6-K 1 f6k_121301.txt REPORT OF FOREIGN ISSUER THE SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 6-K Report of Foreign Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the nine months ended September 30, 2001 HQI Transelec Chile S.A. (Translation of registrant's name into English) Apoquindo 3721, Piso 6 Las Condes Santiago, Chile (Address of principal executive offices) (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.) Form 20-F X Form 40-F --- --- (Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes No X --- --- HQI TRANSELEC CHILE S.A. Interim unaudited financial statements September 30, 2001 -------------------------------------------------------------------------------- These financial statements are a free translation of the quarterly report ( "Ficha Estatistica Codificada Uniforme" or "FECU" ) sent to the Superintendency of Securities and Insurance Companies ( "Superintendencia de Valores y Seguridades" or "SVS" ). They have not been audited. -------------------------------------------------------------------------------- CONTENTS Balance sheet Statement of income Statement of cash flows Notes to the individual financial statements Relevant facts Financial statements analysis Ch$ - Chilean pesos ThCh$ - Thousands of Chilean pesos US$ - United States dollars UF - A daily inflation indexed, Chilean peso - denominated monetary unit HQI TRANSELEC CHILE S.A. BALANCE SHEET As of September 30, 2001

LIABILITIES AND SHAREHOLDERS' EQUITY Notes ThCh$ ------------------------------------ ----- CURRENT LIABILITIES Bonds payable-short term portion 2 i, 15 12,347,784 Accounts payable 2,364,589 Sundry creditors 2,209,936 Accounts payable to related companies 6 177,347 Provisions 2 m, 16 1,430,445 Withholdings 1,693,332 Other current liabilities 102,107 ----------- Total current liabilities 20,325,540 ----------- LONG-TERM LIABILITIES Long-term bonds payable 2 l, 15 468,549,304 Sundry creditors 79,962 Provisions 2 m, 16 1,272,660 Other long-term liabilities 34,789 ----------- Total long-term liabilities 469,936,715 ----------- SHAREHOLDERS' EQUITY Paid-in capital 310,140,471 Other reserves 6,823,090 Retained earnings (2,574,380) ----------- 18 314,389,181 ----------- Total liabilities and equity 804,651,436 =========== The accompanying Notes 1 to 29 form an integral part of these financial statements HQI TRANSELEC CHILE S.A. STATEMENT OF INCOME For the six month period ended September 30, 2001 Notes ThCh$ ----- ----- OPERATING RESULTS Sales 66,037,184 Cost of sales (17,879,806) ------------ Gross margin 48,157,378 Administrative an selling expenses (1,862,473) ------------ Operating income 46,294,905 ------------ NON-OPERATING RESULTS Financial income 5,615,224 Other non-operating income 19 114,194 Goodwill amortization 12 (4,020,036) Financial expenses (26,632,235) Other non-operating expenses 19 (718,587) Price-level restatement 2 c, 20 1,498,421 Exchange differences 21 (27,564,214) ------------ Non-operating results (51,707,233) ------------ Income before income taxes (5,412,328) Income tax 2 n, 7 (410,704) ------------ LOSS FOR THE PERIOD (5,823,032) ============ ---------- The accompanying Notes 1 to 29 form an integral part of these financial statements. HQI TRANSELEC CHILE S.A. STATEMENT OF CASH FLOWS For the six month period ended September 30, 2001 Notes ThCh$ ----- ----- CASH FLOWS FROM OPERATING ACTIVITIES Loss for the period (5,823,032) CHARGES (CREDITS) TO INCOME NOT REPRESENTING CASH FLOWS Depreciation 11,049,045 Amortization of intangibles 496,785 Amortization of negative goodwill 4,020,036 Price-level restatement 20 (1,498,421) Exchange differences 21 27,564,214 Other credits to income not representing cash flows (133,643) Other charges to income not representing cash flows 2,415,884 CHANGES IN ASSETS WHICH EFFECT CASH FLOWS Trade accounts receivable (1,441,279) Inventories (46,411) Other assets 14,704,727 CHANGES IN LIABILITIES WHICH EFFECT CASH FLOWS Accounts payable related to operating results 339,896 Interest payable 12,347,784 Income tax payable (20,014,354) Value added tax and other taxes (5,058) ------------ Net cash flows from operating activities 43,976,173 ------------ CASH FLOWS FROM FINANCING ACTIVITIES Bonds 427,534,812 Payments of documented loans from related companies (328,654,109) Bond issuance and placement expenses (9,401,347) ------------ Net cash flow from financing activities 89,479,356 ------------ CASH FLOWS FROM INVESTMENT ACTIVITIES Purchase of fixed assets (3,789,472) 38,861,286 Other loans to related companies (102,477,692) ------------ Net cash flows from investing activities (67,405,878) ------------ Total net cash flow for the year 66,049,651 EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS 5,034,028 ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 71,083,679 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 23,323,461 ------------ CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 94,407,140 ============ The accompanying Notes 1 to 29 form an integral part of theses financial statements HQI TRANSELEC CHILE S.A. NOTES TO THE FINANCIAL STATEMENTS AT SEPTEMBER 30, 2001 NOTE 1 - COMPANY CONSTITUTION Inversiones HQI Chile Limitada was formed as a limited liability company, as stated in public deed dated September 15, 2000. The Company was formed to invest in shares and partnership interests. On October 16, 2000 the Company changed its name to Inversiones HQI Transelec Chile Limitada without making any changes in its business activities. On November 23, 2000, the Company changed its name to HQI Transelec Chile S.A. and was registered as a closely held corporation with the Chilean Superintendency of Securities and Insurance Companies Register under number 729 as from March 22, 2001. The revised objective of the new Company is the exploitation and development of electrical systems, either owned by the Company or third parties, used for the transmission of electrical energy, for which they can purchase and/or make use of concessions, taking into account all the benefits that are available by law to electrical company. Per public deed dated January 18, 2001, the Company purchased from Inversiones HQI Chile Holding Limitada 98,606 shares, corresponding to 0.01% of the share capital in Compania Nacional de Transmision Electrica S.A., concentrating 100% of ownership. As a result of the latter, assets, liabilities, obligations and rights of Compania Nacional de Transmision Electrica S.A. were merged by absorption by HQI Transelec Chile S.A. Therefore, the Company directly assumed business operations associated with the transmission of electricity which were carried out by the absorbed subsidiary. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Period of analysis The accompanying interim financial statements and corresponding notes relate to the period from January 1, 2001 to September 30, 2001. b) General The accompanying financial statements of HQI Transelec Chile S.A. at September 30, 2001 have been prepared in conformity with accounting principles generally accepted in Chile issued by the Chilean Institute of Accountants, and specific instructions and regulations issued by the Superintendency of Securities and Insurance Companies. The latter predominate over the former in the event of discrepancy with established accounting principles. c) Price-level restatement The financial statements have been restated in order to reflect the effect of changes in the purchasing power of the Chilean peso during the period. Accordingly, non-monetary assets and liabilities and shareholders' equity have been restated against income. The restatements have been determined on the basis of the official Chilean Consumer Price Index (CPI) issued by the National Institute of Statistics, applied one month in arrears, which was 2.2% for the six month period ended September 30, 2001. In addition, income statement accounts have been restated to their period-end values. 2 d) Operating estimates The Company has to make accounting estimates to record its accounts receivable from transmission tolls. Final settlements of these accounts may extend beyond one fiscal year and can result in losses or gains for amounts not expected to be significant. e) Currency translation Balances in foreign currency are considered monetary items and are adjusted at the exchange rate prevailing on the closing date of the financial statements. Inflationary-indexed units have been adjusted according to the restatement index. Assets and liabilities in foreign currency and UF have been translated into Chilean pesos at the following closing exchange or conversion rates: Ch$ per unit ------------ Unidad de fomento (UF) 16,094.96 United States dollar 695.02 f) Time deposits Investments in time deposits are recorded at cost plus accrued interest at period-end. g) Resale agreements Other current assets include purchases under resale agreements which are recorded at their present value calculated at the discount rate used to determine the price of each security on the purchase date. h) Marketable securities This item includes investments in mutual funds, which are valued at their quoted market value at period end. i) Allowance for doubtful accounts The Company believes that it is unnecessary to record an allowance for doubtful accounts at period end considering the aging of its accounts receivable. j) Fixed assets Fixed assets include lines, buildings and infrastructure, machinery and equipment owned by the Company, which are valued at restated purchase cost or contribution value at period end. Depreciation is calculated using the straight-line method. Assets purchased before 2000 are depreciated considering 95% of their value and since 2000 considering 100% of their value. In addition, in 2001 the remaining useful life of some assets was extended, some of which include electrical lines and equipment. 3 k) Goodwill The amount represents the difference between the purchase value of shares in Compania Nacional de Transmision Electrica S.A. and the book value of the investment on the purchase date. This difference is amortized over a 20-year period. l) Bonds payable This balance includes the obligation incurred in the issuance of bonds by the Company at nominal value plus accrued interest and restatements at period end. The difference between the book value and placement value is amortized until maturity. m) Severance indemnities The provision for severance payments to Company staff upon reaching 15 years of service is presented at present value on an accrual basis, using an annual interest rate of 6.5% and considering an average tenure of 35 years. An average of 75% of the benefit, for staff with less than 15 years of service, has been accrued at present value. n) Income tax At Septembrer 30, 2001 in conformity with current regulatory requirements, the Company has not set up a provision for Corporate Income Tax as it presents tax losses. However, as a result of the absorption of Compania de Transmision Electrica S.A. (Transelec) by HQI Transelec Chile S.A. on March 31, 2001, Corporate Income tax payments amounted to ThCh$ 1,248,449, for the period January 1 to January 30, 2001 of Transelec S.A. o) Deferred taxes Effective January 1, 2000 and in conformity with Technical Bulletin No. 60 issued by the Chilean Institute of Accountants, deferred taxes have been recorded for all temporary differences between accounting balances and tax balances for assets and liabilities at period end. The effect of unrecorded deferred taxes at December 31, 1999 have been recorded in complementary asset and liability accounts, as applicable, and are being amortized over the weighted average term of reversal for temporary differences. p) Debt security issuance and placement expenses The Company has capitalized as deferred charges, expenses in the issuance and placement of debt securities during the period. These deferred charges are recorded under Other long-term and short-term assets, and are amortized using the straight-line method until maturity of the obligations. Amortization is presented under Financial expenses. q) Staff vacation In conformity with Technical Bulletin No. 47 issued by the Chilean Institute of Accountants, the annual cost of employee vacations is recorded as an expense in the financial statements on an accrual basis. 4 r) Intangibles They consist of rights-of-way which are amortized on the straight-line basis over 40 years in conformity with Technical Bulletin No. 55 issued by the Chilean Institute of Accountants. s) Statement of cash flows Cash and cash equivalents correspond to cash and banks, time deposits and resale agreements which are presented in Other current assets. Cash flows from operating activities include all business-related cash flows as well as interest paid, interest income and, in general, all cash flows not defined as from financial or investment activities. The concept of operations used in this statement is broader than that used in the Income Statement. t) Derivative contracts At September 30, the Company has subscribed foreign exchange future contracts with financial institutions to hedge existing items and are recorded in conformity with Technical Bulletin No. 57 issued by the Chilean Institute of Accountants. NOTE 3 - ACCOUNTING CHANGES There have been no changes in acounting policies for the period January 1 to September 30, 2001. As discussed in Note 1 j), the Company changed the useful life of some fixed assets, resulting in a decrease in the charge to income during the period of approximately ThCh$ 3,930,000. NOTE 4 - MARKETABLE SECURITIES The balance of ThCh$ 3,042,341 corresponds to investments in mutual funds. NOTE 5 - SHORT-AND LONG-TERM DEBTORS a) At September 30, 2001 trade accounts receivable correspond to the following: ThCh$ ----- Toll and transmission charges 8,746,897 Services provided to other parties 613,874 --------- 9,360,771 ========= 5 b) Short and long term debtors are comprised as follows as of September 30, 2001:

NOTE 6 - BALANCES AND TRANSACTIONS WITH RELATED COMPANIES Significant balances and transactions with related companies are shown below: a) Notes and accounts receivable Company Short-term Long-term ------- ---------- --------- ThCh$ ThCh$ Accounts receivable: Inversiones HQI Chile Holding Ltda. 1,014,476 77,293,403 --------- ---------- Total 1,014,476 77,293,403 ========= ========== Accounts payable: Inversiones HQI Chile Holding Ltda. 37,347 Hydro Quebec 140,000 -.- ------- Total 177,347 ======= The receivable balance corresponds to a current account loan issued on April 17, 2001 to Inversiones HQI Chile Holding Ltda. for US$ 169,354,025.44. The amount due is payable in United States dollars and accrues a 7.875% interest on an annual basis of 360 days. The balance due will be paid from the dividends received by Inversiones HQI Chile Holding Ltda. from HQI Transelec Chile S.A., first for payment of accrued interest and then for capital amortization. b) Transactions with related companies

6 NOTE 7 - INCOME TAXES AND DEFERRED TAXES a) At September 30, 2001 the Company has not provided for income tax due to tax losses amounting to ThCh$ 22,759,739. There are no undistributed tax profits from prior years.

b) Deferred taxes:

c) Income taxes Item ThCh$ ---- ----- Current tax expense (tax provision) (4,213) Deferred tax asset and liability for the year 893,411 Amortization of complementary deferred tax asset and liability (51,403) Other charges or credits (1,248,499) ----------- Total (410,704) NOTE 8 - OTHER CURRENT ASSETS The composition of this balance is as follows: ThCh$ ----- Resale agreements Bond issuance expenses 10,654,150 Other 175,498 ---------- Total 10,829,648 ========== 7 NOTE 9 - PURCHASES UNDER RESALE AGREEMENTS OF SECURITIES. The composition of this balance at period end is as follows:

8 NOTE 10 - FIXED ASSETS Fixed assets are summarized as follows:

Depreciation for the period amounts to ThCh$11,049,045. The amount of ThCh$ 11,033,355 was charged to Operating costs and ThCh$ 15,690 was recorded in Administrative and selling expenses. Assets subject to technical reappraisal correspond to those contributed by Empresa Nacional de Electricidad S.A. (ENDESA) to Transelec S.A. and include: land, buildings, electrical equipment, telecommunication equipment, lines, houses, and apartments. 9 NOTE 11 - INVESTMENT IN OTHER COMPANIES This balance corresponds to an 8.33% of Sociedad Centro de Despacho Economico de Carga del Sistema Electrico Interconectado Central CDEC-SIC Limitada, whose objective is to administrate and operate the SIC and coordinate its electrical system. NOTE 12 - GOODWILL AND NEGATIVE GOODWILL The balance at June 30, 2001 is summarized as follows: ThCh$ Opening balance 123,352,962 Transfer to deferred taxes (1) (18,246,601) Opening equity balance difference (2) 1,982,651 --------- 107,089,012 Amortization of accrued goodwill (5,219,301) ----------- Total 101,869,711 =========== (1) Corresponds to the deferred tax credit generated by the allocation of goodwill, resulting from the absorption of Transelec S.A. by HQI Transelec Chile S.A., to fixed assets (tax accounting). Consequently, goodwill was deducted in the equivalent amount of the deferred tax credit. (2) As a result of the arbitration process instituted by the audit firm Ernst & Young relative to the Share Purchase Agreement dated October 23, 2000 between Inversiones HQI Transelec Limitada (currently HQI Transelec Chile S.A.), Inversiones HQI Chile Holding Limitada and Hydro Quebec International Inc., the buyers, and Empresa Nacional de Electricidad (ENDESA) and Endesa Inversiones Generales S.A. (Enigesa), the sellers, whereby the share buyers undertook to reimburse the sellers the difference between the reference net equity set at ThCh$ 188,019,844, and the period-end net equity value on the agreement date, if such difference were positive. On June 29, 2001, an arbitration resolution was rendered, whereby the Arbitration Auditor determined net equity at year-end of ThCh$190,688,338, which was greater than the net equity reference by ThCh$ 2,668,494. Since a portion of this amount was recognized as goodwill at December 31, 2000, goodwill only increased by ThCh$ 1,968,870 during this period. Tax Amortization Goodwill Registraion No. Company for the period Balance --------------- ------- -------------- ------- ThCh$ ThCh$ 96.659.380-6 Compania Nacional de Transmision 4,020,036 101,869,711 Electrica S.A 10 NOTE 13 - INTANGIBLES The composition of intangibles at period end is as follows: ThCh$ Rights-of-way 22,951,742 Accumulated amortization (1,404,552) ----------- Net value 21,547,190 ========== The amortization charge to income amounted to ThCh$ 496,785. NOTE 14 - OTHER ASSETS The balance at period end is summarized as follows: ThCh$ Rental deposits for employee housing 21,708 Prepaid expenses - bonds in UF 2,092,272 Prepaid expenses - bonds in US$ 5,716,151 Discount on bond placements - UF 2,737,361 Discount on bond placements - US$ 1,346,815 --------- Total 11,914,307 ========== NOTE 15 - LONG AND SHORT TERM OBLIGATIONS (PROMISSORY NOTES AND BONDS) ---------------------------------------------------------------------- a) The Company has made the following public offering of bonds in the local market: On April 2, 2001 the Company registered the first bond issuance for a maximum of UF 10,000,000 with the Superintendency of Securities and Insurance Companies under number 249. Of this amount, UF 9,200,000 were finally placed on April 11, 2001. As of September 30, 2001 the ratings obtained by the bonds are: Category -------- - Fitch Chile Clasificadora de Riesgo Ltda. AA - Feller-Rate Clasificadora de Riesgo Limitada AA+ The characteristics of these bonds are as follows: TERMS OF ISSUANCE Issuer HQI Transelec Chile S.A. Securities issued : Bearer bonds in local currency, denominated in Unidades de Fomento. Maximum issued : 10,000,000 Unidades de Fomento divided into Series A -------- Series A-1 : Up to UF 3,000,000 divided into 3,000 bonds at UF 1,000 each. Series A-2 :Up to UF 4,00,000 (400 bonds at UF 10,000 each). Series B -------- Series B-1: Up to UF 1,000,000 (1,000 bonds at UF 1,000 each). Series B-2: Up to UF 3,000,000 (200 bonds at UF 10,000 each). 11 NOTE 15 - LONG AND SHORT TERM OBLIGATIONS (PROMISSORY NOTES AND BONDS) ---------------------------------------------------------------------- (Continued) Readjustment ; Variation in Unidades de Fomento Amortization period : Series A: 6 years and Series B: 21 years (6 grace years and 1 to 15 years for capital amortization, respectively). Capital amortization Series A, in one installment, upon maturity, and Series B, payable half-yearly, in increasing amounts, and effective September 1, 2007. Early redemption : Series A: without early redemption and Series B,: effective September 1, 2009, on any of its denominated dates of payment of interest or interest and capital amortization. Interest rate : Series A and B bonds accrue an 6.20% annual interest rate on the outstanding capital, expressed in Unidades de Fomento. Interest is calculated over a period of 360 days, upon maturity and payable half-yearly in two semesters of 180 days each. Interest payments : Half-yearly payments, upon maturity on March 1 and September 1 yearly, starting September 1, 2001. Interest accrued at period end amounts to ThCh$ 753,547 and is presented in Current liabilities. Guarantees: : This issue has no special guarantees, except for the general guarantee on all of the issuer's assets. Period of placement : 36 months, as from the date of register with the Superintendency of Securities and Insurance Companies. b) The Company issued and placed notes in the international market on April 17, 2001 as follows: At period end, this bond issuance has the following risk classification: Category -------- Standard and Poor's Rating Group A- Fitch Ibca, Duff & Phelps A- Moody's Investors Service Inc. Baa1 Issuer HQI Transelec Chile S.A. Securities issued : US$ (Yankee Bonds) traded in the US market. Issue value : ThUS$ 465,000 of a single series Readjustment Variation in United States dollar Capital amortization Total expiration on April 15, 2011. Nominal interest rate : 7.875% annually. Interest payments : On April 15 and October 15 each year, effective October 15, 2001. Interest accrued at period end amounts to ThCh$ 11,594,237 and is presented in Current liabilities. 12 NOTE 15 - LONG AND SHORT TERM OBLIGATIONS (PROMISSORY NOTES AND BONDS) ---------------------------------------------------------------------- (Continued) c) Short-and long-term obligations (bonds)

13 NOTE 16 - PROVISIONS AND WRITE-OFFS Provisions at period end are summarized as follows: a) Short-term provisions ThCh$ Severance indemnities 39,016 Accrued payroll 1,305,257 Cost of accidents (lines and substations) 86,172 ------ Total 1,430,445 ========= b) Long-term provisions Severance indemnities 1,272,660 ========= c) Write-offs Inventories 100 === NOTE 17 - SEVERANCE INDEMNITIES Changes in provisions are as follows: ThCh$ ----- Opening balance 1,232,173 Price-level restatement 2,515 Provision for the year 76,988 ------ Total 1,311,676 ========= Short-term 39,016 Long-term 1,272,660 --------- Total 1,311,676 ========= NOTE 18 - CHANGES IN SHAREHOLDERS' EQUITY a) During 2001, the changes in shareholders' equity are summarized as follows:

b) Number of shares ---------------- Series Number of shares Paid-in shares Voting shares ------ ---------------- -------------- ------------- Single serie 1,000,000 1,000,000 1,000,000 c) Capital Series Subscribed capital (ThCh$) Paid-in capital (ThCh$) ------ -------------------------- ----------------------- Single serie 310,140,471 310,140,471 14 NOTE 19 - OTHER NON-OPERATING INCOME AND EXPENSES These are summarized as follows: ThCh$ ----- Other non-operating income Prior-year income 107,377 Miscellaneous income 26 Income on disposal of materials 6,791 ----- Total 114,194 Other non-operating expenses: Prior-year expenses 126,881 Miscellaneous losses 516,671 Retired employee benefits 128 Directors' remuneration 13,969 Fiscal and judicial fines 4,949 Research disbursement 55,989 ------ Total 718,587 NOTE 20 - PRICE-LEVEL RESTATEMENT The net effects of price-level restatements, as described in Note 2 c), resulted in a net credit to income amounting to ThCh$ 1,498,421 and is summarized as follows: Assets - credits Restatement index ThCh$ ---------------- ----------------- ----- Inventories Replacement cost 19,079 Fixed assets CPI 10,653,261 Other non-monetary assets CPI 7,639,403 Expense accounts CPI 249,049 ------- Total (charges) credits 18,560,792 ---------- Liabilities - charges Shareholders' equity CPI (6,893,022) Non-monetary liabilities UF (9,380,455) Income accounts CPI (788,894) --------- Net credit (17,062,371) ------------ Price-level restatement net income 1,498,421 --------- 15 NOTE 21 - EXCHANGE DIFFERENCES The net effects of exchange differences amounted to a net charge to income of ThCh$27,564,214. Currency Amount -------- ------ ThCh$ Assets - credits Time deposits US dollars 4,878,685 Investments in HQI Chile Holding Ltda. US dollars 13,825,731 Forwards US dollars 4,770,810 --------- Total credits 23,475,226 ---------- Liabilities - charges --------------------- Loan HQI Holding US dollars (12,356,066) Bonds US dollars (39,432,599) SWAP US dollars (5,357,112) Accounts payable to related companies US dollars (66,862) -------- Total charges (57,212,639) ------------ Loss from exchange differences (27,564,214) NOTE 22 - DEBT SECURITY ISSUANCE EXPENSES Expenses incurred in debt securities issued in the local and foreign markets include: Stamp tax, placement fees, legal services, financial services, risk classification reports, and printing costs. Local Foreign Total ----- ------- ----- ThCh$ ThCh$ ThCh$ Issuance and offering expenses 2,609,881 6,791,467 9,401,348 Amortization for the year (results) (190,698) (396,169) (586,867) --------- -------- --------- 2,419,183 6,395,298 8,814,481 Balance sheet presentation: Other current assets 326,911 679,147 1,006,058 Other assets 2,092,272 5,716,151 7,808,423 --------- --------- --------- 2,419,183 6,395,298 8,814,481 16 NOTE 23 - DERIVATIVES The Company maintains forward and swap contracts to hedge the risk of exchange rate fluctuations on short-term trade accounts receivable and long term debt as follows: a) Contract description

b) Accounting effect Unrealized Item Liability Amount effect on income ---- --------- ------ ---------------- ThCh$ ThCh$ 1 Short-term sundry creditors 6,860 6,860 2 Long term bonds payable 2,708,628 2,708,628 3 Long term bonds payable 108,200 108,200 4 Long term bonds payable 181,800 181,800 5 Long term bonds payable 8,600 8,600 6 Long term bonds payable 372,900 372,900 NOTE 24 - CONTINGENCIES AND RESTRICTIONS a) Restrictions As a result of the obligations incurred in the bond offerings, the Company is required to meet specific ratios and obligations, including: - Maintain at all times assets free from any encumbrance, assets with a book value equal to or greater than 1.2 times the book value of the issuer's total obligations and debts which are not pledged as actual guarantees on goods and assets owned. These obligations include debts arising from the aforementioned bond offering. - Prohibition to sell, assign, transfer, contribute or dispose of the issuer's primary assets ("Activos Esenciales") in any way, either by monetary sale or free of charge. - Maintain an individual and consolidated leverage ratio whereby the proportion of Total liabilities/Total capitalization is not greater than 0.7 times. - Maintain at all times an individual and consolidated minimum equity equal to 15.000.000 Unidades de Fomento. 17 NOTE 24 - CONTINGENCIES AND RESTRICTIONS (Continued) b) Direct obligations There are no direct obligations c) Indirect obligations There are no guarantors or guarantees issued arising from indirect obligations. d) Pending lawsuits There are pending lawsuits filed against the Company, in response to which it has instituted the corresponding defense, representing a total of ThCh$ 117,907. Management believes that no significant contingencies will result from the pending lawsuits. e) Direct guarantees Book value of Creditor of guarantee Debtor Type Compromised Assets --------------------- ------ ---- ------ ThCh$ Banco Santiago Conama Deposit 910,106 Banco Santiago Codelco Deposit 20,851 NOTE 25 - GUARANTEES Guarantees obtained from third parties: The Company has received guarantees from contractors and third parties for the completion of constructions, maintenance work and repayment of housing loans, amounting to ThCh$ 1,612,564. 18 NOTE 26 - LOCAL AND FOREIGN CURRENCY Assets and liabilities held in foreign currency have been translated to Chilean pesos at their respective exchange rates at period end and are summarized as follows: a) Assets: -------

19 NOTE 26 - LOCAL AND FOREIGN CURRENCY (Continued) b) Current liabilities: -------------------

c) Long-term liabilities: ---------------------

NOTE 27 - SANCTIONS During the period between January 1, 2001 and September 30, 2001, the Company, its Directors and Management have not been sanctioned by the Superintendency of Securities and Insurance Companies. NOTE 28 - SUBSEQUENT EVENTS There have been no subsequent financial or accounting events between September 30, 2001 and the date these financial statements were presented to the Superintendency of Securities and Insurance Companies, which could significantly affect there interpretation. NOTE 29 - ENVIRONMENTAL EXPENSES The Company has made no disbursements during the nine month period ended September 30, 2001 in connection with this concept. 20 HQI TRANSELEC CHILE S.A. RELEVANT EVENTS During the period January 2001 to September 2001 and in conformity with General Standard No. 30, the Company informed the Superintendency of Securities and Insurance Companies of the following relevant events: a) On January 31, 2001 HQI Transelec Chile S.A. purchased 98,606 shares in Compania Nacional de Transmision Electrica S.A. from Inversiones HQI Chile Holding Limitada. As a result, HQI Transelec Chile S.A. owns 100% of the shares in Compania de Transmision Electrica S.A., resulting in its dissolution in conformity with provisions set forth under Article 103 of Law 18,046. The purchase agreement was subscribed by public deed dated January 18, 2001 before the Public Notary Mr. Juan Ricardo San Martin Urrejola, in Santiago. b) On April 9, 2001 the Company placed bonds of HQI Transelec Chile S.A. in the foreign market with the following characteristics: Currency : United States dollar Amount : US$ 465,000,000 Securities issued : Singles-series bonds to the order Amount of series : US$ 465,000,000 Nominal value of bond : US$ 1,000 Interest rate : 7.875% Issue date : April 17, 2001 c) On April 16, 2001 the Company reported that on April 11, 2001, HQI Transelec Chile S.A. placed readjustable bearer bonds, registered with the Superintendency of Securities and Insurance Companies under No. 249. As of said date, total bonds for UF 9,200,000 were placed, of which 6,000,000 correspond to Series A and 3,200,000 to Series B. d) On April 18, 2001 the First Ordinary Shareholders' Meeting approved the balance sheets for the period ended December 31, 2000. In addition, it approved the proposition from the Company's Board of Directors to pay a final dividend for 2000 of Ch$ 8.21425 per share, which had already been paid to the shareholders by means of an interim dividend payment. e) On April 23, 2001 the Company reported that the First General Ordinary Shareholders' Meeting held on April 18, 2001 appointed Messrs. Yves Filion, Jacques Regis, Daniel Leclair, Gilles Marchand, and Pedro Lizana Greve as members of the Board of directors. In addition, Messrs Gonzalo Delaveau Swett, Roberto Guerrero del Rio, Roberto Guerrero Valenzuela, Jorge Delpiano Kraemer, and Arturo Marin Vicuna were elected alternate directors. f) On August 31, 2001 the Company reported that, as stipulated in the Registration Rights Agreement, HQI Transelec Chile S.A. registered with the Securities and Exchange Commission the US dollar issue and modified the existing bonds in order to make them fully registered according to the Securities Act. The terms and conditions remained unchanged except for the elimination of the transfer restrictions of the Rule 144A. Page 1 of 4 HQI TRANSELEC CHILE S.A. FINANCIAL STATEMENT ANALYSIS AT SEPTEMBER 30, 2001 A) SUMMARY In the first nine months of 2001, HQI TRANSELEC CHILE S.A. obtained a net loss of ThCh$ 5,823,032 in spite of its positive operating results of ThCh$ 46,294,905. The loss was generated from the negative non-operating results amounting to ThCh$ 51,707,233 and a net credit to income arising from income taxes of ThCh$ 410,704. Operating income during the year amounted to ThCh$ 66,037,184. This income is provided by current contracts subscribed in order to commercialize the installation's capacity for transmission and the sales of services. Operating expenses amounted to ThCh$ 17,879,806, which is broken down into Fixed asset depreciation (61.7%), payroll (15.1%), and work, supplies, and services hired (17.8%). Administrative and selling expenses amount to ThCh$ 1,862,473, which is broken down into payroll (51.6%), and expenses incurred in work, supplies and services hired (29.6%). Non-operating results for the period present a loss of ThCh$ 51,707,233 arising from financial expenses totaling ThCh$ 26,632,235 (51.5%), monetary correction gain for ThCh$ 1,498,421 (2.3%) as a result of an increase in the Consumer Price Index (2.2% in the first nine months) and exchange rate loss for ThCh$ 27,564,214 (53.3%) as a result of an increase in the US dollar exchange rate of 21.2% during the period (Ch$ 121.37). Other significant items with an effect on non-operating results were interest income amounting to ThCh$ 5,615,224 (10.9%) and goodwill amortization amounting to ThCh$ 4,020,036 (7.8%). B) RESULTS Concepts From January 1 to September 30,2001 -------- ThCh$ Operating income 66,037,184 Toll sales 62,466,525 Work and services 3,570,659 Operating expenses (17,879,806) Fixed costs (6,349,666) Depreciation (11,033,355) Amortization of intangibles (496,785) Administrative and selling expenses (1,862,473) Operating results 46,294,905 Non-operating results (51,707,233) Income tax (deferred tax credit) (410,704) Loss for the period (5,823,032) EBITDA 43,935,095 Profitability Indices Return on equity (1.85) Return on of assets (0.72) Return on income earning assets 9.47 Loss per share (Ch$) 5,823 Page 2 of 4 C) BALANCE SHEET ANALYSIS At September 30, 2001 --------------------- Concepts ThCh$ -------- Current assets 108,291,671 Fixed assets 465,821,678 Other assets 230,538,087 ----------- Total assets 804,651,436 Current liabilities 20,325,540 Long-term liabilities 469,936,715 Shareholders' equity 314,389,181 ----------- Total Liabilities and Shareholders' equity 804,651,436 Value of main operating fixed assets At September 30, 2001 ------------------------------------ --------------------- ThCh$ Land 5,261,461 Buildings and infrastructure 271,647,884 Machinery and equipment 221,524,313 Other fixed assets 1,837,850 Increased value from technical reappraisal (net) 19,675,108 Depreciation (54,124,938) ------------ Total 465,821,678 Liquidity and leverage Ratios At September 30, 2001 ----------------------------- --------------------- Current ratio 5.33 Acid test 4.64 Liabilities/Shareholders' equity 1,56 % Short-short debt 4.15 % Long-term debt 95.85 At September 30, 2001 fixed assets are mainly represented by land, buildings, infrastructure, and machinery and equipment. The Company's assets are valued in conformity with accounting principles generally accepted in Chile. Significant fluctuations in the market in which the Company operates -------------------------------------------------------------------- In the Interconnected Central System (SIC), 100% of the 500KV transmission lines and 74.4% and 99.8% of the 220 and 154 kV, respectively, are exploited by HQI Transelec Chile S.A. It is worth noticing that in the nine months of 2001 there were no significant fluctuations in the market in which the Company operates. Page 3 of 4 Exchange rate risk ------------------ At September 30, 2001 a portion of the Company's debt was denominated in United States dollars from the placement of bonds abroad amounting to US$ 481,681,875 (including accrued interest). The loan issued to the Parent Company, Inversiones HQI Chile Holding Limitada, for US$ 112,669,965 (including accrued interest), and short-term investments in the financial market for US$ 116,082,778 and a Swap contract for US$ 100,000,000 (since August 17, 2001), reduce the net exposure to US$ 152,929,131. At December 31, 2000 the net exposure of US$ 288,645,975, was originated from a loan for US$538,645,975 issued by the Parent Company and a forward position of US$ 250,000,000. During the period, the effect of the devaluation of the Chilean peso compared to the US dollar amounted to ThCh$ 27,564,214. In the balance sheet, exposure to the exchange rate fluctuation is reduced by the fact that transmission toll income is associated with the US dollar. Toll contracts are denominated in US dollars, however monthly billing is expressed at their equivalent in Chilean pesos, at the average monthly Observed US dollar exchange rate for 85% of contracts, and at the current US dollar exchange rate on the last day of the month for the rest of the contracts. The evolution of the exchange rate for the first nine months was as follows:

Toll contracts include semester indexation formulas to reflect fluctuations in the net replacement value of assets and in the operating and maintenance costs. These reflect variations in the international prices of equipment and the local costs of materials and labour. During the period between January 1, 2001 and June 30, 2001 the average toll index was 0.97288, which was effective as of July 1, 2001. The next indexation will be applied on January 1, 2002. Revenues from transmission tolls during the third quarter amounted to Ch$ 22,205 million, including an adjustment of Ch$ 499 millions for the first nine months of 2001. Without this adjustment, the revenues of Ch$ 21,706 compared to Ch$ 20,292 of the second quarter. This difference is basically due to an increase of the average exchange rate of 10.5% and a reduction of 2.7% in the volume of revenues expressed in dollars resulting from the indexation applied on July 1, 2001. Financial results for the year include the loss from the devaluation in the Chilean peso applied on the debt (liabilities in foreign currency), however it is not possible to record the future increase in toll income from the same devaluation. Page 4 of 4 Cash flows during the period In the first nine months of 2001, due mainly to operating activities, net positive cash flows amounting to ThCh$ 66,049,651 were generated. Financing activities generated positive cash flows of ThCh$ 89,479,356 arising from bond placements in the local market (UF 9,200,000) and foreign market (US$ 465,000,000). Cash flows from investment activities generated a negative cash flow of ThCh$ 67,405,878 as a result of a current account loan granted to Inversiones HQI Chile Holding Ltda. and the purchase of fixed assets. On July 31, the loan from HQI Transelec Chile S.A. to Inversiones Chile Holding Ltda was reduced by ThCh$ 38,861,286. The effect of inflation on cash and cash equivalents amounted to ThCh$ 5,034,028. The closing cash flow balance amounted to ThCh$ 94,407,140 considering an opening balance of ThCh$ 23,323,462 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HQI Transelec Chile S.A. Date: December 13, 2001 By: /s/ Real Paul-Hus ---------------------------- Real Paul-Hus Finance Manager

Filing Compare · HQI TRANSELEC CHILE S A