Financial Statements - Entel

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EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor Translation Purposes Only12. GOODWILLChanges to balances for goodwill are as follows:CompanySegmentInitial balanceFinal balance01/01/2012 Additions 12/31/2012Th. CLP$Th. CLP$Entel PCS Telecomunicaciones S.A. People 43,384,200 - 43,384,200Cientec Computación S.A. Corporations 2,402,281 - 2,402,281Will S.A. People 156 - 156Transam Comunicación S.A. People 108,646 - 108,646Final balance, net 45,895,283 - 45,895,283CompanySegmentInitial balanceFinal balance01/01/2011 Other 12/31/2011Th. CLP$ Increases Th. CLP$Entel PCS Telecomunicaciones S.A. People 43,384,200 - 43,384,200Cientec Computación S.A. Corporations 2,402,281 - 2,402,281Will S.A. People 156 - 156Transam Comunicación S.A. People 34,837 73,809 108,646Final balance, net 45,821,474 73,809 45,895,283Goodwill balances are subject to impairment testing at the close of each accounting period,although no such signs have been observed since the date on which they were acquired.The main balances for goodwill are reflected in the following business mergers:a) The goodwill from the investment in the subsidiary Entel PCS Telecomunicaciones S.A.,originates from the takeover of all the assets and liabilities of the subsidiary Entel TelefoníaPersonal S.A. when the company was merged with the parent company at the end of 2010.The assets of the merged company include 94.64% of the equity of Entel PCSTelecomunicaciones S.A. There is also an asset related to goodwill originating from thepurchase of the 25% stake held by the unrelated foreign company Propel Inc. (USA) inDecember 2002.At the date it was merged with the Entel Group, Entel Telefonía Personal S.A. had almostexclusive control of two subsidiaries that owned concessions on the 1,900 MHz band fordigital mobile telephony activities in the country.The qualitative factors that constitute the goodwill that is recorded include the highpotential for growth and profitability expected from the mobile business, the increasedflexibility for making investment and operational decisions, particularly considering theexclusion of a foreign minority shareholder linked to the telecommunications equipmentmanufacturing industry, and the market position of the subsidiary at the time.- 28 -
EMPRESA NACIONAL DE TELECOMUNICACIONES S.A. & SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor Translation Purposes OnlyThe periodic application of the test for the impairment of goodwill considers the currentand projected contribution of revenue and profit from the mobile business, how up to dateits technology platforms are, together with their capacity, the level of customer satisfactionand market recognition, and the current technical and marketing management.b) The goodwill originating from the investment in the subsidiary Cientec Computación S.A.has its origins in the purchase of 100% of the shares for this company from their previousshareholders in December 2008. The previous owners were Inversiones Balilia Limitadaand Millenium Fondo de Inversiones Privado, both legal entities with no direct or indirectrelations to the buyer.The purpose for the acquisition of this company was to expand the Entel Group’s capacityto provide operational continuity services as part of its IT business. Cientec was a companywith a strong reputation in providing operational continuity services to SME andcorporations, including hosting/housing services, business critical applications, IT centeradministration, and sale and training platforms.The qualitative factors that represent the goodwill that is recorded pertain to Cientec’sreputation with its customer portfolio, the transfer of its management and greater efficiencydue to the increased critical customers mass.The periodic application of the test for impairment in goodwill considers maintaining andgrowing market share, the maintenance of service standards and profitability, and thepotential for growth of the respective business area.13. PROPERTY, PLANT AND EQUIPMENTThe breakdown of the gross values, depreciation and net values of the items included under thiscategory at each close period are as follows.- 29 -
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