Prepared and filed by St Ives Burrups

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FORM 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
February 13, 2004

Commission File Number: 001-10579

COMPANIA DE TELECOMUNICACIONES DE CHILE S.A.
(Exact name of registrant as specified in its charter)

TELECOMMUNICATIONS COMPANY OF CHILE
(Translation of registrant’s name into English)

Avenida Providencia No. 111, Piso 22
Providencia, Santiago, Chile

(Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F   Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes   No

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes   No

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes   No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

N/A

 


Compañía de telecomunicaciones de Chile S.A.

Compañía de Telecomunicaciones de Chile, S.A.

TABLE OF CONTENTS

 

Item    
1. Report on the Financial Statements for the years ended December 31, 2003 and 2002.
2. Management’s Discussion And Analysis Of The Consolidated Financial Statements As Of December 31, 2003.

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COMPAÑIA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 

 

REPORT ON THE FINANCIAL STATEMENTS
for the years ended
December 31, 2003 and 2002
(CONSOLIDATED)

 


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COMPAÑIA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 



CONTENTS

Independent Accountants’ Report  
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 7
   
ThCh$: Thousands of Chilean pesos
UF : The Unidad de Fomento, or UF, is an inflation-indexed peso denominated monetary unit in Chile. The daily UF rate is fixed in advance based on the change in the Chilean Consumer Price Index of the previous month
ThUS$: Thousands of US dollars
   

 


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COMPAÑIA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003)







 
      A S S E T S Notes   2003   2002  






 
      ThCh$   ThCh$  
     
 
 
CURRENT ASSETS
           
Cash and bank
    19,342,775   17,010,423  
Time deposits
    5,377,980   2,442,662  
Marketable securities, net
(4 ) 43,209,683   77,580,150  
Trade receivable, net
(5 ) 216,482,786   208,671,822  
Notes receivable, net
(5 ) 7,352,077   6,084,680  
Sundry debtors, net
(5 ) 8,112,153   25,321,317  
Due from related companies
(6 a) 18,534,486   17,285,067  
Inventories, net
    19,974,571   14,503,984  
Recoverable taxes
    15,428,524   19,250,979  
Prepaid expenses
    7,507,714   8,313,008  
Deferred taxes
(7 b) 17,101,363   25,440,359  
Other current assets
(8 ) 42,259,400   28,943,193  
             
             
             
             
             
             
     
 
 
TOTAL CURRENT ASSETS
    420,683,512   450,847,644  
     
 
 
             
PROPERTY, PLANT AND EQUIPMENT
 (9 )         
Land
    27,630,776   27,645,852  
Constructions and infrastructure works
    185,701,152   184,983,357  
Machinery and equipment
    3,456,701,757   3,327,825,508  
Other property, plant and equipment
    376,190,313   397,312,019  
   Technical revaluation     9,224,415   9,221,570  
Accumulated depreciation (less)
    2,225,580,485   1,988,554,136  
             
             
     
 
 
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET
    1,829,867,928   1,958,434,170  
     
 
 
             
             
             
             
OTHER NON-CURRENT ASSETS            
Investment in related companies
(10  ) 10,022,457   42,879,689  
Investment in other companies
    3,854   3,854  
Goodwill
(11 ) 158,129,169   181,198,599  
Long-term debtors
(5 ) 30,205,916   35,188,660  
Intangibles
(12 ) 40,406,590   32,627,439  
Accumulated amortization (less)
(12 ) 4,558,865   2,657,625  
Others
 (13 ) 10,220,250   16,734,608  
             
     
 
 
TOTAL OTHER ASSETS
    244,429,371   305,975,224  
     
 
 
             
             
             
     
 
 
TOTAL ASSETS
    2,494,980,811   2,715,257,038  
     
 
 






 
      L I A B I L I T I E S Notes   2003   2002  






 
      ThCh$   ThCh$  
     
 
 
CURRENT LIABILITIES
           
Short-term obligations with banks and financial institutions
(14 ) 19,328,288   9,283,360  
Short-term portion of long-term obligations with banks and financial institutions
(14 ) 83,348,206   147,753,713  
Obligations with the public (Bonds payable)
(16 ) 112,705,228   21,921,281  
Long-term obligations maturing within a year
    447,708   494,657  
Dividends payable
    111,077   211,821  
Trade accounts payable
(33 ) 131,699,489   151,385,506  
Notes payable
    296,884   175,701  
Other creditors
    76,904,157   8,182,434  
Notes and accounts payable to related companies
(6b ) 24,962,004   12,095,958  
Accruals
(17 ) 11,582,310   10,051,712  
Withholdings taxes
    12,474,097   9,628,937  
Unearned income
    8,854,652   7,033,101  
Other current liabilities
    4,881,694   4,997,078  
             
     
 
 
TOTAL CURRENT LIABILITIES
    487,595,794   383,215,259  
     
 
 
             
LONG-TERM LIABILITIES            
Obligations with banks and financial institutions
(15 ) 306,466,523   420,733,217  
Bonds payable
(16 ) 311,657,743   517,314,577  
Notes and accounts payable to related companies
(6b ) 20,488,463   24,456,253  
Miscellaneous accounts payable
    6,818,231   9,339,182  
Accruals
(17 ) 19,195,552   17,429,825  
Deferred taxes
(7b ) 46,565,849   36,350,588  
Other liabilities
    4,590,860   5,707,499  
             
     
 
 
TOTAL LONG-TERM LIABILITIES
    715,783,221   1,031,331,141  
     
 
 
             
     
 
 
MINORITY INTEREST (19 ) 1,364,249   1,153,686  
     
 
 
             
SHAREHOLDERS' EQUITY (20 )        
Paid-in capital
    859,490,281   743,832,801  
Share premium
      115,657,480  
Other reserves
    (791,199 ) 1,943,983  
Retained earnings
    431,538,465   438,122,688  
Accumulated earnings
    421,404,583   455,979,868  
Net income (loss) for the period
    10,133,882   (17,857,180 )
             
             
     
 
 
TOTAL SHAREHOLDERS' EQUITY
    1,290,237,547   1,299,556,952  
     
 
 
             
             
     
 
 
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
    2,494,980,811   2,715,257,038  
     
 
 

 

The accompanying notes 1 to 33 are an integral part of these consolidated financial statements

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COMPAÑIA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of Decermber 31, 2003)

      2003   2002  
     
 
 
OPERATING RESULTS:     ThCh$   ThCh$  
             
Operating revenues     812,790,214   869,724,943  
Operating costs (less)     554,271,225   606,203,285  
     
 
 
             
Gross profit (21 a) 258,518,989   263,521,658  
             
Administrative and selling expenses (less)     143,161,228   131,718,606  
     
 
 
             
OPERATING RESULTS     115,357,761   131,803,052  
             
NON-OPERATING RESULTS:            
             
Financial income     7,077,018   16,858,371  
Net income from investments in related companies (10 ) 1,094,394   2,490,146  
Other non-operating income (21 b) 12,333,868   13,353,739  
Loss from investments in related companies (less) (10 ) 413,633   111,213  
Amortization of goodwill (less) (11 ) 23,083,782   24,908,512  
Financial expenses (less)     61,245,497   82,287,015  
Other non-operating expenses (less) (21 c) 12,471,036   38,258,746  
Price-level restatement (22 ) 376,325   (6,226,426 )
Exchange differences (23 ) 258,331   (2,816,308 )
     
 
 
NON-OPERATING LOSS, NET     (76,074,012 ) (121,905,964 )
     
 
 
             
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST     39,283,749   9,897,088  
             
Income taxes (7 c) (29,009,152 ) (26,983,944 )
             
CONSOLIDATED INCOME (LOSS)     10,274,597   (17,086,856 )
             
Minority interest (19 ) (140,715 ) (770,324 )
     
 
 
NET INCOME (LOSS) FOR THE PERIOD     10,133,882   (17,857,180 )
     
 
 

 

The accompanying notes 1 to 33 are an integral part of these consolidated financial statements

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COMPAÑIA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003)

  2003   2002  
 
 
 
  ThCh$   ThCh$  
         
NET CASH FLOWS        
      FROM OPERATING ACTIVITIES 284,325,357   327,972,395  
         
Net income (loss) for the period 10,133,882   (17,857,180 )
         
Result on sales of assets : (5,212,477 ) (7,838,158 )
         
         Loss on sales of property, plant and equipment (1,688,868 ) 112,479  
         Gain on sales of investments (3,590,114 ) (7,950,637 )
         Loss on sales of investments 66,505    
         
Debits ( credits ) to income that do not represent        
      cash flows : 329,547,148   361,376,950  
         
         Depreciation for the period 269,190,875   265,361,676  
         Amortization of intangibles 1,903,908   1,022,873  
      Provisions and write offs 35,909,065   30,671,005  
      Net income from investments        
               in related companies (1,094,394 ) (2,490,146 )
         Loss from investments in related companies 413,633   111,213  
         Amortization of goodwill 23,083,782   24,908,512  
      Price-level restatement (376,325 ) 6,226,426  
      Exchange differences (258,331 ) 2,816,308  
      Other credits to income that do not represent        
            cash flows (7,510,889 ) (20,156,569 )
   Other debits to income that do not represent        
            cash flows 8,285,824   52,905,652  
         
Changes in operating assets        
      Increase (decrease) (28,183,993 ) 79,078,617  
         
         Trade accounts receivable (38,701,080 ) (25,368,337 )
         Inventories (6,991,681 ) 11,347,555  
         Other assets 17,508,768   93,099,399  
         
Changes in operating liabilities        
   ( Increase) decrease (22,099,918 ) (87,558,158 )
         
         Accounts payable related to        
                  operating activities (34,182,991 ) (49,902,474 )
         Interest payable (3,821,194 ) (1,170,913 )
         Income taxes payable (net) 18,727,278   14,816,061  
         Other accounts payable related to non-operating        
               activities (3,680,001 ) (50,930,904 )
      V.A.T. and other similar taxes payable 856,990   (369,928 )
         
Minority interest 140,715   770,324  

 

The accompanying notes 1 to 33 are an integral part of these consolidated financial statements

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COMPAÑIA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003
(Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003)

  2003   2002  
 
 
 
  ThCh$   ThCh$  
         
NET CASH PROVIDED BY (USED IN)        
FINANCING ACTIVITIES (171,783,032 ) (256,454,544 )
         
      Proceeds from loans   13,953,811  
      Obligations with the public 19,961,620    
      Other sources of financing   1,690,744  
      Dividends paid ( less ) (16,716,505 ) (1,369,652 )
      Loans paid ( less ) (94,607,064 ) (143,772,174 )
      Obligations with the public paid ( less ) (80,415,749 ) (116,790,726 )
      Payment of other loans from        
         related companies ( less )   (10,166,547 )
      Other financing disbursments ( less ) (5,334 )  
         
NET CASH PROVIDED BY (USED IN)        
INVESTMENT ACTIVITIES (99,949,156 ) (135,761,310 )
         
      Sales of property, plant and equipment 1,078,851   737,572  
      Sales of permanent investments 33,498,220   28,651,106  
      Sales of other investments 59,179,927    
      Other investment income 208   160,698  
      Acquisition of property, plant and equipment ( less ) (153,010,755 ) (100,298,646 )
      Payment of capitalized interest ( less )   (4,392,473 )
      Permanent investments ( less )   (121,091 )
      Investments in financial instruments ( less ) (33,162,732 ) (30,471,965 )
      Other investment activities ( less ) (7,532,875 ) (30,026,511 )
         
 
 
 
NET CASH FLOWS FOR THE PERIOD 12,593,169   (64,243,459 )
         
EFFECT OF INFLATION ON CASH        
   AND CASH EQUIVALENTS (506,038 ) (2,266,750 )
 
 
 
NET INCREASE ( DECREASE ) OF CASH        
   AND CASH EQUIVALENTS 12,087,131   (66,510,209 )
 
 
 
CASH AND CASH EQUIVALENTS AT        
   BEGINNING OF PERIOD 21,243,526   87,753,735  
 
 
 
CASH AND CASH EQUIVALENTS AT        
   END OF PERIOD 33,330,657   21,243,526  
 
 
 

 

The accompanying notes 1 to 33 are an integral part of these consolidated financial statements

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

 

Notes to the Consolidated Financial Statements


   
1. Composition of Consolidated Group and Registration with the Securities Registry:
   
  a) The company is an open stock corporation that is registered in the Securities Registry under No. 009 and is therefore subject to supervision by the Chilean Superintendency of Securities and Insurance.
     
  b) Subsidiary companies registered with the Securities Registry:
     
  As of December 31, 2003 the following subsidiaries of the Group are registered with the Securities Registry:
   
            Participation  
            (direct & indirect)  
           
 
    TAXPAYER   Registration          
SUBSIDIARIES     Number     %    
            2002   2003  
            %   %  









 
CTC Transmisiones Regionales S.A.(188 Mundo Telefónica)
  96,551,670-0   456   99.16   99.16  
Globus 120 S.A.
  96,887,420-9   694   99.99   99.99  









 
2. Significant Accounting Principles:
     
  (a) Accounting period:
The financial statements cover the years ended as of December 31, 2003 and 2002.
     
  (b) Basis of preparations:
These financial statements have been prepared in accordance with Generally Accepted Accounting Principles in Chile and standards set forth by the Chilean Superintendency of Securities and Insurance.
     
    In the event of discrepancies between Generally Accepted Accounting Principles in Chile issued by the Chilean Accountants Association and the standards set forth by the Chilean Superintendency of Securities and Insurance, the standards set forth by the Superintendency shall prevail for the Company.
     
  (c) Basis of presentation:
    The consolidated financial statements for 2002 and their notes have been adjusted for comparison purposes by 1.0% in order to allow comparison with the 2003 financial statements.
     
    For comparison purposes there have been certain non-significant off-the-books reclassifications made to the 2002 financial statements.
     
  (d) Basis of consolidation:
    These consolidated financial statements include the assets, liabilities, income and cash flows of the Parent Company and subsidiaries. Significant transactions of assets, liabilities, income and cash flows between consolidated companies have been eliminated and the participation of minority investors has been recognized under Minority Interest (See Note 19).

 

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
  (d) Basis of consolidation, continued:
     
  Companies included in consolidation:
   
  As of December 31, 2003 the consolidated group (The Company) is composed of Compañía de Telecomunicaciones de Chile S.A. and the following subsidiaries:
                    Participation Percentage                





    2003     2002
TAXPAYER





 NO. Company Name Direct    Indirect    Total Total






79.727.230-2  
CTC Isapre S.A. (4) 
        99.99  
96.545.500-0  
CTC Equipos y Servicios de Telecomunicaciones S.A.
  99.99     99.99   99.99  
96.551.670-0  
CTC Transmisiones Regionales S.A.(188 Mundo Telefónica)
  99.16     99.16   99.16  
96.961.230-5  
Telefonica Gestión de Servicios Compartidos Chile S.A.
  99.90   0.09   99.99   99.99  
96.786.140-5  
Telefónica Móvil S.A. 
  99.99     99.99   99.99  
74.944.200-k  
Fundación Telefónica Chile 
  50.00     50.00   50.00  
96.887.420-9  
Globus 120 S.A. 
  99.99     99.99   99.99  
96.971.150-8  
Telemergencia S.A. 
  99.67   0.32   99.99   99.99  
90.430.000-4  
Telefónica Empresas CTC Chile S.A.
  99.99     99.99   99.99  
90.184.000-8  
Comunicaciones Mundiales S.A. (5)
        99.66  
96.834.320-3  
Telefónica Internet Empresas S.A.
    99.99   99.99   99.99  
96.811.570-7  
Administradora de Telepeajes de Chile S.A. (7)
    79.99   79.99   79.99  
78.703.410-1  
Tecnonáutica S.A. (1) 
    99.99   99.99   99.99  
96.934.950-7  
Portal de Pagos e Información S.A. (6)
        99.99  
96.893.540-2  
Infochile S.A. (6)
        99.99  
96.700.900-8  
Telefónica Data Chile S.A. (3)
        99.99  
                       

1) On May 2, 2003, Telefónica Empresas S.A. sold its participation in Tecnonáutica S.A. to Telefónica Internet Empresas S.A. (formerly Infoera S.A.), who became owner of 99.99% of the shares of that company.
   
2) On May 2, 2003, Tecnonáutica S.A. sold its participation in Infochile S.A. to Portal de Pagos e Información S.A., who became owner of 99.98% of the shares of that company.
   
3) The Extraordinary Shareholders’ Meeting of Telefónica Empresas CTC Chile S.A., held on January 28, 2003, approved the merger by incorporation of subsidiary Telefónica Data Chile S.A., increasing the capital of Telefónica Empresas CTC Chile S.A. by ThCh$ 414, equivalent to the issuance of 2,878 shares.
   
4) On September 1, 2003, Telefónica CTC Chile S.A., sold 100% of its participation in this subsidiary for UF 9,175, this transaction resulting in Telefónica CTC Chile recognizing a loss on sale of subsidiary of ThCh$66,705.
   
5) The Extraordinary Shareholders’ Meeting of Telefónica Empresas CTC Chile, held on December 9, 2003, approved the absorption by incorporation of subsidiary Comunicaciones Mundiales S.A.
   
6) By means of public deeds dated December 1, 2003 and December 31, 2003, the Boards of Portal de Pagos e Información S.A. and Infochile S.A. leave record of the absorption of those companies by Tecnonáutica S.A.
   
7) On December 1, 2003, the Board of Telefónica Empresas CTC Chile S.A. approved the sale of its shareholding in that company as of that date, to its subsidiary Telefónica Internet Empresas S.A.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
   
  (d) Basis of consolidation, continued:
       
      During September 2002, Telefónica CTC Chile sold and transferred 25% of its ownership in Sonda S.A. to Inversiones Pacífico Limitada and Inversiones Santa Isabel Limitada, companies that are related to Mr. Andrés Navarro H. After that transaction, Telefónica CTC Chile though its subsidiary Telefónica Empresas CTC Chile S.A., retained 35% ownership of that company.
       
      Additionally on September 26, 2002, Telefónica Empresas signed an agreement with Inversiones Santa Isabel Limitada, which granted it a sale option for the 35% of Sonda, which it could exercise between July 16 and 25, 2005, at the book value of the investment as of June 30, 2005, plus a bonus of UF 142,021, with a minimum value of UF 2,048,885. Should Telefónica Empresas not exercise that sale option, between July 26 and August 5, 2005, Inversiones Santa Isabel Limitada had the option to purchase the same 35% of Sonda, under the same conditions as above. Likewise, Inversiones Santa Isabel Ltda. could exercise the purchase option in advance between July 26 and 31, 2003 or 2004.
       
      On July 29, 2003, Telefónica Empresas became aware to the decision of Inversiones Santa Isabel Limitada, to advance and exercise the purchase option for the remaining 35 % of Sonda S.A. This transaction meant a disbursement by the purchaser of ThCh$33,388,363 (historical) on August 26, implying a charge to income, before taxes, in the amount of ThCh$6,999,276 (historical), (ThCh$5,683,065 net of tax effect).
       
  (e) Price-level restatement:
     
    The consolidated financial statements have been adjusted by applying price-level restatement standards, in accordance with Generally Accepted Accounting Principles in Chile, in order to reflect the changes in the purchasing power of the currency during both years. The accumulated variation in the CPI as of December 31, 2003 and 2002, for initial balances, is 1.0% and 3.0%, respectively.
     
  (f) Basis of conversion:
     
    Assets and liabilities in US$ (United States dollars), Euros, and UF (Unidad de Fomento), have been converted to pesos at the exchange rates as of each year end:
     
YEAR   US$   EURO   UF  

 
 
 
 
2003   593.80   744.95   16,920.00  
2002   718.61   752.55   16,744.12  
     
    Exchange rate differences originating in the application of this Standard, are credited or debited to income for the year.
     
  (g) Time deposits:
     
    Time deposits are carried according to the value of the capital invested, plus adjustments, if applicable and accrued interest up to year end.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
   
  (h) Marketable securities:
     
    Fixed income securities are recorded at their price-level restated acquisition value, plus interest accrued as of each year end according to the real rate of interest determined as of the date of purchase, or their market value, whichever is less.
     
    Investments in mutual funds units are carried at the value of the unit at each year end. Investments in shares are shown at their price-level restated value or at their market value, whichever is less.
     
  (i) Inventories:
     
    Equipment destined for sale, is carried at price-level restated acquisition or development cost or at market value, whichever is less.
     
    Inventories deemed to be used during the next twelve months are classified as current assets and their cost is price-level restated. The obsolescence provision has been determined on the basis of a survey of materials with slow turnover.
     
  (j) Subsidies on sale of cellular telephones:
     
    Represents the difference between the cost at which the cellular equipment is purchased from suppliers and the price at which it is sold to customers.
     
    As of April 1, 2001,the Company established a new commercialization policy for its cellular equipment and customer retention, for post-payment customers, under the commodate concept, legal figure in which the equipment is delivered for use to customers with contracts, without payment, or transfer of the property of this equipment to the customer.
     
    The acquisition cost of this equipment is activated as a property, plant and equipment item, and is depreciated over 24 months as of the date of contract signing, time at which income is charged with the first depreciation installment
     
    As of June 2002, as a commercial strategy for customer retention, the company established a customer fidelity policy, consisting in the exchange of equipment associated to commodate contracts older than 18 months. Based on the above, depreciation provisions have been established for probable advanced write-off of this equipment.
     
    As of September 2003, the Company changed the manner of commercializing equipment under commodate to renting the equipment, by means of which the equipment is delivered for use during an agreed period of time, with the Company retaining ownership of it.
     
  (k) Allowance for doubtful accounts:
     
    Differentiated percentages are applied when calculating allowance for doubtful accounts, taking into consideration age and eventual collections management factors, up to 100% of debts older than 120 days and 180 days in the case of major customers (corporations).

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
   
  (l) Property, plant and equipment:
     
    Property, plant and equipment are carried at their price-level restated acquisition and/or construction cost.
     
    Property, plant and equipment acquired up to December 31, 1979 are carried at their appraisal value, as stipulated in Article 140 of D.F.L. No. 4, and those acquired subsequently are carried at their acquisition value, except for those assets that are carried at the appraisal value recorded as of June 30, 1986, as authorized in Circular No. 550 issued by the Chilean Superintendency of Securities and Insurance . All these values have been price-level restated.
     
    Until December 31, 2002, works in progress include the real financial cost of the loans related to their financing, which originates during the construction stage and which could have been avoided had these disbursements not been incurred. Based on the above, financial cost of ThCh$7,852,150 was capitalized during 2002. 
     
  (m) Depreciation of property, plant and equipment:
     
    Depreciation has been calculated and recorded on the basis of the values stated above, by applying set factors determined on the basis of the estimated useful lives of the assets. The average annual financial depreciation rate of the Company is approximately 8.29%.
     
  (n) Leased assets:
     
    Leased assets with a purchase option.
    Leased assets with a purchase option, the contracts of which meet the characteristics of a financial lease, are recorded in a similar manner to the acquisition of property, plant and equipment, recognizing the total obligation and interest on an accrual basis. These assets are not legally owned by the Company, therefore until it exercises the purchase option they cannot be freely disposed of.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
       
  (ñ) Intangibles
       
    i) Rights to underwater cable:
    Corresponds to the rights acquired by the Company, for the use of the transmission capacity of underwater cable. This right is amortized over the term of the respective contracts, with a maximum of 25 years.
       
    ii) Licenses (software):
   

Software licenses are valued at their price-level restated acquisition cost. Amortization is calculated using the straight-line method based on the periods in which it is deemed that the license will provide benefits, which does not exceed 4 years.

       
    iii) License for the use of radio-electric space:
    Corresponds to the cost incurred in obtaining licenses for the use of radio-electric space. They are shown at price-level corrected price and are amortized over the concession term (30 years from the date of publication in the Official Gazette of the decrees that accredit the respective licenses).
       
  (o) Investments in related companies:
       
    These investments are shown at their equity value, recognizing their income on an accrual basis. For investments abroad the valuation methodology applied is that defined in Technical Bulletin No. 64. These investments are controlled in dollars, since they are in countries deemed to be unstable and their activities are not an extension of the operations of the Parent Company.
       
  (p) Goodwill and negative goodwill:
       
    Corresponds to the debit differences that originate when adjusting the cost of the investments, at the time of adopting the Equity Value method or when making a new purchase. Goodwill and negative goodwill amortization periods have been determined considering aspects such as the nature and characteristics of the business and the estimated period of return of the investment. Goodwill originating from the acquisition of investments abroad are controlled in United States dollars (same currency in which the investment is controlled) as per Technical Bulletin No. 64 of the Chilean Accountants Association. (See Note 11).
   
   
       
  (q) Transactions with resale agreements:
    Purchases of financial instruments with resale agreements are recorded as fixed rate securities and are classified under Other Current Assets.
       
       

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
     
  (r) Obligations with the public:
     
    Obligations for bond issuance: Are presented under liabilities at the par value of the bonds subscribed. The difference between the par and placement value determined on the basis of real interest in the transaction, is deferred and amortized over the term of the respective bond (see Note 16).
     
    Costs directly related to placement of these obligations are activated and amortized using the straight-line method over the term of the respective liability.
     
  (s) Income tax and deferred income tax:
     
    Income tax is recorded on the basis of taxable net income determined for tax purposes. Recognition of deferred taxes originated by all temporary differences, tax losses implying a tax gain, and other events that create differences between the tax and accounting base, is carried out in the manner established in Technical Bulletins Nos. 60, 68, 69 and 73 issued by the Chilean Accountants Association and as established by the Chilean Superintendency of Securities and Insurance in Circular No. 1,466 dated January 27, 2000.
     
    On September 28, 2001 Law No. 19,753 was published, increasing the income tax rate to 16% in 2002, 16.5% in 2003 and 17% in 2004 and thereon. As of December 31 of each year accumulated balances of temporary differences include the increase in the income tax rate. Recognition of deferred taxes originated by the increase in income tax rates is as established in Technical Bulletin No. 71 issued by the Chilean Accountants Association. (See Note 7).
     
  (t) Staff severance indemnities:
     
    The obligation of the Company for staff severance indemnities is provided applying the current value of the accrued cost of the benefit method, with an annual discount rate of 7%, considering a future permanence up to the retirement date of each employee. (See Note 18).
     
    Costs for past services of the employees produced by changes in the actuarial bases, are activated and amortized over average periods of future permanence of employees.
     
  (u) Operating revenues:
     
    The Company’s revenues are recognized on an accrual basis in accordance with Generally Accepted Accounting Principles in Chile. Since billing is carried out on dates other than accounting cutoff dates, as of the date of preparation of these financial statements provisions have been established for services rendered that have not been invoiced, which are determined on the basis of contracts, traffic, current prices and conditions for the period. The amounts for this concept are recorded under Trade Accounts Receivable.
     
    Recognition of income from information services was recorded under the following conditions: sale of hardware and licenses, is recognized when the equipment and/or software is delivered, and in the case of revenues from projects, these are recognized based on the payment statements approved by the customers, which consider the level of progress of the corresponding projects.
     
     

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
     
  (v) Foreign currency future contracts:
     
    The Company has signed future foreign currency contracts, which represent a hedge against the variation in the exchange rate of their current obligations in foreign currency.
     
    These instruments are valued in accordance with Technical Bulletin No. 57 of the Chilean Accountants Association.
     
    The rights and obligations acquired are detailed in Note 24, reflecting in the balance sheet only the net right or obligation at year end, classified according to the maturity of each contract under Other Current Assets or Other Creditors, as applicable. The insurance premium implicit in the contract is deferred and amortized using the straight-line method over the term of the same.
     
  (w) Interest rate coverage:
     
    Interest on loans covered by interest rate swaps, are recorded recognizing the effect of those contracts on the interest rate established in those loans. The rights and obligations acquired for this concept are shown under Other Creditors or under Other Current Assets, as applicable (See Note26).
     
  (x) Computer software:
     
    The cost of acquiring software is deferred and amortized using the straight-line method over a maximum period of four years.
     
  (y) Research and development expenses:
     
    Research and development expenses are charged to income in the period in which they are incurred. Those expenses have not been significant in the last few years.
     
  (z) Accumulated deficit in development period of subsidiaries:
     
    The Company has recorded disbursements or obligations incurred during the organization and startup stage of its subsidiaries and not assignable to the cost of tangible or nominal assets under Accumulated Deficit in Development Period of Subsidiaries, as established in Circular No. 981 of the Superintendency of Securities and Insurance. This deficit will be absorbed by net income generated by the Company during its operations.
     
  (aa) Accumulated adjustment for conversion differences:
     
    The Company recognizes in this equity reserve account the difference between the variation of the exchange rate and the Consumer Price Index (C.P.I.) originated when restating its investments abroad, which are controlled in United States dollars; it also includes adjustments for conversion differences arising from subsidiaries and related companies that have recognized it for their investments abroad. The balance of this account is credited (charged) to income in the same period in which the gain or loss over total or partial disposition of these investments is recognized.
     
     

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

2. Significant Accounting Principles, continued:
     
  (ab) Statement of cash flows:
     
    For the purposes of preparing the Statement of Cash Flows according to Technical Bulletin No. 50 of the Chilean Accountants Association and Circular No. 1,312 of the Chilean Superintendency of Securities and Insurance, the Company considers mutual funds, resale agreements, and time deposits maturing in less than 90 days as cash equivalents.
     
    Cash flows related to the Company’s line of business and all those not defined as from investment or financing activities are included under “Cash Flows from Operating Activities”.
     
  (ac) Correspondents:
     
    The Company has current agreements with foreign correspondents, which set the conditions that regulate international traffic, charging or paying the same according to net traffic exchange (imbalance) and the rates set in each agreement.
     
    This exchange is recorded on an accrual basis, recognizing the costs and income for the period in which these are produced, recording the net balances receivable and payable of each correspondent under “Trade Accounts Receivable” or “Accounts Payable” as applicable.
     
     

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Notes to the Consolidated Financial Statements, continued

3. Accounting Changes:
     
a) Cost of financing property, plant and equipment:
   
  As of January 2003, the Company changed the criteria for capitalizing real financing costs of loans related with financing property, plant and equipment works in progress. This change has resulted in recognition of a higher charge to income for the year, of approximately ThCh$2,200,000, as compared to 2002.
     
b)  Change of reporting entity:
     
  i) As of December 31, 2003, Telefónica CTC Chile, since it no longer has holdings in Sonda S.A., only recognized as equity value in its financial statements 35% of the net revenues of Sonda S.A. through June 30, 2003, having continued to consolidate with that company through August 31, 2002.
     
 

In order to perform a comparative analysis of the figures, the consolidated financial statements are presented, assuming for the period from January to August 2002 that the investment in Sonda S.A. was only recorded at equity value.

 

   
Jan-Dec
2002
ThCh$
 
Jan-Dec
2003
ThCh$
 
Variation

 
ThCh$
 
2003
Percentage
   
 
 
 
 
Operating revenues   803,365,609   812,790,214   9,424,605   1.2  
   Operating costs   (673,899,420 ) (697,432,453 ) (23,533,033 ) 3.5  
      Salaries and employee benefits   (65,975,316 ) (56,839,346 ) 9,135,970   (13.8 )
      Depreciation   (257,581,597 ) (263,687,423 ) (6,105,826 ) 2.4  
      Goods and services   (228,967,879 ) (233,744,456 ) (4,776,577 ) 2.1  
      Administrative and selling expenses   (121,374,628 ) (143,161,228 ) (21,786,600 ) 17.9  
   
 
 
 
 
Operating Income   129,466,189   115,357,761   (14,108,428 ) (10.9 )
      Financial income   15,554,185   7,077,018   (8,477,167 ) (54.5 )
      Income from investments in related companies   2,923,247   680,761   (2,242,486 ) (76.74 )
      Amortization of goodwill   (24,364,139 ) (23,083,782 ) 1,280,357   (5.3 )
      Financial expenses   (81,524,965 ) (61,245,497 ) 20,279,468   (24.9 )
      Other income and expenses   (27,121,985 ) (137,168 ) 26,984,817   (99.5 )
      Price-level restatement   (6,664,946 ) 634,656   7,299,602   C.S.  
   
 
 
 
 
Non-operating income (loss)   (121,198,603 ) (76,074,012 ) 45,124,591   (37.2 )
Income before taxes and minority interest   8,267,586   39,283,749   31,016,163   375.2  
      Income tax   (25,968,183 ) (29,009,152 ) (3,040,969 ) 11.7  
      Minority interest   (156,583 ) (140,715 ) 15,868   (10.1 )
   
 
 
 
 
Net income (loss) for the period   (17,857,180 ) 10,133,882   27,991,062   C.S.  
   
 
 
 
 
     
  ii) On September 2, 2003, the sale of the subsidiary Compañía de Teléfonos Isapre S.A. was completed and its net effect resulted in a ThCh$66,705 loss on the book value of that investment.
     
c) Change in estimation: 
   
  As of January 2003, the Company accelerated amortization of goodwill from subsidiaries Tecnonáutica S.A. and Telefónica Internet Empresas S.A. (formerly Infoera S.A.) recognizing a higher charge to income as of December 31, 2003 of ThCh$124,045, reducing the remaining amortization period from 17 to 8 years of that goodwill.
     

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Notes to the Consolidated Financial Statements, continued

4. Marketable Securities:
     
  The balance of marketable securities is as follows:
   
   
2003
ThCh$
 
2002
ThCh$
 
   
 
Shares (a)   458,765   9,551,370  
Publicly offered promissory notes   42,442,492   66,227,656  
Mutual fund units   308,426   1,790,441  
Others     10,683  
   
 
 
Total Marketable Securities   43,209,683   77,580,150  
   
 
 
           
Shares          
                           
Taxpayer
No.
 
Company
Name
 
Number of
Shares
 
Interest
%
 
Market Quote per
share
ThCh$
 
Market Value
ThCh$
 
Restated Cost
ThCh$
 

 
 
 
 
 
 
 
Foreign   New Skies Satellites   5,198   0.057 % 4.685   29,940   252,353  
Foreign   INTELSAT   96,022   0.057 %     428,825  
       
 
 
 
 
 
        Value of investment portfolios   29,940   681,178  
     Adjustment to market value provision     (222,413 )
     Book value of investment portfolio     458,765  
         
 
 
     
  a) The Board meeting held on July 10, 2003, approved the sale of the 2,984,986 shares the Company had in Terra Networks S.A., through the OPA launched by Telefónica S.A. The price of the OPA was 5.25 Euros per share which at the exchange rate on the date that the sale was completed, resulted in a total sale price of ThCh$12,643,411.
     

Publicly offered promissory notes (Fixed Income)

 
Date
Par
Value
ThCh$
    Book Value    
Market
Value
ThCh$
 
Provision
 
 

 
Instrument
 
Purchase
 
 
Maturity
 
Amount
ThCh$
 
Rate
ThCh$
 
 
 
 
 
 
 
 
Zero Dic-2002   Jul-2004   5,320,448   6,096,295   5.40   6,096,295    
Zero Dic-2002   Dic-2005   11,874,462   13,734,301   5.85   13,734,301    
Zero Dic-2002   Nov-2005   1,511,698   1,747,625   5.85   1,747,625    
Zero Dic-2002   Oct-2005   3,168,431   3,596,964   5.07   3,596,964    
Sub-Total       21.875.039   25.175.185       25,175,185      
PRD Sep-2003   Jul-2004   3,562,800   3,795,812   6.00   3,795,812    
BCD Sep-2003   Sep-2004   13,063,600   13,471,495   5.00   13,471,495    
         
 
 
 
 
 
  Total       38,501,439   42,442,492     42,442,492    
         
 
 
 
 
 

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Notes to the Consolidated Financial Statements, continued

     
5) Current and long-term receivables:
     
  The detail of current and long-term receivables is as follows:
     
Description
   Current  
Long-term
  

 
Up to 90 days
   
Over 90 up to 1 year
   
Subtotal
 
Total Current (net)
       




   
2003    2002 2003    2002 2003 2003

  2002

  2003   2002
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$   % ThCh$   % ThCh$ ThCh$

 
 
 
 
 
 
 
 
 
 
 
 
                                               
Trade accounts receivable   289,443,508   281,733,972   10,398,484   9,705,590   299,841,992   216,482,786   100   208,671,822   100   4,642,612   5,646,026  
Standard telephony service
  170,067,405   167,790,656   8,647,455   6,659,369   178,714,860   114,218,141   52.76   111,176,612   53.93   4,642,612   5,646,026  
Long distance
  43,659,470   45,121,661       43,659,470   40,020,045   18.49   41,703,105   20.65      
Mobile
  48,890,686   44,535,020       48,890,686   38,038,803   17.57   30,607,551   14.11      
Communications Companies
  22,518,637   20,577,776   1,750,702   3,033,582   24,269,339   20,041,183   9.26   21,631,685   10.54   —    —   
Others
  4,307,310   3,708,859   327   12,639   4,307,637   4,164,614   1.92   3,552,869   0.77   —    —   
Allowance for doubtful accounts
  (79,035,479 ) (79,438,056 ) (4,323,727 ) (3,329,685 ) (83,359,206 ) —        —        —    —   
Notes receivable
  15,480,324   12,447,704   411,739   1,274,727   15,892,063   7,352,077       6,084,680       —    —   
Allowance for doubtful notes
  (8,539,986 ) (7,637,750 ) —    —    (8,539,986  )       —           
Miscellaneous accounts receivable
  4,619,996   18,227,344   3,492,157   7,093,973   8,112,153   8,112,153       25,321,317       25,563,304   29,542,634  
Allowance for doubtful accounts
                           
                                       
 
 
                       
Total long-term receivables
  30,205,916   35,188,660  
                                       
 
 

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Notes to the Consolidated Financial Statements, continued

6. Balances and transactions with related entities:
     
  a) Notes and accounts receivable:
        Short-term     Long-term    
       
 
 
Taxpayer No.   Company   2003   2002   2003   2002  
        ThCh$   ThCh$   ThCh$   ThCh$  

 
 
 
 
 
 
96.834.230-4   Terra Networks Chile S.A.   1,234,408   967,001      
Foreign   Terra Networks España S.A.     9,184      
96.895.220-k   Atento Chile S.A.   395,282   621,693      
78.868.230-1   Atento Educación Ltda.     1,240      
83.628.100-4   Sonda S.A.     1,983,720      
96.910.730-9   Emergia Chile S.A.   126,612   22,640      
93.541.000-2   Impresora Comercial y Publiguías   3,432,647   851,640      
96.527.390-5   Telefónica Internacional Chile S.A.   6,647        
Foreign   Telefónica España   643,868   795,038      
96.545.480-2   CTC Marketing e Inform S.A. (Nexcom S.A.)   294,426        
Foreign   Telefónica procesos Tec. de información   9,733,530   11,897,201      
Foreign   Telefónica Data España   403,125   132,685      
Foreign   Telefónica Data EEUU   322,167        
59.083.900-0   Telefónica Ingeniería Seguridad   5,853        
96.942.730-3   Telefönica Mobile Solutions Chile S.A.   48,608   3,025      
Foreign   Telefónica Whole Sale International Services   441,607        
Foreign   Telefónica Argentina   1,091,932        
Foreign   Emergia Uruguay   44,003        
82.049.000-2   Coasin Chile S.A.   74,000        
Foreign   Telesp Telec de Sao Paulo   235,771        
       
 
 
 
 
   
 Total
  18,534,486   17,285,067      
       
 
 
 
 

There have been charges and credits recorded to current accounts with these companies for invoicing of sale of materials, equipment and services.

   b)  Notes and accounts payable::
        Short-term   Long-term  
       
 
 
        2002   2003   2002   2003  
RUT   Company   ThCh$   ThCh$   ThCh$   ThCh$  

 
 
 
 
 
 
96.942.730-3   Telefönica Mobile Solutions Chile S.A.   1,416,736        
96.527.390-5   Telefónica Internacional Chile S.A.   263,952   263,820   20,488,463   24,456,253  
 93.541.000-2   Impresora Comercial y Publiguías   1,086,402   335,579      
96.834.230-4   Terra Networks Chile S.A.   4,858,134   3,121,066      
96.910.730-9   Emergia Chile S.A.   502,657   43,810      
82.049.000-2   Coasin Chile S.A.   4,643        
Foreign   Telefónica procesos Tec. de información   7,076,254        
59.083.900-0   Telefónica Ingeniería Seguridad   6,132        
Foreign   Telefónica Whole Sale International Services   561,631        
78.868.200-k   Atento Recursos Ltda.   10,408   24,325      
96.895.220-k   Atento Chile S.A.   4,456,398   4,802,763      
Foreign   Telefónica Data España     1,334,127      
96.545.480-2   CTC Marketing e Inform S.A. (Nexcom S.A.)   105        
Foreign   Telefónica España   226,577        
Foreign   Emergia Uruguay   4,301,056        
Foreign   Telefónica Perú   32,143        
Foreign   Telefónica LD Puerto   3,082        
Foreign   Telsa gest Guatemala   2,148        
Foreign   Telefónica El Salvador   153,546        
83.628.100-4   Sonda S.A.     2,170,468      
       
 
 
 
 
   
 Total
  24,962,004   12,095,958   20,488,463   24,456,253  
       
 
 
 
 

As per Article No. 89d of the Corporations Law, all these transactions are carried out under conditions similar to those that normally prevail in the market.

The balance of long-term accounts with related companies, corresponds to the mercantile current account that Telefónica CTC Chile has signed with Telefónica Internacional Chile S.A.

This mercantile current account is in a contract denominated in dollars with undefined maturities, which accrue interest at a fixed annual rate of 2.07%.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Translation of financial statements
originally issued in Spanish)

6.  Balances and transactions with related companies, continued:
     
  c) Transactions:
                2003     2002    
                  ThCh$    ThCh$    
         Nature   Description
 
 
        of   of       Effect on       Effect on  
Company      Tax No.    Relationship    transaction   Amount   income   Amount   income  

 
 
 
 
 
 
 
 
                       
Telefónica España   Foreign   Parent Co.   Sales and Services       26,526   26,526  

 
 
 
 
 
 
 
 
Telefónica Internacional Chile S.A.   96.527.390-5   Parent Co.   Purchases and Services Rendered   528,903   528,903   527,181   527,181  
           Financial Expenses   520,325   520,325   846,946   846,946  

 
 
 
 
 
 
 
 
Impresora y Comercial Publiguías S.A.   93.541.000-2   Associate   Sales and Services   5,275,972   5,275,972   4,892,667   4,892,667  
           Purchases and Services Rendered   6,409,026   6,409,026   5,099,140   5,099,140  
           Financial Income   343,048   343,048      
           Other Non-operating Income   1,567,667   1,567,667      

 
 
 
 
 
 
 
 
Terra Networks Chile S.A.   96.834.230-4   Associate   Sales and Services   5,846,905   5,846,905   1,912,309   1,912,309  
           Purchases and Services Rendered   2,271,764   2,271,764   359,663   359,663  

 
 
 
 
 
 
 
 
Atento Chile S.A   96.895.220-k   Associate   Sales and Services   955,309   955,309   1,198,673   1,198,673  
           Purchases and Services Rendered   12,161,767   12,161,767   12,633,564   12,633,564  
           Other Non-operating Income   16,735   16,735   27,165   27,165  

 
 
 
 
 
 
 
 
Emergia Chile S.A.   96.910.730-9   Associate   Sales and Services   1,061,156   1,061,156   1,284,626   1,284,626  
           Purchases and Services Rendered   82,310   82,310   43,271   43,271  
           Other Non-operating Income       12,465   12,465  

 
 
 
 
 
 
 
 
Telefonica Whole Sale International Services   Foreign   Associate   Sales and Services   373,030   373,030      
           Purchases and Services Rendered   1,496,752   1,496,752      

 
 
 
 
 
 
 
 
Atento Recursos Ltda.   78.868.200-k   Associate   Sales and Services   13,238   13,238   347,822   347,822  

 
 
 
 
 
 
 
 
Telefonica. Procesos y Tecnología de Información S.A.   Foreign   Associate   Other Non-operating Income       416,772   416,772  

 
 
 
 
 
 
 
 
T-Data Corp   Foreign   Associate   Sales and Services       1,334,127   1,334,127  

 
 
 
 
 
 
 
 

The conditions of the Mandate and Mercantile Current Account are short and long-term respectively. In the case of Telefónica Internacional Chile S.A. it is denominated in US dollars, accruing interest at a variable rate which adjusts to market conditions (US$ + Market Spread).

In the case of Sales and Services Rendered, these mature in the short-term (less than a year) and the maturity conditions for each case vary based on the transaction that produces them.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

7. Income tax and deferred taxes:
     
  a) General information:
     
    As of December 31, 2003 the Parent Company has recorded a first category income tax provision of ThCh$5,205,537 (net of application of the tax benefit for taxable losses), in 2002 no provision was recorded as the Company had accumulated tax losses of approximately ThCh$89,000,000. Likewise, there are subsidiaries with accumulated taxable losses as of December 31, 2003 and 2002 and which amount to ThCh$121,310,494 and ThCh$144,751,813, respectively.
     
    As of December 31, 2003 and 2002 subsidiaries with positive taxable income have recorded a first category income tax provision of ThCh$4,350,421 and ThCh$7,900,598 respectively.
     
    As of December 31, 2003 subsidiaries with a positive balance in Taxed Retained Earnings and their associated credits, are detailed in the following table:

    Taxed   Taxed   Taxed   Taxed   Amount of  
    Retained   Retained   Retained   Retained   credit  
   Subsidiaries   Earnings   Earnings   Earnings   Earnings      
    w/15% credit   w/16% credit   w/16.5% credit   W/o credit      
    ThCh$   ThCh$   ThCh$   ThCh$   ThCh$  

 
 
 
 
 
 
CTC Equipos y Servicios de Telecomunicaciones S.A   3   532,601   2,430,691   2,442,934   2,963,296  
CTC Transmisiones Regionales S.A.     2,924,451   727,123   768,570   3,651,574  
Globus 120 S.A.   369,319   151,032   118,682   270,421   639,033  
Telefónica Empresas CTC Chile S.A.   6,814   259,100   192,642   87,432   458,556  
   
 
 
 
 
 
      Total   376,136   3,867,184   3,469,138   3,569,357   7,712,459  
   
 
 
 
 
 

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

7. Income tax and deferred income taxes, continued:
     
  b) Deferred taxes:
   
    As of December 31, 2003 and 2002, temporary differences resulted in net deferred tax liabilities amounting to ThCh$29,464,486 and ThCh$10,910,229, respectively and the breakdown is as follows:

Description   2003   2002  
   
 
 
    Deferred tax assets   Deferred tax liabilities   Deferred tax assets   Deferred tax liabilities  

 
 
 
 
 
    Short-term   Long-term   Short-term   Long-term   Short-term   Long-term   Short-term   Long-term  
   
 
 
 
 
 
 
 
 
Temporary differences                                  
Allowance for doubtful accounts   14,398,438         18,708,340        
Vacation provision   799,070         788,024        
Tax benefits for tax losses     20,622,784       336,844   38,313,779      
Staff severance indemnities     2,407     1,333,064     10,844     6,224,268  
Leased assets and liabilities   69,144   619,500     121,708   62,406   757,580     152,470  
Property, plant and equipment   60,630   4,631,375     196,304,714     3,664,739     209,670,615  
Difference in amount of capitalized staff severance     897,685     5,458,235     1,035,209      
Software         975,936         5,886,395  
Deferred charge on sale of assets         2,269,622         4,316,429  
Investment in Terra Networks S.A.           3,239,585        
Collective negotiation bonus         137,115          
Other events   1,782,373   352,594   8,292   1,410,254   2,305,160   1,437,004     1,137,151  
   
 
 
 
 
 
 
 
 
Sub-Total   17,109,655   27,126,345   8,292   208,010,648   25,440,359   45,219,155     227,387,328  
   
 
 
 
 
 
 
 
 
Complementary accounts net of accumulated amortization     (10,259,102 )   (144,577,556 )   (13,663,750 )   (159,481,335 )
   
 
 
 
 
 
 
 
 
Sub-Total   17,109,655   16,867,243   8,292   63,433,092   25,440,359   31,555,405     67,905,993  
   
 
 
 
 
 
 
 
 
Tax reclassification   (8,292 ) (16,867,243 ) (8,292 ) (16,867,243 )   (31,555,405 )   (31,555,405 )
   
 
 
 
 
 
 
 
 
Total   17,101,363       46,565,849   25,440,359       36,350,588  
   
 
 
 
 
 
 
 
 

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

7. Income tax and deferred income taxes, continued:
     
  c) Income tax breakdown:
     
    The current tax expense shown in the following table arises from the determination of taxable income, net of credits for donations, training expenses and other credits.

Description   2003   2002  
    ThCh$   ThCh$  

 
 
 
Tax expense before tax benefits (income tax)   23,059,866   7,900,598  
Current tax expense (Flat Article No. 21 – 35%)   83,721   310,196  
Recuperation tax losses per dividends of subsidiaries     (5,401,690 )
Adjustment of tax expense (prior year)   (736,545 )  
   
 
 
 Income tax subtotal    22,407,042   2,809,104  
   
 
 
– Effect of deferred tax assets or liabilities for the period   8,606,887   8,809,480  
– Tax benefit for tax losses (1)   (13,503,908 )  
– Effect of amortization of deferred tax assets and liabilities complementary accounts   11,499,131   15,365,360  
   
 
 
      Deferred tax subtotal   6,602,110   24,174,840  
   
 
 
   Total income tax expense   29,009,152   26,983,944  
   
 
 


(1) Income tax for 2003 amounts to ThCh$9,555,958 after applying the taxable loss tax benefit.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

8. Other Current Assets:
   
  The detail of other current assets is as follows:
    2003   2002  
    ThCh$   ThCh$  
   
 
 
  Fixed income securities purchased with resale agreement 8,301,477    
  Collective negotiation bonus to be amortized (a) 2,243,188   1,165,919  
  Adjustment to market value for cellular equipment to be commercialized (c) 4,416,987   4,021,237  
  Exchange insurance premiums to be amortized 772,159   1,616,871  
  Telephone directories for connection program 4,211,874   4,483,731  
  Higher bond discount rate to be amortized (note 24) 499,417   704,771  
  Disbursements for placement of bonds to be amortized (note 24) 1,212,862   1,779,688  
  Disbursements for foreign financing proceeds to be amortized (b) 641,123   493,985  
  Exchange difference insurance debtors (net of partial liquidations) 17,939,054   12,752,987  
  Deferred charges for modification of staff severance indemnities discount rate (net)   511,814  
  Others 2,021,259   1,412,190  
   
 
 
    Total 42,259,400   28,943,193  
   
 
 
           
 
  (a)   During June 2002, the Company signed a 2-year collective agreement with some of its employees (3 years for employees of Telefónica Móvil) granting them among other benefits, a special negotiation bonus. That bonus was paid between June and July 2002 (for employees of Telefónica Móvil a second installment will be paid in May 2004 in the amount of ThCh$440,000 (historical)). The total benefit amounts to ThCh$2,494,544 (historical), and is being deferred using the straight-line method over the term of the respective collective contracts.
   
  Between November and December 2003, the Company negotiated a 32-month and 36-month collective agreement with another part of its employees, granting them, among other benefits, a negotiation bonus. That bonus was paid in November and December 2003. The total benefit of ThCh$3,425,245 (historical), was deferred using the straight-line method over the term of the collective agreement.
   
  The long-term portion is shown under “Other Long-term” (Note 13).
   
  (b)   This amount corresponds to the cost (net of amortization) of the mandatory reserve paid to the Central Bank of Chile and disbursements incurred for foreign loans obtained by the Company to finance its investment plan.
   
  Corresponds to marked-to-market cellular equipment kept in stock at period closing date, which is charged to income based on the negotiation modality, contract or pre-payment, applicable to the equipment.
   

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

9. Property, plant and equipment: 
   
  The detail of property, plant and equipment is as follows:
   
    2003   2002  
     
 
 
  Description   Accumulated
depreciation
ThCh$
  Gross prop., plant
and equipment
ThCh$
  Accumulated
depreciation
ThCh$
  Gross prop., plant
and equipment
ThCh$
 
 
 
 
 
 
 
  Land     27,630,776     27,645,852  
                     
  Construction and Infrastructure Works   73,123,020   185,701,152   71,158,729   184,983,357  
                     
  Machinery and equipment   1,941,237,905   3,456,701,757   1,768,611,654   3,327,825,508  
  Central office telephone equipment   1,000,674,283   1,634,053,166   893,106,884   1,550,120,365  
  External plant   657,310,535   1,395,592,164   612,104,371   1,375,777,768  
  Subscribers’ equipment   252,049,742   391,577,013   229,411,266   366,507,544  
  General equipment   31,203,345   35,479,414   33,989,133   35,419,831  
                     
  Other Property, Plant and Equipment   200,815,970   376,190,313   138,353,965   397,312,019  
  Office furniture and equipment   94,669,770   128,576,052   68,910,514   129,001,137  
  Projects, work in progress and their materials     101,753,384     136,656,311  
  Leased assets (1)   4,308,288   10,698,620   4,460,183   11,354,015  
                     
  Property, plant and equipment temporarily out of service   16,717,057   30,370,581   11,246,483   23,785,223  
  Software and others   85,120,855   104,791,676   53,736,785   96,515,333  
                     
  Technical revaluation-Circular 550   10,403,590   9,224,415   10,429,788   9,221,570  
     
 
 
 
 
    Total   2,225,580,485   4,055,448,413   1,988,554,136   3,946,988,306  
     
 
 
 
 
                     
 
  (1) As of December 2003 this account is mainly composed of: ThCh$5,505,649 gross value for acquisition of administrative offices with accumulated depreciation of ThCh$642,902 with 15-year contract conditions since 1996, ThCh$3,238,902 gross value of electronic and computer equipment with accumulated depreciation of ThCh$3,055,922 with 12-year contract conditions since 1994, in addition to ThCh$982,332 gross value of long-distance transmission equipment with accumulated depreciation of ThCh$221,025 under 18-year contract conditions since 1996.
     
  The balance of gross property, plant and equipment includes capitalized interest until December 2002 and its current balance amounts to ThCh$ 211,052,471. Accumulated depreciation of this interest amounts to ThCh$101,847,799 and ThCh$82,274,696 in 2003 and 2002, respectively.
   
  A depreciation charge for the year amounting to ThCh$263,687,423 and ThCh$263,645,559 for 2003 and 2002, respectively was recorded as operating cost, and a depreciation charge of ThCh$1,834,915 for 2003 and ThCh$262,112 for 2002 as administration and selling cost. Depreciation of property, plant and equipment that is temporarily out of service, composed mainly of the La Serena Cable TV network not transferred in the sale of subsidiary Multimedia to Cordillera Comunicaciones, amounted to ThCh$3,668,537 and ThCh$1,716,087 in 2003 and 2002, which is classified under “Other Non-operating Expenses”.
   
  The detail by caption of the technical revaluation is as follows:
  Description   Net
Balance

ThCh$
  Accumulated
Depreciation

ThCh$
  Property, plant
and equipment
2003
ThCh$
  Property, plant
and equipment
2002
ThCh$
 
 
 
 
 
 
 
  Land   (477,371 )   (477,371 ) (477,371 ) 
  Construction and infrastructure works   (983,054 ) (3,594,400)   (4,577,454 ) (4,579,969 )
  Machinery and equipment   281,250   13,997,990   14,279,240   14,278,910  
     






 
    Total   (1,179,175 )  10,403,590   9,224,415   9,221,570  
     






 
                     
  Depreciation of the technical reappraisal surplus for the period amounts to ThCh$(29,141) in 2003 and ThCh$(23,798) in 2002.
Gross property, plant and equipment includes assets that have been totally depreciated in the amount of ThCh$739,718,717 in 2003 and ThCh$537,970,122 in 2002, which include ThCh$11,976,674 and ThCh$11,692,058, respectively, from the reappraisals mentioned in Circular No. 550
   

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued
(Translation of financial statements originally issued in Spanish)

10. Investments in Related Companies: 
   
  The breakdown of investments in related companies is as follows:
   
Taxp. No.     Company     Country
of
origin
  Currency
control-
ling
the
investment
  No. of
shares
  Holding
percentage
  Shareholders' equity
of the companies
  Income for the year   Accrued income   Equity Value   Unearned
Income
  Investment
book value
 
         


 


 


 


 


 


 


 
          2003   2002   2003   2002   2003   2002   2003   2002   2003   2002   2003   2002   2003   2002  
                   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                    %   %   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$   ThCh$  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign   TBS Celular participación S.A. (1)   Brasil   Dólar   48,950,000   2.61   2.61   164,152,529   198,348,582   2,190,965   3,008,084   57,184   78,511   4,284,381   5,176,898       4,284,381   5,176,898  
                                                                           
93.541.000-2   Impresora y Comercial Publiguías S.A.   Chile   Pesos   45,648   9.00   9.00   30,839,044   25,264,122   9,108,286   6,966,256   819,746   626,963   2,775,514   2,273,771       2,775,514   2,273,771  
                                                                           
96.922.950-1   Empresa de Tarjetas Inteligentes S.A. (1)   Chile   Pesos   271,615   20.00   20.00   468,695   588,115   (119,419 ) (546,005 ) (23,884 ) (109,201 ) 93,739   117,623       93,739   117,623  
                                                                           
96.895.220-K   Atento Chile S.A. (1)   Chile   Pesos   3,209,374   28.84   28.84   9,947,375   9,193,343   754,034   38,762   217,464   11,179   2,868,823   2,651,360       2,868,823   2,651,360  
                                                                           
96.725.400-2   Sonda S.A. (2)   Chile   Pesos       35.00     91,965,791     4,720,526   (389,749 ) 1,652,184     32,188,027         32,188,027  
                                                                           
In development   Bolsa de Oportunidades de Negocios S.A.   Chile   Pesos       19.00     2,084,137             395,986         395,986  
                                                                           
In development   Time Interating   Chile   Pesos       10.25     741,698             76,024         76,024  
                                                                           
96.571.690-4   Servibanca S.A.   Chile   Pesos       43.33         216,820     93,948              
                                                                           
96.768.410-4   Payroll S.A.   Chile   Pesos       33.33         82,091     27,361              
                                                                           
96.539.380-3   Ediciones Financieras S.A.   Chile   Pesos       6.66         (30,210 )   (2,012 )            
   
                                             
 
         
 
 
    Total                                               10,022,457   42,879,689           10,022,457   42,879,689  
   
                                             
 
         
 
 
                                                                           

(1) Recognition of income for this company is that accrued for Agost 2002 and 2003.
   
(2) “As indicated in Note 2d, as of September 2002 the Company no longer has a majority or controlling interest in Sonda S.A. It now recognizes 35% equity in the Company.”
   
During September 2002, Telefónica Empresas sold and transferred 25% ownership in Sonda S.A., to Inversiones Pacífico Limitada and Inversiones Santa Isabel Limitada, companies linked to Mr. Andrés Navarro. This operation meant disbursements on the part of the purchasing companies amounting to ThCh$ 27,920,701 (historical), implying for Telefónica Empresas a net effect on income (loss), amounting to ThCh$ 1,889,316, product of proportional extraordinary amortization of goodwill in relation to the percentage sold and to the difference between the book value of the investment and the amount received. Once this transaction was carried out, Telefónica Empresas had a 35% holding in that company.
   
Additionally, on September 26, Telefónica Empresas signed an agreement with Inversiones Santa Isabel Limitada, which granted it an option to sell 35% of Sonda, which it could exercise between July 16 and 25, 2005, at the book value of the investment as of June 30, 2005, plus a bonus of UF 142,021, with a minimum value of UF 2,048,885. In case Telefónica Empresas does not exercise such option to sell, between July 26 and August 5, 2005, Inversiones Santa Isabel Limitada has an option to purchase the same 35% of Sonda, under the same conditions as above.
   
Likewise, Inversiones Santa Isabel Limitada can exercise the option to purchase in advance between July 26 and 31, 2003, at the book value on June 30, 2003, plus a bonus of UF 96,000, with a minimum price of UF 1,983,185, or between July 26 and 31, 2004, at the book value of June 30, 2004, plus a bonus of UF 119,000 with a minimum price of UF 2,003,260.
   
On July 29, 2003, Telefónica Empresas became aware of the decision of Inversiones Santa Isabel Limitada, to anticipate and exercise the purchase option for the remaining 35% of Sonda S.A. This transaction meant a disbursement on the part of the purchasing company of ThCh$ 33,388,363 (historical), implying an effect on income, before taxes amounting to ThCh$ 6,999,276, (ThCh$ 5,683,065 net of tax effect).
   
  As of the date of these financial statements there are no liabilities for hedge instruments assigned to foreign investments. The Company has the intention of reinvesting net income from foreign investments on a permanent basis, therefore there is no net income that is potentially remittable.
   

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

11. Goodwill and negative goodwill:
     
  Goodwill:

The detail of goodwill is as follows:

    2003 2002  
   
 


 
Taxpayer No.         Company      Year         Amount
amortized
In the period
ThCh$
     Balance

of
 Goodwill
ThCh$
     Amount
amortized
In the period

ThCh$
     Balance of

 Goodwill
ThCh$
 

 
 
 
 
   Foreign   Consorcio telefónica do Brasil   2001   175,677   2,692,919   175,677   2,868,596  
   90.430.000-4   CTC Globus S.A.   1998   1,083,868   16,045,361   1,083,868   17,129,229  
   78.703.410-1   Tecnonáutica S.A.   1999   143,747   1,004,329   66,464   1,147,606  
   96.786.140-5   Telefónica Móvil S.A.   1997   9,862,763   137,727,405   9,862,763   147,590,168  
   96.834.320-3   Infoera S.A.   1999   88,605   620,231   41,843   708,836  
   96.811.570-7   Telepeajes S.A.   2001   38,924   38,924   15,016   77,616  
   83.628.100-4   Sonda S.A. (a)   1999   11,690,198     12,615,271   11,676,548  
   Foreign   Sonda Uruguay   1999       95,310    
   Foreign   Setco S.A. (Uruguay)   1999       93,559    
   Foreign   Sonda del Ecuador   1997       26,167    
   96.571.690-4   Servibanca   2000       24,381    
   96.768.410-4   Payroll   1999       1,237    
   96.894.490-8   Puerto Norte   2000       865    
   96.895.220-K   Atento Chile S.A.   2001       355,255    
   Foreign   Sonda Bancos   2001       6,561    
   Foreign   Sonda Perú   2001       3,346    
   Foreign   Bismark (México)   2001       3,231    
   Foreign   Tecnoglobal S.A.   2001       36,104    
   Foreign   Bac Financiero   2001       60,878    
   96.833.930-3   Telef. Comunicaciones Empresariales   2001       147,983    
   96.590.960-5   Tecnópolis   2001       1,361    
   Foreign   Track S.A.   2002       1,584    
   Foreign   Sonda Do Brasil   2002       189,788    
           
 
 
 
 
     Total       23,083,782   158,129,169   24,908,512   181,198,599  
           
 
 
 
 

Goodwill amortization periods have been determined taking into account aspects such as the nature and characteristics of the business and estimated period of return of investment.

As of the closing date of these financial statements there has been no impairment of goodwill as per Circular No. 150 of the Superintendency of Securities and Insurance.

a) In 2002 amortization of goodwill includes ThCh$8,972,951, as extraordinary amortization of the sale of 25% ownership that Telefónica Empresas had in Sonda S.A. Due to the sale of the 35% participation had of this company in July 2003, the balance of goodwill remaining as of that date, which amounted to ThCh$9,808,257 historical was amortized.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

 
12. Intangibles:

The detail of Intangibles is as follows:

      2003
ThCh$
   2002
ThCh$
 
     
 
 
  Underwater cable rights (gross) 28,462,244   20,929,370  
    Accumulated amortization previous period (2,366,196 ) (1,608,103 )
    Amortization for the period (921,677 ) (760,761 )
  Licenses (Software) (gross) 2,351,580   2,104,520  
    Accumulated amortization previous period (262,112 )  
    Amortization for the period (662,474 ) (262,112 )
  Licenses for use of wireless (gross) 9,592,766   9,593,549  
    Accumulated amortization previous period (26,649 )  
    Amortization for the period (319,757 ) (26,649 )
     
 
 
    Total Net Intangibles 35,847,725   29,969,814  
     
 
 
             
13. Others (from Other Assets):

The detail of Others is as follows:

    2003   2002  
ThCh$   ThCh$  
   
 
 
  Disbursements for obtaining external financing to be amortized (see note 8b) 1,237,642   1,933,407  
  Collective negotiation bonus to be amortized ( see note 8a) 2,296,251   1,054,863  
  Bond issue expenses to be amortized ( see note 24) 2,116,204   4,219,206  
  Higher bond discount rate to be amortized ( see note 24) 3,424,200   4,670,069  
  Telephone directories for connection programs   1,899,247  
  Deferred exchange insurance premiums to be amortized 106,910   439,600  
  Rental of telephone posts paid in advance 191,235   1,352,034  
  Guarantee deposits 132,527   332,370  
  Others 715,281   833,812  
   
 
 
  Total 10,220,250   16,734,608  
   
 
 

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Translation of financial statements originally issued in Spanish)

14. Short-term obligations with banks and financial institutions:

The breakdown of short-term obligations with banks and financial institutions is as follows:

      Bank or financial institution   US$    U.F.    $    TOTAL  
 












  
Taxp. No. Short-term 2003    2002 2003    2002 2003    2002 2003    2002
    ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
 
 
 
 
 
 
 
 
 
 
 
                                         
  97.015.000-5   SANTANDER SANTIAGO           9,948,701     9,948,701    
  97.030.000-7   BANCO ESTADO         9,283,360   9,379,587     9,379,587   9,283,360  
         
 
 
 
 
 
 
 
 
      Total         9,283,350   19,328,288     19,328,288   9,283,350  
         
 
 
 
 
 
 
 
 
      Capital owed         9,269,903   19,099,879     19,099,879   9,269,903  
         
 
 
 
 
 
 
 
 
      Average annual interest rate         0.78 % 3.29 %   3.29 % 0.78 %
                                         
      Short-term portion of long-term                                  
                                         
  Foreign   BANCO CITIBANK   6,493,471   117,544,936           6,493,471   117,544,936  
  Foreign   SANTANDER SANTIAGO       60,365,639   9,939,642       60,365,639   9,939,642  
  Extranjera   ABN AMRO BANK   940,171   1,560,784           940,171   1,560,784  
  Extranjera   BANCO BILBAO VIZCAYA ARGENTARIA   15,548,925   18,329,413           15,548,925   18,329,413  
  79.561.240-8   CHASE MANHATTAN     378,938             378,938  
         
 
 
 
 
 
 
 
 
      Total   22,982,567   137,814,071   60,365,639   9,939,642       83,348,206   147,753,713  
         
 
 
 
 
 
 
 
 
      Capital owed   21,222,682   134,809,697   60,150,600   9,808,706       81,373,282   144,618,403  
         
 
 
 
 
 
 
 
 
      Average annual interest rate   1.68 % 2.39 % 1.65 % 0.90 %       1.66 % 2.29 %
                                         
      Percentage of obligations in foreign currency:   21.12 % for 2003 and 87.52 % for 2002                  
      Percentage of obligations in national currency:   78.88 % for 2003 and 12.48 % for 2002                  
                                         

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Translation of financial statements originally issued in Spanish)

15. Long-term obligations with banks and financial institutions:
   
  Long-term obligations with banks and financial institutions:
   
            Currency Years to maturity for long-term portion

  Long-term       Long-term
            or   portion       portion
    Bank or Financial       Indexation   as of       as of
Taxp. No.   Institution       Index   1 to 2   2 to 3   3 to 5   31-12-03       31-03-2003

 
     
 
 
 
 
 
 
                ThCh$   ThCh$   ThCh$   ThCh$       ThCh$
    LOANS IN DOLLARS                                
Foreign   BANCO CITIBANK       US$   6,377,682   3,188,841     9,566,523   Libor + 0.57%   19,488,450
EXTRANJERA   ABN AMRO BANK (2)       US$     62,349,000   115,791,000   178,140,000   Libor + 1.063%   254,028,635
97.008.000-7   BANCO BILBAO VIZCAYA ARGENTARIA       US$   118,760,000       118,760,000   Libor + 1.056%  
        SUBTOTAL       125,137,682   65,537,841   115,791,000   306,466,523   2.25%   360,612,617
    LOANS IN UNIDADES DE FOMENTO                                
97.015.000-5   BANCO SANTANDER SANTIAGO       UF               60,120,600
                                   
        SUBTOTAL                 60,120,600
               
 
 
 
 
 
        TOTAL       125,137,682   65,537,841   115,791,000   306,466,523   2.25%   420,733,217
               
 
 
 
 
 
                                     
  Percentage of obligations in foreign currency:   0.00%   in 2003 and     0.00% in 2002
  Percentage of obligations in local currency:   0.00%   in 2003 and     0.00% in 2002
                     

(1) In April and June 2003, the Company prepaid loans in the amount of US$ 90,000,000 and US$ 30,000,000 which it had with this bank.
(2) In April 2003, the Company renegotiated this loan, which allowed it to extend the maturity date from December 2003 to April 2008, in addition to changing the agent bank which was Citibank N.A..

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Translation of financial statements originally issued in Spanish)

16. Obligations with the public, continued:
     
  b) Bonds
     
  The breakdown of obligations with the public for bond issues, classified as short and long-term is as follows:
     

 

Registration number
or identification of
the instrument
   Series     Current
nominal amount
placed
  Bond readjustment
unit
   Interest
rate
   Final
maturity

Frequency

   Par value

  Placement
In Chile
or abroad
            Interest payment   Amortizations   2003   2002  

 
 
 
 
 
 
 
 
 
 
                %               ThCh$   ThCh$    
Short-term portion of long-term bonds                                        
   143.27.06.91   E (d)     U.F.   6.000   Apr.2003   Semi-annual   Semi-annual     2,674,704   Chile
   143.27.06.91   F   71,429   U.F.   6.000   Apr.2016   Semi-annual   Semi-annual   1,395,556   1,407,139   Chile
   177.12.08.94   I (b)     U.F.   5.500   Aug.2015   Semi-annual   Semi-annual     2,291,386   Chile
   203.23.04.98   K   7,576   U.F.   6.750   Feb.2020   Semi-annual   Semi-annual   1,831,639   1,677,445   Chile
                                         
Issued in New York   Yankee Bonds     US$   7.625   Jul.2006   Semi-annual   Maturity   4,932,200   6,090,698   Abroad
Issued in New York   Yankee Bonds     US$   8.375   Jan.2006   Semi-annual   Maturity   3,888,061   5,130,552   Abroad
Issued in Luxembourg   Eurobonds (a)   132,200,000   EURO   5.375   Aug.2004   Semi-annual   Maturity   100,657,772   2,649,357   Abroad
                               
 
   
                            Total   112,705,228   21,921,281    
                               
 
   
Long-term bonds                                        
   143.27.06.91   F   821,429   U.F.   6.000   Apr.2016   Semi-annual   Semi-annual   13,898,572   15,099,608   Chile
   177.12.08.94   I     U.F.   5.500   Aug.2015   Semi-annual   Semi-annual     24,310,370   Chile
   203.23.04.98   K   3,992,424   U.F.   6.750   Feb.2020   Semi-annual   Semi-annual   67,551,818   67,646,245   Chile
                                         
Emitidos en New York   Yankee Bonds (c)   187,685,000   US$   7.625   Jul.2006   Semi-annual   Maturity   111,447,353   145,159,220   Abroad
Emitidos en New York   Yankee Bonds   200,000,000   US$   8.375   Jan.2006   Semi-annual   Maturity   118,760,000   145,159,220   Abroad
Emitidos en Luxemburgo   Eurobonos (a)     EURO   5.375   Aug.2004   Semi-annual   Maturity     119,939,914   Abroad
                               
 
   
                            Total   311,657,743   517,314,577    
                               
 
   

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

16. Obligations with the Public, continued:
     
  a) Bonds, continued:
       
    a) Since June 2002, Telefónica CTC Chile, has made partial purchases of its placement in euros, at 2003 year-end, anticipated redemption of this placement amounts to 67.8 million euros.
       
    b) During May 2003, Telefónica CTC Chile, prepaid this bond placement, paying the full balance of principal (UF) plus interest accrued to date.
       
    c) Since May 2003, Telefónica CTC Chile, has partially repurchased 12.3 million dollars of its placement denominated in the same currency, this repurchase was carried out at an average of 111.05% of the par value, which meant paying 13.68 million dollars, plus accrued interest as of that date on the nominal amount of the repurchase.
       
    d) In April 2003, the last installment of this issuance was paid.
       
  These transactions have implied recognizing a charge to income for the balances under “Disbursements for Placement of Bonds to be Amortized”, as well as the expenses corresponding to “Higher Bond Discount Rate to be Amortized”.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, continued

17. Accruals: 
   
The detail of accurals shown in liabilities is as follows:
  2003   2002  
  ThCh$   ThCh$  
 
 
 
Current        
Staff severance indemnities 189,690   91,120  
Vacation 4,700,413   5,495,037  
Other employee benefits (a) 8,564,725   6,805,035  
Employee benefit advances (1,872,518 ) (2,339,480 )
 
 
 
  11,582,310   10,051,712  
 
 
 
Long-term        
Staff severance indemnities 19,195,552   17,429,825  
 
 
 
  Total 30,777,862   27,481,537  
 
 
 
         

       
(a) Includes provisions for the concept of: incentive guaranteed as per current collective agreement and others.
   
During 2003 and 2002 uncollectible debts of ThCh$25,981,552 and ThCh$9,122,834, respectively have been written off
   
18. Staff severance indemnities:
   
The detail of the charge to income for staff severance indemnities is as follows:
  2003   2002  
  ThCh$   ThCh$  
 
 
 
Operating costs and administration and selling expenses 4,070,318   4,089,841  
Other non-operating expenses (a)   11,578,232  
 
 
 
  Total 4,070,318   15,668,073  
 
 
 
Payments in the period (2,206,021 ) (19,365,835 )
 
 
 

       
(a) As of December 2002, a Company restructuring plan materialized. The mentioned plan mainly considered a new business reordering for the Company and its subsidiaries and termination of approximately 1,070 employees.
   
19. Minority interest:
   
Minority interest recognizes the portion of equity and revenues of subsidiaries belonging to third parties. The breakdown for 2003 and 2002 is as follows:
               
    Percentage   Participation   Participation  
    Minority   in equity   in net income (loss)  
    Interest   December 30,   for the years ended  
                    December 31,  
    2003   2002   2003   2002   2003   2002  
Subsidiaries   %   %   M$   M$   M$   M$  

 
 
 
 
 
 
 
Soc. Nacional de Procesamiento de Datos S.A. (a)             613,742  
Administradora de Sistemas de Telepeajes de Chile S.A.   19.01   19.01   93,424   28,097   (9,774 ) (12,744 )
CTC – Transmisiones Regionales S.A.   0.84   0.84   1,094,395   935,032   159,364   156,909  
Fundación Telefónica   50.00   50.00   176,399   185,281   (8,883 ) 12,330  
Comunicaciones Mundiales S.A.     0.34     5,276     87  
CTC Equipos y Servicios S.A.   0.01     31     8    
   
 
 
 
 
 
 
  Total           1,364,249   1,153,686   140,715   770,324  
   
 
 
 
 
 
 

                         
(a) Corresponds to the participation of third parties in the revenues of this subsidiary which was consolidated until August 2002.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Translation of financial statements originally issued in Spanish)

20. Shareholders’ Equity 
   
During the 2002 and 2003 periods, changes in shareholders' equity accounts are as follows:
 
                      Accumulated   Net (loss)      
              Reserva       deficit   income   Total  
  Paid-in   Contributed   Other   futuros   Retained   development   for the   shareholders’  
  capital   surplus   reserves   Dividendos   earnings   period   period   equity   
 
 
 
 
 
 
 
 
 
  ThCh$   ThCh$   ThCh$   M$   ThCh$   ThCh$   ThCh$   ThCh$  
2003                                
                                 
Balances as of December 31, 2002 736,468,120   114,512,356   1,924,736     451,465,216     (17,680,376 ) 1,286,690,052  
Transfer of 2002 loss to retained earnings         (17,680,376 )   17,680,376    
Increase for capitalization of share premium 114,512,356   (114,512,356 )            
Final dividend 2002         (16,750,249 )     (16,750,249 )
Adjustment of foreign investment conversion reserve     (2,721,166 )         (2,721,166 ) 
Price-level restatement 8,509,805     5,231     4,369,992       12,885,028  
Net income for the period             10,133,882   10,133,882  
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2003 859,490,28     (791,199 )   421,404,583     10,133,882   1,290,237,547  
 
 
 
 
 
 
 
 
 
2002                                
                                 
Balances as of December 31, 2001 715,017,592   111,177,044   1,536,666     435,806,854   (371,667 ) 4,111,658   1,267,278,147  
Transfer of 2001 net income to retained earning         4,111,658     (4,111,658 )  
Absorption of accumulated deficit development period         (371,667 ) 371,667      
Final dividend 2001         (1,233,497 )     (1,233,497)  
Adjustment of foreign investment conversion reserve     362,843       `   362,843  
Price-level restatement 21,450,528   3,335,312   25,227     13,151,868       37,962,935  
Net income (loss) loss for the period             (17,680,376 ) (17,680,376 )
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2002 736,468,120   114,512,356   1,924,736     451,465,216     (17,680,376 ) 1,286,690,052  
 
 
 
 
 
 
 
 
 
Restated balances as of December 31, 2002 743,832,801   115,657,480   1,943,983     455,979,868     (17,857,180 ) 1,299,556,952  
 
 
 
 
 
 
 
 
 

                               
As established in Article No. 10 of Law 18,046 on Corporations, price-level restatement of shareholders’ equity has been incorporated to paid in capital.

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Notes to the Consolidated Financial Statements, continued

   
20. Equity, continued:
     
  (a) Paid-in capital:
     
    As of December 31, 2003, the Company’s paid-in capital is as follows:
     
    Number of shares:
     No. of subscribed     No. of paid shares    No. of shares with  
Series shares voting rights




A   873,995,447   873,995,447   873,995,447  
B   83,161,638   83,161,638   83,161,638  
   
 
 
 
    Paid-in capital:
    Subscribed    Paid-in     
  Capital Capital
Series ThCh$ ThCh$



A   784,814,326   784,814,326  
B   74,675,955   74,675,955  
   
 
 
     
    On July 11, 2003, the Extraordinary Shareholders’ Meeting agreed to increase stock capital, due to capitalization of the contributed surplus in the sum of ThCh$114,512,356.
     
  (b) Shareholder distribution:
     
    As established in Circular No. 792 of the Chilean Superintendency of Securities and Insurance, the distribution of shareholders by percentage shareholding in the Company as of December 31, 2003 is as follows:
     
     Percentage of Total        
holdings Number of
Type of shareholder % shareholders



10% holding or more   58.08   2  
Less than 10% holding:          
  Investment equal to or exceeding UF 200   41.21   2,296  
  Investment under UF 200   0.71   11,640  
     
 
 
   Total   100.00   13,938  
     
 
 
Company controller   43.64   1  
     
 
 
     
  (c) Dividends:
     
    As established in Law No. 18,046, unless otherwise agreed upon at a Shareholders’ Meeting by unanimous vote of the shares issued, when there is net income, at least 30% must be destined to be distributed as dividends.
     
    On April 4, 2002, the Shareholders’ Meeting agreed to the payment of a dividend of ThCh$ 1,233,497 (historical) with a charge to retained earnings, which was paid on May 15, 2002.
     
    On April 4, 2003, the Ordinary Shareholders’ Meeting was informed of the dividend distribution policy proposed by the Board for 2003.

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Notes to the Consolidated Financial Statements, continued

   
20. Equity, continued:
     
  (c) Dividends, continued:
     
    Distribute for 2003, at least 30% of net income generated in the year – percentage that is equal to that required by law – by means of a final dividend in May 2004, which will be proposed at the corresponding General Shareholders’ Meeting.
     
    On June 11, 2003, the Extraordinary Shareholders’ Meeting agreed to pay a dividend of ThCh$ 16,750,249 (historical), with a charge to retained earnings as of December 31, 2002, which was paid on July 31, 2003.  
     
  (d) Other reserves:
     
    The Company has established reserves since 1994 for the acquisition of Invercom S.A. and Instacom S.A., in 1998 for the acquisition of Sonda S.A. and its subsidiaries and since 2001 for the adjustment of Consorcio Telefónica de Brasil Celular Holding.
     
                  Amount                      



Company

  
December 31,
2002
ThCh$
     Price-level
restatement

ThCh$
Net Movement
ThCh$
Balance as of
December 31, 2003
ThCh$






96.720.710-1   Invercom S.A.   41,007   410     41,417  
84.119.600-7   Instacom S.A.   15,726   157     15,883  
83.628.100-4   Sonda S.A.   1,401,666     (1,401,666 )  
Extranjero   TBS Participación S.A. (1)   466,337   4,664   (1,319,500 ) (848,499 )
       
 
 
 
 
                 Total   1,924,736   5,231   (2,721,166 ) (791,199 )
       
 
 
 
 

(1)  This movement corresponds to the net effect of the adjustment for conversion difference as established in Technical Bulletin No. 64 of the Chilean Association of Accountants.
     
  (e) Subsidiary development stage deficit:
     
    The Ordinary Shareholders’ Meeting held on April 4, 2002, approved the absorption of the accumulated deficit development period that the Company had shown until December 31, 2001, in its subsidiaries Telefónica Gestión de Servicios Compartidos S.A. and Infoera S.A

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Notes to the Consolidated Financial Statements, continued

     
21. Income and Expenses:
     
  a) Income and operating cost:
     
    The detail of operating revenue and expenses is as follows:
     
  2003   2002  
  ThCh$   ThCh$  
 
 
 
Operating revenues        
      Revenues from sale of services 730,663,326   792,463,176  
      Revenues from sale of equipment and projects 82,126,888   77,261,767  
Total operating revenues 812,790,214   869,724,943  
      Depreciation and amortization 263,687,423   263,645,589  
      Salaries and employee benefits 56,839,346   80,361,842  
      Cost of long distance services and interconnections 74,444,387   70,302,106  
      Cost of sales of equipment and projects 53,581,364   54,391,341  
      Provision for doubtful accounts 28,292,476   26,261,077  
      Contracts with third parties 37,079,782   45,269,824  
      Cost of sales of information technology development   13,646,105  
      Vehicle, office and equipment rentals 10,024,869   11,650,863  
      Materials (includes obsolescence provisions) 3,755,321   6,201,482  
      Pole rentals 4,539,981   5,493,267  
      Telephone directory printing 6,481,778   5,099,140  
      Others 15,544,498   23,880,649  
 
 
 
Total operating costs 554,271,225   606,203,285  
 
 
 
Gross profit 258,518,989   263,521,658  
 
 
 

  Depreciation includes ThCh$19,573,103 and ThCh$18,202,682 in 2003 and 2002, respectively, for capitalized interest.
     
  b) Other non-operating income:
     
    The breakdown of other non-operating income is as follows:
     
    2003    2002  
 Other Income   ThCh$ ThCh$

 

Adjustment of Terra Network to market value   3,364,037    
Penalties on suppliers and indemnities   2,639,797    
Net gain on sale of shares     1,802,100  
Final compensatory indemnity for termination of Publiguías contract   1,567,677    
Net income from sale of subsidiary Sonda (a)   3,558,280   7,953,118  
Net revenues from sale of Property, plant and equipment     921,198  
Dividends received     174,230  
Extraordinary recovery of written off accounts     889,586  
Administrative services     76,163  
Others   1,204,077   1,537,344  
   
 
 
 Total   12,333,868   13,353,739  
   
 
 

a) Corresponds to net income for the sale of 35% and 25% ownership in Sonda S.A for 2003 and 2002 respectively, originated by the difference between the amount received of ThCh$33,388,363 and ThCh$ 28,729,933 for 2003 and 2002 and the book value of the investment.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES


Notes to the Consolidated Financial Statements, continued

21. Income and Expenses, continued:
     
  (c) Other non-operating expenses:
     
    The detail of other non-operating expenses is as follows:
  2003   2002  
  ThCh$   ThCh$  
 
 
 
Other Expenses:        
Lawsuit indemnities and other provisions 869,503   3,147,034  
Depreciation and retirement of out of service property, plant and equipment (1) 8,163,006   2,022,212  
Under provided taxes   281,408  
Provision for decrease in market value – Terra Networks S.A.   7,642,364  
Difference in tax recovery   543,011  
Donations 525,676    
Restructuring costs   15,376,678  
Provision for expired assets 2,046,761    
Others 866,090   9,246,039  
 
 
 
Total 12,471,036   38,258,746  
 
 
 

(2) As of September 2003 other non-operating expenses are mainly composed of the depreciation of the La Serena Cable TV network and in 2002 includes depreciation of the Concepción Cable TV network (assets temporarily out of service) not transferred in the sale of subsidiary Multimedia to Cordillera Comunicaciones.
   
(2) As of December 2002, a Company restructuring plan materialized. The mentioned plan mainly considered a reordering of the Company’s business and termination of approximately 1,070 employees.

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES


Notes to the Consolidated Financial Statements, continued

22. Price-level restatement:
   
The detail of price-level restatement is as follows:
             
  Assets (Charges) Credits Indexation   2003   2002  
  ThCh$   ThCh$  


 
 
 
Inventories   C.P.I.   88,670   489,790  
Other current assets C.P.I.   663,578   911,133  
Other current assets U.F.   (6,258,474 ) (6,714,886 )
Short and long-term deferred taxes C.P.I.   1,472,434   4,756,580  
Property, plant and equipment C.P.I.   18,824,441   60,808,949  
Investments in related companies C.P.I   440,304   712,870  
Goodwill. C.P.I.   1,816,503   6,275,363  
Long-term debtors C.P.I.     3,210  
Long-term debtors U.F.   (1,283,879 ) (4,813,400 )
Other long-term assets C.P.I.   230,917   900,864  
Other long-term assets U.F.   2,277,699   9,247,565  
Prepaid expenses C.P.I.   5,098   5,758  
Prepaid expenses U.F.   27,969   (2,548 )
Expense accounts C.P.I.   155,848   15,459,608  
     
 
 
Total Credits     18,461,108   88,040,856  
     
 
 

 

      Liabilities – Shareholders’ Equity (Charges) Credits Indexation   2003   2002  
    ThCh$   ThCh$  


 
 
 
Short-term obligations C.P.I.   40,086   (415,234 )
Short-term obligations U.F.   (1,716,641 ) (18,676,331 )
Long-term obligations C.P.I.   (13,110 ) (235,908 )
Long-term obligations U.F.   (3,211,488 ) (14,162,297 )
Shareholders’ equity C.P.I.   (12,885,028 ) (38,342,564 )
Revenue accounts C.P.I.   (298,602 ) (22,434,946 )
     
 
 
Total Charges     (18,084,783 ) (94,267,280 )
     
 
 
Loss from price-level restatement, net     376,325   (6,226,426 )
     
 
 
             

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES


Notes to the Consolidated Financial Statements, continued

23. Exchange differences:
   
The detail of exchange differences is as follows:
 
      Assets (Charges) Credits Currency   2003   2002  
  ThCh$   ThCh$  


 
 
 
   Inventories US$     58,180  
   Other current assets US$   (6,373,787 ) 36,490,042  
   Other current assets EURO   (6,333,205 ) (249,071 )
   Property, plant and equipment US$     1,188  
   Long-term receivables US$   330,862   25,430,460  
   Long-term receivables EURO   (6,908,485 )  
   Other long-term assets US$   (378,197 ) (292,001 )
   Other long-term assets EURO   105,583   146,210  
   Prepaid expenses US$     65  
     
 
 
Total Credits (Charges)     (19,557,229 ) 61,585,073  
     
 
 
           
   Liabilities (Charges) Credits Currency   2003   2002  
  ThCh$   ThCh$  


 
 
 
Short-term obligations US$   (98,694,883 ) (3,285,654 )
Short-term obligations EURO   1,850,043   10,352,983  
Long-term obligations US$   105,526,161   (61,202,710 )
Long-term obligations EURO   11,134,239   (10,264,923 )
Long-term obligations OTHERS     (1,077 )
     
 
 
Total Credits (Charges)     19,815,560   (64,401,381 )
     
 
 
           
Income (loss), net, from exchange differences     258,331   (2,816,308 )
     
 
 
             

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES


Notes to the Consolidated Financial Statements, continued

24. Issuance and placement of shares and debt expense:
   
  The detail of this item is as follows:
  Short-term   Long-term
 


 


  2003   2002   2003   2002
  ThCh$   ThCh$   ThCh$   ThCh$
 
 
 
 
Higher bond discount rate to be amortized 1,212,862   1,779,688   2,116,204   4,219,206
Disbursements for bond issuance to be amortized 499,417   704,771   3,424,200   4,670,069
 
 
 
 
Total 1,712,279   2,484,459   5,540,404   8,889,275
 
 
 
 

These items are classified under Other Current Assets and Other Long-term Assets, as applicable and are amortized over the term of the respective obligations, as described in Note 16 “Obligations with the Public”.

25. Cash flows:
     
  Financing and investment activities that do not generate cash flows during the year, but which commit future cash flows are as follows:
     
  a) Financing activities: The breakdown of financing activities that commit future cash flows are:
  Obligations with banks and financial institutions — see Notes No. 14 and 15
  Obligations with the public — see Notes No. 16
     
  b) Investment activities: Investment activities that commit future cash flows are as follows:
     
  Maturity   ThCh$
 
 
Zero 2004   5,320,448
Zero 2005   16,554,591
PRD 2004   3,562,800
BCD 2004   13,063,600
       
   c) Cash and cash equivalents:
     
  2003   2002
  ThCh$   ThCh$
 
 
Cash and bank 19,342,775   17,010,423
Time deposits 5,377,980   2,442,662
Resale agreements 8,301,477  
Mutual funds 308,425   1,790,441
 
 
Total 33,330,657   21,243,526
 
 
       

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COMPAÑÍA DE TELECOMUNICACIONES DE CHILE S.A. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Translation of financial statements originally issued in Spanish)

26. Derivative Contracts:

The breakdown of derivative contracts is as follows:

TYPE OF
DERIVATIVE
  TYPE OF
CONTRACT
 


 
 


  VALUE OF
PROTECTED
ITEM
ThCh$
  AFFECTED ACCOUNTS  
CONTRACT
VALUE
  MATURITY
OR
EXPIRY
  SPECIFIC
ITEM
  PURCHASE
SALE
POSITION

PROTECTED ITEM
OR TRANSACTION







asset/LIABILITY   EFFECT ON INCOME







NAME AMOUNT NAME AMOUNT
ThCh$
REALIZED   UNREALIZED
ThCh$

 
 

 
 


 
 

 
 
 
                                             
FR   CI   164,800,000   I Trim.   Exchange   C Oblig. in 164,800,000   97,858,240   asset 97,858,240     (21,410,868 )
            2004    rate     US$         liabilities (113,467,520 )        
FR   CI   10,000,000   II Trim.   Exchange   C Oblig. in 10,000,000   5,938,000   asset 5,938,000     (1,264,979 )
            2004    rate     US$         liabilities (5,886,843 )        
FR   CI   80,000,000   III Trim.   Exchange   C Oblig. in 80,000,000   47,504,000   asset 47,504,000     (10,243,763 )
            2004    rate     US$         liabilities (54,907,878 )        
FR   CI   40,000,000   IV Trim.   Exchange   C Oblig. in 40,000,000   23,752,000   asset 23,752,000     (5,229,910 )
            2004    rate     US$         liabilities (26,508,610 )        
FR   CI   15,000,000   I Trim.   Exchange   C Oblig. in 15,000,000   8,907,000   asset 8,907,000     (1,891,603 )
            2005    rate     US$         liabilities (9,770,325 )        
FR   CI   25,000,000   II Trim.   Exchange   C Oblig. in 25,000,000   14,845,000   asset 14,845,000     (3,224,325 )
            2005    rate     US$         liabilities (16,089,745 )        
FR   CI   19,000,000   III Trim.   Exchange   C Oblig. in 19,000,000   11,282,200   asset 11,282,200     (2,280,833 )
            2006    rate     US$         liabilities (11,446,682 )        
FR   CCPE   48,900,000   I Trim.   Exchange   C Oblig. in 48,900,000   29,036,820   asset 29,036,820     (7,034,595 )
            2004    rate     US$         liabilities (34,346,329 )        
FR   CCPE   159,284,132   II Trim.   Exchange   C Oblig. in 159,284,132   94,582,917   asset 94,582,917     (18,468,438 )
            2004    rate     US$         liabilities (111,644,040 )        
FR   CCPE   125,500,000   III Trim.   Exchange   C Oblig. in 125,500,000   74,521,900   asset 74,521,900     (13,449,664 )
            2004    rate     US$         liabilities (86,631,862 )        
FR   CCPE   161,700,000   IV Trim.   Exchange   C Oblig. in 161,700,000   96,017,460   asset 96,017,460     (7,953,493 )
            2004    rate     US$         liabilities (101,797,072 )        
FR   CCPE   79,300,000   I Trim.   Exchange   C Oblig. in 79,300,000   47,088,340   asset 47,088,340     (1,531,532 )
            2005    rate     US$         liabilities (47,173,770 )        
FR   CCPE   135,000,000   III Trim.   Exchange   C Oblig. in 135,000,000   100,568,250   asset 100,568,250     16,581,571 )
            2004    rate     EURO         liabilities (84,481,519 )        
FR   CCPE   13,000,000   I Trim.   Exchange   C Oblig. in 13,000,000   7,719,400   asset 7,719,400     (1,538,067 )
            2004    rate     US$         liabilities (9,484,042 )        
FR   CCPE   54,000,000   II Trim.   Exchange   C Oblig. in 54,000,000   32,065,200   asset 32,065,200     (5,649,438 )
            2004    rate     US$          liabilities (38,514,064 )        
FR   CCPE   13,000,000   III Trim.   Exchange   C Oblig. in 13,000,000   7,719,400   asset 7,719,400     (239,535 )
            2004    rate     US$          liabilities (7,992,305 )        
FR   CCPE   7,000,000   IV Trim.   Exchange   C Oblig. in 7,000,000   4,156,600   asset 4,156,600     (335,370 )
            2004    rate     US$          liabilities (4,644,722 )        
FR   CCPE   4,000,000   I Trim.   Exchange   C Oblig. in 4,000,000   2,375,200   asset 2,375,200     (24,440 )
            2005    rate     US$ <