds of such Permitted RefinancingIndebtedness (in an amount sufficient to pay principal, interest, any premium, any Additional Amounts, fees andexpenses and any other amounts due under the Indenture and the Security Documents) are deposited with theTrustee at the time of the incurrence of such Permitted Refinancing Indebtedness (including, for the avoidance ofdoubt, in connection with a satisfaction and discharge or defeasance of the Notes in accordance with theIndenture), then clauses (i) through (vii) will not apply to such Permitted Refinancing Indebtedness.
“Permitted U.S. Investments” means any of the following, and which may include investments in respect ofwhich the Trustee acts as investment advisor or manager: (a) direct obligations of the United States of Americaor any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or anyagency thereof; (b) time deposit accounts, certificates of deposit and money market deposits denominated andpayable in U.S. dollars maturing within 180 days of the date of acquisition thereof issued by a bank or trustcompany which is organized under the laws of the United States of America, any state thereof or any foreigncountry recognized by the United States of America, and which bank or trust company has capital, surplus andundivided profits aggregating in excess of U.S.$100.0 million (or the foreign currency equivalent thereof) and
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has outstanding debt which is rated “A” (or such similar equivalent rating) or higher by S&P or Moody’s or anymoney market fund denominated and payable in U.S. dollars sponsored by a registered broker dealer or mutualfund distributor; (c) repurchase obligations with a term of not more than 30 days for underlying securities of thetypes described in clause (a) above entered into with a bank meeting the qualifications described in clause(b) above; (d) commercial paper denominated and payable in U.S. dollars, maturing not more than 90 days afterthe date of acquisition, issued by a corporation (other than an affiliate of the Issuer or the Guarantors) organizedand in existence under the laws of the United States of America or any state thereof with a rating at the time as ofwhich any investment therein is made of “P-1” (or higher) according to Moody’s or “A-1” (or higher) accordingto S&P; (e) securities with maturities of six months or less from the date of acquisition issued or fully andunconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by anypolitical subdivision or taxing authority thereof, and rated at least “A” by S&P or Moody’s; (f) Investments inmoney market funds substantially all of whose assets are comprised of securities of the types described in clauses(a) through (e) above; (g) demand deposit accounts with U.S. banks maintained in the ordinary course ofbusiness.
“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity ororganization, including a government or political subdivision or an agency or instrumentality thereof.
“Pledge Agreements” means, collectively, the Insurance Appointments, the NY Account PledgeAgreements, the Chilean Money Pledges, the Concession Pledge Agreements, the Intercompany Debt PledgeAgreements, the Other Pledge Agreements and the Asset Pledge Agreements.
“Powers of Attorney” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Principal Payment Date” is defined under “Description of Notes and Finance Agreements—General.”
“pro forma” means, with respect to any calculation made or required to be made pursuant to the terms of theIndenture, a calculation made in good faith by the chief financial or accounting officer of the Issuer or Guarantor,as applicable.
“Proceeds” is defined under “Description of Notes and Finance Agreements.”
“Quarterly Report” is defined under “Description of Notes and Finance Agreements—AffirmativeCovenants of the Issuer and the Guarantors—Quarterly Reports.”
“Rating Agencies” means Fitch and Moody’s.
“Receivables” means all rights of either Concessionaire to payments (whether constituting accounts, chattelpaper, instruments, general intangibles or otherwise, and including the right to payment of any interest or financecharges), which rights are identified in the accounting records of such Concessionaire as accounts receivable.
“Relevant Member State” is defined under “Plan of Distribution—Notice to Prospective Investors in theEEA.”
“Relevant Taxing Jurisdiction” is defined under “Description of Notes and Finance Agreements—Redemption Solely for Tax Reasons.”
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“Repair Payments” means the aggregate amount of funds required to repair property damage to the BusNetwork, or to acquire Replacement Assets in respect thereof, or any other property necessary to maintain theoperation of the Bus Network or pay any other claim against the Concessionaires or liability arising in respectthereof, in each case that the Concessionaires reasonably believe to be covered by an insurance policy in effect.
“Replacement Assets” means (a) assets (which shall be non-current assets to the extent that the assets thatare the subject of the related insurance claim were non-current assets) that will be used or useful in a PermittedBusiness, or (b) substantially all the assets of a Permitted Business.
“Reporting Period” means the last six full months (considered as one period) most recently ended to anydate of determination.
“Required Debtholders” is defined under “Description of Notes and Finance Agreements—The SecuredParty Agents.”
“Required Parity Lien Debtholders” is defined under “Description of Notes and Finance Agreements—TheSecured Party Agents.”
“Reserve Account” is defined under “Description of Notes and Finance Agreements—Establishment ofAccounts.”
“Restricted Payment Date” is defined under “Description of Notes and Finance Agreements—AffirmativeCovenants of the Issuer and the Guarantors—Limitations on Restricted Payments.”
“Restricted Payments” means any reduction (excluding reductions resulting from losses or impairments) orreturn of capital of the Issuer or any Guarantor; any payment by the Issuer or any Guarantor of any dividends toits respective shareholders (other than in the form of Capital Stock of the Issuer or such Guarantor), except fordividends payable to the Issuer or any Guarantor; the authorization or making of any other distribution, anypayment or delivery by the Issuer or any Guarantor of property or cash to their respective shareholders in theircapacity as shareholders of the Issuer or such Guarantor or to such shareholders as permitted under the Indenture;the redemption, retirement, purchase or other acquisition, directly or indirectly, for consideration of any of itsCapital Stock now or hereafter outstanding (or any options or warrants issued by the Issuer or any Guarantor withrespect to their respective Capital Stock) or the setting aside of any funds for any of the foregoing purposes; orthe making by the Issuer or any Guarantor of any cash payments with respect to principal or interest on, or thepurchase, redemption or defeasance of, any Subordinated Indebtedness (except payments on intercompanySubordinated Indebtedness between the Issuer and any Guarantor or between Guarantors); it being understoodthat any dividend to a shareholder (or any other person who becomes an owner of Capital Stock of the Issuer orany Guarantor as a result of a Permitted Disposition) immediately then contributed back to the Issuer or suchGuarantor will not constitute a Restricted Payment; Investments other than Permitted Investments. Paymentsmade in connection with and related to the Transactions and Acquisition as described in this offeringmemorandum shall not constitute Restricted Payments.
“Restricted Subsidiary” means any Subsidiary of the Issuer or any Guarantor that is not an UnrestrictedSubsidiary.
“Revenue Account” is defined under “Description of Notes and Finance Agreements—Establishment ofAccounts.”
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“S&P” means Standard & Poor’s Financial Services LLC.
“Sale and Lease-Back Transaction” means any arrangement with any Person (other than the Issuer or any ofthe Guarantors), or to which any such Person is a party, providing for the leasing to the Issuer or a Guarantor fora period of more than three years of any property or assets that have been or are to be sold or transferred by suchIssuer or Guarantor to such Person or to any other Person (other than the Issuer or a Guarantor) to which fundshave been or are to be advanced by such Person on the security of the leased property or assets.
“Scheduled Principal Amounts” is defined under “Description of Notes and Finance Agreements—Scheduled Amortization.”
“Secured Party Agents” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Security Documents” means, collectively, the Pledge Agreements, the Powers of Attorney, the SharePledge Agreements, the Collateral Trust Agreement and the Mortgages.
“Senior Indebtedness” means all unsubordinated Debt of the Issuer or any Guarantor, including amongothers, any Vendor Financing.
“Service Fulfillment Ratio” (Índice de Cumplimiento Plaza Kilómetro Hora) is a measure set forth in theConcession Agreements and used by the Ministry to track actual passenger capacity and route distance againstOperating Plans. Prior to October 2009, the Service Fulfillment Ratio did not include a distance (kilómetros)requirement and was therefore referred to as Índice de Cumplimiento Plaza Hora, rather than Índice deCumplimiento Plaza Kilómetro Hora. The addition of the distance requirement in 2009 made the ServiceFulfillment Ratio a more demanding measure of our performance. The Ministry reports a preliminary ServiceFulfillment Ratio to each bus concessionaire on a semi-monthly basis. Each bus concessionaire can then reviewthe preliminary Service Fulfillment Ratio and propose adjustments to it to reflect service interruptions or delaysthat are outside of a concessionaire’s control, such as road construction or traffic accidents along its routes. Oncethe proposed adjustments are reviewed and imposed by the Ministry, the Ministry publicly reports the adjustedService Fulfillment Ratios for a period starting on the sixth day of each calendar month and ending on the fifthday of the following calendar month. Alsacia and Express also separately calculate the adjusted ServiceFulfillment Ratio for each calendar month for their internal reporting purposes. All Service Fulfillment Ratiosused in this Offering Memorandum refer to the internal, adjusted Service Fulfillment Ratios calculated byAlsacia and Express. For a more complete description of the Service Fulfillment Ratio, see “The Concessions—Concession Revenue—Revenue Formulas.”
“Share Pledge Agreements” is defined under “Description of Notes and Finance Agreements—Collateral.”
“Special Transfer Date” is defined under “Description of Notes and Finance Agreements—Semi-annual andSpecial Distributions.”
“Subject Persons” is defined under “Description of Notes and Finance Agreements—Events of Default.”
“Subordinated Indebtedness” means all Debt of the Issuer or any Guarantor that is subordinate or junior inright of payment to the Notes and any other Senior Indebtedness pursuant to a written agreement, provided thatsuch written agreement shall set forth that all cash payments under such Debt shall be made in compliance withthe Indenture and will comply (when entered into, amended, restated or novated) with any requirements to beconsidered subordinated indebtedness on the terms set forth herein under its governing law.
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“Subsidiary” means, with respect to any Person:
(i) a corporation a majority of whose Voting Stock is at the time owned or controlled, directly orindirectly, by such Person, one or more Subsidiaries thereof or such Person and one or moreSubsidiaries thereof; and
(ii) any other Person (other than a corporation), including, without limitation, a partnership, limitedliability company, business trust or joint venture, in which such Person, one or more Subsidiariesthereof or such Person and one or more Subsidiaries thereof, directly or indirectly, at the date ofdetermination thereof, has at least majority ownership interest entitled to vote in the election ofdirectors, managers or trustees thereof (or other Person performing similar functions).
“SVS” means the Chilean Superintendency of Securities and Insurance (Superintendencia de Valores ySeguros).
“Taxes” is defined under “Description of Notes and Finance Agreements—Additional Amounts.”
“Technology Services Agreements” means, collectively, the Technology Services Agreement, datedMarch 22, 2006, between Alsacia and the AFT, as amended from time to time, and the Technology ServicesAgreement, dated March 22, 2006, between Express and the AFT, as amended from time to time.
“Termination Event” means any of the Operating Agreements is terminated, canceled, repealed, annulled,rescinded or revoked by any Governmental Authority in Chile (whether in whole or in material part) on anyground, in each case as such action could reasonably be expected to result in a Material Adverse Change.
“Three-Year Budget” is defined under “Description of Notes and Finance Agreements—AffirmativeCovenants of the Issuer and the Guarantors—Budgets.”
“Transaction Documents” means, collectively, the Finance Agreements, the Operating Agreements, anytermination and release agreements relating to the repayment of the Existing Indebtedness and the agreementrelating to the indirect acquisition of the 55% of the common shares of Express.
“Transaction Checking Accounts” is defined under “Description of Notes and Finance Agreements—Establishment of Accounts.”
“Transactions” is defined under “Description of Notes and Finance Agreements—Affirmative Covenants ofthe Issuer and the Guarantors—Use of Proceeds.”
“Transantiago” means the public transportation system of the Santiago, Chile metropolitan area, which isregulated by the Ministry.
“Transfer Accounts” is defined under “Description of Notes and Finance Agreements—Establishment ofAccounts.”
“Transfer Date” is defined under “Description of Notes and Finance Agreements—Bi-monthlyDistributions.”
“Transfer Period” is defined under “Description of Notes and Finance Agreements—Bi-monthlyDistributions.”
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“Trustee” is defined under “The Escrow.”
“Unrestricted Subsidiary” means any Subsidiary of the Issuer or any Guarantor (and any Subsidiary thereof)that (i) does not hold any Capital Stock or Debt of, or own or hold any Lien on any property or assets of, or haveany Investment in, the Issuer or any Guarantor, (ii) is a Person with respect to which neither the Issuer nor anyGuarantor has any direct or indirect obligation (x) to subscribe for additional equity interests or (y) to maintain orpreserve such Person’s financial condition or to cause such Person to achieve any specified levels of operatingresults, and (iii) has not guaranteed or otherwise directly or indirectly provided credit support for any Debt of theIssuer or any Guarantor. Unrestricted Subsidiaries will not be subject to any of the covenants of the Indenture.
“Unsettled Claims” means outstanding claims in connection with a Repair Payment made by theConcessionaires under an insurance policy in effect, net of insurance proceeds deposited into the RevenueAccount, but without reduction for deductibles in connection therewith.
“Value” means, with respect to a Sale and Lease-Back Transaction, as of any particular time, the amountequal to the greater of (1) the net proceeds from the sale or transfer of the property leased pursuant to such Saleand Lease-Back Transaction and (2) the fair value in the opinion of the Board of Directors of the Issuer orapplicable Guarantor of such Property at the time of entering into such Sale and Lease-Back Transaction, ineither case divided first by the number of full years of the original term of the lease and then multiplied by thenumber of full years of such term remaining at the time of determination, without regard to any renewal orextension options contained in the lease.
“Variable Revenue” means the variable portion of the revenue formula in our Concession Agreements,which is based on a number of factors, including our Operating Plans, Passenger Validations and the Cost Index.See a complete description of the formula for calculating Variable Revenue under “The Concessions—Concession Revenue—Revenue Formulas.”
“Vendor Financing” means, collectively, any direct or indirect advance, loan or other extension of creditfrom a company to either Concessionaire which is used by such Concessionaire to purchase, or enter into capitalleases in respect of, buses for the bus transportation and related operating systems subject to the ConcessionAgreements (the “Bus Network”) from such company or an affiliate or related party thereof.
“Voting Balances” means the sum of (a) the outstanding principal amount of the Notes (excluding anyNotes held by the Company, the Guarantors or any of their respective Affiliates) and (b) the sum of Notes HedgeValues. In determining the amount of “Voting Balances”, the Trustee and each Collateral Trustee mayconclusively rely upon reasonably detailed good faith calculations supplied by the relevant Notes HedgeCounterparty pursuant to and in accordance with the Indenture as to the amount of such Notes Hedge Value inrespect of the Notes Hedge Agreement to which such Notes Hedge Counterparty is a party; provided that if therelevant Notes Hedge Counterparty shall have failed to deliver such good faith calculations within 2 BusinessDays following receipt by the Notes Hedge Counterparty of the Trustee’s request therefor in accordance with theterms of the Indenture, then such Notes Hedge Values shall be deemed to be zero.
“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is ordinarilyentitled to vote in the election of the board of directors of such Person.
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“We,” “us,” “our” and words of similar effect refer collectively to Alsacia and Express, affiliated companiesunder common control by our Principal Shareholder upon completion of the acquisition transactionscontemplated under “Use of Proceeds.”
“Weighted Average Life to Maturity” means, when applied to any Debt at any date, the number of yearsobtained by dividing:
(i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment,sinking fund, serial maturity or other required payments of principal, including payment at finalmaturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that willelapse between such date and the making of such payment; by
(ii) the then outstanding principal amount of such Debt.
Unless otherwise indicated or the context otherwise requires, and except for the financial informationappearing in this Offering Memorandum, all discussions in this Offering Memorandum give effect to thecompletion of the Acquisition and the financing described herein as if they have already occurred.
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U.S.$464,000,000
BRT Escrow Corporation SpAexpected to be combined with and into
Inversiones Alsacia S.A.8.00% Senior Secured Notes due 2018
expected to be unconditionally guaranteedby Inversiones Alsacia S.A.’s affiliates,
Express de Santiago Uno S.A.,Inversiones Eco Uno S.A.,
andPanamerican Investments Ltd.
Joint Book-Running Managers
BofA Merrill Lynch J.P. MorganFebruary 14, 2011