CPFL ENERGY INCORPORATED | The Federative Republic of Brazil | |
(Translation of registrants name into English) | (Jurisdiction of incorporation or organization) |
Title of each class: | Name of each exchange on which registered: | |
Common Shares, without par value* | ||
American Depositary Shares (as evidenced by American | New York Stock Exchange | |
Depositary Receipts), each representing 3 Common Shares |
1 | ||||
1 | ||||
2 | ||||
PART I |
||||
3 | ||||
3 | ||||
3 | ||||
3 | ||||
6 | ||||
7 | ||||
16 | ||||
16 | ||||
19 | ||||
20 | ||||
21 | ||||
24 | ||||
26 | ||||
31 | ||||
36 | ||||
37 | ||||
37 | ||||
37 | ||||
38 | ||||
40 | ||||
40 | ||||
51 | ||||
51 | ||||
51 | ||||
52 | ||||
59 | ||||
61 | ||||
64 | ||||
64 | ||||
67 | ||||
68 | ||||
69 | ||||
72 | ||||
72 | ||||
76 | ||||
76 | ||||
77 | ||||
77 | ||||
78 | ||||
79 | ||||
79 |
80 | ||||||||
82 | ||||||||
83 | ||||||||
83 | ||||||||
83 | ||||||||
84 | ||||||||
84 | ||||||||
84 | ||||||||
85 | ||||||||
85 | ||||||||
85 | ||||||||
87 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
91 | ||||||||
91 | ||||||||
93 | ||||||||
93 | ||||||||
95 | ||||||||
95 | ||||||||
96 | ||||||||
PART II |
||||||||
96 | ||||||||
96 | ||||||||
97 | ||||||||
97 | ||||||||
97 | ||||||||
97 | ||||||||
97 | ||||||||
98 | ||||||||
98 | ||||||||
PART III |
||||||||
98 | ||||||||
98 | ||||||||
98 | ||||||||
99 | ||||||||
101 | ||||||||
EX-1.1: AMENDED AND RESTATED BYLAWS | ||||||||
EX-8.1: LIST OF SUBSIDIARIES | ||||||||
EX-12.1: CERTIFICATION | ||||||||
EX-12.2: CERTIFICATION | ||||||||
EX-13.1: CERTIFICATION |
| general economic, political, demographic and business conditions in Brazil and particularly in the markets we serve; | ||
| electricity shortages; | ||
| changes in tariffs; | ||
| our failure to generate electricity due to water shortages, transmission outages, operational or technical problems or physical damages to our facilities; | ||
| potential disruption or interruption of our services; | ||
| inflation and exchange rate variation; | ||
| the early termination of our concessions to operate our facilities; | ||
| increased competition in the power industry markets in which we operate; | ||
| our inability to implement our capital expenditure plan, including our inability to arrange financing when required and on reasonable terms; | ||
| changes in customer demand; | ||
| existing and future governmental regulations relating to the power industry; and | ||
| the risk factors discussed under Item 3. Key InformationRisk Factors, beginning on page 7. |
1
2
3
For the year ended December 31, | ||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||
2005 | 2005 | (restated) | (restated) | (restated) | (restated) | |||||||||||||||||||
(in millions, except per share and per ADS data) | ||||||||||||||||||||||||
Brazilian Accounting Principles |
||||||||||||||||||||||||
Operating revenues |
US$ | 4,659 | R$ | 10,907 | R$ | 9,549 | R$ | 8,082 | R$ | 6,823 | R$ | 5,953 | ||||||||||||
Net operating revenues |
3,306 | 7,739 | 6,736 | 6,057 | 5,264 | 4,842 | ||||||||||||||||||
Operating costs: |
||||||||||||||||||||||||
Electricity purchased for resale |
1,356 | 3,175 | 3,126 | 3,020 | 2,557 | 2,314 | ||||||||||||||||||
Electricity network usage charges |
323 | 757 | 679 | 446 | 314 | 386 | ||||||||||||||||||
Personnel |
85 | 200 | 190 | 169 | 162 | 154 | ||||||||||||||||||
Private Pension Plan |
38 | 90 | 148 | 84 | 129 | 114 | ||||||||||||||||||
Materials |
15 | 34 | 32 | 22 | 22 | 31 | ||||||||||||||||||
Outside services |
42 | 98 | 88 | 84 | 87 | 48 | ||||||||||||||||||
Depreciation and amortization |
117 | 273 | 251 | 256 | 223 | 201 | ||||||||||||||||||
Fuel usage account CCC |
167 | 392 | 251 | 261 | 292 | 290 | ||||||||||||||||||
Energy Development Account CDE |
117 | 273 | 185 | 78 | | | ||||||||||||||||||
Services rendered to third parties |
5 | 12 | 9 | 5 | 3 | 4 | ||||||||||||||||||
Other |
5 | 12 | 9 | 10 | 10 | 18 | ||||||||||||||||||
2,271 | 5,316 | 4,966 | 4,436 | 3,796 | 3,562 | |||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Sales and marketing |
91 | 212 | 195 | 148 | 176 | 133 | ||||||||||||||||||
General and administrative |
114 | 267 | 268 | 279 | 282 | 205 | ||||||||||||||||||
Amortization of goodwill |
54 | 126 | 110 | 532 | 528 | 407 | ||||||||||||||||||
Other |
75 | 175 | 56 | 41 | 26 | 43 | ||||||||||||||||||
333 | 780 | 630 | 1,000 | 1,012 | 789 | |||||||||||||||||||
Operating income |
702 | 1,643 | 1,140 | 621 | 456 | 492 | ||||||||||||||||||
Financial expense, net |
(91 | ) | (212 | ) | (568 | ) | (821 | ) | (1,301 | ) | (594 | ) | ||||||||||||
Nonoperating income (expense), net |
(0 | ) | (1 | ) | (4 | ) | 44 | 10 | (29 | ) | ||||||||||||||
Income and social contribution taxes |
(144 | ) | (336 | ) | (244 | ) | (104 | ) | 91 | (112 | ) | |||||||||||||
Net income (loss) before extraordinary item and minority
interest |
467 | 1,094 | 324 | (260 | ) | (744 | ) | (243 | ) | |||||||||||||||
Extraordinary item, net of taxes (1) |
(14 | ) | (33 | ) | (34 | ) | (34 | ) | (34 | ) | | |||||||||||||
Minority interest |
(17 | ) | (40 | ) | (22 | ) | (2 | ) | 21 | (8 | ) | |||||||||||||
Net income (loss) |
US$ | 436 | R$ | 1,021 | R$ | 269 | R$ | (295 | ) | R$ | (756 | ) | R$ | (251 | ) | |||||||||
Net income (loss) per share, before extraordinary item and
minority interest (2) |
0.97 | 2.28 | 0.72 | (0.06 | ) | (0.22 | ) | (0.07 | ) | |||||||||||||||
Net income (loss) per share (2) |
0.91 | 2.13 | 0.59 | (0.07 | ) | (0.22 | ) | (0.07 | ) | |||||||||||||||
Net income (loss) per ADS, before extraordinary item and
minority interest (2) |
2.92 | 6.84 | 2.15 | (0.19 | ) | (0.66 | ) | (0.22 | ) | |||||||||||||||
Net income (loss) per ADS (2) |
2.73 | 6.39 | 1.78 | (0.22 | ) | (0.67 | ) | (0.22 | ) | |||||||||||||||
Dividends declared |
384 | 899 | 265 | |||||||||||||||||||||
Number of common shares outstanding at year-end (2)
(3) |
480 | 480 | 452 | 4,119 | 3,391 | 3,374 | ||||||||||||||||||
Dividends declared per share (4) |
0.80 | 1.87 | 0.59 | |||||||||||||||||||||
Dividends declared per ADS (4) |
2.40 | 5.62 | 1.77 | |||||||||||||||||||||
U.S. GAAP |
||||||||||||||||||||||||
Operating revenues |
4,018 | 9,406 | 8,310 | 7,115 | 5,984 | |||||||||||||||||||
Net operating revenues |
2,866 | 6,709 | 5,880 | 5,364 | 4,612 | |||||||||||||||||||
Operating income |
610 | 1,428 | 1,005 | 873 | 751 | |||||||||||||||||||
Net income (loss) |
474 | 1,110 | 359 | 181 | (626 | ) | ||||||||||||||||||
Net income (loss) per share basic (5) |
1.03 | 2.42 | 0.85 | 0.51 | (1.85 | ) | ||||||||||||||||||
Net income (loss) per ADS basic (5) |
3.10 | 7.26 | 2.55 | 1.54 | (5.55 | ) | ||||||||||||||||||
Net income (loss) per share diluted (5) |
1.02 | 2.39 | 0.84 | 0.51 | (1.85 | ) | ||||||||||||||||||
Net income (loss) per ADS diluted (5) |
3.07 | 7.18 | 2.51 | 1.54 | (5.55 | ) | ||||||||||||||||||
Weighted average number of shares outstanding (5) |
458 | 421 | 353 | 339 |
4
As of December 31, | ||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||
2005 | 2005 | (restated) | (restated) | (restated) | (restated) | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Brazilian Accounting Principles |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
US$ | 290 | R$ | 679 | R$ | 500 | R$ | 375 | R$ | 177 | R$ | 136 | ||||||||||||
Accounts receivable |
770 | 1,803 | 1,572 | 1,479 | 1,629 | 1,228 | ||||||||||||||||||
Total current assets |
1,610 | 3,770 | 3,223 | 2,376 | 2,819 | 1,738 | ||||||||||||||||||
Non-current assets: |
||||||||||||||||||||||||
Accounts receivable |
178 | 416 | 582 | 728 | 768 | 731 | ||||||||||||||||||
Total non-current assets |
1,173 | 2,745 | 2,709 | 2,417 | 1,863 | 1,473 | ||||||||||||||||||
Permanent assets: |
||||||||||||||||||||||||
Property, plant and equipment |
2,259 | 5,289 | 4,879 | 4,452 | 4,383 | 3,997 | ||||||||||||||||||
Goodwill |
1,119 | 2,619 | 2,347 | 3,237 | 3,774 | 4,279 | ||||||||||||||||||
Total permanent assets |
3,134 | 7,336 | 6,725 | 7,278 | 7,762 | 7,884 | ||||||||||||||||||
Total assets |
5,917 | 13,851 | 12,657 | 12,071 | 12,443 | 11,095 | ||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Short-term debt (6) |
690 | 1,614 | 1,260 | 1,178 | 3,379 | 1,867 | ||||||||||||||||||
Total current liabilities |
1,768 | 4,139 | 3,048 | 2,567 | 4,924 | 3,252 | ||||||||||||||||||
Long-term liabilities: |
||||||||||||||||||||||||
Long-term debt |
1,437 | 3,364 | 3,785 | 4,361 | 3,836 | 3,574 | ||||||||||||||||||
Total long-term liabilities |
2,100 | 4,916 | 5,451 | 5,979 | 5,249 | 4,796 | ||||||||||||||||||
Minority interest |
| | 137 | 192 | 193 | 231 | ||||||||||||||||||
Shareholders equity |
2,049 | 4,796 | 4,021 | 3,333 | 2,078 | 2,816 | ||||||||||||||||||
Total liabilities and shareholders equity |
5,917 | 13,851 | 12,657 | 12,071 | 12,443 | 11,095 | ||||||||||||||||||
U.S. GAAP |
||||||||||||||||||||||||
Shareholders equity |
US$ | 2,679 | R$ | 6,271 | R$ | 5,178 | R$ | 4,123 | R$ | 2,591 | ||||||||||||||
Total assets |
5,954 | 13,938 | 12,952 | 12,658 | 12,518 |
For the year ended December 31, | ||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
Energy sold (in GWh): |
||||||||||||||||||||
Residential |
8,783 | 8,302 | 8,124 | 7,779 | 7,164 | |||||||||||||||
Industrial |
16,995 | 17,897 | 16,909 | 15,731 | 14,172 | |||||||||||||||
Commercial |
5,329 | 4,936 | 4,752 | 4,485 | 4,038 | |||||||||||||||
Rural |
1,730 | 1,619 | 1,550 | 1,466 | 1,141 | |||||||||||||||
Public administration |
800 | 746 | 736 | 639 | 614 | |||||||||||||||
Public lighting |
1,098 | 1,070 | 1,048 | 1,012 | 899 | |||||||||||||||
Public services |
1,400 | 1,358 | 1,352 | 1,297 | 1,217 | |||||||||||||||
Own consumption |
25 | 26 | 27 | 31 | 33 | |||||||||||||||
Total energy sold to final consumers |
36,160 | 35,954 | 34,498 | 32,440 | 29,278 | |||||||||||||||
Total customers (in thousands)(7) |
5,608 | 5,467 | 5,341 | 5,193 | 4,991 | |||||||||||||||
Installed capacity (in MW) |
915 | 854 | 812 | 812 | 143 | |||||||||||||||
Assured energy (in GWh) |
4,214 | 3,807 | 3,804 | 3,856 | 723 | |||||||||||||||
Energy generated (in GWh) |
3,126 | 2,734 | 2,633 | 2,433 | 405 |
(1) | Reflects the initial effect of a change in Brazilian Accounting Principles for post-retirement benefit plans, net of taxes. This item does not qualify as an extraordinary item under U.S. GAAP. | |
(2) | In accordance with Brazilian Accounting Principles, the amounts for 2003, 2002 and 2001 have not been adjusted to reflect the 1-for-10 reverse stock split on August 13, 2004 that reduced the aggregate number of our outstanding common shares to 411,869,796. Had these amounts been adjusted to reflect the reverse stock split, the amounts would have been as follows: |
5
For the year ended December 31, | |||||||||||||||
2003 (restated) | 2002 (restated) | 2001 (restated) | |||||||||||||
(in millions, except per share and per ADS data) | |||||||||||||||
Net loss per share, before extraordinary item and minority interest |
R$(0.63 | ) | R$(2.19 | ) | R$(0.72 | ) | |||||||||
Net loss per share |
(0.72 | ) | (2.23 | ) | (0.74 | ) | |||||||||
Net loss per ADS, before extraordinary item and minority interest |
(1.89 | ) | (6.58 | ) | (2.17 | ) | |||||||||
Net loss per ADS |
(2.15 | ) | (6.69 | ) | (2.23 | ) | |||||||||
Number of common shares outstanding at year-end |
412 | 339 | 337 |
(3) | For 2001, the number of common shares outstanding at year-end was retroactively restated to reflect the effects of our August 2002 restructuring. Calculation of common shares outstanding at year-end was made based on the exchange ratio used to exchange our shares for the shares of CPFL Paulista and CPFL Geração in August 2002, which was one share for 9.42 shares of CPFL Paulista and one share for 184.03 shares of CPFL Geração. | |
(4) | Represents the total amount of dividends declared in 2004 and 2005, divided by the total number of shares outstanding at year-end. | |
(5) | In accordance with U.S. GAAP, these amounts have been adjusted to reflect the 1-for-10 reverse stock split on August 13, 2004 that reduced the aggregate number of our outstanding common shares to 411,869,796. | |
(6) | Short-term debt includes the current portion of long-term debt and accrued interest. | |
(7) | Represents active customers (meaning customers who are connected to the distribution network), rather than customers invoiced at period-end. |
Period-end | Average for Period(1) | Low | High | |||||||||||||
(reais per U.S. Dollar) | ||||||||||||||||
Year ended: |
||||||||||||||||
December 31, 2001 |
2.320 | 2.353 | 1.936 | 2.801 | ||||||||||||
December 31, 2002 |
3.533 | 2.998 | 2.271 | 3.955 | ||||||||||||
December 31, 2003 |
2.889 | 3.060 | 2.822 | 3.662 | ||||||||||||
December 31, 2004 |
2.654 | 2.917 | 2.654 | 3.205 | ||||||||||||
December 31, 2005 |
2.341 | 2.412 | 2.163 | 2.762 | ||||||||||||
Month: |
||||||||||||||||
December 2005 |
2.341 | 2.180 | 2.374 | |||||||||||||
January 2006 |
2.216 | 2.212 | 2.346 | |||||||||||||
February 2006 |
2.136 | 2.118 | 2.222 | |||||||||||||
March 2006 |
2.172 | 2.107 | 2.224 | |||||||||||||
April 2006 |
2.089 | 2.089 | 2.154 | |||||||||||||
May 2006 |
2.301 | 2.059 | 2.371 | |||||||||||||
June 2006
(through June 23) |
2.246 | 2.238 | 2.302 |
Source: Central Bank | ||
(1) | Average of the exchange rates on the last day of each month during the period. |
6
7
| warning notices; | ||
| fines per breach of up to 2.0% of the concessionaires revenues in the year ended immediately prior to the date of the relevant breach; | ||
| injunctions related to the construction of new facilities and equipment; | ||
| restrictions on the operation of existing facilities and equipment; | ||
| temporary suspension from participating in bidding processes for new concessions; | ||
| intervention by ANEEL in the management of the concessionaire; and | ||
| termination of the concession. |
8
9
| the inability to obtain required governmental permits and approvals; | ||
| the unavailability of equipment; | ||
| supply interruptions; | ||
| work stoppages; | ||
| labor unrest; | ||
| social unrest; | ||
| weather and hydrological interferences; | ||
| unforeseen engineering and environmental problems; | ||
| increases in electricity losses, including technical and commercial losses; | ||
| construction and operational delays, or unanticipated cost overruns; and | ||
| unavailability of adequate funding. |
10
11
| currency fluctuations; | ||
| inflation; | ||
| interest rates; | ||
| liquidity of domestic capital and lending markets; | ||
| tax policies; and | ||
| other political, social and economic developments in or affecting Brazil. |
12
13
14
15
| In January 2005, CPFL Brasil acquired Clion Assessoria e Comercialização de Energia Elétrica Ltda., a company located in the south of Brazil, to strengthen its electricity commercialization activities. | ||
| In June 2005, CPFL Geração became our wholly-owned subsidiary, resulting in an increase in our share capital of R$85.6 million when we issued 3,665,488 new shares. | ||
| In May 2005 and July 2005, as a result of IFCs decision to convert the full outstanding balance of its credits against us into our shares, we increased our share capital by R$25.3 million and R$73.7 million, respectively, by issuing 1,440,409 and 4,159,647 new shares. |
16
| In September 2005, CPFL Brasil acquired 67.2% of Sul Geradora from RGE. The acquisition was made in order to comply with the prohibition on a distribution concessionaire from holding an equity interest in another company. Ipê Energia, the vehicle through which PSEG invested in RGE, acquired 32.7% of Sul Geradora, and the remaining interests were acquired by other minority shareholders. | ||
| In November 2005, CPFL Geração, through CPFL Sul Centrais Elétricas Ltda., or CPFL Sul Centrais Elétricas, acquired four Small Hydroelectric Power Plants that were previously owned by RGE. | ||
| In November 2005, CPFL Paulista increased its interest in its subsidiary CPFL Piratininga from 97.41% to 100%, making it a wholly-owned subsidiary and resulting in an increase in the share capital of CPFL Paulista of R$55.4 million. | ||
| In November 2005, we increased our interest in our subsidiary CPFL Paulista from 94.94% to 100%, making it our wholly-owned subsidiary and resulting in an increase in our share capital of R$468.2 million and the issuance of 18,862,417 new shares. | ||
| In April 2006, in order to comply with the prohibition of a distribution concessionaire from holding an equity interest in another company, as described above, CPFL Paulista transferred all shares that it held in CPFL Piratininga and other companies to CPFL Energia through a capital reduction. | ||
| In May 2006, we entered into an agreement with PSEG to purchase entities owning 32.69% of RGE and 32.75% of Sul Geradora. We now own a total of 99.76% of RGE, held through our subsidiaries CPFL Paulista and CPFL Serra Ltda., or CPFL Serra, and 99.95% of Sul Geradora, held through our subsidiaries CPFL Brasil and CPFL Serra. |
17
| Distribution. Our two fully-consolidated distribution subsidiaries, CPFL Paulista and CPFL Piratininga, delivered 26,679 GWh of electricity (of which CPFL Paulista distributed 18,640 GWh and CPFL Piratininga distributed 8,039 GWh) to over 4.5 million customers in the state of São Paulo in 2005. Our proportionately consolidated subsidiary RGE delivered 6,787 GWh of electricity to approximately 1.1 million customers (including 317 GWh delivered to small concessionaires and rural electricity cooperatives) in the state of Rio Grande do Sul in 2005. In 2005, the revenue of our distribution companies by consumer group was as follows: 31.4% from industrial customers, 19.6% from commercial customers, 37.3% from residential customers, 3.3% from rural customers and 8.4% from other customers. | ||
| Generation. As of December 31, 2005, we had installed generation capacity of 915 MW. During 2005 we generated a total of 3,126 GWh of electricity, and we had 4,214 GWh of Assured Energy, the amount of energy representing our long-term average electricity production, as established by ANEEL, which is the primary driver of our revenues relating to generation activities. We own an interest in the Serra da Mesa hydroelectric generation facility through our wholly owned subsidiary Semesa, and are entitled to 51.54% of its Assured Energy. We also own and operate 23 Small Hydroelectric Power Plants and one thermoelectric power plant. In addition, we own interests in six hydroelectric facilities currently under |
18
construction, which we expect will increase our installed generation capacity to 1,993 MW when completed over the next five years. Two of these six facilities, Monte Claro and Barra Grande, have been at least partially operational since December 2004 and November 2005 respectively. The increased capacity from the new facilities will be used for our own distribution and commercialization activities. | |||
| Commercialization and Electricity-Related Services. We established CPFL Comercialização Brasil S.A., or CPFL Brasil, to handle our commercialization operations and electricity-related services. CPFL Brasil procures electricity for our distribution operations, sells electricity to free consumers, other commercialization companies and distribution utilities, and provides electricity-related services. In 2005, we sold 16,657 GWh of electricity of which 7,120 GWh was sold to unaffiliated third parties. |
19
20
| CPFL Paulista. CPFL Paulista supplies electricity to a region covering 90,440 square kilometers in the state of São Paulo with a population of approximately 9.4 million people. Its service area covers 234 municipalities, including the cities of Campinas, Bauru, Ribeirão Preto, São José do Rio Preto, Araraquara and Piracicaba. CPFL Paulista had approximately 3.2 million customers as of December 31, 2005. In 2005, CPFL Paulista distributed 18,640 GWh of electricity, which accounts for approximately 18.0% of the total electricity distributed in the state of São Paulo, and 6.7% of the total electricity distributed in Brazil, during that period. | ||
| CPFL Piratininga. CPFL Piratininga supplies electricity to a region covering 6,785 square kilometers in the southern part of the state of São Paulo with a population of approximately 3.8 million people. Its service area covers 27 municipalities, including the cities of Santos, Sorocaba and Jundiaí. CPFL Piratininga had approximately 1.3 million customers as of December 31, 2005. In 2005, CPFL Piratininga distributed 8,039 GWh of electricity, accounting for approximately 7.7% of the total electricity distributed in the state of São Paulo, and 3.3% of the total electricity distributed in Brazil, during that period. | ||
| RGE. RGE supplies electricity to a region covering 90,718 square kilometers in the state of Rio Grande do Sul with a population of approximately 3.3 million people. Its service area covers 262 municipalities, including the cities of Caxias do Sul and Gravataí. RGE had approximately 1.1 million customers as of December 31, 2005. In 2005, RGE supplied 6,787 GWh of electricity (6,470 GWh distributed to final consumers and 317 GWh delivered to small electric concessionaires and small rural cooperatives), which accounts for approximately 34% of the total electricity distributed in the state of Rio Grande do Sul, and 2.4% of the total electricity distributed in Brazil during that period. Until June 2006, we owned 67.07% of RGE, which we operated as a joint venture with PSEG pursuant to a shareholders agreement. In June 2006, we acquired an additional 32.69% of RGE, and we now own a total of 99.76% of RGE. |
21
22
Year ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
CPFL Paulista |
||||||||||||
Technical losses |
5.52 | % | 5.50 | % | 5.50 | % | ||||||
Commercial losses |
2.61 | % | 2.82 | % | 3.20 | % | ||||||
Total electricity losses |
8.13 | % | 8.32 | % | 8.70 | % | ||||||
Outages: |
||||||||||||
Frequency of outages per customer per year (number of outages) |
5.41 | 5.11 | 5.18 | |||||||||
Duration of outages per customer per year (in hours) |
6.21 | 5.34 | 5.35 | |||||||||
CPFL Piratininga |
||||||||||||
Technical losses |
4.50 | % | 4.50 | % | 4.47 | % | ||||||
Commercial losses |
1.80 | % | 2.02 | % | 2.22 | % | ||||||
Total electricity losses |
6.30 | % | 6.52 | % | 6.69 | % | ||||||
Outages: |
||||||||||||
Frequency of outages per customer per year (number of outages) |
5.94 | 5.80 | 5.40 | |||||||||
Duration of outages per customer per year (in hours) |
7.99 | 6.90 | 6.65 | |||||||||
RGE |
||||||||||||
Technical losses |
8.03 | % | 8.50 | % | 9.0 | % | ||||||
Commercial losses |
2.75 | % | 2.43 | % | 1.0 | % | ||||||
Total electricity losses |
10.78 | % | 10.93 | % | 10.0 | % | ||||||
Outages: |
||||||||||||
Frequency of outages per customer per year (number of outages) |
16.47 | 15.01 | 15.48 | |||||||||
Duration of outages per customer per year (in hours) |
26.08 | 23.86 | 25.55 |
23
Year Ended December 31, | ||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Cost | Cost | Average Cost | ||||||||||||||||||||||
GWh | (R$/MWh) | GWh | (R$/MWh) | GWh | (R$/MWh) | |||||||||||||||||||
Electricity purchases: |
||||||||||||||||||||||||
From Itaipu |
10,501 | R$84.17 | 10,336 | R$91.70 | 10,575 | R$92.92 | ||||||||||||||||||
From others |
32,748 | 78.68 | 31,059 | 74.17 | 29,882 | 65.02 | ||||||||||||||||||
Total |
43,249 | R$80.01 | 41,395 | R$78.55 | 40,457 | R$72.29 | ||||||||||||||||||
24
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003* | ||||||||||
(in GWh) | ||||||||||||
Electricity Purchased in the Regulated Market: |
||||||||||||
Furnas Centrais Elétricas S.A. |
2,918 | 4,931 | 7,584 | |||||||||
Companhia Energética de São Paulo CESP |
2,556 | 4,789 | 7,362 | |||||||||
Companhia de Geração de Energia Elétrica Tietê |
1,218 | 2,092 | 3,051 | |||||||||
Duke Energy Inter. Ger. Paranapanema S.A. |
1,506 | 2,119 | 2,827 | |||||||||
Tractebel Energia S.A. |
3,789 | 3,880 | 2,193 | |||||||||
Electricity Auctions |
580 | | | |||||||||
Petrobrás Petróleo Brasileiro S.A. |
1,769 | | | |||||||||
EMAE Empresa Metropolitana de Águas e Energia S.A. |
188 | 338 | 528 | |||||||||
Companhia Estadual de Energia Elétrica CEEE |
186 | 309 | 463 | |||||||||
AES Uruguaiana Ltda |
834 | 773 | 773 | |||||||||
Co-generation |
16 | 45 | 60 | |||||||||
Electric Energy Trading Chamber CCEE |
507 | 260 | 399 | |||||||||
Other |
389 | 404 | 66 | |||||||||
Total |
16,456 | 19,940 | 25,306 | |||||||||
Electricity Purchased in the Free Market |
16,292 | 11,119 | 4,576 | |||||||||
Total |
32,748 | 31,059 | 29,882 | |||||||||
* | Numbers for 2003 were reclassified as if the New Industry Model Law (and the Regulated and Free Markets) had been applicable in 2003. |
25
| Industrial customers. Industrial customers accounted for 35.6%, 43.1% and 42.7% of the electricity sold in 2005 by CPFL Paulista, CPFL Piratininga and RGE, respectively. The principal industries supplied by our distribution companies in 2005 were food and beverage, metal, automotive, furnishings and plastic production. | ||
| Residential customers. Residential customers accounted for 29.2%, 29.3% and 22.7% of the electricity sold in 2005 by CPFL Paulista, CPFL Piratininga and RGE, respectively. | ||
| Commercial customers. Commercial customers, which include service-oriented businesses, universities and hospitals, accounted for 18.0%, 17.3% and 12.9% of the electricity sold in 2005 by CPFL Paulista, CPFL Piratininga and RGE, respectively. | ||
| Rural customers. Rural customers accounted for 5.2%, 2.1% and 13.5% of the electricity sold in 2005 by CPFL Paulista, CPFL Piratininga and RGE, respectively. | ||
| Other customers. Other customers, which include public and municipal services such as street lighting, accounted for 12.0%, 8.2% and 8.2% of the electricity sold in 2005 by CPFL Paulista, CPFL Piratininga and RGE, respectively. |
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
Customers | Volume | Revenues | Customers | Volume | Revenues | Customers | Volume | Revenues | ||||||||||||||||||||||||||||
(thousands) | (GWh) | (R$ millions) | (thousands) | (GWh) | (R$ millions) | (thousands) | (GWh) | (R$ millions) | ||||||||||||||||||||||||||||
CPFL Paulista |
||||||||||||||||||||||||||||||||||||
Industrial |
42 | 6,637 | R$1,673 | 42 | 7,634 | R$1,578 | 41 | 8,197 | R$1,387 | |||||||||||||||||||||||||||
Residential |
2,824 | 5,444 | 2,190 | 2,745 | 5,155 | 1,921 | 2,675 | 5,034 | 1,637 | |||||||||||||||||||||||||||
Commercial |
267 | 3,356 | 1,137 | 264 | 3,089 | 960 | 256 | 2,920 | 790 | |||||||||||||||||||||||||||
Rural |
92 | 976 | 189 | 92 | 900 | 162 | 90 | 851 | 134 | |||||||||||||||||||||||||||
Others |
25 | 2,208 | 535 | 25 | 2,121 | 460 | 23 | 2,087 | 390 | |||||||||||||||||||||||||||
Our consumption |
| 19 | | 1 | 19 | | 1 | 19 | | |||||||||||||||||||||||||||
Total |
3,250 | 18,640 | R$5,724 | 3,169 | 18,918 | R$5,082 | 3,086 | 19,108 | R$4,338 | |||||||||||||||||||||||||||
CPFL Piratininga |
||||||||||||||||||||||||||||||||||||
Industrial |
9 | 3,466 | R$818 | 10 | 5,561 | R$997 | 10 | 6,238 | R$979 | |||||||||||||||||||||||||||
Residential |
1,158 | 2,356 | 925 | 1,122 | 2,183 | 812 | 1,091 | 2,138 | 719 | |||||||||||||||||||||||||||
Commercial |
83 | 1,387 | 483 | 81 | 1,290 | 419 | 79 | 1,298 | 378 | |||||||||||||||||||||||||||
Rural |
7 | 167 | 28 | 7 | 157 | 25 | 7 | 156 | 22 | |||||||||||||||||||||||||||
Others |
7 | 659 | 164 | 6 | 645 | 149 | 6 | 643 | 136 | |||||||||||||||||||||||||||
Our consumption |
| 4 | | | 4 | | | 5 | | |||||||||||||||||||||||||||
Total |
1,264 | 8,039 | R$2,418 | 1,226 | 9,840 | R$2,403 | 1,193 | 10,478 | R$2,234 | |||||||||||||||||||||||||||
26
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
Customers | Volume | Revenues | Customers | Volume | Revenues | Customers | Volume | Revenues | ||||||||||||||||||||||||||||
(thousands) | (GWh) | (R$ millions) | (thousands) | (GWh) | (R$ millions) | (thousands) | (GWh) | (R$ millions) | ||||||||||||||||||||||||||||
RGE |
||||||||||||||||||||||||||||||||||||
Industrial |
30 | 2,761 | R$746 | 30 | 2,813 | R$655 | 30 | 2,564 | R$509 | |||||||||||||||||||||||||||
Residential |
823 | 1,466 | 660 | 805 | 1,437 | 569 | 797 | 1,419 | 507 | |||||||||||||||||||||||||||
Commercial |
96 | 832 | 369 | 94 | 801 | 312 | 95 | 766 | 261 | |||||||||||||||||||||||||||
Rural |
134 | 875 | 142 | 131 | 838 | 125 | 129 | 810 | 103 | |||||||||||||||||||||||||||
Others |
11 | 533 | 164 | 12 | 528 | 141 | 11 | 526 | 120 | |||||||||||||||||||||||||||
Our consumption |
| 2 | | | 1 | | | 1 | | |||||||||||||||||||||||||||
Total |
1,094 | 6,469 | R$2,081 | 1,072 | 6,418 | R$1,801 | 1,062 | 6,086 | R$1,500 | |||||||||||||||||||||||||||
Our share |
||||||||||||||||||||||||||||||||||||
(67.07%) of RGE |
| 4,340 | 1,396 | | 4,305 | 1,208 | | 4,083 | 1,006 | |||||||||||||||||||||||||||
Total |
5,608 | 31,019 | R$9,538 | 5,467 | 33,063 | R$8,693 | 5,341 | 33,669 | R$7,578 | |||||||||||||||||||||||||||
27
CPFL Paulista | ||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||||||||||||||||||||||||||
Tariff | Volume | Revenue(1) | Customers | Tariff | Volume | Revenue | Customers | Tariff | Volume | Revenue | Customers | |||||||||||||||||||||||||||||||||||||
(R$/MWh) | (GWh) | (R$ Million) | (R$/MWh) | (GWh) | (R$ Million) | (R$/MWh) | (GWh) | (R$ Million) | ||||||||||||||||||||||||||||||||||||||||
Group A: |
||||||||||||||||||||||||||||||||||||||||||||||||
A2 138 kV |
R$154.02 | 1,373 | R$211.5 | 93 | R$119.88 | 2,198 | R$263.5 | 80 | R$100.28 | 3,203 | R$321.2 | 73 | ||||||||||||||||||||||||||||||||||||
A3 69 kV |
234.67 | 7 | 1.5 | 7 | 223.49 | 7 | 1.5 | 7 | 142.11 | 19 | 2.7 | 7 | ||||||||||||||||||||||||||||||||||||
A4 11.9 to 23 kV |
215.51 | 7,943 | 1,711.8 | 12,348 | 184.73 | 7,931 | 1,465.0 | 12,085 | 156.29 | 7,412 | 1,158.4 | 11,574 | ||||||||||||||||||||||||||||||||||||
Total Group A |
R$206.47 | 9,322 | R$1,924.8 | 12,448 | R$170.69 | 10,136 | R$1,730.0 | 12,172 | R$139.39 | 10,634 | R$1,482.3 | 11,654 | ||||||||||||||||||||||||||||||||||||
B1 Residential |
R$325.70 | 5,435 | R$1,770.3 | 2,823,530 | R$302.75 | 5,146 | R$1,557.9 | 2,745,348 | R$264.11 | 5,026 | R$1,327.4 | 2,675,232 | ||||||||||||||||||||||||||||||||||||
B2 Rural |
184.01 | 660 | 121.4 | 90,674 | 175.49 | 610 | 107.0 | 90,148 | 158.56 | 555 | 88.0 | 89,236 | ||||||||||||||||||||||||||||||||||||
B3 Others |
305.94 | 2,525 | 772.4 | 322,262 | 288.00 | 2,352 | 677.4 | 319,266 | 257.59 | 2,229 | 573.9 | 308,592 | ||||||||||||||||||||||||||||||||||||
B4 Public Lighting |
161.63 | 698 | 114.2 | 1,503 | 154.35 | 674 | 104.0 | 1,651 | 137.95 | 664 | 91.6 | 1,335 | ||||||||||||||||||||||||||||||||||||
Total Group B |
R$298.18 | 9,318 | R$2,778.3 | 3,237,969 | R$278.58 | 8,782 | R$2,446.3 | 3,156,413 | R$245.58 | 8,474 | R$2,080.9 | 3,074,395 | ||||||||||||||||||||||||||||||||||||
Total |
R$252.31 | 18,640 | R$4,703.1 | 3,250,417 | R$220.77 | 18,918 | R$4,176.6 | 3,168,585 | R$186.48 | 19,108 | R$3,563.2 | 3,086,049 | ||||||||||||||||||||||||||||||||||||
(1) | Revenue is presented after deduction of ICMS and, beginning July 1, 2005, PIS and COFINS. |
CPFL Piratininga | ||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||||||||||||||||||||||||||
Tariff | Volume | Revenue(1) | Customers | Tariff | Volume | Revenue | Customers | Tariff | Volume | Revenue | Customers | |||||||||||||||||||||||||||||||||||||
(R$/MWh) | (GWh) | (R$ Million) | (R$/MWh) | (GWh) | (R$ Million) | (R$/MWh) | (GWh) | (R$ Million) | ||||||||||||||||||||||||||||||||||||||||
Group A: |
||||||||||||||||||||||||||||||||||||||||||||||||
A1 345 kV |
R$85.48 | 3 | R$0.2 | | R$101.08 | 1,602 | R$162.0 | 1 | R$90.46 | 1,677 | R$151.7 | 1 | ||||||||||||||||||||||||||||||||||||
A2 88 kV |
141.42 | 977 | 138.2 | 52 | 118.93 | 1,598 | 190.0 | 51 | 105.10 | 2,332 | 245.1 | 45 | ||||||||||||||||||||||||||||||||||||
A3a 34.5 kV |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
A4 11.9 to 23 kV |
212.96 | 3,522 | 750.0 | 3,087 | 194.61 | 3,339 | 649.9 | 2,928 | 177.10 | 3,219 | 570.1 | 2,774 | ||||||||||||||||||||||||||||||||||||
Total Group A |
R$197.36 | 4,502 | R$888.4 | 3,139 | R$153.20 | 6,540 | R$1,001.9 | 2,980 | R$133.75 | 7,228 | R$966.9 | 2,820 | ||||||||||||||||||||||||||||||||||||
Group B: |
||||||||||||||||||||||||||||||||||||||||||||||||
B1 Residential |
R$315.41 | 2,355 | R$742.7 | 1,158,174 | R$301.81 | 2,182 | R$658.6 | 1,122,180 | R$275.06 | 2,137 | R$587.8 | 1,090,742 | ||||||||||||||||||||||||||||||||||||
B2 Rural |
198.98 | 73 | 14.4 | 7,273 | 192.75 | 66 | 12.8 | 7,037 | 175.38 | 65 | 11.4 | 6,782 | ||||||||||||||||||||||||||||||||||||
B3 Others |
332.39 | 863 | 286.8 | 95,709 | 319.21 | 810 | 258.4 | 93,637 | 292.27 | 804 | 234.4 | 91,952 | ||||||||||||||||||||||||||||||||||||
B4 Public Lighting |
174.24 | 248 | 43.1 | 205 | 167.02 | 242 | 40.4 | 171 | 151.64 | 244 | 37.0 | 100 | ||||||||||||||||||||||||||||||||||||
Total Group B |
R$307.29 | 3,538 | R$1,087.0 | 1,261,361 | R$293.99 | 3,300 | R$970.2 | 1,223,025 | R$268.04 | 3,250 | R$870.6 | 1,189,576 | ||||||||||||||||||||||||||||||||||||
Total |
R$245.73 | 8,039 | R$1,975.4 | 1,264,500 | R$200.42 | 9,840 | R$1,972.1 | 1,226,005 | R$175.40 | 10,478 | R$1,837.5 | 1,192,396 | ||||||||||||||||||||||||||||||||||||
(1) | Revenue is presented after deduction of ICMS and, beginning October 23, 2005, PIS and COFINS. |
28
RGE | ||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Average | Net | Average | Average | |||||||||||||||||||||||||||||||||||||||||||||
Tariff | Volume | Revenue(1) | Customers | Tariff | Volume | Net Revenue | Customers | Tariff | Volume | Net Revenue | Customers | |||||||||||||||||||||||||||||||||||||
(R$/MWh) | (GWh) | (R$ Million) | (R$/MWh) | (GWh) | (R$ Million) | (R$/MWh) | (GWh) | (R$ Million) | ||||||||||||||||||||||||||||||||||||||||
Group A: |
||||||||||||||||||||||||||||||||||||||||||||||||
A1 230 kV |
R$161.60 | 142 | R$23.0 | 2 | R$135.82 | 146 | R$19.9 | 2 | R$112.44 | 131.1 | R$14.7 | 2 | ||||||||||||||||||||||||||||||||||||
A2 138 kV |
198.33 | 1 | 0.2 | 1 | | | | | | | | | ||||||||||||||||||||||||||||||||||||
A3 69 kV |
160.27 | 506 | 81.2 | 14 | 143.20 | 564 | 80.7 | 17 | 118.27 | 523.0 | 61.9 | 19 | ||||||||||||||||||||||||||||||||||||
A3a 34.5 kV |
766.01 | 1 | 0.4 | 1 | 244.92 | 6 | 1.4 | 1 | 333.65 | 1.0 | 0.3 | 1 | ||||||||||||||||||||||||||||||||||||
A4 11.9 to 22 kV |
198.00 | 3,249 | 643.3 | 5,128 | 177.42 | 3,172 | 562.8 | 5,176 | 155.45 | 2,945.6 | 457.9 | 4,943 | ||||||||||||||||||||||||||||||||||||
Total Group A |
R$191.85 | 3,899 | R$748.1 | 5,146 | R$170.99 | 3,888 | R$664.8 | 5,196 | R$148.53 | 3,600.7 | R$534.8 | 4,965 | ||||||||||||||||||||||||||||||||||||
Group B: |
||||||||||||||||||||||||||||||||||||||||||||||||
B1 Residential |
R$309.84 | 1,466 | R$454.1 | 823,222 | R$295.85 | 1,436 | R$424.9 | 805,270 | R$258.26 | 1,418.4 | R$366.3 | 796,973 | ||||||||||||||||||||||||||||||||||||
B2 Rural |
228.31 | 385 | 88.0 | 133,761 | 216.92 | 367 | 79.5 | 130,899 | 190.26 | 343.1 | 65.3 | 127,960 | ||||||||||||||||||||||||||||||||||||
B3 Others |
334,30 | 809 | 270.6 | 132,268 | 326.43 | 796 | 259.7 | 130,666 | 289.20 | 779.4 | 225.4 | 132,037 | ||||||||||||||||||||||||||||||||||||
B4 Public Lighting |
170.65 | 227 | 38.8 | 254 | 162.15 | 230 | 37.3 | 253 | 142.97 | 235.4 | 33.7 | 252 | ||||||||||||||||||||||||||||||||||||
Total Group B |
R$294.86 | 2,888 | R$851.5 | 1,089,505 | R$283.36 | 2,828 | R$801.5 | 1,067,088 | R$248.78 | 2,776.3 | R$690.7 | 1,057,222 | ||||||||||||||||||||||||||||||||||||
Total |
R$235.68 | 6,787 | R$1,599.6 | 1,094,651 | R$218.32 | 6,716 | R$1,466.3 | 1,072,284 | R$192.18 | 6,377.0 | R$1,225.5 | 1,062,187 | ||||||||||||||||||||||||||||||||||||
(1) | Revenue is presented after deduction of ICMS and, beginning July 1, 2005, PIS and COFINS. |
29
CPFL Paulista | CPFL Piratininga | RGE | ||||||||||
(R$/MWh) | ||||||||||||
Low Income Residence: (1) |
||||||||||||
Up to 30 kWh |
110.36 | 100.46 | 116.24 | |||||||||
31 to 100 kWh |
189.18 | 172.22 | 199.29 | |||||||||
101 to 200 kWh (RGE: 101 to 160 kWh) |
283.75 | 258.35 | 298.96 | |||||||||
201 to 220 kWh (RGE: above 160 kWh). |
315.27 | 287.03 | 332.16 |
(1) | Excludes PIS and COFINS beginning July 1, 2005 for CPFL Paulista and RGE and October 23, 2005 for CPFL Piratininga. |
30
31
Installed | Assured | Placed in | Facility | Concession | ||||||||||||||||
Capacity | Energy | Service | Upgraded | Expires | ||||||||||||||||
(MW) | (GWh/yr.) | |||||||||||||||||||
Hydroelectric plants: |
||||||||||||||||||||
Serra da Mesa |
1,275.0 | 5,878.0 | 1998 | (1) | ||||||||||||||||
Our share of Serra da Mesa (51.54%) |
657.1 | 3,029.5 | ||||||||||||||||||
Monte Claro (1st unit) |
65.0 | 509.8 | 2004 | 2036 | ||||||||||||||||
Our share of Monte Claro (65%) |
42.3 | 331.4 | ||||||||||||||||||
Barra Grande (1st unit) |
230.0 | 1,813.3 | 2005 | 2036 | ||||||||||||||||
Our share of Barra Grande (25%) |
57.5 | 453.4 | ||||||||||||||||||
Americana |
30.0 | 78.9 | 1949 | 2002 | 2027 | |||||||||||||||
Andorinhas |
0.5 | 0.9 | 1937 | (5) | ||||||||||||||||
Buritis |
0.8 | 7.9 | 1922 | (3) | 2027 | |||||||||||||||
Capão Preto |
5.5 | 8.7 | 1911 | (2) | 2027 | |||||||||||||||
Cariobinha |
1.3 | 1936 | (4) | 2027 | ||||||||||||||||
Chibarro |
2.3 | 6.1 | 1912 | (2) | 2027 | |||||||||||||||
Dourados |
10.8 | 68.0 | 1926 | 2002 | 2027 | |||||||||||||||
Eloy Chaves |
19.0 | 106.9 | 1954 | 1993 | 2027 | |||||||||||||||
Esmeril |
5.0 | 25.2 | 1912 | 2003 | 2027 | |||||||||||||||
Gavião Peixoto |
4.1 | 19.3 | 1913 | (2) | 2027 | |||||||||||||||
Guaporé |
0.7 | 2.6 | 1950 | (5) | ||||||||||||||||
Jaguari |
11.8 | 78.8 | 1917 | 2002 | 2027 | |||||||||||||||
Lençóis |
1.7 | 14.7 | 1917 | 1988 | 2027 | |||||||||||||||
Monjolinho |
0.6 | 2.71 | 1893 | 2003 | 2027 | |||||||||||||||
Pinhal |
6.8 | 32.4 | 1928 | 1993 | 2027 | |||||||||||||||
Pirapó |
0.7 | 0.9 | 1952 | (5) | ||||||||||||||||
Saltinho |
0.8 | 5.3 | 1950 | (5) | ||||||||||||||||
Salto do Pinhal |
0.6 | 1911 | (4) | 2027 | ||||||||||||||||
Salto Grande |
4.6 | 23.8 | 1912 | 2003 | 2027 | |||||||||||||||
Santana |
4.3 | 25.4 | 1951 | 2002 | 2027 | |||||||||||||||
São Joaquim |
8.1 | 49.3 | 1911 | 2002 | 2027 | |||||||||||||||
Socorro |
1.0 | 5.3 | 1909 | 1994 | 2027 | |||||||||||||||
Três Saltos |
0.7 | 5.3 | 1928 | (3) | 2027 | |||||||||||||||
Thermoelectric plants: |
||||||||||||||||||||
Carioba |
36.0 | 219.0 | 1954 | 2027 | ||||||||||||||||
Total |
915.0 | 4,601.6 | ||||||||||||||||||
(1) | The concession for Serra da Mesa is held by Furnas. We have a contractual right to 51.54% of the Assured Energy of this facility, under a 30-year rental agreement, expiring in 2028. | |
(2) | Power plants that will be upgraded by 2007. | |
(3) | Power plants that will be upgraded by 2008. | |
(4) | Power plants that are not active. | |
(5) | In accordance with Decree No. 2003 (art. 5) of September 10, 1996, hydroelectric projects with a generation capacity equal to or less than 1,000 kW, regardless of concession or authorization, must be registered with the regulatory authority and administrator of power concessions. |
32
33
Estimated | ||||||||||||||||||||||||||||||||
Installed | Estimated | |||||||||||||||||||||||||||||||
Estimated | Estimated | Estimated | Expected | Capacity | Assured | |||||||||||||||||||||||||||
Installed | Assured | Construction | Start of | Start of | Our | Available | Energy | |||||||||||||||||||||||||
Capacity | Energy | Cost | Construction | Operations | Ownership | to us | Available to us | |||||||||||||||||||||||||
(MW) | (GWh/yr) | (R$ million | (%) | (MW) | (GWh/yr) | |||||||||||||||||||||||||||
adjusted to | ||||||||||||||||||||||||||||||||
December 2005) | ||||||||||||||||||||||||||||||||
Barra Grande
(2nd and
3rd
units) |
460 | 1,520.7 | 1,656.7 | July 2001 | 2006 | 25.01 | 115.0 | 380.3 | ||||||||||||||||||||||||
Campos Novos |
880 | 3,310.4 | 1,568.1 | August 2001 | 2006 | 48.72 | 428.8 | 1,612.9 | ||||||||||||||||||||||||
CERAN Complex: |
||||||||||||||||||||||||||||||||
Castro Alves |
130 | 560.6 | 372.5 | April 2004 | 2007 | 65.00 | 84.5 | 364.4 | ||||||||||||||||||||||||
Monte Claro (2
nd
unit) |
65 | 7.0 | 346.9 | April 2002 | 2006 | 65.00 | 42.3 | 4.6 | ||||||||||||||||||||||||
14 de Julho |
100 | 438.0 | 353.6 | October 2004 | 2008 | 65.00 | 65.0 | 284.7 | ||||||||||||||||||||||||
295 | 1,005.6 | 1,073.0 | 191.8 | 653.6 | ||||||||||||||||||||||||||||
Foz do Chapecó |
855 | 3,784.3 | 2,083.5 | 2006 | 2010 | 40.00 | 342.0 | 1,513.7 | ||||||||||||||||||||||||
Total |
2,490 | 9,621.0 | 6,381.3 | 1,077.6 | 4,160.6 |
(*) | Refers to the total estimated construction costs for the Monte Claro and Barra Grande plants. |
34
35
| procuring electricity for our distribution companies and its commercialization activities by entering into bilateral contracts with generating companies (including our generation subsidiaries) and purchasing electricity in public auctions from generation companies; | ||
| reselling electricity to free consumers; | ||
| reselling electricity to distribution companies (including CPFL Paulista, CPFL Piratininga and RGE) and other agents in the electricity market through bilateral contracts; and | ||
| providing electricity-related services and consulting to final customers and other agents. |
| thermographic inspections of a clients electrical equipment using infrared technology to ensure that the equipment is functioning properly and to anticipate and prevent electrical shortages; | ||
| use of our new product Power Quality which allows our industrial and commercial customers to analyze their electrical systems to ensure that they are functioning at their optimum technical level and are providing the most efficient, reliable and economically affordable service; | ||
| lectures and training sessions for our clients technical staff on a wide range of topics which affect a clients ability to effectively use and maintain its electrical services and equipment. Recent lectures have addressed the electricity industry tariff structure, co-generation and the proper administration of electricity; |
36
| construction of turn-key electric substations and transmission lines; and | ||
| consulting on energy management and public auctions for final customers and other agents. |
Concession No. | Concessionaire | State | Term | |||
014/1997
|
CPFL Paulista | São Paulo | 30 years from November 20, 1997 | |||
09/2002
|
CPFL Piratininga | São Paulo | 30 years from October 23, 1998 | |||
013/1997
|
RGE | Rio Grande do Sul | 30 years from November 6, 1997 |
Concession No. | Concessionaire | Plant | State | Term | ||||
128/2001
|
Foz do Chapecó Energia S.A. | Foz do Chapecó | Santa Catarina, Rio Grande do Sul |
35 years from November 7, 2001 | ||||
036/2001
|
Energética Barra Grande S.A. | Barra Grande | Rio Grande do Sul | 35 years from May 14, 2001 | ||||
008/2001
|
Companhia Energética Rio das Antas |
14 Julho, Castro Alves and Monte Claro | Rio Grande do Sul | 35 years from March 3, 2001 | ||||
043/2000
|
Campos Novos Energia S.A. | Campos Novos | Santa Catarina | 35 years from May 29, 2000 | ||||
015/1997
|
CPFL Centrais Elétricas | Our 19 Small Hydroelectric Power Plants and one thermoelectric facility | São Paulo | 30 years from November 20, 1997 | ||||
Decree N° 85,983/81
|
Semesa S.A. (1) | Serra da Mesa | Goiás |
(1) | The concession for Serra da Mesa is held by Furnas. We have the contractual right to 51.54% of the Assured Energy of this facility under a 30-year rental agreement, expiring in 2028. |
37
38
| Barra Grande. We have consistently supported the local Rural Population Relocation Program. This program envisions relocating 430 families, including: (1) 194 families living in Rural Collective Resettlements, which have homes with garages, arable plots, community centers and capacity for schools. Of this group, there are already 86 families inhabiting their land; (2) 230 families that received letters of credit and have acquired their own property; and (3) 6 families living in Remaining Area Resettlements. The program also provides institutional support to 127 families of small land owners and occupiers who are involved in: land cultivation or exploration; conservation of biodiversity and native flora and fauna, including endangered species; the creation of a sapling nursery that protects plant diversity by producing 680,000 saplings destined for reforestation projects. | ||
| Campos Novos. We have consistently supported the local Rural Population Relocation Program. This program envisions relocating 297 families, including: (1) 31 families living in Rural Collective Resettlements, which have infrastructures similar to those in Barra Grande, and where all families are already inhabiting their land; (2) 49 families living in Small Rural Collective Resettlements, where all families are already inhabiting their land; (3) 170 families that received letters of credit and have acquired their own property; and (3) 47 families living in Remaining Area Resettlements. In addition, the program administers the Rural Development Fund, which in turn provides resources to the Brazilian Support Service for Small Companies (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas, or SEBRAE-SC) in order to add value to small land parcels held by more than 300 families in the region. A Conservation Unit has been established, currently protecting 1,068 hectares of land, and the Permanent Preservation Area, which maintains a preserve covering 1,832 hectares, has been revitalized with the planting of 206,000 native trees saplings, including a number of endangered species. In recognition of its efforts to mitigate the environmental impact of its operations, ENERCAN received the Fritz Muller Prize of the government of the state of Santa Catarina. |
39
40
41
42
| Creation of a parallel environment for the trading of electricity, including: (1) the regulated market, a more stable market in terms of supply of electricity; and (2) a market specifically addressed to certain participants (i.e., Free Consumers and commercialization companies), called the free market, that permits a certain degree of competition. | ||
| Restrictions on certain activities of distributors, so as to require them to focus on their core business of distribution, to promote more efficient and reliable services to captive consumers. | ||
| Elimination of self-dealing, in order to provide an incentive to distributors to purchase electricity at the lowest available prices rather then buying electricity from related parties. | ||
| Respect for contracts executed prior to the New Industry Model Law, in order to provide regulatory stability for transactions carried out before its enactment. |
43
44
45
46
47
| costs of electricity purchased for resale pursuant to Initial Supply Contracts; | ||
| costs of electricity purchased from Itaipu; | ||
| costs of electricity purchased pursuant to bilateral agreements that are freely negotiated between the parties; | ||
| certain other charges for connection to the transmission and distribution systems; and | ||
| the cost of regulatory charges. |
48
49
50
51
| Our concession agreements provide for an annual adjustment (reajuste anual) to take account of changes in our costs, which for this purpose are divided into costs (known as Parcel A costs) that are beyond our control and costs (known as Parcel B costs) that we can control. Parcel A costs include, among other things, increased prices under long-term supply contracts, and Parcel B costs include, among others, the return on investment related to our concessions and their expansion, as well as maintenance and operational costs. As a result of recent regulatory reforms, our ability to fully pass through to final consumers our electricity acquisition costs has become subject to: (a) our ability to accurately forecast our energy needs and (b) a ceiling linked to a reference value, the Annual Reference Value. The Annual Reference Value is the weighted average electricity acquisition costs resulting from electricity prices of all public auctions carried out by ANEEL and CCEE in the regulated market for electricity to be delivered five and three years from any such auction and will only apply during the first three years following the commencement of delivery of the acquired electricity. See The Brazilian Power Industry The New Industry Model Law for a more detailed description of all the limitations on the ability of distribution companies to fully pass through their electricity acquisition costs to final consumers. Agreements in force before the enactment of these regulatory reforms will be respected and the pass-through of tariffs will be governed by the rules in force at the time of the agreement, which provide for full pass-through of the costs of acquired electricity subject to a ceiling determined by the Brazilian |
52
| Our concession agreements provide for a periodic revision (revisão periódica), every five years for CPFL Paulista and RGE and every four years for CPFL Piratininga, to restore the financial equilibrium of our tariffs as contemplated by the concession agreements and to determine a reduction factor (known as the X factor) in the amount of Parcel B cost increases passed on to our customers. The first periodic revisions occurred in 2003. Currently ANEEL is reevaluating the methodology of the 2003 periodic revisions in order to establish the methodology for the 2007 periodic revision. In May 2006 ANEEL issued technical comments (notas técnicas) in connection with the upcoming periodic revision, which are still subject to public review and final approval by ANEEL. For detailed information on periodic revision, see 2003 Periodic Revision. |
| Brazilian law also provides for extraordinary revision (revisão extraordinária) to take account of unforeseen changes in our cost structure. In particular, we currently charge supplemental tariffs that were introduced as a result of the energy crisis in 2001-2002. See The 2001-2002 Energy Crisis and Related Regulatory Measures below. |
53
CPFL Paulista | CPFL Piratininga | RGE | ||||||||||
2002 |
11.60 | % | 17.01 | % | 12.20 | % | ||||||
2003(1) |
20.19 | % | 15.02 | % | 27.36 | % | ||||||
2004: |
||||||||||||
Correction of 2003(2) |
1.30 | % | (3.64 | )% | 0.47 | % | ||||||
Average |
13.63 | % | 14.00 | % | 14.37 | % | ||||||
By voltage category: |
||||||||||||
A1 (230 kV or more) |
| 28.35 | % | 25.70 | % | |||||||
A2 (88 to 138 kV) |
28.28 | % | 24.78 | % | | |||||||
A3 (69 kV) |
21.75 | % | | 23.99 | % | |||||||
A3a (30 kV to 44 kV) |
13.06 | % | | 13.95 | % | |||||||
A4 (2.3 kV to 25 kV) |
18.45 | % | 15.13 | % | 21.71 | % | ||||||
BT |
8.91 | % | 10.23 | % | 10.21 | % | ||||||
By category of customer: |
||||||||||||
Residential |
8.92 | % | 10.23 | % | 10.21 | % | ||||||
Industrial |
20.80 | % | 19.60 | % | 21.42 | % | ||||||
Commercial |
12.25 | % | 12.29 | % | 13.40 | % | ||||||
Rural |
11.48 | % | 12.09 | % | 11.41 | % | ||||||
Public administration |
13.02 | % | 12.52 | % | 14.12 | % | ||||||
Public lighting |
8.90 | % | 10.22 | % | 10.20 | % | ||||||
Public service |
16.62 | % | 14.82 | % | 18.44 | % | ||||||
Own consumption |
11.96 | % | 10.93 | % | 13.47 | % | ||||||
2005: |
||||||||||||
Correction of 2003(3) |
(0.67 | )% | (0.76 | )% | | |||||||
Average |
17.74 | % | 1.54 | % | 21.93 | % | ||||||
By voltage category: |
||||||||||||
A1 (230 kV or more) |
| 6.07 | % | 31.92 | % | |||||||
A2 (88 to 138 kV) |
37.41 | % | 13.62 | % | | |||||||
A3 (69 kV) |
27.31 | % | 32.48 | % | ||||||||
A3a (30 kV to 44 kV) |
2.67 | % | 21.65 | % | ||||||||
A4 (2.3 kV to 25 kV) |
25.29 | % | 5.95 | % | 28.98 | % | ||||||
BT |
11.67 | % | 4.78 | % | 15.99 | % | ||||||
By category of customer: |
||||||||||||
Residential |
11.56 | % | 4.77 | % | 16.02 | % | ||||||
Industrial |
27.19 | % | 8.59 | % | 28.52 | % | ||||||
Commercial |
16.10 | % | 0.27 | % | 19.78 | % | ||||||
Rural |
14.91 | % | 1.17 | % | 20.27 | % | ||||||
Public administration |
16.60 | % | 0.49 | % | 20.56 | % | ||||||
Public lighting |
11.55 | % | 4.78 | % | 15.99 | % | ||||||
Public service |
22.92 | % | 5.15 | % | 25.47 | % | ||||||
Own consumption |
16.24 | % | 3.47 | % | 19.38 | % | ||||||
2006: |
||||||||||||
Average |
10.83 | % | (4 | ) | 10.19 | % | ||||||
By voltage category: |
||||||||||||
A1 (230 kV or more) |
17.22 | % | ||||||||||
A2 (88 to 138 kV) |
25.04 | % | 18.58 | % | ||||||||
A3 (69 kV) |
17.40 | % | | |||||||||
A3a (30 kV to 44 kV) |
36.58 | % | 7.29 | % | ||||||||
A4 (2.3 kV to 25 kV) |
18.72 | % | 17.10 | % | ||||||||
BT |
5.66 | % | 4.30 | % | ||||||||
By category of customer: |
||||||||||||
Residential |
5.67 | % | 4.30 | % | ||||||||
Industrial |
18.22 | % | 16.17 | % | ||||||||
Commercial |
11.30 | % | 8.84 | % | ||||||||
Rural |
9.15 | % | 7.14 | % | ||||||||
Public administration |
11.94 | % | 10.54 | % | ||||||||
Public lighting |
5.67 | % | 4.31 | % | ||||||||
Public service |
16.60 | % | 14.24 | % | ||||||||
Own consumption |
9.75 | % | 9.53 | % |
(1) | The periodic revision in 2003 was provisional. The actual percentage increases from the 2003 periodic revision for CPFL Paulista, CPFL Piratininga and RGE were 19.55%, 18.08% (limited to 14.68%, with 3.4% deferred until the 2004-2006 tariff adjustments) and 27.36%, respectively. The slightly higher percentage increases for CPFL Paulista and CPFL Piratininga shown in the table above reflect the actual percentage increase in tariffs, which takes into account compensation owed to these subsidiaries from prior periods. | |
(2) | The 2004 correction of the 2003 periodic revision modified CPFL Paulistas and CPFL Piratiningas 2003 periodic revision from 19.55% to 21.10% and from 14.68% to 10.51%, respectively, and modified RGEs 2003 periodic revision from 27.36% to 27.96%. The 2004 correction was provisional for CPFL Paulista and CPFL Piratininga and definitive for RGE. | |
(3) | The 2005 correction permanently modified CPFL Paulistas 2003 periodic revision to 20.29% and CPFL Piratiningas to 9.67%. | |
(4) | CPFL Piratiningas annual adjustment is scheduled to occur in October 2006. |
54
55
56
| Extraordinary Tariff Adjustment. Reajuste Tarifário Extraordinário, or RTE, is an extraordinary tariff adjustment that is intended to permit generation and distribution companies to recover, in future years, part of their losses or revenue foregone during the Rationing Program. Part of the amounts we will recover from the RTE must be passed on to our suppliers to compensate them for their losses incurred during the Rationing Program. | ||
| Our accounts receivable as of December 31, 2005 included R$702 million (of which R$339 million was classified as non-current) representing amounts we expect to recover pursuant to the RTE. This represented 14.6% of our shareholders equity at such date. The amount to be passed on to suppliers is included in supplier payables on our balance sheet. See Note 16 to our audited consolidated financial statements. The amounts recoverable and payable accrue interest based on SELIC, and in 2005 we recognized R$167 million of net financial income attributable to such accounts receivable. | ||
| The increased tariffs resulting from the RTE have been in effect since January 2002, and we expect them to remain in effect through 2007. As we receive these amounts from our customers, we pass on to our suppliers the portion attributable to them. These transactions reduce the amount of receivables and payables on our balance sheet, but they do not affect our statement of operations because the revenues and costs were previously recognized in 2001 and 2002. The effect on our cash flow is small because we received an advance of these funds from BNDES (as discussed below) in 2002 and, accordingly, the RTE we receive is used to service the debt on this loan. | ||
| Parcel A Costs. As described above, certain variations in our Parcel A costs are recoverable through future tariffs. The Parcel A system was initially established to compensate for increased costs in 2001. |
57
| BNDES Loan Program. The Brazilian government made loans available to distribution and generation companies through the government development bank BNDES to finance (a) 90% of the revenue shortfall recoverable through the RTE and (b) the excess Parcel A costs from January through October of 2001. We had a total principal amount of R$632 million of these loans outstanding at December 31, 2005. These loans accrue interest at the same rate as amounts we are entitled to recover pursuant to the RTE. |
| The real appreciated by 18.2% in 2003, 8.1% in 2004 and 11.8% in 2005 against the U.S. Dollar. As of May 31, 2006, appreciation of the real againt to the U.S. Dollar was approximately 1.7% in 2006 year-to-date. Inflation for 2005, as measured by the IGP-M, was 1.2%. |
| Brazilian GDP grew by 5.2% in 2004 and by 2.3% in 2005. |
58
| The Central Bank reduced short-term interest rates (adjusted in relation to the SELIC index) from 26.5% at December 31, 2003 to 16.3% at December 31, 2004 and to 19.1% at December 31, 2005. |
Year ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Inflation (IGP-M) (1) |
1.2 | % | 12.4 | % | 8.7 | % | ||||||
Inflation (IPCA) (2) |
5.7 | % | 7.6 | % | 9.3 | % | ||||||
Growth (contraction) in real gross domestic product |
2.3 | % | 5.2 | % | (0.2 | )% | ||||||
Depreciation (appreciation) of the real vs. U.S. dollar |
(11.8 | )% | (8.1 | )% | (18.2 | )% | ||||||
Period-end exchange rateUS$1.00 |
R$2.3407 | R$2.6544 | R$2.8892 | |||||||||
Average exchange rateUS$1.00 (3) |
R$2.4125 | R$2.9171 | R$3.0600 |
Sources: Fundação Getúlio Vargas, the Instituto Brasileiro de Geografia e Estatística and the Central Bank. | ||
(1) Inflation (IGP-M) is the general market price index measured by the Fundação Getúlio Vargas. | ||
(2) Inflation (IPCA) is a broad consumer price index measured by the Instituto Brasileiro de Geografia e Estatística and the reference for inflation targets set forth by the CMN. | ||
(3) Represents the average of the commercial selling exchange rates on the last day of each month during the period. |
59
60
61
62
63
Year ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(in millions) | ||||||||||||
Distribution: |
||||||||||||
CPFL Paulista |
R$189 | R$131 | R$125 | |||||||||
CPFL Piratininga |
86 | 64 | 64 | |||||||||
RGE |
93 | 66 | 45 | |||||||||
Total distribution |
368 | 261 | 234 | |||||||||
Generation |
255 | 342 | 331 | |||||||||
Commercialization |
4 | 2 | | |||||||||
Total |
R$627 | R$606 | R$565 | |||||||||
| We make capital expenditures to continue improving our distribution system and to complete our generation projects. See Capital Expenditures above for a discussion of our historical and planned capital expenditures. | ||
| We must repay or refinance maturing debt. At December 31, 2005, we had outstanding debt maturing during the following 12 months aggregating R$1,472 million. | ||
| We pay dividends on a semiannual basis. In 2005, we paid R$541 million in dividend and interest on shareholders equity, and in April 2006 we paid an additional R$498 million relating to net income for the last six months of 2005. See Item 10. Additional InformationInterest Attributable to Shareholders Equity. |
64
Payments Due by Period | ||||||||||||||||||||
Less than 1 | ||||||||||||||||||||
Total | year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
(in millions of reais) | ||||||||||||||||||||
Contractual obligations as of December 31, 2005: |
||||||||||||||||||||
Long term debt obligations (1) |
R$4,837 | R$1,472 | R$1,859 | R$827 | R$679 | |||||||||||||||
Purchase obligations: |
||||||||||||||||||||
Electricity purchase agreements (2) |
48,006 | 3,611 | 7,455 | 7,423 | 29,517 | |||||||||||||||
Generation projects |
1,101 | 286 | 213 | 57 | 545 | |||||||||||||||
Supplies |
504 | 270 | 159 | 68 | 7 | |||||||||||||||
Pension funding |
733 | 99 | 117 | 117 | 400 | |||||||||||||||
Total |
R$55,181 | R$5,738 | R$9,803 | R$8,492 | R$31,148 | |||||||||||||||
(1) | Not including interest payments on debt or payments under interest rate swap agreements. We expect to pay approximately R$423 million in interest payments in 2006. Interest payments on debt for years following 2007 have not been estimated. We are not able to determine such future interest payments because we cannot accurately predict future interest rates, our future cash generation, or future business decisions that could significantly affect our debt levels and consequently this estimate. For an understanding of the impact of a change in interest rates applicable to our long-term debt obligations, see Market RiskRisk of Index Variation. For additional information on the terms of our outstanding debt, see Terms of Outstanding Debt. | |
(2) | Amounts payable under long-term energy purchase agreements, which are subject to changing prices and provide for renegotiation under certain circumstances. The table represents the amounts payable for the contracted volumes applying the year-end 2005 price. See BackgroundPrices for Purchased Electricity and Note 35 to our audited consolidated financial statements for the year ended December 31, 2004. |
65
| BNDES. At December 31, 2005, we had approximately R$1,819 million outstanding under a number of facilities provided through BNDES. These loans are denominated in reais. | ||
The most significant part of these loans (a total of R$1,094 million at December 31, 2005) relate to (a) loans to our generation projects, (b) financing for the renewal of older generation assets, and (c) financing of investment programs of our subsidiaries CPFL Paulista, CPFL Piratininga and RGE, through lines of credit under the BNDES FINEM loan facility. Most of these loans bear interest at a margin over the Long-Term Interest Rate (Taxa de Juros de Longo Prazo, or TJLP), a nominal long-term interest rate determined by the Brazilian government that includes an inflation factor. The average rate per annum of the TJLP for the year ended December 31, 2005 was 9.8%. | |||
The remainder of our borrowing from BNDES (a total of R$725 million at December 31, 2005) relates to Parcel A costs and revenue losses arising in connection with the Rationing Program and bears interest at an annual rate of 1% over the SELIC rate. The aggregate cost of these loans for the year ended December 31, 2005 was 20.0%. Each of these loans is secured by a pledge of revenues from sales of electricity by the borrower. | |||
| Debentures. At December 31, 2005, we had indebtedness of approximately R$1,830 million outstanding under nine series of debentures issued by CPFL Paulista, Semesa, BAESA and RGE. The terms of these debentures are summarized in Note 19 to our audited consolidated financial statements. | ||
CPFL Paulista has four series of debentures outstanding. The first two series were issued in July 2001 to finance the acquisition of RGE and mature in 2008 (first series) and in 2006 (second series). The outstanding principal at December 31, 2005 was R$879 million. Principal of the first series of debentures is indexed to the IGP-M and bears interest of 11.5% per annum. The average interest rate per annum for 2005 was 12.7%. The second series bears interest based on the DI plus 0.6%. The average interest rate per annum for 2005 was 19.6%. The third and fourth series were issued in July 2004 to extend the profile of CPFL Paulistas debt and finance part of the investments in energy distribution planned for 2004 and 2005. These two series mature in 2009. The outstanding principal at December 31, 2005 was R$259 million. Principal of the third series bears interest at a rate equivalent to 109% of CDI. The average interest rate per annum for 2005 was 20.9%. The fourth series of debentures is indexed to the IGP-M and bears interest of 9.8% per annum. The average interest rate per annum for 2005 was 11.0%. | |||
The Semesa debentures were issued in 2002 to provide financing for the Serra da Mesa power plant, and principal is payable in installments from 2003 through 2009. The outstanding principal under these debentures at December 31, 2005 was R$482 million. These debentures bear interest based at TJLP plus 4.0% to 5.0% and are guaranteed by the pledge of our shares of Semesa and by the pledge of the receivables from agreements with Furnas. The average interest rate per annum for the year ended December 31, 2005 was 13.8%. | |||
The BAESA debentures were issued in August 2004 to finance the construction of the Barra Grande hydroelectric plant. The outstanding principal under these debentures at December 31, 2005 was R$56 million. The first issue bears interest at a rate equivalent to 105% of CDI and is payable in quarterly installments, the first in November 2006 and the last in August 2016. The average interest rate per annum for 2005 was 20.0%. The second issue of debentures is indexed to the IGP-M and bears interest at a rate of 9.55% per annum, amortizing annually beginning August 2007 and maturing in August 2016. The average interest rate for 2005 was 10.8%. | |||
The RGE debentures were issued in April 2005, and the outstanding principal under these debentures at December 31, 2005 was R$155 million. The first series is indexed to the IGP-M and bears interest at a rate of 9.6% per annum, with interest payable annually as of April 2006 and maturing in April 2011. The interest rate for these debentures for the nine-month period ended December 31, 2005 was 7.1%. The second series bears interest at a rate equivalent to 106% of CDI, with interest payable semi-annually beginning October 1, 2005 and maturing in April 2009. The interest rate for 2005 was 15.1%. |
66
On January 1, 2006, CPFL Piratininga issued one series of debentures totaling R$400 million. These debentures bear interest at a rate equivalent to 104% of CDI, with interest payable semi-annually beginning July 1, 2006, and maturing on January 1, 2011. | |||
| CPFL Piratininga FIDC. In 2004, CPFL Piratininga borrowed R$200 million under a receivables-based financing. The CPFL Piratininga facility amortizes monthly through March 2007 and bears interest at a rate equivalent to 115% of the CDI rate through January 2005, and 112% of the CDI rate thereafter. The outstanding principal on this facility at December 31, 2005 was R$70 million. The average interest rate for 2005 was 21.5%. | ||
| Other real-Denominated Debt. At December 31, 2005, we had R$351 million outstanding under a number of other real -denominated facilities secured by the revenues of the borrower. The majority of these loans are restated based on CDI or IGP-M, and bear interest at various rates. | ||
| CPFL Paulista Credit Facility. At December 31, 2005, we had R$244 million outstanding under a U.S. dollar-denominated floating-rate credit facility of CPFL Paulista contracted in 2001 to finance the acquisition of RGE. We have entered into swap agreements that effectively convert our obligations under the floating rate notes from U.S. dollars at a LIBOR-based rate into reais at rates based on CDI. The average interest rate per annum of the credit facility, after giving effect to the swap, for 2005 was 17.81%. | ||
| IDB Loan. On January 24, 2005, ENERCAN signed a loan agreement with the Inter-American Development Bank (IDB) for US$75 million to finance the Campos Novos hydroelectric power plant. At December 31, 2005, we had R$68 million under a U.S. dollar-denominated loan that bears interest at a rate of LIBOR plus 3.5% per annum. The repayment terms are spread over 49 quarterly installments, with an initial grace period of 27 months. | ||
| CPFL Piratininga Loan. On December 29, 2005, CPFL Piratininga borrowed US$127.8 million (equivalent at the time to R$300 million) from Banco Itaú BBA. This loan was fully repaid on February 17, 2006 with the proceeds from the issuance of debentures. | ||
| Other U.S. Dollar-Denominated Debt. At December 31, 2005, we had R$155 million outstanding under other loans denominated in U.S. dollars. In general, these loans are secured by a pledge on the revenues of the borrower, and most bear interest at a spread over LIBOR. The average interest rate per annum of these loans for the 12-month period ended December 31, 2005 was 5.52%. We have partially hedged our exposure to exchange rates that arises from these borrowings and our U.S. dollar-denominated long-term receivables, in the amount of R$108 million at December 31, 2005, provide us with an additional natural hedge. |
| We have limitations on our ability to sell or pledge assets or to make investments in third parties. | ||
| Under the BNDES credit facilities, our subsidiaries must first pay the amounts due under the loans before paying dividends in an amount higher than the mandatory dividends under Brazilian law. | ||
| CPFL Paulistas capital expenditures were capped at R$152 million in 2005, and a similar cap of R$160 million has been set for 2006. Investments in the distribution network of CPFL Paulista in 2005 exceeded the limit, but the creditor banks granted a waiver. | ||
| Under the CPFL Paulista credit facility, CPFL Paulista must maintain a ratio of total net worth to total capitalization not less than 43% (on a consolidated basis) and 37% (on a stand-alone basis); a ratio of |
67
EBITDA to interest expense not less than 2.25 (consolidated and stand-alone); and a ratio of debt to EBITDA not greater than 3.50 (consolidated and stand-alone), with all ratios calculated using definitions set forth in the instruments governing the indebtedness. | |||
| Under the CPFL Paulista debentures, CPFL Paulista must maintain a ratio of EBITDA to financial expenses of at least 1.5 and a ratio of capital to total capitalization of at least 35%, with the ratios calculated as defined in the CPFL Paulista debentures. |
68
| The difference in accounting for acquisitions under Brazilian Accounting Principles and U.S. GAAP. Under Brazilian Accounting Principles, acquisitions are accounted for at book value, and the difference between the book value of the purchased companys net assets and the purchase price is recorded as goodwill and amortized. Under U.S. GAAP, the purchase price of an acquired entity is allocated to assets acquired, including identifiable intangible assets, and liabilities assumed based on their estimated fair values on the date of acquisition. The excess of the cost of an acquired entity over the net of the amount assigned to assets acquired and liabilities assumed is recognized as goodwill. Goodwill is not amortized under U.S. GAAP, subject to an annual assessment for impairment. However, under U.S. GAAP we principally allocated the excess purchase price over the fair value of assets acquired and liabilities to the concessions of the acquired companies, which is being amortized over the lives of the concessions. The net effect of these differences tended to make U.S. GAAP net income higher than Brazilian Accounting Principles net income when the amortization of goodwill under Brazilian Accounting Principles occurred over a 10-year period. Since 2004, we have been required to amortize goodwill over the life of our concessions, which tends to increase net income under Brazilian Accounting Principles compared to U.S. GAAP. | ||
| The recognition of deferred tariff revenues through the RTE is limited under U.S. GAAP to amounts we expect to recognize over the next 24 months. This difference makes U.S. GAAP net income higher in some years (like 2005, 2004 and 2003) and lower in others (like 2002). | ||
| Under U.S. GAAP, we recognize changes in the fair value of derivatives in each period, while under Brazilian Accounting Principles, we accrue the amount of any differential to be paid or received based on the terms of the relevant agreement. This difference makes net income under U.S. GAAP when compared to net income under Brazilian Accounting Principles lower in some years (such as 2005) and higher in others (such as 2004 and 2003). |
69
70
71
Name | Age | Position | ||||
Carlos Ermírio de Moraes
|
50 | Chairman | ||||
Cecília Mendes Garcez Siqueira
|
48 | Vice-President | ||||
Francisco Caprino Neto
|
46 | Director | ||||
Luiz Maurício Leuzinger
|
64 | Director | ||||
Expedito Afonso Veloso
|
41 | Director | ||||
Susana Hanna Stiphan Jabra
|
48 | Director | ||||
Roberto Faldini
|
58 | Director |
72
73
Name | Age | Position | ||||
Wilson Ferreira Junior
|
47 | Chief Executive Officer | ||||
José Antonio de Almeida Filippo
|
45 | Chief Financial Officer and Head of Investor Relations | ||||
Hélio Viana Pereira
|
52 | Vice-President of Distribution | ||||
Miguel Normando Abdalla Saad
|
56 | Vice-President of Generation | ||||
Paulo Cezar Coelho Tavares
|
52 | Vice-President of Energy Management | ||||
Reni Antonio da Silva
|
56 | Vice-President of Strategy and Regulation |
74
75
76
77
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Distribution |
4,661 | 4,531 | 4,764 | |||||||||
Generation |
195 | 114 | 97 | |||||||||
Commercialization |
177 | 33 | 18 | |||||||||
Corporate staff |
805 | 839 | 514 | |||||||||
Total |
5,838 | 5,517 | 5,393 | |||||||||
| CPFL Padrão, our standard operations and security program for procedures and tools related to tasks performed by our technicians; | ||
| Corrente Contínua, a program aimed at the development of management skills, with a focus on continuing education; | ||
| E-learning, a program aimed at self-development, we make 38 courses available to our employees through the internet and our intranet; and | ||
| Requalificação Profissional, a program also aimed at self-development, we contribute 1% of our payroll to individual initiatives designed to strengthen the technical skills of our employees. |
78
Common | ||||||||
Shares | (%) | |||||||
VBC Energia S.A. (1) |
184,673,695 | 38.49 | ||||||
521 Participações S.A. (2) |
149,230,369 | 31.11 | ||||||
Bonaire Participações S.A. (3) |
60,713,509 | 12.65 | ||||||
Executive officers and directors as a group |
43,399 | 0.01 | ||||||
Total |
394,660,972 | 82.26 | ||||||
(1) | VBC Energia S.A. is controlled by three Brazilian companies: (A) Votorantim Energia Ltda., which is controlled by Votorantim Investimentos Industriais S.A., Cia. Brasileira de Aluminio and Santa Cruz Geração de Energia S.A., members of Votorantim Group; (B) Antares Holding Ltda., a holding company controlled by Bradespar S.A., which is an investment company that is controlled by Cidade de Deus Cia Comercial de Participações, Fundação Bradesco, NCF Participações S.A. and Gespar Participações Ltda.; and (C) Camargo Corrêa Energia S.A., which is controlled by Camargo Corrêa S.A. | |
(2) | 521 Participações S.A is a holding company controlled by PREVI, a pension fund controlled by Banco do Brasil. The Brazilian government owns a majority of the voting capital of Banco do Brasil. | |
(3) | Bonaire Participações S.A. is a holding company controlled by Energia Fundo de Investimento em Participações, whose ownership interest is controlled by four pension funds: (A) Fundação CESP, primarily for employees of CPFL Energia, Companhia Energética de São Paulo (CESP), Eletricidade de São Paulo S.A., Bandeirante Energia S/A and Eletricidade e Serviços S/A (Elektro), among other Brazilian electricity companies, where investment control is overseen by members of the board of trustees who are selected by the funds sponsors, pensioners and beneficiaries (the current members of the board of trustees are Guy Adolfo Ishikawa; Sergio Pasqual Teixeira; Carlos José Silveira Figueiredo; Adauto Firmino Ribeiro; Marcos de Mendonça Peccin; Gentil Teixeira de Freitas; Arlindo Casagrande Filho; Wanderley José de Freitas; Adelmo da Costa Teves Júnior; Valdivino Ferreira Anjos; Walter José Rodrigues Filho; Sergio Pasqual Teixeira; Sérgio Tadeu Nabas; Marco Antônio Previato, Paulo Giavina Bianchi; Adauto Firmino Ribeiro; Donato Locaspi; and Carlos Rogério Araújo); (B) Fundação SISTEL de Seguridade Social, primarily for employees of Amazônia Celular; Telefônica Celular; Telesp Celular, among others telecommunications companies, where investment control is held by members of the deliberative council, who are selected by the funds sponsors and pensioners (the current members of the deliberative council are Gilmar Roberto Pereira Camurra; Stael Prata Silva Filho; José Luis Magalhães Salazar; Eurico de Jesus Teles Neto; Fernando Cassino; Jorge de Moraes Jardim Filho; and Ézio Teodoro de Resende); (C) Fundação Petrobras de Seguridade Social - PETROS, primarily for employees of Petróleo Brasileiro S.A., where investment control is held by members of the deliberative council, including those selected by the funds sponsors, pensioners and beneficiaries (the current members of the deliberative council are Wilson Santarosa, Diego Hernandes and José Lima de Andrade Neto); and (D) Fundação SABESP de Seguridade Social SABESPREV, primarily for employees of Companhia de Saneamento Básico do Estado de São Paulo SABESP, where investment control is held by members of the deliberative council, who are selected by the funds sponsors, pensioners and beneficiaries (the current members of the deliberative council are Ademir Andrade de Oliveira; Helifax Pinto de Souza; Iassuo Hagy; João Batista Meinberg Porto and Robson Ramos Branco). |
79
| election of the CEO and removal of any executive officer (including the CEO); | ||
| definition of the dividend policy; | ||
| creation and dissolution of controlled companies; | ||
| acquisition and sale of investments in other entities; | ||
| approval of our budget; | ||
| approval of our business plan; | ||
| capital increase within our pre-approved authorized capital and determination of the issuance price of shares; | ||
| issuance of warrants within our pre-approved authorized capital; | ||
| incurrence of indebtedness including guarantees and collaterals in favor of controlled entities and invested companies beyond the thresholds established in our budget or our business plan; | ||
| execution of any agreement with a global amount in excess of R$20 million, even if already included in our budget or our business plan; | ||
| granting of any kind of collateral or guarantee in favor of third parties; | ||
| execution of agreements with related parties in an amount in excess of R$5 million; | ||
| appointment of our independent auditors and its substitution; | ||
| authorization for the acquisition of our own shares for cancellation or for treasury; | ||
| amendment of concession agreements of any controlled entity; | ||
| approval of stock option plans; | ||
| acquisition, sale or encumbrance of any fixed assets in an amount equal or over R$20 million; | ||
| detailing of the matters that are subject to the previous analysis of corporate advisory committees; and | ||
| compensation of the members of advisory committees that are not one of our employees, board members or executive officers. |
80
| three appointed by VBC; | ||
| two appointed by 521; | ||
| one appointed by Bonaire; and | ||
| one being independent, in accordance with Novo Mercado regulations. |
| Right of First Refusal. The parties to the shareholders agreement have a right of first refusal to acquire subject shares in the event one of them decides to sell its shares to a third party. | ||
| Tag-along Rights. A party that decides not to exercise its right of first refusal has the option to sell (pro rata), together with the selling party, its subject shares to the acquiring third party. Tag-along provisions do not apply to the disposition of subject shares by Bonaire while its stake within the controlling block is lower than 20%. | ||
| Preemptive Rights. The parties have pro rata preemptive rights to subscribe for shares in the event of a capital increase. | ||
| Tag-along Rights of Bonaire. In the event of a sale, assignment or transfer of subject shares by 521 and VBC that results in an equity percentage lower than 20% and 30%, respectively, of the aggregate subject shares and, as long as Bonaire has not exercised its right of first refusal, it will have the right to sell its entire stake of subject shares together with 521 or VBC, under the same terms and conditions. |
81
| Votorantim Energia Ltda., a member of the Votorantim Group, which engages in several businesses, including pulp and paper, aluminum, nickel and long steel, among others; | ||
| Antares Holding Ltda., a holding company which directly belongs to Bradespar S.A., an investment company with interests in energy and mining, which is under common control with Banco Bradesco S.A., the largest financial conglomerate in Brazil in terms of assets; and | ||
| Camargo Corrêa Energia S.A., a member of the Camargo Corrêa Group, which is one of the largest privately-held industrial conglomerates in Brazil, with controlling equity interests in leading Brazilian engineering and construction, cement, footwear, and textiles companies. Camargo Corrêa also shares equity control of important Brazilian steel and highway concession companies, and it has equity participations in a significant Brazilian financial conglomerate and in a global aluminum company. |
| Our distribution subsidiaries CPFL Paulista and CPFL Piratininga have entered into agreements for the supply of electricity with several entities affiliated to VBC. All of these electricity supply agreements are regulated by ANEEL. | ||
| Our commercialization subsidiary CPFL Brasil has entered into agreements for the supply of electricity with several entities affiliated with VBC. All of these agreements are on arms-length terms. | ||
| Banco Votorantim S.A., a bank that is part of the Votorantim Group, provides us with financial services from time to time. | ||
| Banco Bradesco S.A., which is under common control with Bradespar S.A., supplies us with a wide range of financial services, all in the ordinary course of business, including banking and insurance services and loans. | ||
| CPFL Geração, through its subsidiaries BAESA, ENERCAN, CERAN and Foz do Chapecó, has entered into transactions with Construção e Comércio Camargo Corrêa S.A., a member of the Camargo Corrêa Group, for the provision and financing of construction services to our generation subsidiaries. |
82
83
reais per | U.S. dollars per | |||||||||||||||
Common Share | ADS | |||||||||||||||
High | Low | High | Low | |||||||||||||
2004: |
||||||||||||||||
Fourth Quarter |
17.96 | 14.40 | 20.00 | 15.70 | ||||||||||||
2005: |
||||||||||||||||
First Quarter |
20.90 | 17.61 | 23.87 | 19.81 | ||||||||||||
Second Quarter |
20.60 | 17.30 | 25.50 | 20.36 | ||||||||||||
Third Quarter |
24.17 | 18.20 | 32.50 | 22.70 | ||||||||||||
October |
23.99 | 21.80 | 32.07 | 27.99 | ||||||||||||
November |
25.20 | 23.71 | 34.65 | 31.76 | ||||||||||||
December |
28.00 | 25.94 | 38.03 | 34.85 | ||||||||||||
2006: |
||||||||||||||||
January |
31.29 | 27.40 | 42.85 | 35.84 | ||||||||||||
February |
32.00 | 29.15 | 46.66 | 40.50 | ||||||||||||
March |
33.30 | 30.22 | 47.40 | 41.89 | ||||||||||||
April |
31.60 | 29.30 | 45.31 | 41.29 | ||||||||||||
May |
34.21 | 28.00 | 50.50 | 36.10 | ||||||||||||
June (through June 23) |
30.00 | 25.80 | 39.64 | 34.69 |
84
| developing enterprises in the electricity generation, distribution, commercialization and transmission industries; | ||
| providing services in the electricity, telecommunications and data transmission industries, as well as provide technical, operating, administrative and financial support services, especially to affiliated or subsidiary companies; and | ||
| holding interest in the capital of other companies engaged in activities similar to those that we perform. |
85
86
| 50% of net income (after the deduction of the provisions for social contribution on net profits but before taking into account the provision for income tax and the interest attributable to shareholders equity) for the period in respect of which the payment is made; or | ||
| 50% of the sum of retained earnings and profit reserves as of the beginning of the year in respect of which such payment is made. |
87
| amendment of our bylaws; | ||
| cancellation of registration with the CVM as a publicly-held company; | ||
| authorization of the issuance of debentures; | ||
| suspension of the rights of a shareholder who has violated Brazilian Corporate Law or our bylaws; | ||
| acceptance or rejection of the valuation of in-kind contributions offered by a shareholder in consideration for shares of our capital stock; | ||
| approval of our transformation into a limited liability company (sociedade limitada) or any other corporate form; | ||
| delisting of our common shares from the Novo Mercado; | ||
| appointment of a financial institution responsible for our valuation, in the event that a tender offer for our common shares is carried out in connection with a corporate transformation or delisting of our common shares from the Novo Mercado; | ||
| approval of any merger (fusão) or consolidation (incorporação) with another company or a spin-off (cisão); | ||
| approval of any dissolution or liquidation, the appointment and dismissal of the respective liquidator and the official review of the reports prepared by him or her; and | ||
| authorization to petition for bankruptcy or judicial or extrajudicial restructuring (recuperação judicial or extrajudicial). |
| the right to participate in the distribution of profits; | ||
| the right to participate equally and ratably in any remaining residual assets in the event of liquidation of the company; | ||
| the right to preemptive rights in the event of subscription of shares, convertible debentures or subscription warrants (bônus de subscrição), except in some specific circumstances under Brazilian law described in Preemptive rights; and | ||
| the right to withdraw from the company in the cases specified in Brazilian Corporate Law, described in Withdrawal rights and redemption. |
88
| reduce the percentage of mandatory dividends; | ||
| change our corporate purpose; | ||
| merge us with another company, if we are not the surviving company, or of our consolidation with another company; | ||
| spin off a portion of our assets or liabilities; | ||
| approve our participation in a group of companies (as defined in Brazilian Corporate Law); | ||
| apply for cancellation of any voluntary liquidation; and | ||
| approve our dissolution. |
| any shareholder, if our directors fail to call a shareholders meeting within 60 days after the date they were required to do so under applicable laws and our bylaws; |
| shareholders holding at least five percent of our capital stock, if our directors fail to call a meeting within eight days after receipt of a request to call the meeting by those shareholders indicating the proposed agenda; and |
89
| our fiscal council, if one is in place, if the Board of Directors delays calling an annual shareholders meeting for more than one month. The fiscal council may also call a special shareholders meeting any time if it believes that there are important or urgent matters to be addressed. |
90
91
92
93
94
95
96
Year ended December 31, | ||||||||
2005 | 2004 | |||||||
(in thousands of reais) | ||||||||
Audit fees |
R$1,449 | R$1,318 | ||||||
Audit-related fees |
65 | 1,545 | ||||||
Tax fees |
77 | 36 | ||||||
All other fees |
| | ||||||
Total |
R$1,591 | R$2,899 | ||||||
97
No. | Description | |
1.1
|
Amended and Restated Bylaws of CPFL Energia S.A. (together with an English version). | |
2.1
|
Deposit Agreement dated September 28, 2004, among CPFL Energia S.A. and The Bank of New York, as depositary, and registered holders and beneficial owners from time to time of the American Depositary Shares, representing the common shares of CPFL Energia S.A. (incorporated by reference to Exhibit 1 of CPFLs Registration Statement on Form F-6 filed with the Securities and Exchange Commission on September 2, 2004 (File No. 333-118760)). | |
8.1
|
List of subsidiaries, their jurisdiction of incorporation and names under which they do business. | |
10
|
Shareholders Agreement dated March 22, 2002 as amended on August 27, 2002, among VBC Energia S.A., 521 Participações S.A., Bonaire Participações S.A. and CPFL Energia S.A. (incorporated by reference to Exhibit 10 of CPFLs Registration Statement on Form F-1 filed with the Securities and Exchange Commission on August 23, 2004 (File No. 333-118494)). | |
12.1
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
12.2
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
13.1
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
98
99
| costs of electricity purchased for resale pursuant to Initial Supply Contracts; | ||
| costs of electricity purchased from Itaipu; | ||
| costs of electricity purchased pursuant to bilateral agreements that are freely negotiated between parties; and | ||
| certain other charges for the transmission and distribution systems. |
100
CPFL ENERGIA S.A. | ||||||
By: | /s/ Wilson Ferreira, Jr. | |||||
Name: Wilson Ferreira, Jr. | ||||||
Title: Chief Executive Officer (principal executive officer) | ||||||
By: /s/ José Antonio de Almeida Filippo | ||||||
Name: José Antonio de Almeida Filippo | ||||||
Title: Chief Financial Officer (principal financial officer) |
101
F-1
F-2
ASSETS | 2005 | 2004 | ||||||
As restated | ||||||||
Note 38 | ||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents (Note 4) |
678,780 | 499,838 | ||||||
Financial investments (Note 5) |
373,384 | 317,886 | ||||||
Accounts receivable (Note 6) |
1,803,072 | 1,572,487 | ||||||
Allowance for doubtful accounts (Note 7) |
(54,361 | ) | (50,420 | ) | ||||
Recoverable taxes (Note 8) |
188,772 | 174,663 | ||||||
Other receivables (Note 9) |
62,141 | 68,944 | ||||||
Materials and supplies |
9,203 | 7,575 | ||||||
Deferred costs variations Parcel A (CVA) (Note 10) |
486,384 | 463,928 | ||||||
Prepaid expenses (Note 11) |
58,014 | 9,425 | ||||||
Derivatives contracts (Note 33) |
3,644 | | ||||||
Other (Note 13) |
161,258 | 158,339 | ||||||
3,770,291 | 3,222,665 | |||||||
NONCURRENT ASSETS |
||||||||
Accounts receivable (Note 6) |
416,268 | 582,290 | ||||||
Other receivables (Note 9) |
84,812 | 125,259 | ||||||
Escrow deposits (Note 22) |
224,100 | 145,396 | ||||||
Financial investments (Note 5) |
108,531 | 850 | ||||||
Deferred taxes (Note 12) |
1,118,441 | 1,094,245 | ||||||
Recoverable taxes (Note 8) |
77,324 | 33,551 | ||||||
Deferred costs variations Parcel A (CVA) (Note 10) |
510,277 | 580,232 | ||||||
Prepaid expenses (Note 11) |
38,187 | 49,186 | ||||||
Other (Note 13) |
167,235 | 97,700 | ||||||
2,745,175 | 2,708,709 | |||||||
PERMANENT ASSETS |
||||||||
Property, plant and equipment (Note 14) |
5,288,834 | 4,879,228 | ||||||
Special obligations (Note 14) |
(640,997 | ) | (588,053 | ) | ||||
Goodwill (Note 15) |
2,619,021 | 2,346,569 | ||||||
Other |
69,118 | 87,573 | ||||||
7,335,976 | 6,725,317 | |||||||
TOTAL ASSETS |
13,851,442 | 12,656,691 | ||||||
F-3
LIABILITIES AND SHAREHOLDERS EQUITY | 2005 | 2004 | ||||||
As restated | ||||||||
Note 38 | ||||||||
CURRENT LIABILITIES |
||||||||
Suppliers (Note 16) |
782,233 | 663,857 | ||||||
Payroll |
1,932 | 3,792 | ||||||
Taxes and payroll charges payable (Note 17) |
474,960 | 409,474 | ||||||
Employee profit sharing |
6,768 | 5,284 | ||||||
Dividends and interest on shareholders equity |
489,263 | 158,644 | ||||||
Accrued interest on loans and financing (Note 18) |
47,931 | 39,748 | ||||||
Accrued interest on debentures (Note 19) |
94,948 | 98,490 | ||||||
Post-retirement benefit obligation (Note 20) |
121,048 | 100,530 | ||||||
Regulatory charges (Note 21) |
30,945 | 61,504 | ||||||
Loans and financing (Note 18) |
1,198,015 | 864,573 | ||||||
Debentures (Note 19) |
273,492 | 257,502 | ||||||
Accrued liabilities |
29,490 | 25,935 | ||||||
Deferred gain variations Parcel A (CVA) (Note 10) |
262,764 | 148,536 | ||||||
Derivative contracts (Note 33) |
39,928 | 43,056 | ||||||
Other (Note 23) |
285,565 | 167,230 | ||||||
4,139,282 | 3,048,155 | |||||||
LONG -TERM LIABILITIES |
||||||||
Suppliers (Note 16) |
201,982 | 229,874 | ||||||
Loans and financing (Note 18) |
1,807,465 | 2,144,341 | ||||||
Debentures (Note 19) |
1,556,599 | 1,640,705 | ||||||
Post-retirement benefit obligation (Note 20) |
793,343 | 798,903 | ||||||
Taxes and social contribution payable (Note 17) |
31,110 | 86,503 | ||||||
Reserve for contingencies (Note 22) |
376,510 | 304,036 | ||||||
Deferred gain variations Parcel A (CVA) (Note 10) |
11,976 | 47,209 | ||||||
Derivative contracts ( Note 33) |
29,635 | 44,696 | ||||||
Other (Note 23) |
107,492 | 154,140 | ||||||
4,916,112 | 5,450,407 | |||||||
MINORITY INTEREST |
| 137,018 | ||||||
SHAREHOLDERS EQUITY (Note 24) |
||||||||
Common stock (without par value, 2005 -
5,479,756,730 shares authorized, 479,756,730
shares issued and outstanding; 2004 -
5,451,628,769 shares authorized, 451,628,769
shares issued and outstanding) |
4,734,790 | 4,082,036 | ||||||
Treasury shares |
(8 | ) | | |||||
Profit reserves |
61,266 | 13,946 | ||||||
Accumulated deficit |
| (74,871 | ) | |||||
4,796,048 | 4,021,111 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
13,851,442 | 12,656,691 | ||||||
F-4
2005 | 2004 | 2003 | ||||||||||
As restated - Note 38 | ||||||||||||
OPERATING REVENUES (Note 25) |
||||||||||||
Electricity sales to final consumers |
9,841,134 | 8,869,117 | 7,649,184 | |||||||||
Electricity sales to wholesaler |
460,129 | 310,314 | 275,247 | |||||||||
Other revenues |
605,795 | 369,239 | 157,275 | |||||||||
10,907,058 | 9,548,670 | 8,081,706 | ||||||||||
DEDUCTIONS FROM OPERATING REVENUES |
||||||||||||
Contribution to concession reserve fund (RGR) |
(41,029 | ) | (44,685 | ) | (47,288 | ) | ||||||
ICMS (state VAT) |
(1,911,382 | ) | (1,638,706 | ) | (1,383,737 | ) | ||||||
COFINS/PIS (taxes on revenue) |
(985,681 | ) | (768,390 | ) | (324,428 | ) | ||||||
ISS (service tax) |
(901 | ) | (734 | ) | (856 | ) | ||||||
Emergency charges (ECE/EAEE) |
(229,153 | ) | (359,902 | ) | (268,328 | ) | ||||||
(3,168,146 | ) | (2,812,417 | ) | (2,024,637 | ) | |||||||
NET OPERATING REVENUES |
7,738,912 | 6,736,253 | 6,057,069 | |||||||||
OPERATING COSTS |
||||||||||||
Electricity purchased for resale (Note 26) |
(3,174,765 | ) | (3,125,752 | ) | (3,020,175 | ) | ||||||
Electricity network usage charges (Note 26) |
(757,186 | ) | (678,558 | ) | (445,539 | ) | ||||||
Personnel |
(199,669 | ) | (189,592 | ) | (169,147 | ) | ||||||
Post-retirement benefit obligation |
(90,362 | ) | (148,429 | ) | (84,046 | ) | ||||||
Materials |
(33,990 | ) | (31,984 | ) | (22,379 | ) | ||||||
Outside services |
(98,030 | ) | (87,640 | ) | (83,997 | ) | ||||||
Depreciation and amortization |
(273,154 | ) | (251,161 | ) | (256,236 | ) | ||||||
Fuel usage account (CCC) |
(392,454 | ) | (251,403 | ) | (261,269 | ) | ||||||
Energy development account (CDE) |
(272,842 | ) | (184,626 | ) | (77,963 | ) | ||||||
Services rendered to third parties |
(11,899 | ) | (8,759 | ) | (5,002 | ) | ||||||
Other |
(12,029 | ) | (8,532 | ) | (9,762 | ) | ||||||
(5,316,380 | ) | (4,966,436 | ) | (4,435,515 | ) | |||||||
OPERATING EXPENSES (Note 27) |
||||||||||||
Sales and marketing |
(212,278 | ) | (195,329 | ) | (148,408 | ) | ||||||
General and administrative |
(266,927 | ) | (268,233 | ) | (279,219 | ) | ||||||
Amortization of goodwill |
(125,709 | ) | (110,385 | ) | (531,993 | ) | ||||||
Other |
(175,018 | ) | (55,858 | ) | (40,588 | ) | ||||||
(779,932 | ) | (629,805 | ) | (1,000,208 | ) | |||||||
OPERATING INCOME |
1,642,600 | 1,140,012 | 621,346 |
F-5
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
FINANCIAL INCOME (EXPENSE) (Note 28) |
||||||||||||
Financial income |
604,341 | 438,218 | 583,864 | |||||||||
Financial expense |
(816,040 | ) | (1,005,719 | ) | (1,404,947 | ) | ||||||
(211,699 | ) | (567,501 | ) | (821,083 | ) | |||||||
NONOPERATING INCOME (EXPENSE) (Note 29) |
||||||||||||
Nonoperating income |
10,508 | 14,935 | 53,943 | |||||||||
Nonoperating expense |
(10,868 | ) | (19,350 | ) | (10,091 | ) | ||||||
(360 | ) | (4,415 | ) | 43,852 | ||||||||
INCOME (LOSS) BEFORE TAXES, EXTRAORDINARY ITEM AND MINORITY INTEREST |
1,430,541 | 568,096 | (155,885 | ) | ||||||||
Social contribution tax |
(92,372 | ) | (57,395 | ) | (20,113 | ) | ||||||
Current tax |
(101,787 | ) | (68,562 | ) | (28,959 | ) | ||||||
Deferred tax |
9,415 | 11,167 | 8,846 | |||||||||
Income tax |
(243,961 | ) | (186,933 | ) | (84,084 | ) | ||||||
Current tax |
(287,008 | ) | (220,018 | ) | (114,837 | ) | ||||||
Deferred tax |
43,047 | 33,085 | 30,753 | |||||||||
INCOME
(LOSS) BEFORE EXTRAORDINARY ITEM AND MINORITY INTEREST |
1,094,208 | 323,768 | (260,082 | ) | ||||||||
Extraordinary item, net of taxes of R$
16,729 for 2005 and R$17,337 for 2004
and 2003 per year |
(32,559 | ) | (33,655 | ) | (33,655 | ) | ||||||
Minority interest |
(40,371 | ) | (21,596 | ) | (1,698 | ) | ||||||
NET INCOME (LOSS) |
1,021,278 | 268,517 | (295,435 | ) | ||||||||
NUMBER OF SHARES OUTSTANDING AT YEAR END |
479,756,730 | 451,628,769 | 4,118,697,977 | |||||||||
NET INCOME (LOSS) PER SHARES |
2.129 | 0.595 | (0.072 | ) | ||||||||
F-6
Total | Changes in the number of | |||||||||||||||||||||||||||||||
Capital | Profit | Treasury | Accumulated | shareholders | Treasury | Common | Total | |||||||||||||||||||||||||
stock | reserves | shares | deficit | equity | shares | shares | shares | |||||||||||||||||||||||||
Balance as of December 31, 2002
(As restated Note 38) |
3,390,998 | | | (1,312,645 | ) | 2,078,353 | | 3,390,998,447 | 3,390,998,447 | |||||||||||||||||||||||
Capital increase |
1,550,000 | | | | 1,550,000 | | 727,699,530 | 727,699,530 | ||||||||||||||||||||||||
Net loss (As restated Note 38) |
| | | (295,435 | ) | (295,435 | ) | | | | ||||||||||||||||||||||
Balance as of December 31, 2003
(As restated Note 38) |
4,940,998 | | | (1,608,080 | ) | 3,332,918 | | 4,118,697,977 | 4,118,697,977 | |||||||||||||||||||||||
Absorption of accrued loss |
(1,543,611 | ) | | | 1,543,611 | | | | | |||||||||||||||||||||||
Reverse stock split |
| | | | | | (3,706,828,181 | ) | (3,706,828,181 | ) | ||||||||||||||||||||||
Capital increase |
684,649 | | | | 684,649 | | 39,758,973 | 39,758,973 | ||||||||||||||||||||||||
Net income (As restated Note 38) |
| | | 268,517 | 268,517 | | | | ||||||||||||||||||||||||
Allocation of income: |
||||||||||||||||||||||||||||||||
- Statutory reserve |
| 13,946 | | (13,946 | ) | | | | | |||||||||||||||||||||||
- Interim dividend |
| | | (124,826 | ) | (124,826 | ) | | | | ||||||||||||||||||||||
- Dividend proposed |
| | | (140,147 | ) | (140,147 | ) | | | | ||||||||||||||||||||||
Balance as of December 31, 2004
(As restated Note 38) |
4,082,036 | 13,946 | | (74,871 | ) | 4,021,111 | | 451,628,769 | 451,628,769 | |||||||||||||||||||||||
Capital increase |
652,754 | | | | 652,754 | | 28,127,961 | 28,127,961 | ||||||||||||||||||||||||
Treasury shares |
| | (8 | ) | | (8 | ) | 817 | (817 | ) | | |||||||||||||||||||||
Net income |
| | | 1,021,278 | 1,021,278 | | | | ||||||||||||||||||||||||
Allocation of income: |
||||||||||||||||||||||||||||||||
- Statutory reserve |
| 47,320 | | (47,320 | ) | | | | | |||||||||||||||||||||||
- Interim dividend |
| | | (323,677 | ) | (323,677 | ) | | | | ||||||||||||||||||||||
- Interim interest on
shareholders equity |
| | | (76,920 | ) | (76,920 | ) | | | | ||||||||||||||||||||||
- Dividend proposed |
| | | (389,195 | ) | (389,195 | ) | | | | ||||||||||||||||||||||
- Interest on shareholders equity |
| | | (109,295 | ) | (109,295 | ) | | | | ||||||||||||||||||||||
Balance as of December 31, 2005 |
4,734,790 | 61,266 | (8 | ) | | 4,796,048 | 817 | 479,755,913 | 479,756,730 | |||||||||||||||||||||||
F-7
2005 | 2004 | 2003 | ||||||||||
As restated - Note 38 | ||||||||||||
SOURCES OF FUNDS |
||||||||||||
From operations: |
||||||||||||
Net income (loss) |
1,021,278 | 268,517 | (295,435 | ) | ||||||||
Items not affecting working capital: |
||||||||||||
Provision for losses on the realization of extraordinary
tariff adjustment |
91,805 | 32,250 | | |||||||||
Extraordinary tariff adjustment monetary restatement |
(243,800 | ) | (112,876 | ) | (161,145 | ) | ||||||
PIS/COFINS Regulatory asset |
(38,729 | ) | (44,813 | ) | | |||||||
Amortization of goodwill and depreciation of property, plant
and equipment |
427,958 | 387,711 | 811,428 | |||||||||
Long-term monetary and exchange variations |
(89,148 | ) | 64,671 | 234,607 | ||||||||
Losses on changes in participation in subsidiaries |
840 | (3,185 | ) | (39,537 | ) | |||||||
Gains (losses) on disposal of property, plant and equipment |
(684 | ) | 5,135 | (6,817 | ) | |||||||
Provision of long-term tax credits |
(84,685 | ) | (56,364 | ) | (25,875 | ) | ||||||
Pension plan costs |
124,853 | 190,481 | 110,767 | |||||||||
Reserve for contingencies |
74,494 | 44,747 | 83,493 | |||||||||
Minority interest |
40,371 | 21,596 | 1,698 | |||||||||
Financial compensation Tariff increase |
(28,441 | ) | 69,744 | | ||||||||
Unrealized losses on derivative instruments |
(15,061 | ) | 38,360 | | ||||||||
Research and Development and Energy Efficiency Programs |
24,578 | 28,264 | 20,474 | |||||||||
Other |
6,004 | 21,630 | 12,138 | |||||||||
Total from operations |
1,311,633 | 955,868 | 745,796 | |||||||||
From shareholders: |
||||||||||||
Capital contributions in cash |
| 684,649 | 1,200,000 | |||||||||
Capital contributions Subscription Bonus (Note 24) |
17,258 | | | |||||||||
17,258 | 684,649 | 1,200,000 | ||||||||||
From third parties: |
||||||||||||
Long-term financing and debentures |
544,028 | 1,278,274 | 1,413,000 | |||||||||
Transfer from noncurrent to current assets |
356,150 | 457,727 | 372,524 | |||||||||
Intercompany loans |
| | 6,933 | |||||||||
Transfer of short-term liabilities to long-term liabilities |
5,936 | 6,803 | 100,500 | |||||||||
Special obligations |
23,371 | 31,798 | 48,440 | |||||||||
Impact in working capital due to sale of permanent investment |
| | 28,920 | |||||||||
Sale of permanent assets |
18,261 | 9,918 | 238,699 | |||||||||
Transfers from noncurrent to current CVA |
162,625 | 261,990 | | |||||||||
Sale of equity interest |
1,225 | | | |||||||||
Other |
352 | 5,036 | 39,721 | |||||||||
1,111,948 | 2,051,546 | 2,248,737 | ||||||||||
Total sources |
2,440,839 | 3,692,063 | 4,194,533 | |||||||||
USES OF FUNDS |
||||||||||||
Purchase of interest in subsidiaries |
6,829 | | | |||||||||
Increase in property, plant and equipment |
626,537 | 605,716 | 564,382 | |||||||||
Transfer from long-term to current liabilities |
1,135,464 | 1,528,238 | 1,092,854 | |||||||||
Dividends and shareholders equity |
917,985 | 289,651 | | |||||||||
Redemption of debentures |
| 721,990 | 178,010 | |||||||||
Transfer from current to noncurrent assets CVA |
| 14,662 | 298,178 | |||||||||
Transfer from current to noncurrent assets |
83,889 | 78,694 | 51,483 | |||||||||
Additions to deferred charges |
7,102 | 21,205 | 42,154 | |||||||||
Financial Investments |
105,254 | | | |||||||||
Other |
101,280 | 65,736 | 53,838 | |||||||||
2,984,340 | 3,325,892 | 2,280,899 | ||||||||||
INCREASE (DECREASE) IN WORKING CAPITAL |
(543,501 | ) | 366,171 | 1,913,634 | ||||||||
F-8
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
REPRESENTED BY |
||||||||||||
Current assets: |
||||||||||||
At beginning of year |
3,222,665 | 2,375,678 | 2,818,773 | |||||||||
At year and |
3,770,291 | 3,222,665 | 2,375,678 | |||||||||
(547,626 | ) | (846,987 | ) | 443,095 | ||||||||
Current liabilities: |
||||||||||||
At beginning of year |
3,048,155 | 2,567,339 | 4,924,068 | |||||||||
At year and |
4,139,282 | 3,048,155 | 2,567,339 | |||||||||
(1,091,127 | ) | (480,816 | ) | 2,356,729 | ||||||||
INCREASE (DECREASE) IN WORKING CAPITAL |
(543,501 | ) | 366,171 | 1,913,634 | ||||||||
F-9
1. | THE COMPANY AND ITS OPERATIONS | |
The Company | ||
CPFL Energia S.A. (CPFL Energia) is a public corporation organized under the laws of Brazil that was formed to invest in companies engaged in the generation, distribution and sale of electric energy. CPFL Energia was incorporated in 1998 as an investment between VBC Energia S.A. (VBC), 521 Participações S.A. (521) and Bonaire Participações S.A. (Bonaire) (collectively, the Investors) for the purpose of consolidating their interests in electricity distribution, generation and commercialization companies in Brazil. As of December 31, 2005, CPFL Energia had three directly owned operating subsidiaries, Companhia Paulista de Força e Luz (CPFL Paulista), CPFL Geração de Energia S.A. (CPFL Geração) and CPFL Comercialização Brasil S.A. (CPFL Brasil). | ||
The Company has direct and indirect interests in the following subsidiaries (information about the concession area, number of consumers, energy production capacity and correlated data is unaudited): | ||
Distribution activities | ||
CPFL Paulista | ||
CPFL Paulista is a Brazilian public company and has a concession for the distribution of electric energy in designated regions of Brazil through 2027. This concession may be extended for an additional 30 years. CPFL Paulista serves approximately 3.2 million consumers as of December 31, 2005. Among the main municipalities are Campinas, Ribeirão Preto, Bauru and São José do Rio Preto. | ||
Rio Grande Energia S.A. (RGE) (jointly-controlled) | ||
RGE is also a Brazilian public company that has a concession to provide public energy services, operating principally in the distribution of energy to approximately 1.1 million consumers as of December 31, 2005 in the northern and northeastern regions of the state of Rio Grande do Sul. RGE has a concession of 30 years, through 2027, renewable for an additional period of 30 years. The shareholders agreement governing RGE gives significant veto rights to the minority shareholder and consequently, RGE is accounted for using proportionate consolidation. | ||
Companhia Piratininga de Força e Luz (CPFL Piratininga) | ||
CPFL Piratininga is a Brazilian public company concessionaire of electric energy public services, principally engaged in the distribution of electricity to approximately 1.3 million consumers as of December 31, 2005 in the Baixada Santista, Sorocaba, Jundiaí, Indaiatuba, Salto and Itu regions of the state of São Paulo. CPFL Piratininga has a concession for electric energy distribution services through 2028, renewable for an additional period of 30 years. | ||
Generation activities | ||
CPFL Geração | ||
CPFL Geração, a Brazilian public holding company of the electric generation activities of the Company, was formed on July 19, 2000 and as from 2003, it began operating as a holding company of the interests in energy generating ventures. CPFL Geração holds interests in the following operating companies: |
F-10
CPFL Centrais Elétricas S.A. (CPFL Centrais Elétricas) | ||
CPFL Centrais Elétricas, a Brazilian private corporation, owns 19 small hydroelectric power plants and one thermoelectric plant, all with 155 MW of total installed annual generation capacity and located in the state of São Paulo. CPFL Centrais Elétricas has a concession for electric energy generation through 2027, which can be extended for an additional 30 years. | ||
SEMESA S.A. (Semesa) | ||
Semesa, a Brazilian private corporation, owns part of the assets of Serra da Mesa power plant, located on the Tocantins River, municipality of Minaçu in the state of Goiás. The Serra da Mesa plant has installed annual generation capacity of 1,275 MW. The energy produced is sold to Furnas Centrais Elétricas S.A. (Furnas) pursuant to a lease agreement. In addition, SEMESA holds the concession, together with the corresponding assets linked to the Ponte do Silva Hydropower Plant, located on the São Luiz River, state of Minas Gerais, granted in October 1989 for a 30-year period. | ||
CPFL Sul Centrais Elétricas Ltda (CPFL Sul Centrais Elétricas) | ||
CPFL Sul Centrais Elétricas is a Brazilian limited liability company, incorporated for the purpose of acquiring the PCHs Guaporé, Andorinhas, Pirapó and Saltinho plants, all owned by RGE. The purchase was approved by ANEEL and took place in 2005. As of December 31, 2005, the total power of the four small hydroelectric power plants PCHs was 2.7 MW with average assured energy of 9.6 GWh. In March 22, 2006, through Ordinance n. 03, 04, 05 e 06, MME reavaluated the PCHs assured energy increasing it to 21.3 GWh per year. | ||
Development Stage Companies | ||
CPFL Geração holds interests in new generating ventures, which are expected to be completed by 2010, increasing its installed capacity, proportionally to its equity interest, to 1,993 MW, consolidating itself as one of the largest private generators in Brazil. These projects are: |
| CERAN Companhia Energética Rio das Antas (CERAN) (jointly-controlled) CERAN is engaged in the implementation and the operation of hydroelectric resources of the Monte Claro, Castro Alves and 14 de Julho power plants.Total installed capacity of these power plants will be 360 MW. The Monte Claro power plant began operating in December 2004, and the Castro Alves plant will begin in 2007, and 14 de Julho plant in 2008. | ||
| Campos Novos Energia S.A. (ENERCAN) (jointly-controlled) ENERCAN is engaged in the construction and operation of hydroelectric resources of the Campos Novos power plant. The installed capacity is expected to be 880 MW. The power plant will begin operating in second half of 2006. | ||
| BAESA Energética Barra Grande S.A. (BAESA) (jointly-controlled) BAESA is engaged in the construction and operation of hydroelectric resources of the Barra Grande power plant. The installed capacity is expected to be 690 MW. The first power plant began operating in November 2005, with a capacity of 230 MW, while the second and third units began operating in February and May of 2006, respectively, each with an installed capacity of 230 MW. | ||
| Foz do Chapecó Energia S.A. (Foz do Chapecó) (jointly-controlled) Foz do Chapecó is a closely-held company formed to hold an interest in the Foz do Chapecó Energy Consortium, which is engaged in the construction and operation of hydroelectric resources of the Foz do Chapecó power plant. The installed capacity is expected to be 855 MW. The construction work will start in the 4th quarter of 2006, with commercial startup in 2010. |
F-11
Commercialization activities | ||
CPFL Brasil | ||
CPFL Brasil is a Brazilian private corporation, whose total capital was subscribed by the Company on August 13, 2002. The corporate purpose of CPFL Brasil is to sell energy, provide associated services, linked with the sale of energy, strategic, institutional and financial advisory services for purchasers and sellers of electric energy and for other organizations operating in the national and international energy sector. CPFL Brasil is authorized to act as an electric power retail agent in the Electric Energy Trading Chamber (CCEE). | ||
Clion Assessoria e Comercialização de Energia Elétrica Ltda. (Clion) | ||
Clion is a Brazilian limited liability company, incorporated in 2001, the corporate purpose is to sell energy and provide services in the energy field. It is authorized under ANEEL Resolution n.º 498, of September 4, 2002, to act as a retail agent for electric power in the CCEE. | ||
Sul Geradora Participações S.A. (Sul Geradora) | ||
Sul Geradora Participações S.A. (Sul Geradora), is a Brazilian private corporation, incorporated in 2000 with the main purpose of participating in the capital of other companies as a shareholder, quotaholder or any other form of participation. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES | |
The accompanying consolidated financial statements are presented in thousands of Brazilian reais (R$) and were prepared in accordance with accounting practices adopted in Brazil, which include accounting practices established by Brazilian corporate law and regulations issued by ANEEL and the Brazilian Securities Commission (CVM) (herein after referred to as Brazilian Accounting Principles). Brazilian Accounting Principles provided for a simplified methodology for accounting for the effects of inflation until December 31, 1995. Consequently, permanent assets (property, plant and equipment, investments and deferred charges), special obligations and shareholders equity accounts have been monetarily restated for inflation up to December 31, 1995, using indices mandated by the Federal Government. | ||
The accompanying financial statements have been adjusted from the statutory financial statements originally published in Brazil to eliminate the effects of deferral of exchange losses arising from the monetary restatement of amounts in Brazilian reais of obligations and receivables denominated in foreign currency that occurred in 2001. The deferral of exchange losses is not accepted under Brazilian Accounting Principles, which require that such losses be charged to income when incurred, but was recorded by CPFL Paulista and RGE in their local books, as allowed by CVM Resolution No. 404 of September 27, 2001. The deferred amount was amortized on the straight-line basis in local books, limited to the maturity dates of contracts or by a period of four years up to 2004. These financial statements are not intended to replace the financial statements of the Company and its subsidiaries for statutory and regulatory purposes. | ||
The report issued by independent registered public accounting firm related to the Companys statutory financial statements as of and for the year ended December 31, 2003 filed publicly in Brazil included a qualification regarding the deferral of exchange losses. | ||
Subsequent to the issuance of the Companys 2004 financial statements, the Companys management determined that the transactions related to Research and Development and Energy Efficiency Program were not properly recorded. As a result, the Company restated its accompanying financial statements to reflect ANEEL Resolution 176, of November 28, 2005, and the provisions of the Brazilian Institute of Independent Auditors (IBRACON) Technical Interpretation n. 03/06, of January 23, 2006, which clarified the guidelines to account for the transactions related to Research and Development and Energy Efficiency Programs. Because of this clarification, the Company recorded a liability related to the funds already collected from its consumers and recorded as Revenue but not expended on the Programs. The Company have not disbursed such funds due to the time required by preparing the corresponding projects, which are subject to ANEELs approval. Since this issue was considered a correction of a prior period error, the Company recorded such liability against Retained Earnings in its statutory financial statements as of and for the year ended December 31, 2005, as prior year adjustments, for the effects attributable to periods prior to |
F-12
December 31, 2004. However, following the Securities and Exchange Commission SEC guidelines related to correction of prior period errors, this issue required the restatement of the Companys financial statements as of and for the years ended on December 31, 2004, 2003 and 2002, in order to allocate such adjustment in the corresponding year, on an accrual basis (see Note 38 for further details). | ||
The following table presents the reconciliation between shareholders equity as of December 31, 2005 and 2004 and net income for the years ended on December 31, 2005, 2004 and 2003, as included in the financial statements for statutory and regulatory purposes and as presented in these restated financial statements. The adjustments presented below related to: (i) deferred foreign exchange loss that have not been recorded in the Companys statutory books and, (ii) adjustment related to the Energy Efficiency Program and Research and Development that have been recorded in the Companys statutory books as prior year adjustment, as mentioned above. |
Shareholders equity | ||||||||
December 31, 2005 | December 31, 2004 | |||||||
As presented in the financial statements for regulatory and
statutory purposes |
4,796,048 | 4,095,982 | ||||||
(i) Reversal of amortization of deferred foreign exchange loss |
| | ||||||
(ii) Energy Efficiency Program and Research and Development |
| (74,871 | ) | |||||
As presented in these financial statements |
4,796,048 | 4,021,111 | ||||||
Net Income (loss) for the year ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
As presented in the financial statements for regulatory and
statutory purposes |
1,021,278 | 278,919 | (297,392 | ) | ||||||||
(i) Reversal of amortization of deferred foreign exchange loss |
| 8,253 | 15,470 | |||||||||
(ii) Energy Efficiency Program and Research and Development |
| (18,655 | ) | (13,513 | ) | |||||||
As presented in these financial statements |
1,021,278 | 268,517 | (295,435 | ) | ||||||||
F-13
2005 | 2004 | |||||||||||||||||||
Consolidation | Equity Interest - % | Equity Interest - % | ||||||||||||||||||
Subsidiary | Method | Direct | Indirect (*) | Direct | Indirect (*) | |||||||||||||||
Energy Distribution |
||||||||||||||||||||
Companhia Paulista de Força e Luz |
Full | 100.00 | | 94.94 | | |||||||||||||||
Companhia Piratininga de Força e Luz |
Full | | 100.00 | | 97.41 | |||||||||||||||
Rio Grande Energia S.A. |
Proportionate | | 67.07 | | 67.07 | |||||||||||||||
Energy Generation |
||||||||||||||||||||
CPFL Geração de Energia S.A. |
Full | 100.00 | | 97.01 | | |||||||||||||||
CPFL Centrais Elétricas S.A. |
Full | | 100.00 | | 100.00 | |||||||||||||||
SEMESA S.A. |
Full | | 100.00 | | 100.00 | |||||||||||||||
CPFL Sul Centrais Elétricas Ltda |
Full | | 100.00 | | | |||||||||||||||
Companhia Energética Rio das Antas |
Proportionate | | 65.00 | | 65.00 | |||||||||||||||
Foz do Chapecó Energia S.A. |
Proportionate | | 66.67 | | 66.67 | |||||||||||||||
Campos Novos Energia S.A. |
Proportionate | | 48.72 | | 48.72 | |||||||||||||||
BAESA Energética Barra Grande S.A. |
Proportionate | | 25.01 | | 25.01 | |||||||||||||||
Energy Commercialization |
||||||||||||||||||||
CPFL Comercialização Brasil S.A. |
Full | 100.00 | | 100.00 | | |||||||||||||||
Clion Assessoria e Comercialização
de Energia Elétrica Ltda |
Full | | 100.00 | | | |||||||||||||||
Sul Geradora Participações S.A. |
Proportionate | | 67.23 | | |
(*) | Refer to the interests held by direct subsidiaries. |
F-14
F-15
F-16
3. | REGULATORY ASSETS AND LIABILITIES |
Current | Noncurrent | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Accounts Receivable (Note 6) |
||||||||||||||||
RTE Extraordinary Tariff Adjustment (a) |
259,988 | 258,830 | 157,024 | 340,881 | ||||||||||||
Tariff Review and Tariff Adjustment (b) |
46,567 | 2,360 | 33,100 | | ||||||||||||
Free Energy (a) |
102,953 | 101,737 | 181,848 | 189,391 | ||||||||||||
PIS and COFINS Generators Pass-Through (b) |
11,534 | | | | ||||||||||||
Deferred Costs Variations (Note 10) |
||||||||||||||||
Parcel A (a) |
| | 486,626 | 408,757 | ||||||||||||
CVA (c) |
486,384 | 463,928 | 23,651 | 171,475 | ||||||||||||
Prepaid Expenses (Note 11) |
||||||||||||||||
PIS and COFINS Change in legislation (d) |
24,380 | | 17,094 | 46,483 | ||||||||||||
Surplus Energy (f) |
27,003 | | 17,209 | | ||||||||||||
Other Assets- (Note 13) |
||||||||||||||||
PERCEE rationing program implementation cost (a) |
172 | 3,627 | | | ||||||||||||
Low Income Consumers Subsidy Losses (e) |
47,183 | 43,995 | | | ||||||||||||
Suppliers (Note 16) |
||||||||||||||||
Free Energy (a) |
(90,218 | ) | (91,838 | ) | (201,982 | ) | (229,874 | ) | ||||||||
PIS and COFINS Generators Pass-Through (b) |
(11,456 | ) | | | | |||||||||||
Deferred Gains Variations (Note 10) |
||||||||||||||||
Parcel A (a) |
| | (10,720 | ) | (9,004 | ) | ||||||||||
CVA (c) |
(262,764 | ) | (148,536 | ) | (1,256 | ) | (38,205 | ) | ||||||||
Other Liabilities (Note 23) |
||||||||||||||||
Tariff Review (b) |
(103,182 | ) | | | (71,113 | ) | ||||||||||
Low Income Consumers Subsidy Gains (e) |
(5,400 | ) | (5,175 | ) | | | ||||||||||
Total |
533,144 | 628,928 | 702,594 | 808,791 | ||||||||||||
a) | Rationing | ||
At the end of 2001, as a result of the Emergency Program for Reduction of Electric Energy Consumption (Energy Rationing Program), which remained in effect between June 2001 and February of 2002, an agreement was signed between the generators, power distributors and the Federal Government, called the Overall Agreement for the Electric Energy Sector, which introduced an Extraordinary Tariff Adjustment of 2.9% on electric power supply tariffs to rural, public lighting and residential consumers (except those considered to be low income consumers) and 7.9% for all other consumers, as a mechanism to reimburse the losses incurred by the electricity sector with the rationing program. | |||
This adjustment is being used to compensate the following regulatory assets recorded: |
| Extraordinary Tariff Adjustment (RTE) Corresponds the loss of revenue incurred during the rationing period. This asset was determined from a comparison between the sales revenues from energy effectively recorded in the period between June 1, 2001 and February 28, 2002, and projected revenue for this period not considering the occurrence of the Energy Rationing Program. This asset is amortized by the revenue derived from the extraordinary tariff adjustment, net of the Energy from Independent Suppliers parcel passed on to the generators. In December 2005, the Company updated the RTE in accordance with the instructions of Official letter nº 2,212/ANEEL of December 20, 2005, complemented by Official Circular nº 74/ANEEL, of January 23, 2006, which established that the Selic rate (measure at simple rate) should be levied on the amount financed by the National Bank for Economic and Social Development (BNDES), corresponding to 90% of the amounts approved by ANEEL, capitalized monthly plus 1% p.a., and on the 10% not financed, only at the Selic rate published by the Brazilian Central Bank (BACEN). This procedure result in a financial income of R$ 56,020. | ||
Considering that there is a period to recover the RTE established by ANEEL, the Company, recorded an additional provision for losses on the realization of this asset in the amount of R$ 84,902, set against the Other Operating Expenses account for which an amount of |
F-17
R$ 32,250 was recorded in 2004. The addition to the provision was largely due to the monetary restatement procedure mentioned above. This provision was made based on income projections prepared periodically, considering market growth, expected inflation, interest and regulatory aspects. Since this projection is subject to changes, and the actual results may differ from the assumptions adopted, the Company will periodically review these projections and the recorded provision. | |||
| Electricity from Independent Suppliers (Free Energy) Corresponds to the energy produced and made available to the consumer market during the rationing period by independent producers and self-producers of energy who recorded an asset to be reimbursed by the consumer through the distributors. The distribution utilities collect the funds from consumers through the extraordinary tariff adjustment and pass them on to the generators. Accordingly, an asset and liability were recorded. These amounts are updated in accordance with the directives of Official letter nº 2,212/ANEEL. Accordingly the value of the free energy of the generators, referring to the amount financed by the BNDES, was monetarily restated by applying the Selic rate (measure at simple rate) capitalized monthly plus 1% p.a., while only the Selic rate published by BACEN was applied to the amount not covered by this financing. This procedure result in a financial income in the amount of R$ 6,092. | ||
In 2004, ANEEL corrected the Free Energy amounts of the indirect subsidiary CPFL Piratininga. As a result, the necessary adjustments were recorded in 2004 to reflect the final amounts approved by ANEEL (which represented an increase of R$ 67,536 (Normative Resolution Nº 01/04 see table below) to the amount originally recorded as described in Note 25 and 26). | |||
ANEEL established that percentages of 24.9757% and 33.8332%, respectively, of the total extraordinary tariff adjustment collected monthly by CPFL Paulista and CPFL Piratininga, is passed on to the generators. Of the total amount collected by the distributors, a percentage of 0.2788% is passed on to CPFL Geração for recovery of free energy. | |||
The Free Energy regulatory asset recorded by RGE originates from spot market sales made during the energy rationing program, relating to its share of the Itaipu energy. Accordingly, in 2005, the subsidiary RGE and CPFL Geração established a provision of R$ 6,904 for losses on the realization of Free Energy, recorded in the account Other Operating Expenses (Note 27). | |||
As a result of judicial orders, CPFL Paulista and CPFL Piratininga are prevented from making the Free Energy transfer of amounts due to certain generators that are challenging the spot market rules in the courts. Accordingly, amounts collected are higher than the amounts passed to generators up to December 31, 2005. | |||
| Parcel A Corresponds to the variation in unmanageable costs, defined as Parcel A in the concession contracts, between January 1 and October 25, 2001. These amounts are monetarily restated based on the variation in the SELIC rate. |
The periods established for realizing the regulatory assets related to RTE and Free Energy in the subsidiaries CPFL Paulista and CPFL Piratininga are 72 and 61 months, respectively, beginning January 1, 2002. After this period, offsetting of Parcel A will commence, using a mechanism similar to that of the Extraordinary Tariff Adjustment, except for the recovery period, which has not yet been defined by ANEEL. | |||
The state value-added tax (ICMS) levied on RTE, corresponding to revenues to be billed, is payable when the increase in rates is billed. Accordingly, CPFL Paulista and CPFL Piratininga collect such tax for the state authorities and passing it to final consumers when the amounts are actually billed. |
F-18
The changes related to RTE, Free Energy and Parcel A balances, from their approval through December 31, 2005, are stated below: |
Free Energy (2) | Parcel A | |||||||||||||||
RTE (1) | Asset | Liability | Net (3) | |||||||||||||
Description | Accumulated | Accumulated | Accumulated | Accumulated | ||||||||||||
Ratified Amount |
884,531 | 355,333 | 338,306 | 263,314 | ||||||||||||
Accumulated Monetary Restatement
up to 12/31/2005 |
600,823 | 205,711 | 196,044 | 267,718 | ||||||||||||
Provision for Losses |
(117,152 | ) | (6,904 | ) | | | ||||||||||
Amount Amortized up to 12/31/2005 |
(951,190 | ) | (269,339 | ) | (242,150 | ) | (55,126 | ) | ||||||||
Balances to be Amortized at
12/31/2005 |
417,012 | 284,801 | 292,200 | 475,906 | ||||||||||||
(1) | ANEEL Resolutions nº 480/02, 481/02 and 01/04. | |
(2) | ANEEL Resolutions nº 483/02 and 01/04. | |
(3) | ANEEL Resolutions nº 482/02 and 01/04. |
The changes of the principal regulatory assets and liabilities is presented in the following table: |
Noncurrent | ||||||||||||||||
CVA | ||||||||||||||||
Free Energy | Free Energy | Parcel A | ||||||||||||||
Description | RTE | Asset | Liability | (Net) | ||||||||||||
Balances as of December 31, 2003 |
760,646 | 267,662 | 270,577 | 367,318 | ||||||||||||
Monetary Restatement |
112,952 | 58,800 | 57,722 | 57,447 | ||||||||||||
Taxes Levied on Free Energy |
| (10,337 | ) | (9,644 | ) | | ||||||||||
Free Energy Normative Resolution nº 01/04 |
| 67,536 | 67,536 | | ||||||||||||
Provision for Losses |
(32,250 | ) | | | | |||||||||||
Realization/Payment |
(241,637 | ) | (92,533 | ) | (64,479 | ) | (25,012 | ) | ||||||||
Balances as of December 31, 2004 |
599,711 | 291,128 | 321,712 | 399,753 | ||||||||||||
Monetary Restatement |
160,346 | 101,387 | 94,085 | 76,153 | ||||||||||||
Provision for Losses |
(84,902 | ) | (6,904 | ) | | | ||||||||||
Realization/Payment |
(258,143 | ) | (100,810 | ) | (123,597 | ) | | |||||||||
Balances as of December 31, 2005 |
417,012 | 284,801 | 292,200 | 475,906 | ||||||||||||
| PERCEE CPFL Paulista and CPFL Piratininga incurred in expenses on the implementation of the rationing program that are being recovered through the tariff increase. These expenses, called PERCEE Emergency Program to Reduce the Consumption of Electric Energy are recorded in Assets under the caption Other (Note 13). |
b) | Periodic Tariff Review and Annual Tariff Adjustment: | ||
CPFL Paulista |
| Tariff Review of 2003 | ||
In April 2005, ANEEL ratified the final result of the first periodic tariff review of April 2003 (previously on a provisional basis, at a percentage of 21.10%) for the subsidiary CPFL Paulista and established that the electricity supply tariffs should be fixed at 20.29%. It also established the Xe factor (reflecting the productivity gains) at 1.1352% to be applied as a reducer of the Parcel B manageable costs for subsequent annual tariff adjustments until the next periodic review in 2008. | |||
With the approval of the regulatory remuneration basis and the reintegration quota pursuant to the terms of Resolution nº 493, of September 3, 2002, the subsidiary CPFL Paulista |
F-19
Electricity Sales to Final Consumers, amounting to R$ 48,888 (Note 25). These amounts are being deducted from the Annual Tariff Adjustments in force as from April 8, 2005 as ratified by ANEEL. The amount of R$ 32,581 was deducted and amortized in the same accounts up to December 31, 2005. | |||
Additionally, the subsidiary CPFL Paulista recognized an asset of R$ 33,100 (Note 6), recorded as long-term, increasing Revenue from Electricity Sales to Final Consumers by R$ 28,442 (Note 25), with reference to the main parcel, and increasing financial income by R$ 4,658 (Note 28) relating to adjusted by the IGP-M. This asset arises from the difference noted in the ratification of the tariff as a result of the review of the regulatory annual depreciation rate of 4.64%, used by ANEEL to calculate the reintegration quota and the annual percentage of 4.85%, calculated by the subsidiary CPFL Paulista based on information provided to the granting authority. | |||
The ANEEL Economic and Financial Inspection Office carried out a specific inspection confirming the correctness of the percentage of 4.85%. CPFL Paulista is currently awaiting final approval by the ANEEL Board of Directors, with a favorable recommendation from the Superintendant of the Economic and Financial Inspectorate. In view of this situation, the subsidiary CPFL Paulista does not consider that there is any risk concerning the realization of this asset. | |||
| Tariff Adjustment of 2005 | ||
Through Resolution nº 81, of April 6, 2005, ANEEL established the Annual Tariff Adjustment for the subsidiary CPFL Paulista at an average percentage of 17.74%, in force for tariffs as from April 8, 2005, composed as follows: (i) 10.58% due to the Annual Tariff Adjustment, and (ii) 7.16% due to the tariff components that are not included in the annual adjustment, specifically, the CVA of the current year and 50% of the CVA amounts for the period April 2002 to March 2003, as established by Interministerial Ordinance nº 116, of April 4, 2003. | |||
In accordance with the Addendum to the Concession Contract signed on March 14, 2005, PIS and COFINS expenses actually incurred by the Concessionaire were included in the electricity supply billed as from July 1, 2005, and are accordingly not included in the tariff mentioned above. | |||
Also, in view of the bases for the tariff established, the subsidiary CPFL Paulista recognized an amount of R$ 16,875 in current assets (Note 6), referring to reimbursement of the following costs: |
ü | Assets Appraisal Report in the amount of R$ 1,350, set against operating expense (Note 27), with a total amount of R$ 900 amortized in the year; | ||
ü | PIS and COFINS amounting to R$ 13,002, levied on the financial effects of the adjustment of April 2004, mainly on the amortization of the CVA billed in 2004. This was set against Deduction from Operating Revenue, and a total amount of R$ 8,665 was amortized in the year; and | ||
ü | Discount conceded on the Network Usage Charge TUSD, billed in 2004, amounting to R$ 2,523. This was set against Operating Revenues (Note 25), and a total amount of R$1,682 was amortized in the year. |
These amounts were recorded in the first quarter of 2005 and are being passed on in the Annual Tariff Adjustment effective as from April 8, 2005, as ratified by ANEEL. | |||
Additionally, ANEEL, through Official Letter nº 176/2005-SRE/ANEEL, of July 12, 2005, pointed out an inconsistency in the amount of the expense with acquisition of electricity from Itaipu Binacional taken into consideration in calculation of the Annual Tariff Adjustment of April 8, 2005. This inconsistency allowed the subsidiary CPFL Paulista to recognize the right to complementary revenue of R$ 41,206, net of PIS and COFINS (R$ 45,406 including PIS and COFINS), which is being monetarily restated at the IGP-M rate and will be taken into consideration in the 2006 tariff adjustment. Up to December 31, 2005, the subsidiary CPFL Paulista recognized a revenue of R$ 33,339 on a daily pro rata basis, against an increase in financial expense of R$ 101 and a recognition of a Tariff Adjustment asset (Note 6) of R$ 33,238. |
F-20
The increase of R$ 15,351 in the rate of PIS and COFINS to be passed on to generators was also taken into consideration in this tariff adjustment. The subsidiary CPFL Paulista recorded a liability (Note 16), increasing the cost of electric energy (Note 26), whereby an amount of R$ 1,279 is passed on monthly to generators as from May 2005. The subsidiary CPFL Paulista also recorded an asset of the same amount as the liability (Note 6), increasing revenue (Note 25), which is being amortized in accordance with billing to consumers. Up to December 31, 2005 the subsidiary CPFL Paulista had amortized R$ 10,230. | |||
The amounts mentioned in the above paragraphs referring to PIS and COFINS passed on in the tariffs are not final, as the criteria for inclusion of these taxes in the tariffs was the subject of specific discussion in the Public Hearing of July 20, 2005 (ANEEL Call Notice nº 014/2005) and will be subject to final regulation after completion of the work of the above-mentioned public hearing. Any differences in the amounts passed on are to be offset in the future. |
CPFL Piratininga |
| Periodic Tariff Review of 2003 | ||
On October 22, 2003, through Resolution No. 565, ANEEL determined, on a provisional basis, the periodic tariff review for CPFL Piratininga at a rate of 18.08%. However, to maintain the economic and financial equilibrium of the concession contract, the authorized tariff adjustment that took effect in 2003 was 14.68%. The difference between these percentages had been accrued, according to the instructions of Official Letter No. 267, dated February 16, 2004 -SFF/ANEEL and was expected to be recovered over the next three annual tariff adjustments. | |||
On October 18, 2004, ANEEL through Approving Resolution No. 245, changed the above tariff review to 10.51%, still on a provisional basis. In order to reflect the new percentage, the indirect subsidiary CPFL Piratininga made the following adjustments in the result of operations for 2004: (i) reversal of the regulatory asset referring to the differential between 18.08% and 14.68% amounting to R$ 13,798, for the accounting entries made in 2003, (ii) establishing a regulatory liability of R$ 69,744 relating to the difference between the percentage of 14.68% and the lower rate of 10.51%, and (iii) establishing a regulatory asset of R$ 2,716 (R$ 2,360 net of amortization as of December 31, 2004) in relation to TUSD. | |||
On October 18, 2005, through Resolution nº 228, ANEEL finally ratified the first periodic tariff review of October 2003 of the indirect subsidiary CPFL Piratininga, approving the Regulatory Remuneration Base and the reintegration quota, pursuant to Resolution 493, of September 3, 2002, it also approved the operating costs based on the methodology of the hypothetical model company, and it was established that the electricity supply tariffs would be adjusted by 9.67%. This percentage took into account the effects of Art. 1 of ANEEL Resolution nº 336, of August 16, 2001, relating to the spin-off of Bandeirante Energia S.A., which determines the use of the lower of the tariff realignment indexes of the two concessionaires. As the index for Bandeirante was 9.67% and that of the indirect subsidiary CPFL Piratininga was 11.52%, the index of 9.67% prevailed. | |||
Additionally, the final value of the Xe Factor was established, showing productivity gains at 0.8294%, to be applied as a reducer of Parcel B manageable costs for subsequent annual tariff adjustments. | |||
Accordingly, to reflect the final percentage defined, the indirect subsidiary CPFL Piratininga increased the provision for the regulatory liability for the new percentage of 9.67%, by the amount of R$ 31,798 (Note 25), against Revenue from Electricity Sales to Final Consumers. Additionally, liabilities and monetary restatement expense of R$ 145 and amortization of R$ 16,181 were recorded in the year, resulting in a liability balance of R$ 86,875 (R$ 71,113 in 2004) (Note 23). |
F-21
| Tariff adjustment in 2005 | ||
Through Ratification Resolution nº 229, of October 18, 2005, ANEEL established the annual tariff adjustment of the indirect subsidiary CPFL Piratininga, increasing the electricity tariffs by an average percentage of 1.54%, composed as follows: 0.74% relating to the annual tariff adjustment and 0.80% relating to tariff components that are not covered by the annual adjustment. One of the main external components is the last payment of 50% of the CVA balance, calculated in the period October 2002 to September 2003, and the tariff refund resulting from the final ratification of the 2003 Tariff Review. | |||
In accordance with the Addendum to the Concession Contract signed on September 1, 2005, PIS and COFINS expenses effectively incurred by the indirect subsidiary CPFL Piratininga were included in the electricity supply billed as from October 23, 2005, and are accordingly not included in the tariff mentioned above. | |||
Also, in view of the bases established in the ratification of the Resolution, the indirect subsidiary CPFL Piratininga recognized an amount of R$ 8,759 in current assets (Note 6), referring to reimbursement of the following costs: |
ü | Assets Appraisal Report in the amount of R$ 1,952, set against operating expense (Note 27), with a total amount of R$ 307 amortized in the year; | ||
ü | PIS and COFINS amounting to R$ 3,233 levied on the financial effects of the adjustment of October 2004, mainly on the amortization of the CVA billed in 2004. This was set against Deduction from Operating Revenue, and a total amount of R$ 509 was amortized in the year; | ||
ü | Discount conceded on the Network Usage Charge TUSD, billed in 2004, amounting to R$ 1,486. This was set against Operating Revenue (Note 25), and a total amount of R$ 2,275 was amortized in the year (R$ 233 for the 2005 Tariff Adjustment and R$ 2,042 for the 2004 Tariff Adjustment), and; | ||
ü | Refund of an amount of R$ 2,088, relating to the 2002 RGR difference, unduly deducted by ANEEL in the October 2004 tariff adjustment. This was set against Operating Revenue (Note 25), and a total amount of R$ 328 was amortized in the year. |
The increase of R$ 7,607 in the rate of PIS and COFINS, to be passed on to generators, was also taken into consideration in this tariff adjustment. The indirect subsidiary CPFL Piratininga recorded a liability (Note 16), increasing the cost of electric energy (Note 26), whereby an amount of R$ 634 is being passed on monthly to generators as from November 2005. The subsidiary CPFL Piratininga also recorded an asset of the same amount as the liability (Note 6), increasing revenue (Note 25), which is being amortized in accordance with billing to consumers as from October 2005. | |||
The amounts mentioned in the above paragraphs referring to PIS and COFINS passed on in the tariffs are not final, as the criteria for inclusion of these taxes in the tariffs were the subject of specific discussion in the Public Hearing of July 20, 2005 (ANEEL Call Notice nº 014/2005) and will be subject to final regulation after completion of the work of the above-mentioned public hearing. Any differences in the amounts passed on are to be offset in the future. |
RGE |
| Tariff Adjustment of 2005 | ||
ANEEL through Ratification Resolution nº 92, of April 18, 2005, established the Annual Tariff Adjustment for the jointly-controlled RGE, increasing the electricity tariffs by an average percentage of 21.93%, composed as follows: (i) 14.57% due to the Annual Tariff Adjustment and (ii) 7.35% due to the tariff components that are not included in the annual adjustment, specifically, the CVA of the current year and 50% of the CVA amounts for a prior period, as established by Interministerial Ordinance nº 116, of April 4, 2003. |
F-22
c) | Deferred Costs and Gains Variations (CVA) | ||
Refer to the compensation mechanism defined by ANEEL, for the variations occurred in unmanageable costs incurred by the electric power distribution utilities. This variation is calculated by the difference between the expenses effectively incurred and the expenses estimated at the time of composing the tariffs for the annual tariff increase adjustments. However, a parcel of these amounts is still pending approval by ANEEL. | |||
The following expenses are currently considered unmanageable costs: (i) tariff for electricity purchased, (ii) tariff for the electric energy transmission from Itaipu Binacional, (iii) System Service Charges, (iv) usage tariff for the transmission installations forming the basic network, (v) payment quota to the Fuel Consumption Account CCC and (vi) payment quota to the Energy Development Account CDE. The amounts included in the CVA are monetarily restated based on the SELIC rate. |
ASSET | LIABILITY | |||||||||||||||||||||||||||||||||||||||
December | Change in balance | December | December | Change in balance | December | |||||||||||||||||||||||||||||||||||
31, 2004 | Deferral | Amortization | Restatement | 31, 2005 | 31, 2004 | Deferral | Amortization | Restatement | 31, 2005 | |||||||||||||||||||||||||||||||
Detailing: |
||||||||||||||||||||||||||||||||||||||||
Energy Purchased |
209,224 | 163,635 | (138,438 | ) | 32,176 | 266,597 | 136,540 | 163,649 | (75,227 | ) | 21,491 | 246,453 | ||||||||||||||||||||||||||||
System Service Charge |
266,770 | 31,833 | (195,022 | ) | 31,275 | 134,856 | | | | | | |||||||||||||||||||||||||||||
Fuel Consumption Account CCC |
76,747 | 24,178 | (68,611 | ) | 17,888 | 50,202 | 50,201 | 9,316 | (48,044 | ) | 6,094 | 17,567 | ||||||||||||||||||||||||||||
Energy
Development Account CDE |
82,662 | 32,229 | (69,336 | ) | 12,825 | 58,380 | | | | | | |||||||||||||||||||||||||||||
Total |
635,403 | 251,875 | (471,407 | ) | 94,164 | 510,035 | 186,741 | 172,965 | (123,271 | ) | 27,585 | 264,020 | ||||||||||||||||||||||||||||
d) | Regulatory Asset resulting from the adjustment in PIS and COFINS | ||
Refers to the difference between the cost of the PIS and COFINS amounts calculated by applying the current legislation and those incorporated in the tariff. Although the 2005 tariff adjustments already cover the majority of these costs, this matter should give rise to final regulation after the conclusion of the Public Hearing set up by ANEEL on July 20, 2005 (ANEEL call notice nº 014/2005). | |||
The recognition and realization of the asset were recorded as Prepaid Expenses, set against the respective accounts under Deductions from Operating Revenue. | |||
The net amount of PIS and COFINS calculated up to December 31, 2005 was R$ 41,474 (R$ 46,483 as of December 31, 2004). In view of their provisional nature, these amounts are subject to change at the time of their final ratification by the regulatory authorities. | |||
e) | Low Income Consumers Subsidy | ||
Law No. 10,438, dated April 26, 2002, and Decree No. 4,336, dated August 15, 2002, established new guidelines and criteria for the classification of consumer units in the low-income residential sub-class. | |||
ANEEL, through Regulatory Resolution No. 89, dated October 25, 2004, established a new calculation method for this subsidy, which should be applied monthly from May 2002 to the next tariff review. | |||
The amounts calculated using this new methodology, after ratification by ANEEL, observe the following criteria for settlement: |
| For months in which losses by the concessionaire are calculated, the amounts should be reimbursed through granting of an economic subsidy by Eletrobrás (Governmental Institution), via the Energy Development Account (CDE). | ||
| In the months when gains by the concessionaire are calculated, the amounts should be reimbursed to the customer through a reduction in the annual tariff adjustments. |
F-23
Asset | Liability | |||||||
Balances as of December 31, 2004 |
43,995 | (5,175 | ) | |||||
Loss (Gain) of Revenue |
20,729 | (2,781 | ) | |||||
Amortization 2005 Tariff Adjustment |
| 3,381 | ||||||
Amounts received as approved by ANEEL |
(17,541 | ) | | |||||
Monetary Restatement |
| (825 | ) | |||||
Balances as of December 31, 2005 |
47,183 | (5,400 | ) | |||||
f) | Surplus Energy: | ||
The electricity distribution concessionaires are obliged to guarantee 100% of their energy and electricity market through contracts approved, registered and ratified by ANEEL. They also guarantee to pass on to the tariffs the cost or income from excess or shortfall of electricity of the electricity distribution concessionaires, limited to 3% of the energy load requirement. | |||
The net energy surpluses of the subsidiaries CPFL Paulista and CPFL Piratininga for 2005 were made available to CCEE for short-term sale, and are consequently liquidated at the short-term market price, which is lower than the average price defined in the IRT Tariff Adjustment Index. | |||
The price difference between the cost of the surplus energy and the actual sale value on the short-term market resulted in financial losses of R$ 44,212 (Note 11) for the subsidiaries CPFL Paulista and CPFL Piratininga, recorded as Prepaid Expenses set against Cost of Electric Energy (Note 26). This loss is to be passed on to final consumers in the 2006 Tariff Adjustment. |
4. | CASH AND CASH EQUIVALENTS |
2005 | 2004 | |||||||
Bank deposits |
219,989 | 242,431 | ||||||
Temporary cash investments |
458,791 | 257,407 | ||||||
Total |
678,780 | 499,838 | ||||||
Temporary cash investments represent transactions with Brazilian financial institutions, the majority of which are remunerated according to the variation of the CDI, contracted under normal market conditions and interest rates, and are available for use in the operations of the Company and its subsidiaries. | ||
5. | FINANCIAL INVESTMENTS | |
On April 28, 2005, through a Private Granting of Credit Agreement, the Company acquired the credit arising from the Purchase and Sale of Electricity Agreement between CESP Companhia Energética de São Paulo (seller) and CPFL Brasil (purchaser), referring to the supply of energy for a period of 8 years. | ||
The Credit acquired by the Company, in the amount of R$ 127,875, is remunerated with interest of 17.5% p.a., plus the annual variation of the IGP-M. The balance as of December 31, 2005 is R$ 130,604, of which R$ 22,923 is classified as current assets. | ||
The current assets remaining balance refers to debt security trading investments with maturities of over 90 days that may be redeemed, subject to market value. |
F-24
6. | ACCOUNTS RECEIVABLE | |
The balance, principally derived from electricity sales activities, is comprised as follows: |
Past-due | Past-due | |||||||||||||||||||
up to 90 | over 90 | Total | ||||||||||||||||||
Consumer Classes | Current | days | days | 2005 | 2004 | |||||||||||||||
Current |
||||||||||||||||||||
Residential |
193,175 | 118,964 | 16,284 | 328,423 | 286,185 | |||||||||||||||
Industrial |
160,573 | 69,233 | 38,323 | 268,129 | 245,470 | |||||||||||||||
Commercial |
76,315 | 43,642 | 20,206 | 140,163 | 116,200 | |||||||||||||||
Rural |
22,023 | 5,007 | 1,477 | 28,507 | 24,595 | |||||||||||||||
Public Administration |
20,461 | 12,403 | 3,107 | 35,971 | 33,061 | |||||||||||||||
Public Lighting |
24,920 | 6,062 | 26,760 | 57,742 | 69,247 | |||||||||||||||
Public Services |
19,043 | 6,726 | 6,654 | 32,423 | 41,330 | |||||||||||||||
Billed |
516,510 | 262,037 | 112,811 | 891,358 | 816,088 | |||||||||||||||
Unbilled |
335,613 | | | 335,613 | 288,594 | |||||||||||||||
Tariff Review and Tariff Adjustment (Note 3) |
46,567 | | | 46,567 | 2,360 | |||||||||||||||
PIS and COFINS Generators Pass-Through
(Note 3) |
11,534 | | | 11,534 | | |||||||||||||||
CCEE Transactions |
7,355 | | | 7,355 | 12,763 | |||||||||||||||
Concessionaires and Licensees (b) |
98,967 | | | 98,967 | 54,986 | |||||||||||||||
Other |
48,737 | | | 48,737 | 37,129 | |||||||||||||||
Subtotal |
1,065,283 | 262,037 | 112,811 | 1,440,131 | 1,211,920 | |||||||||||||||
Extraordinary Tariff Adjustment (Note 3) |
259,988 | | | 259,988 | 258,830 | |||||||||||||||
Free Energy (Note 3) |
102,953 | | | 102,953 | 101,737 | |||||||||||||||
Total |
1,428,224 | 262,037 | 112,811 | 1,803,072 | 1,572,487 | |||||||||||||||
Noncurrent |
||||||||||||||||||||
CCEE Transactions (a) |
44,296 | | | 44,296 | 50,717 | |||||||||||||||
Extraordinary Tariff Adjustment (Note 3) |
157,024 | | | 157,024 | 340,881 | |||||||||||||||
Tariff Review (Note 3) |
33,100 | | | 33,100 | | |||||||||||||||
Free Energy (Note 3) |
181,848 | | | 181,848 | 189,391 | |||||||||||||||
Other |
| | | | 1,301 | |||||||||||||||
Total |
416,268 | | | 416,268 | 582,290 | |||||||||||||||
a) Electric Energy Trading Chamber (CCEE) transactions | ||
These amounts refer to sales on the short-term electricity market between distribution and generation companies that are settled by the CCEE, related to the period from September 2000 to December 2005. The transactions were recorded based on information provided by the CCEE and the balance receivable as of December 31, 2005 principally comprises: (i) R$ 1,056 for legal adjustments, established as a result of suits brought by agents in the sector; (ii) R$ 35,637 for provisional book entries established by CCEE; (iii) R$ 4,558 for estimates made by the subsidiaries for periods not yet provided by the CCEE; (iv) R$ 2,651 for amounts negotiated bilaterally, pending settlement and (v) R$ 7,749 for lawsuits contesting CCEEs accounting for the period September 2000 to December 2002. The Company considers that there is no significant risk on the realization of these assets and consequently no provision was posted in the accounts. | ||
b) Concessionaires and Licensees | ||
Refers basically to balances receivable in respect of the supply of electricity to other Concessionaires and Licensees by the subsidiaries Semesa and CPFL Brasil, as well as for various transactions that are being set off, through a settlement of accounts, against amounts payable by the subsidiary CPFL Piratininga. |
F-25
7. | ALLOWANCE FOR DOUBTFUL ACCOUNTS | |
The changes in the allowance for doubtful accounts during 2005, 2004 and 2003 are as follows: |
Balance as of December 31, 2002 |
(32,834 | ) | ||
Additional allowance recorded |
(68,512 | ) | ||
Recovery of Revenue |
27,356 | |||
Write-off of Accounts Receivable |
33,409 | |||
Balance as of December 31, 2003 |
(40,581 | ) | ||
Additional allowance recorded |
(91,091 | ) | ||
Recovery of Revenue |
22,374 | |||
Write-off of Accounts Receivable |
58,878 | |||
Balance as of December 31, 2004 |
(50,420 | ) | ||
Additional allowance recorded |
(91,918 | ) | ||
Recovery of Revenue |
28,025 | |||
Write-off of Accounts Receivable |
59,952 | |||
Balance as of December 31, 2005 |
(54,361 | ) | ||
8. | RECOVERABLE TAXES | |
The balances as of December 31, 2005 and 2004 are as follows: |
2005 | 2004 | |||||||
Current |
||||||||
Social Contribution prepayments CSLL |
13,411 | 4,594 | ||||||
Income Tax prepayments IRPJ |
35,451 | 12,679 | ||||||
Social Contribution and Income Tax credits |
42,543 | 56,954 | ||||||
Withholding Income Tax |
53,149 | 60,577 | ||||||
ICMS (state VAT) |
33,338 | 23,954 | ||||||
COFINS / PIS (tax on revenue) |
8,934 | 13,555 | ||||||
INSS (social security) |
1,017 | 1,584 | ||||||
Other |
929 | 766 | ||||||
Total |
188,772 | 174,663 | ||||||
Noncurrent |
||||||||
Social Contribution CSLL |
20,512 | | ||||||
Income Tax IRPJ |
8,492 | | ||||||
PIS (tax on revenue) |
2,787 | 1,059 | ||||||
COFINS (tax on revenue) |
| 3,996 | ||||||
ICMS (state VAT) |
45,533 | 28,496 | ||||||
Total |
77,324 | 33,551 | ||||||
In noncurrent, the balance of Social Contribution refers to the favorable outcome in a lawsuit brought by the subsidiary CPFL Paulista which was recognized, in 2004, as a current asset, in the account Social Contribution and Income Tax. This amount was reclassified to noncurrent, since the subsidiary CPFL Paulista is still awaiting the result of administrative procedures in the Federal Revenue Office regarding the setting off procedures. |
F-26
9. | OTHER RECEIVABLES | |
The balances as of December 31, 2005 and 2004 are as follows: |
2005 | 2004 | |||||||
Current |
||||||||
Receivables from CESP |
24,239 | 27,434 | ||||||
Employees |
15,893 | 17,470 | ||||||
Advances Fundação CESP |
9,287 | 7,783 | ||||||
Indemnities |
8,279 | 6,261 | ||||||
Other |
4,443 | 9,996 | ||||||
Total |
62,141 | 68,944 | ||||||
Noncurrent |
||||||||
Receivables from CESP |
83,882 | 122,302 | ||||||
Other |
930 | 2,957 | ||||||
Total |
84,812 | 125,259 | ||||||
Receivables from CESP: Refer to receivables from Companhia Energética de São Paulo CESP by the subsidiary CPFL Paulista, arising from the balance in the recoverable income account transferred to that company in 1993. The balance is monetarily restated according to the variation in the US dollar, plus interest calculated at 50% of quarterly Libor and a spread of 0.40625% p.a., through two installments per year with final maturity in December 2009. | ||
10. | DEFERRED COSTS AND GAINS VARIATIONS PARCEL A (CVA) | |
Deferred cost and gain variations Parcel A are as follows: |
As of December 31 | ||||||||||||||||||||||||||||||||
ASSETS | LIABILITIES | |||||||||||||||||||||||||||||||
Current | Noncurrent | Current | Long Term | |||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
Detailing: |
||||||||||||||||||||||||||||||||
Energy Purchased Itaipu |
57,998 | 120,534 | 235,061 | 243,830 | 31,693 | 95,250 | | 23,696 | ||||||||||||||||||||||||
System Service Charges |
69,526 | 99,365 | 9,198 | 40,203 | | | | | ||||||||||||||||||||||||
Transmission of Energy
Itaipu |
5,534 | 6,535 | 4,852 | 4,723 | | | | | ||||||||||||||||||||||||
Energy Purchased Other |
208,601 | 37,954 | 109,478 | 96,315 | 213,582 | 16,492 | 1,178 | 1,100 | ||||||||||||||||||||||||
Fuel Consumption Account
CCC |
53,139 | 54,864 | 102,003 | 108,981 | 17,489 | 36,794 | 78 | 13,409 | ||||||||||||||||||||||||
Energy Development Account
CDE |
54,159 | 53,549 | 6,222 | 29,113 | | | | | ||||||||||||||||||||||||
Basic Network Charges |
37,427 | 91,127 | 38,625 | 53,004 | | | | | ||||||||||||||||||||||||
Concession reserve fund
RGR |
| | 2,059 | 1,729 | | | 10,253 | 8,612 | ||||||||||||||||||||||||
Inspection Fee |
| | 787 | 661 | | | 467 | 392 | ||||||||||||||||||||||||
Connection Charges |
| | 1,992 | 1,673 | | | | | ||||||||||||||||||||||||
Total |
486,384 | 463,928 | 510,277 | 580,232 | 262,764 | 148,536 | 11,976 | 47,209 | ||||||||||||||||||||||||
Summary: |
||||||||||||||||||||||||||||||||
Parcel A (Note 3) |
| | 486,626 | 408,757 | | | 10,720 | 9,004 | ||||||||||||||||||||||||
CVA (Note 3) |
486,384 | 463,928 | 23,651 | 171,475 | 262,764 | 148,536 | 1,256 | 38,205 | ||||||||||||||||||||||||
Total |
486,384 | 463,928 | 510,277 | 580,232 | 262,764 | 148,536 | 11,976 | 47,209 | ||||||||||||||||||||||||
F-27
11. | PREPAID EXPENSES |
As of December 31 | ||||||||||||||||
Current | Noncurrent | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
PIS and COFINS Change in Legislation (Note 3) |
24,380 | | 17,094 | 46,483 | ||||||||||||
Surplus Energy (Note 3) |
27,003 | | 17,209 | | ||||||||||||
PROINFA |
1,932 | | 1,457 | | ||||||||||||
Other |
4,699 | 9,425 | 2,427 | 2,703 | ||||||||||||
Total |
58,014 | 9,425 | 38,187 | 49,186 | ||||||||||||
12. | DEFERRED TAXES | |
Composition of deferred income and social contribution taxes: |
2005 | 2004 | |||||||
As restated | ||||||||
Note 38 | ||||||||
Income Tax: |
||||||||
Tax Loss Carryforwards |
166,756 | 152,753 | ||||||
Tax Benefit on Merged Goodwill |
497,211 | 525,468 | ||||||
Temporarily Nondeductible Differences |
165,294 | 130,273 | ||||||
Subtotal |
829,261 | 808,494 | ||||||
Social Contribution: |
||||||||
Tax Loss Carryforwards |
66,408 | 64,730 | ||||||
Tax Benefit on Merged Goodwill |
171,724 | 181,448 | ||||||
Temporarily Nondeductible Differences |
51,048 | 39,573 | ||||||
Subtotal |
289,180 | 285,751 | ||||||
Total |
1,118,441 | 1,094,245 | ||||||
Income | Social contribution | |||||||||||||||
tax (IRPJ) | tax (CSLL) | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
As | As | |||||||||||||||
restated | restated | |||||||||||||||
Note 38 | Note 38 | |||||||||||||||
Reserve for contingencies |
53,512 | 54,371 | 11,347 | 12,652 | ||||||||||||
Pension plan expenses |
20,398 | 23,430 | 6,985 | 8,078 | ||||||||||||
Allowance for doubtful accounts |
15,430 | 9,471 | 5,555 | 3,410 | ||||||||||||
Provision for Losses on the Realization of RTE |
22,087 | | 7,952 | | ||||||||||||
Research and Development and Energy
Efficiency Programs |
38,024 | 28,360 | 13,689 | 10,210 | ||||||||||||
Accounts receivable from government entities |
5,528 | 5,209 | 1,990 | 1,875 | ||||||||||||
Profit sharing |
3,286 | 2,288 | 937 | 823 | ||||||||||||
Other |
7,029 | 7,144 | 2,593 | 2,525 | ||||||||||||
Total |
165,294 | 130,273 | 51,048 | 39,573 | ||||||||||||
F-28
2005 | 2004 | 2003 | ||||||||||||||||||||||
As restated Note 38 | As restated Note 38 | |||||||||||||||||||||||
Social | Social | Social | ||||||||||||||||||||||
Income | contribution | Income tax | contribution | Income tax | contribution | |||||||||||||||||||
tax (IRPJ) | tax (CSLL) | (IRPJ) | tax (CSLL) | (IRPJ) | tax (CSLL) | |||||||||||||||||||
Income/(loss) before taxes |
1,430,541 | 1,430,541 | 568,096 | 568,096 | (155,885 | ) | (155,885 | ) | ||||||||||||||||
Statutory tax rates |
25 | % | 9 | % | 25%. | 9%. | 25%. | 9%. | ||||||||||||||||
Tax (expense) benefit at
statutory tax rates |
(357,635 | ) | (128,749 | ) | (142,024 | ) | (51,129 | ) | 38,971 | 14,030 | ||||||||||||||
Non-deductible goodwill
amortization |
(29,390 | ) | (5,503 | ) | (24,951 | ) | (3,962 | ) | (30,342 | ) | | |||||||||||||
Non-deductible supplementary
monetary restatement |
| (2,185 | ) | | (2,815 | ) | | 2,497 | ||||||||||||||||
Non-deductible pension
(expenses) income |
15,390 | 5,540 | | | (5,315 | ) | (1,913 | ) | ||||||||||||||||
CSLL 88 Judicial lawsuit |
| | (2,627 | ) | (946 | ) | | | ||||||||||||||||
Realization of allowance for
loss on Investment |
33,282 | 11,982 | | | | | ||||||||||||||||||
Dividends received from
noncontrolling investments |
2,308 | 831 | (220 | ) | (79 | ) | | | ||||||||||||||||
Realization of revaluation
Reserve |
(4,170 | ) | (1,501 | ) | (4,299 | ) | (1,548 | ) | | | ||||||||||||||
Interest on shareholders equity |
47,638 | 17,150 | 1,662 | 598 | | | ||||||||||||||||||
Other additions/deductions, net |
(2,864 | ) | (1,836 | ) | 1,771 | (473 | ) | (10,064 | ) | (2,773 | ) | |||||||||||||
Subtotal Tax (expense) Benefit |
(295,441 | ) | (104,271 | ) | (170,688 | ) | (60,354 | ) | (6,750 | ) | 11,841 | |||||||||||||
CSLL 88 Judicial |
| | | 10,508 | | | ||||||||||||||||||
Tax credit allocated |
59,000 | 14,824 | | | | | ||||||||||||||||||
Unrecoverable tax loss
carryforwards |
(7,520 | ) | (2,925 | ) | (16,245 | ) | (7,549 | ) | (77,334 | ) | (31,954 | ) | ||||||||||||
Total Tax expense |
(243,961 | ) | (92,372 | ) | (186,933 | ) | (57,395 | ) | (84,084 | ) | (20,113 | ) | ||||||||||||
Current tax expense |
(287,008 | ) | (101,787 | ) | (220,018 | ) | (68,562 | ) | (114,837 | ) | (28,959 | ) | ||||||||||||
Deferred tax benefit |
43,047 | 9,415 | 33,085 | 11,167 | 30,753 | 8,846 |
The non-deductible goodwill amortization refers to the amortized goodwill from the investees, which is nondeductible for tax purposes. | ||
Social Contribution for 1988 (CSLL 88 Judicial Lawsuit) refers to the final ruling in favor of CPFL Paulista in a lawsuit related to payments in excess made during 1989. The tax benefit was recognized during 2004 and classified in the income statement, as a reduction in the social contribution tax account. This amount is taxable for Income and Social Contribution Tax purposes. | ||
Realization of the Allowance for Loss on Investment in 2005, RGE disposed of its subsidiary Sul Geradora Participações, and accordingly the previously established provision for loss on investment became deductible. | ||
The Unrecoverable tax loss carryforwards is related to the loss of the subsidiary Sul Geradora Participações and the lack of sufficient future taxable income for realizing the credits, according to the income projections prepared by the investee. | ||
The Tax credit allocated refers to a parcel of the tax credits of the Company and its subsidiary CPFL Geração and relates to tax loss carryforwards, based on expectations of the generation of income tax and social contribution payable in the future over a period of 10 years. |
F-29
13. | OTHER | |
The composition of the balance is as follows: |
Current | Noncurrent | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Refinancing of Consumer Debts |
41,639 | 76,796 | 114,155 | 69,085 | ||||||||||||
Low Income Consumer Subsidy (Note 3) |
47,183 | 43,995 | | | ||||||||||||
Pledges, Funds and Tied Deposits |
16,887 | | 31,888 | 21,434 | ||||||||||||
PERCEE (Note 3) |
172 | 3,627 | | | ||||||||||||
Orders in Progress |
6,171 | 8,103 | | | ||||||||||||
Services Rendered to Third Parties |
17,547 | 17,038 | 1,103 | 616 | ||||||||||||
Reimbursement RGR |
3,723 | | 457 | | ||||||||||||
Assets and Rights for Disposal |
17 | 1,462 | 2,283 | 1,475 | ||||||||||||
Advance Energy Purchase Agreements |
7,343 | | 3,749 | | ||||||||||||
Other |
20,576 | 7,318 | 13,600 | 5,090 | ||||||||||||
Total |
161,258 | 158,339 | 167,235 | 97,700 | ||||||||||||
Refinancing of Consumers Debts: Refers to the negotiation of overdue accounts receivable from consumers, principally City Governments. Probable losses related to these amounts are recorded under Allowance for Doubtful Account (Note 7). The classification between current and noncurrent follows the due dates established in the agreements signed. These amounts are monetarily restated based on several inflationary ratios and interest rates. Some of these credits have payment guarantees by the debtors comprising passing on ICMS payments with bank mediation. | ||
Pledges, Funds and Tied Deposits: These are guarantees offered when negotiating or renegotiating loans and to guarantee CCEE operations. | ||
PERCEE Emergency Program to Reduce the Consumption of Electric Energy: Refers to the costs incurred in implementing the energy rationing program (note 3). | ||
Orders in progress: Comprise costs relating to the deactivation in progress of fixed assets and costs relating to their disposal, where applicable, and costs of the services in progress relating to the distribution of electricity. | ||
Advance Energy Purchase Agreements: Refers to prepayments of energy purchases which will be liquidated on delivery of the energy to be supplied. |
F-30
14. | PROPERTY, PLANT AND EQUIPMENT | |
As of December 31, 2005 and 2004, the composition of Property, plant and equipment is as follows: |
2005 | 2004 | |||||||||||||||||
Accumulated | ||||||||||||||||||
Depreciation | ||||||||||||||||||
Depreciation | and | |||||||||||||||||
rate (%) | Cost | Amortization | Net | Net | ||||||||||||||
In Service: |
||||||||||||||||||
Distribution |
5,766,662 | (2,957,751 | ) | 2,808,911 | 2,670,346 | |||||||||||||
Intangible Assets |
20 | 125,861 | (22,251 | ) | 103,610 | 55,370 | ||||||||||||
Land |
47,726 | | 47,726 | 43,868 | ||||||||||||||
Reservoirs and Dams |
| | | 6 | ||||||||||||||
Buildings, Constructions and
Improvements |
2 and 4 | 161,932 | (88,470 | ) | 73,462 | 74,521 | ||||||||||||
Machinery and Equipment |
2 to 10 | 5,358,691 | (2,794,132 | ) | 2,564,559 | 2,480,475 | ||||||||||||
Vehicles |
10 and 20 | 51,515 | (42,176 | ) | 9,339 | 6,886 | ||||||||||||
Furniture and Fixtures |
10 | 20,937 | (10,722 | ) | 10,215 | 9,220 | ||||||||||||
Generation |
653,966 | (98,830 | ) | 555,136 | 147,519 | |||||||||||||
Intangible Assets |
20 | 953 | (8 | ) | 945 | 860 | ||||||||||||
Land |
3,934 | | 3,934 | 1,340 | ||||||||||||||
Reservoirs and Dams |
2 to 5 | 261,447 | (20,686 | ) | 240,761 | 9,743 | ||||||||||||
Buildings, Constructions and
Improvements |
2 and 4 | 126,690 | (23,439 | ) | 103,251 | 14,144 | ||||||||||||
Machinery and Equipment |
2 to 10 | 258,279 | (53,586 | ) | 204,693 | 120,641 | ||||||||||||
Vehicles |
10 and 20 | 1,056 | (193 | ) | 863 | 370 | ||||||||||||
Furniture and Fixtures |
10 | 1,607 | (918 | ) | 689 | 421 | ||||||||||||
Commercialization |
102,028 | (39,220 | ) | 62,808 | 57,019 | |||||||||||||
Intangible Assets |
20 | 6,123 | (2,260 | ) | 3,863 | 4,982 | ||||||||||||
Land |
93 | | 93 | 94 | ||||||||||||||
Buildings, Constructions and
Improvements |
2 and 4 | 8,350 | (5,799 | ) | 2,551 | 2,739 | ||||||||||||
Machinery and Equipment |
2 to 10 | 82,092 | (28,413 | ) | 53,679 | 46,490 | ||||||||||||
Vehicles |
10 and 20 | 2,551 | (1,396 | ) | 1,155 | 1,379 | ||||||||||||
Furniture and Fixtures |
10 | 2,819 | (1,352 | ) | 1,467 | 1,335 | ||||||||||||
Administration |
170,065 | (107,441 | ) | 62,624 | 101,032 | |||||||||||||
Intangibles Assets |
20 | 55,265 | (34,916 | ) | 20,349 | 48,210 | ||||||||||||
Land |
1,670 | | 1,670 | 1,791 | ||||||||||||||
Buildings, Constructions and
Improvements |
2 and 4 | 36,506 | (20,242 | ) | 16,264 | 21,381 | ||||||||||||
Machinery and Equipment |
2 to 10 | 30,433 | (21,899 | ) | 8,534 | 9,088 | ||||||||||||
Vehicles |
10 and 20 | 5,877 | (4,729 | ) | 1,148 | 3,760 | ||||||||||||
Furniture and Fixtures |
10 | 40,314 | (25,655 | ) | 14,659 | 16,802 | ||||||||||||
Subtotal |
6,692,721 | (3,203,242 | ) | 3,489,479 | 2,975,916 | |||||||||||||
In Progress |
||||||||||||||||||
Distribution |
| 137,601 | | 137,601 | 115,298 | |||||||||||||
Generation |
| 866,952 | | 866,952 | 974,331 | |||||||||||||
Commercialization |
| 7,376 | | 7,376 | 7,696 | |||||||||||||
Administration |
| 20,983 | | 20,983 | 14,152 | |||||||||||||
Subtotal |
1,032,912 | | 1,032,912 | 1,111,477 |
F-31
2005 | 2004 | |||||||||||||||||
Accumulated | ||||||||||||||||||
Depreciation | ||||||||||||||||||
Depreciation | and | |||||||||||||||||
rate (%) | Cost | Amortization | Net | Net | ||||||||||||||
(Continuation) | ||||||||||||||||||
Assets Leased to Third Parties |
||||||||||||||||||
Land |
4,675 | | 4,675 | 5,420 | ||||||||||||||
Reservoirs and Dams |
2 | 105,166 | (16,314 | ) | 88,852 | 90,956 | ||||||||||||
Buildings, Constructions
and Improvements |
3.83 | 522,993 | (87,358 | ) | 435,635 | 449,287 | ||||||||||||
Machinery and Equipment |
5.93 | 306,224 | (69,005 | ) | 237,219 | 246,131 | ||||||||||||
Vehicles |
20 | 92 | (90 | ) | 2 | 3 | ||||||||||||
Other |
20 | 81 | (21 | ) | 60 | 38 | ||||||||||||
Subtotal |
939,231 | (172,788 | ) | 766,443 | 791,835 | |||||||||||||
Total Property, Plant and
Equipment |
8,664,864 | (3,376,030 | ) | 5,288,834 | 4,879,228 | |||||||||||||
Special Obligations |
(640,997 | ) | (588,053 | ) | ||||||||||||||
Net Property, Plant and Equipment |
4,647,837 | 4,291,175 | ||||||||||||||||
FOZ DO | ||||||||||||||||||||
CERAN | ENERCAN | BAESA | CHAPECÓ | TOTAL | ||||||||||||||||
Plant under
construction as of
December 31, 2005 |
221,177 | 1,323,023 | 230,331 | 21,029 | 1,795,560 | |||||||||||||||
Companys
proportionate share
in each plant |
143,765 | 644,617 | 57,597 | 14,020 | 859,999 |
The interest corresponding to the loans taken by these projects to finance the construction is being capitalized. In 2005, 2004 and 2003 the Company capitalized interest amounting to R$ 53,757, R$ 46,231 and R$ 12,971, respectively. | ||
Assets leased to third parties These assets relate mainly to the Serra da Mesa power plant. The concession to operate this plant is held by Furnas. Pursuant to a lease contract, the Company constructed part of the plant and subsequently leased it to the concessionaire for a period of 30 years, ending in 2028 (the Serra da Mesa Lease). The lease agreement gives the Company the right to 51% of the total assured energy sold by the plant. In additional, the Company has entered in to a 15-year contract to sell this energy back to Furnas. The contract provides for an initial price per MWh, which is adjusted based on the IGP-M. The sales contract expires in 2014. | ||
Special Obligations Linked to Electric Energy Utility Concession - Special obligations linked to the electric energy utility concessions represent amounts received principally from the Federal Government, State and Municipal Governments, and consumers to be invested in the Companys property, plant and equipment. Special liabilities are recorded as an offset account to property, plant |
F-32
and equipment and are not subject to amortization or adjustments. As established by ANEEL, the liabilities are settled at the end of the concession period. | ||
After termination of the concession, the subsidiaries assets linked to the service will revert to the Federal Government, and the amount of compensation payable to the concessionaire for the residual book value will be surveyed, evaluated and calculated. | ||
15. | GOODWILL | |
The composition of the goodwill account is as follows: |
2005 | 2004 | |||||||||||||||
Accumulated | ||||||||||||||||
Cost | Amortization | Net value | Net value | |||||||||||||
CPFL Paulista (a) |
1,366,059 | (97,320 | ) | 1,268,739 | 1,018,911 | |||||||||||
RGE (b) |
751,347 | (431,972 | ) | 319,375 | 327,524 | |||||||||||
RGE (c) |
756,443 | (239,684 | ) | 516,759 | 545,119 | |||||||||||
CPFL Piratininga (d) |
164,170 | (9,344 | ) | 154,826 | 123,227 | |||||||||||
Semesa (e) |
426,450 | (134,539 | ) | 291,911 | 317,290 | |||||||||||
CPFL Geração (f) |
54,555 | (1,313 | ) | 53,242 | 414 | |||||||||||
Foz do Chapecó |
770 | | 770 | 770 | ||||||||||||
ENERCAN |
15,693 | (5,461 | ) | 10,232 | 10,233 | |||||||||||
BAESA |
3,081 | (5 | ) | 3,076 | 3,081 | |||||||||||
Clion |
98 | (7 | ) | 91 | | |||||||||||
Total |
3,538,666 | (919,645 | ) | 2,619,021 | 2,346,569 | |||||||||||
a) | Acquisition of CPFL Paulista | ||
The goodwill was created during the CPFL Paulista acquisition process initiated in November of 1997 as part of the privatization of the electric energy operations in the state of São Paulo; followed by the a Brazilian public offering that took place in November of 1999 and completed in 2005 when CPFL Paulista became a wholly-owned subsidiary of CPFL Energia. | |||
The acquisition occurred in the Extraordinary General Meeting held on November 23, 2005, when the Company approved a merger (acquisition) of shares according to the Brazilian Corporate law, of the subsidiary CPFL Paulista held by the minority shareholders, converting it into a wholly-owned subsidiary. The exchange ratio, based on the economic value appraisals, was 101.600724349 common or preferred shares of CPFL Paulista for each common share issued by the Company. This acquisition resulted in an increase of R$ 468,201 (Note 24) in the Companys capital through the issuance of 18,862,417 common shares and the recognition of a goodwill in the amount of R$ 304,861. | |||
b) | RGE DOC 3 Transaction | ||
The goodwill was created in October of 1997 when DOC 3 Participações S.A. (DOC 3 the former parent company of RGE) acquired its interest in RGE as part of the privatization of the electric energy operations in the state of Rio Grande do Sul. On July 13, 1998 a restructuring (down stream merger) occurred in order to allow the subsidiary to realize the tax benefit relating to the goodwill recorded on the original acquisition. The restructuring was affected through the merger of DOC 3 by RGE. This goodwill remained in RGE. | |||
c) | Acquisition of RGE | ||
At the Extraordinary Shareholders Meeting on July 5, 2001, the CPFL Paulista shareholders approved the acquisition of 518,887,616 registered shares of RGE, of which 257,228,985 and 60,130,858 are common and preferred shares, respectively, held by VBC; and 165,166,964 and 36,360,809 are common and preferred shares, respectively, held by 521. The transaction was concluded and the effective transfer of ownership control was approved by ANEEL, in accordance with Resolution No. 213 of June 13, 2001, for the total amount of R$ 1,381,561. As a |
F-33
result of this transaction, as of December 31, 2005, CPFL Paulista holds 67.07% of RGEs total capital, and 67.16% of its voting capital. | |||
As of June 23, 2006 the Company will own 99.76% of RGE, as described in Note 34.4. | |||
d) | Acquisition of Piratininga | ||
The goodwill was created during the Bandeirante acquisition process initiated in September of 1998 as part of the privatization of the electric energy operations in the state of São Paulo. In order to provide the owners of Bandeirante (Enerpaulo Energia Paulista Ltda (Enerpaulo) and CPFL Paulista) with greater flexibility and efficiency to meet the new challenges imposed by the electric energy sector, the shareholders approved the spin-off of Bandeirante into two geographical regions so that each could retain a controlling interest in their respective region. | |||
On October 1, 2001 Bandeirante was spun-off into Bandeirante and CPFL Piratininga and subsequently, CPFL Paulista exchanged its equity interest in Bandeirante for Enerpaulos equity interest in CPFL Piratininga. The minority shareholders received shares of CPFL Piratininga in an equal proportion to those held in Bandeirante on the date of its spin-off so that their participation in Bandeirante and CPFL Piratininga would remain unchanged. | |||
Additionally the goodwill was increased by the Brazilian public offering that took place in November of 2000; and completed in 2005 when CPFL Piratininga became a wholly-owned subsidiary of CPFL Paulista. | |||
The acquisition occurred in an Extraordinary General Meeting held on November 22, 2005, when CPFL Paulista approved the merger (acquisition) of shares according to the Brazilian Corporate law, of its subsidiary CPFL Piratininga held by the minority shareholders, converting it into a wholly-owned subsidiary. The exchange ratio, based on the economic value appraisals, was 6.053721422 common or preferred shares of CPFL Piratininga, for each common or class A preferred share issued by CPFL Paulista. This acquisition resulted in an increase of R$ 55,407 in the capital of CPFL Paulista, through the issue of 58,745,376 common shares and 168,047,235 class A preferred shares, generating goodwill of R$ 39,275. | |||
e) | Acquisition of Semesa | ||
On December 26, 2001, CPFL Geração acquired 69,632,528 of the common shares of Semesa, representing 100.0% of the equity interest, for R$ 496,082. Semesa was previously held by VBC. The acquisition of Semesa was approved by ANEEL, in accordance with Resolution No. 582, of December 21, 2001. Pursuant to the sale agreement between CPFL Geração and VBC, the purchase price of Semesa is subject to adjustment, based on the assessment of Semesas Assured Energy. According to MME, the earliest that this assessment will take place is 2015. | |||
f) | CPFL Geração | ||
On May 6, 2005, in an auction held in the São Paulo Stock Exchange BOVESPA, the Company acquired 90,150,287 common shares and 100,856,977 preferred shares issued by CPFL Geração, totaling 191,007,264 shares, representing 0.093% of its capital, for the amount of R$ 1,606, or R$ 8.40 per 1,000 shares, increasing its share interest from 97.01% to 97.11%. This acquisition resulted in a goodwill totaling R$ 143 and a loss in share interest of R$ 461. | |||
In an Extraordinary General Meeting held on June 20, 2005, the Company approved a merger (acquisition) of shares according to the Brazilian Corporate law, of the subsidiary CPFL Geração held by the non-controlling shareholders, converting it into a wholly-owned subsidiary. The exchange ratio, based on the economic value appraisals, was 1 (one) common share issued by the Company for every 1,622 common shares or preferred shares of CPFL Geração. This acquisition resulted in an increase of R$ 85,577 in the Companys capital (Note 24), through the issue of 3,665,488 common shares, and the recognition of a goodwill in the amount of R$ 53,761. | |||
g) | Method of amortization of goodwill | ||
During 2005, amortization of the goodwill was calculated based on the percentage of 4.997631% for CPFL Paulista, 5.777282% for CPFL Piratininga, 4.997631% for RGE, 7.439278% for SEMESA and 0.168050% for Barra Grande. | |||
The goodwill arising from the acquisitions of interests in the subsidiaries Barra Grande, Foz do Chapecó and ENERCAN were recorded based on expected future income arising from the |
F-34
related concession contracts and will be amortized over the term of these contracts, beginning upon start-up of commercial operation of these subsidiaries. |
16. | SUPPLIERS | |
As of December 31, 2005 e 2004, the balance is as follows: |
As of December 31, | ||||||||
2005 | 2004 | |||||||
Current |
||||||||
System Service Charges |
4,058 | 2,490 | ||||||
Energy Purchased |
478,222 | 400,461 | ||||||
Electricity Network Usage Charges |
68,139 | 62,746 | ||||||
Materials and Services |
119,239 | 95,894 | ||||||
Free Energy (Note 3) |
90,218 | 91,838 | ||||||
PIS and COFINS Generators PassThrough (Note 3) |
11,456 | | ||||||
Other |
10,901 | 10,428 | ||||||
Total |
782,233 | 663,857 | ||||||
Long Term |
||||||||
Free Energy (Note 3) |
201,982 | 229,874 | ||||||
Balance as of | ||||||||||||
December | ||||||||||||
Generator | Current | Long-term | 31,2005 | |||||||||
AES TIETÊ |
4,731 | 8,570 | 13,301 | |||||||||
CDSA |
1,671 | 3,439 | 5,110 | |||||||||
CEEE |
2,118 | 11,939 | 14,057 | |||||||||
CELESC |
1,271 | 3,048 | 4,319 | |||||||||
CELTINS |
216 | 568 | 784 | |||||||||
CEMIG |
18,688 | 40,359 | 59,047 | |||||||||
CESP |
13,307 | 30,405 | 43,712 | |||||||||
CGTEE |
192 | 587 | 779 | |||||||||
CHESF |
19,870 | 42,757 | 62,627 | |||||||||
COPEL |
1,589 | 3,457 | 5,046 | |||||||||
CPFL GERAÇÃO |
265 | 567 | 832 | |||||||||
DUKE |
3,108 | 8,005 | 11,113 | |||||||||
EEB |
12 | 7 | 19 | |||||||||
EEVP |
60 | 72 | 132 | |||||||||
ELETRONORTE |
5,680 | 12,765 | 18,445 | |||||||||
EMAE |
1,501 | 3,273 | 4,774 | |||||||||
ENERGIPE |
21 | 14 | 35 | |||||||||
FURNAS |
14,301 | 28,636 | 42,937 | |||||||||
RGE |
370 | 778 | 1,148 | |||||||||
TRACTEBEL |
1,247 | 2,736 | 3,983 | |||||||||
Total |
90,218 | 201,982 | 292,200 | |||||||||
F-35
17. | TAXES AND PAYROLL CHARGES PAYABLE | |
As of December 31, 2005 and 2004, the balance is as follows: |
Current | Long-term | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
ICMS (State VAT) |
261,938 | 232,062 | | | ||||||||||||
PIS (Tax on Revenue) |
11,695 | 9,607 | 904 | 2,902 | ||||||||||||
COFINS (Tax on Revenue) |
49,740 | 44,970 | 4,161 | 14,170 | ||||||||||||
INSS (Social Security Contribution) |
1,828 | 4,103 | | | ||||||||||||
IRPJ (Corporate Income Tax) |
80,162 | 76,221 | 19,151 | 51,052 | ||||||||||||
CSLL (Social Contribution Tax) |
23,474 | 23,241 | 6,894 | 18,379 | ||||||||||||
Other |
46,123 | 19,270 | | | ||||||||||||
Total |
474,960 | 409,474 | 31,110 | 86,503 | ||||||||||||
Taxes payable, classified under Long-term Liabilities, refer to the taxes deferred by the subsidiaries CPFL Paulista and CPFL Piratininga, levied on Regulatory Asset corresponding to PIS and COFINS, and the effects of the Review and Tariff Adjustments, which are considered due by the subsidiaries in accordance with the realization of the amount of the principal asset. | ||
18. | INTEREST, LOANS AND FINANCING | |
18.1 The composition is as follows: |
As of December 31, | ||||||||||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||||||||||
Principal | Principal | |||||||||||||||||||||||||||||||
Interest | Current | Long-term | Total | Interest | Current | Long-term | Total | |||||||||||||||||||||||||
LOCAL CURRENCY |
||||||||||||||||||||||||||||||||
BNDES Power Increases (PCHs) |
85 | 3,717 | 14,091 | 17,893 | 81 | 3,653 | 15,619 | 19,353 | ||||||||||||||||||||||||
BNDES Investment |
7,297 | 73,963 | 1,002,277 | 1,083,537 | 457 | 38,320 | 652,556 | 691,333 | ||||||||||||||||||||||||
BNDES
Parcel A, RTE and Free
Energy |
2,069 | 237,451 | 394,419 | 633,939 | 6,305 | 214,827 | 541,924 | 763,056 | ||||||||||||||||||||||||
BNDES CVA Ordinance 116 |
784 | 92,642 | | 93,426 | 2,089 | 165,451 | 85,718 | 253,258 | ||||||||||||||||||||||||
Credit
Rights Investment Fund (FIDC) |
30,535 | 64,033 | 5,699 | 100,267 | 19,771 | 59,722 | 78,610 | 158,103 | ||||||||||||||||||||||||
BRDE |
| 16,044 | | 16,044 | 357 | 18,833 | 17,520 | 36,710 | ||||||||||||||||||||||||
Furnas
Centrais Eletricas S.A. |
| | 99,384 | 99,384 | | | 79,954 | 79,954 | ||||||||||||||||||||||||
Financial Institutions |
3,622 | 69,081 | 112,953 | 185,656 | 3,608 | 54,257 | 159,608 | 217,473 | ||||||||||||||||||||||||
Other |
553 | 33,509 | 19,786 | 53,848 | 537 | 19,924 | 24,964 | 45,425 | ||||||||||||||||||||||||
Subtotal |
44,945 | 590,440 | 1,648,609 | 2,283,994 | 33,205 | 574,987 | 1,656,473 | 2,264,665 | ||||||||||||||||||||||||
FOREIGN CURRENCY |
||||||||||||||||||||||||||||||||
IFC |
| | | | 3,556 | 10,618 | 95,558 | 109,732 | ||||||||||||||||||||||||
Floating Rate Notes |
578 | 244,369 | | 244,947 | 805 | 159,264 | 277,119 | 437,188 | ||||||||||||||||||||||||
Trade Finance |
| | | | 700 | 101,475 | | 102,175 | ||||||||||||||||||||||||
IDB |
690 | | 68,428 | 69,118 | | | | | ||||||||||||||||||||||||
Financial Institutions |
1,718 | 363,206 | 90,428 | 455,352 | 1,482 | 18,229 | 115,191 | 134,902 | ||||||||||||||||||||||||
Subtotal |
2,986 | 607,575 | 158,856 | 769,417 | 6,543 | 289,586 | 487,868 | 783,997 | ||||||||||||||||||||||||
Total |
47,931 | 1,198,015 | 1,807,465 | 3,053,411 | 39,748 | 864,573 | 2,144,341 | 3,048,662 | ||||||||||||||||||||||||
F-36
As of December 31, | ||||||||||||||
LOCAL CURRENCY | 2005 | 2004 | Remuneration | Amortization | Collateral | |||||||||
BNDES Power Increases (PCHs) |
||||||||||||||
CPFL Centrais Eletricas |
9,641 | 11,585 | TJLP + 3.5% p.a. | 84 monthly installments from February 2003 | Guarantee of CPFL Paulista | |||||||||
CPFL Centrais Eletricas |
640 | 926 | UMBND + 3.5% p.a. | 84 monthly installments from February 2003 | Guarantee of CPFL Paulista | |||||||||
CPFL Centrais Eletricas |
4,860 | 5,697 | TJLP + 4% p.a. | 72 monthly installments from September 2004 | Guarantee of CPFL Energia | |||||||||
CPFL Centrais Eletricas |
809 | 1,145 | UMBND + 4% p.a. | 72 monthly installments from September 2004 | Guarantee of CPFL Energia | |||||||||
CPFL Centrais Eletricas |
1,943 | | TJLP + 4.3% p.a. | 75 monthly installments from September 2007 | Guarantee of CPFL Energia | |||||||||
BNDES Investment |
||||||||||||||
CPFL
Paulista FINEM I |
38,502 | 61,762 | TJLP + 3.25% p.a. | 78 monthly installments from October 2000 and October 2001 | Revenue | |||||||||
CPFL Paulista FINEM II |
145,002 | | TJLP + 5.4% p.a. | 48 monthly installments from January 2007 | Guarantee of CPFL Energia and receivables | |||||||||
RGE FINEM |
74,535 | 59,480 | TJLP + 3.5% to 4.5% p.a. | 84 monthly installments from October 2000 to 36 monthly | Revenue | |||||||||
installments from December 2005 | ||||||||||||||
RGE FINEM |
10,094 | 6,314 | UMBND + 4.5% p.a. (*) | 36 monthly installments from February 2006 | Revenue collection/reserve account | |||||||||
CPFL Piratinga FINEM |
68,601 | | TJLP + 5.4% p.a. | 48 monthly installments from January 2007 | Guarantee of CPFL Energia and receivables | |||||||||
CPFL Piratinga FINAME |
55 | 212 | TJLP + 9.45% p.a. | 48 monthly installments from May 2002 | Promissory notes and receivables | |||||||||
BAESA |
156,354 | 80,622 | TJLP + 3.125% p.a. | November 2006 | Letters of Credit | |||||||||
BAESA |
46,548 | 49,091 | UMBND + 3.125% p.a. | 144 monthly installments from November 2006 | Letters of Credit | |||||||||
ENERCAN |
347,154 | 265,602 | TJLP + 4% p.a. | 144 monthly installments from April 2007 | Letters of Credit | |||||||||
ENERCAN |
28,452 | 26,510 | UMBND + 4% p.a. | 144 monthly installments from April 2007 | Letters of Credit | |||||||||
CERAN |
135,071 | 109,589 | TJLP + 5% p.a. | 120 monthly installments from December 2005 | Guarantee of CPFL Energia | |||||||||
CERAN |
13,130 | 11,326 | UMBND + 5% p.a. | 120 monthly installments from December 2007 | Guarantee of CPFL Energia | |||||||||
CERAN |
20,039 | 20,825 | UMBND + 5% p.a. (**) | 120 monthly installments from February 2006 | Guarantee of CPFL Energia | |||||||||
BNDES Parcel A, RTE and Free Energy |
||||||||||||||
CPFL Paulista RTE |
194,491 | 309,360 | Selic + 1% p.a. | 62 monthly installments from March 2002 | Receivables | |||||||||
CPFL Paulista Parcel A |
282,607 | 230,832 | Selic + 1% p.a. | 13 monthly installments from May 2007 | Receivables | |||||||||
CPFL Piratininga RTE |
43,952 | 99,815 | Selic + 1% p.a. | 54 monthly installments from March 2002 | Receivables | |||||||||
CPFL Piratininga Parcel A |
105,108 | 85,851 | Selic + 1% p.a. | 9 monthly installments from September 2007 | Receivables | |||||||||
RGE Free Energy |
3,754 | 5,010 | Selic + 1% p.a. | 60 monthly installments from March 2003 | Receivables | |||||||||
CPFL
Geração |
4,027 | 5,373 | Selic + 1% p.a. | 60 monthly installments from March 2003 | Receivables | |||||||||
BNDES CVA and Interministerial
Ordinance 116 |
||||||||||||||
CPFL Paulista |
43,755 | 158,832 | Selic + 1% p.a. | 24 monthly installments from May 2004 | Receivables | |||||||||
CPFL
Piratininga |
49,671 | 94,426 | Selic + 1% p.a. | 24 monthly installments from December 2004 | Receivables | |||||||||
RGE |
| 26,315 | Selic + 1% p.a. | 60 monthly installments from march 2003 | Receivables | |||||||||
FIDC CPFL Piratininga |
100,267 | 158,103 | 112% of CDI | 36 monthly installments from March 2004 | Receivables | |||||||||
BRDE RGE |
16,044 | 36,710 | IGP-M + 12% p.a. | 180 monthly installments from September 1991 | Receivables | |||||||||
Furnas Centrais Eletricas S.A. |
||||||||||||||
Semesa |
99,384 | 79,954 | IGP-M + 10% p.a. | 24 monthly installments from August 2008 | Energy produced by plant | |||||||||
Financial Institutions
CPFL Paulista |
||||||||||||||
Banco do Brasil- Law 8727 |
55,238 | 58,532 | Variation of lGPM +7.42% p.a. | 240 monthly installments from May 1994 | Receivables | |||||||||
RGE |
||||||||||||||
Banco Itau BBA |
69,252 | 69,164 | CDI + 1.75% p.a. | 24 monthly installments from May 2006 | Letters of credit CPFL, Ipe and receivables | |||||||||
Unibanco |
27,481 | 27,468 | CDI +2.15% p.a. | 18 quarterly installments from January 2006 | No guarantee | |||||||||
Banco Santander |
12,526 | 12,480 | CDI + 2.0% p.a. | 7 quarterly installments from January 2006 | Promissory notes | |||||||||
Banco Alfa |
2,321 | 20,179 | CDI + 2.0% p.a. | 4 monthly installments from January 2005 | Guarantee of CPFL Energia and promissory notes | |||||||||
Banrisul |
| 2,268 | 122.2 % CDI + 3.5% p.a. | 18 monthly installments from January 2004 | No guarantee | |||||||||
Banco Safra |
18,838 | | 104% of CDI | 1 installment in January 2006 | Promissory notes | |||||||||
Semesa |
||||||||||||||
Other |
| 27,382 | CDI + 0.90% p.a | Settlement in february of 2005 | ||||||||||
Other
CPFL Paulista |
||||||||||||||
ELETROBRAS |
14,543 | 17,243 | RGR + rate variable of 6% to 9% p.a. | Monthly installments to March 2016 | Receivables/Promissory notes | |||||||||
Other |
7,432 | 8,041 | ||||||||||||
RGE |
||||||||||||||
FINEP |
1,306 | 365 | TJLP + 4.0% p.a. | 48 monthly installments from July 2006 | Receivables | |||||||||
ELETROBRAS |
3,328 | 4,786 | RGR + rate of 6% to 9% p.a. | Monthly installments to July 2010 | Receivables/Promissory notes | |||||||||
Other |
16,672 | 8,351 | ||||||||||||
Piratininga |
||||||||||||||
ELETROBRAS |
9,463 | 5,733 | RGR + rate of 6% to 6.5% p.a. | Monthly installments to July 2016 | Receivables/Promissory notes | |||||||||
Other |
1,104 | 901 | ||||||||||||
Total Local Currency |
2,283,994 | 2,264,665 | ||||||||||||
As of December 31, | ||||||||||||||
FOREIGN CURRENCY | 2005 | 2004 | Remuneration | Amortization | Collateral | |||||||||
IFC CPFL Energia |
| 109,732 | US$ + 6 - month Libor + 5.25% p.a. | 10 semiannual installments from July 2005 | Share of CPFL Centrais Eletricas | |||||||||
Floating Rate Notes CPFL
Paulista |
244,947 | 437,188 | US$ +6-month Libor + 2.95% p.a. (******) | 24 semiannual installments from February 2003 | Receivables, Guarantee and promissory notes | |||||||||
Trade Finance Sul Geradora |
| 102,175 | US$ +Llibor + 4.7% p.a. | 12 installments, 3 per year (May, June and July) - From May 2002 | Guarantee of RGE and Letters of credits | |||||||||
IDB Enercan |
69,118 | | US$ + Libor + 3.5% p.a. | 49 quarterly installments from June 2007 | Guarantee of CPFL Energia | |||||||||
Financial Institutions
CPFL Paulista |
||||||||||||||
Debt Conversion Bond |
18,269 | 23,794 | US$ + 6-month Libor + 0.875% p.a. | 17 semiannual installments from April 2004 | Revenue/Government SP guaranteed | |||||||||
New Money Bond |
2,594 | 3,765 | US$ +6-monlh Libor + 0.875% p.a. | 17 semiannual installments from April 2001 | Revenue/Government SP guaranteed | |||||||||
FLIRB |
2,633 | 3,820 | US$ + 6-monlh Libor + 0.8125% p.a. | 13 semiannual installments from April 2003 | Revenue/Government SP guaranteed | |||||||||
C-Bond |
21,486 | 27,232 | US$ + 8% p.a. | 21 semiannual installments from April 2004 | Revenue/Government SP guaranteed | |||||||||
Discount Bond |
20,596 | 23,248 | US$ + 6-month Libor +0.8125%p.a. | 1 installment from 2024 | Escrow deposits and revenue Gov.SP guarantee | |||||||||
PAR-Bond |
29,616 | 33,586 | US$ + 6% p.a. | 1 installment from 2024 | Escrow deposits and revenue Gov.SP guarantee | |||||||||
El Bond Interest Bond |
1,273 | 4,310 | US$ + 6-month Libor + 0.8125% p.a. | 19 semiannual from April 1997 | Revenue/Government SP guaranteed | |||||||||
Plratininga |
||||||||||||||
Banco Itau BBA |
299,104 | | US$ +4.5% p.a. (*****) | 1 installment from February 2006 | No guarantee | |||||||||
RGE |
||||||||||||||
Banco Itau BBA |
| 4,169 | US$ +7.0% p.a. | 18 monthly installments from January 2004 | Promissory notes | |||||||||
Unibanco |
6,526 | 10,978 | US$ + Libor + 7.25% p.a. (***) | 7 semiannual installments from September 2004 | Receivables and reserve account | |||||||||
Semesa |
||||||||||||||
Citibank |
53,255 | | US$ + 5.12% p.a. (****) | 1 installment from December 2006 | Promissory notes/Guarantee of CPFL Energia | |||||||||
Total Foreign Currency |
769,417 | 783,997 | ||||||||||||
(*) | Converted into local cost corresponding to 135.70% of the CDI | |
(**) | Converted into local cost corresponding to 138.43% of the CDI | |
(***) | Converted into local cost corresponding to 100.83% of the CDI | |
(****) | Converted into local cost corresponding to 105% of the CDI | |
(*****) | Converted into local cost corresponding to 106.5% of the CDI | |
(******) | Converted into local cost corresponding to 93.65% and 94.75% of the CDI |
F-37
2005 | ||||
2007 |
518,364 | |||
2008 |
311,316 | |||
2009 |
190,245 | |||
2010 |
158,615 | |||
After 2010 |
628,925 | |||
Total |
1,807,465 | |||
Index | Accumulated Variation in % | Debt Composition % | ||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
IGP-M |
1.21 | 12.42 | 7.47 | 8.01 | ||||||||||||
UMBND (BNDES basket of currencies) |
(14.85 | ) | (6.47 | ) | 5.24 | 5.11 | ||||||||||
TJLP |
9.75 | 9.81 | 43.04 | 26.14 | ||||||||||||
CDI |
19.00 | 16.17 | 10.10 | 13.71 | ||||||||||||
SELIC |
19.04 | 16.24 | 31.85 | 44.81 | ||||||||||||
Other |
| | 2.30 | 2.22 | ||||||||||||
100.00 | 100.00 | |||||||||||||||
| Total debt divided by EBITDA, less than or equal 3.8 for 2005, and 3.5 for subsequent period. |
F-38
| EBITDA divided by the financial expenses, greater than or equal 2.0 |
a) | Total Shareholders Equity divided by the sum of total net equity and total indebtedness not less than 42% (on a consolidated basis) and 37% (on a non-consolidated basis). | |
b) | EBITDA divided by financial expenses higher than 2.25 (on a consolidated and non-consolidated basis); | |
c) | Indebtedness divided by EBITDA less than 3.5 (on a consolidated and non-consolidated basis). |
a) | Net indebtedness divided by EBITDA maximum of 4.0 in 2005 and 2006 and maximum of 3.5 from 2007 to 2010; | |
b) | Net indebtedness divided by the sum of net indebtedness and net equity maximum of 0.65 in 2005 and 2006 and maximum of 0.60 from 2007 to 2010. |
a) | Net indebtedness divided by EBITDA maximum of 3.0 in 2005 and maximum of 2.5 from 2006 to 2010; | |
b) | Net indebtedness divided by the sum of net indebtedness and net equity maximum of 0.80 in 2005 and maximum of 0.70 from 2006 to 2010. |
F-39
a) | Service Coverage Ratio of the Historic Debt and Service Coverage Ratio of the Projected Debt, on the date of payment of at least 1.30 and 1.30 respectively. The ratio is calculated by dividing the net cash flow from operations by debt service. | |
b) | The Indebtedness Ratio should have a maximum proportion of 75% of debt to 25% of equity. |
a) | net indebtedness divided by EBITDA equal to or less than 3.0; | |
b) | net indebtedness divided by the sum of net indebtedness and net equity less than or equal to 0.5. |
| The loan from Itaú BBA Local currency: contains restrictive clauses regarding the alteration or modification of Capital, related to any change, transfer or direct or indirect assignment of stock control, or upstream or downstream merger or spin-off without the prior express agreement of the creditor. In addition, the following financial ratios must be observed: |
a) | EBITDA divided by net financial expenses equal to or greater than 1.6; | ||
b) | net indebtedness divided by EBITDA equal to or greater than 2.7. |
| Unibanco Local Currency: The contract requires compliance with the following financial ratios: |
a) | financial debt divided by EBITDA equal to or less than 3.0; | ||
b) | financial expenses divided by EBITDA equal to or less than 0.4; | ||
c) | financial debt divided by total capital equal to or less than 3.0. |
| Unibanco Foreign Currency: The contract requires compliance with the following financial ratios: |
a) | EBITDA divided by interest paid plus net debt amortizations equal to or greater than 1.05; | ||
b) | total debt divided by EBITDA equal to or less than 3.0 (2004) and 2.5 (2005 to 2007); | ||
c) | interest paid divided by EBITDA equal to or less than 0.4; | ||
d) | total debt equal to or less than R$ 800,000. |
| Banco Santander Local currency: The contract requires compliance with the following financial ratios: |
a) | EBITDA divided by financial expenses paid greater than or equal to 2.0; | ||
b) | financial debt divided by EBITDA equal to or less than 3.5. |
F-40
Balances of: | ||||||||||||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||||||||||||
Issued | Remuneration | Amortization Conditions | Guarantees | Interest | Current | Long - Term | Interest | Current | Long - Term | |||||||||||||||||||||||||
CPFL Paulista |
||||||||||||||||||||||||||||||||||
1st issue |
||||||||||||||||||||||||||||||||||
1st Series
|
44,000 | IGP-M + 11.5% p.a. | 50% June 1, 2007 and remainder on June 1, 2008. | Guarantee of CPFL Energia | 48,467 | | 728,549 | 47,876 | | 719,676 | ||||||||||||||||||||||||
2nd Series
|
30,142 | CDI + 0.6% p.a. | 50% June 1, 2005 and remainder on June 1, 2006. | Guarantee of CPFL Energia | 17,021 | 150,710 | | 29,051 | 150,710 | 150,710 | ||||||||||||||||||||||||
2nd Issue |
||||||||||||||||||||||||||||||||||
1st Series |
11,968 | 109% of the CDI | July 1, 2009. | Unsecured | 12,015 | | 119,680 | 10,385 | | 119,680 | ||||||||||||||||||||||||
2nd Series |
13,032 | IGP-M + 9.8% p.a. | July 1, 2009. | Unsecured | 6,645 | | 138,854 | 6,617 | | 137,151 | ||||||||||||||||||||||||
84,148 | 150,710 | 987,083 | 93,929 | 150,710 | 1,127,217 | |||||||||||||||||||||||||||||
RGE |
||||||||||||||||||||||||||||||||||
2nd Issue |
||||||||||||||||||||||||||||||||||
1st Series |
2,620 | IGP-M + 9.6% p.a. | April 1, 2011. | Unsecured | 809 | 379 | 17,572 | | | | ||||||||||||||||||||||||
2nd Series |
20,380 | 106% of the CDI | April 1, 2009. | Unsecured | 6,149 | | 136,686 | | | | ||||||||||||||||||||||||
6,958 | 379 | 154,258 | | | | |||||||||||||||||||||||||||||
Semesa |
||||||||||||||||||||||||||||||||||
1st Issue
|
69,189 | TJLP + 4 to 5% p.a. | Half-yearly in June and December of each year, with settlement scheduled for 2009 | Letter of Guarantee Receivables and 100% of Semesa common nominal shares | 3,842 | 121,681 | 360,146 | 4,561 | 106,792 | 465,144 | ||||||||||||||||||||||||
Baesa |
||||||||||||||||||||||||||||||||||
1st Issue
|
23,094 | 105% of the CDI | Quarterly with the first payment in November 2006 and the last in August 2016. | Letters of Guarantee | | 722 | 28,178 | | | 24,060 | ||||||||||||||||||||||||
2nd Issue
|
23,281 | IGP-M + 9.55% p.a. | Annually with the first payment in August 2007 and the last in August 2016. | Letters of Gurantee | | | 26,934 | | | 24,284 | ||||||||||||||||||||||||
| 722 | 55,112 | | | 48,344 | |||||||||||||||||||||||||||||
94,948 | 273,492 | 1,556,599 | 98,490 | 257,502 | 1,640,705 | |||||||||||||||||||||||||||||
2005 | ||||
2007 |
513,917 | |||
2008 |
513,916 | |||
2009 |
472,833 | |||
2010 |
5,584 | |||
After 2010 |
50,349 | |||
TOTAL |
1,556,599 | |||
F-41
a) | ratio between EBITDA and financial expenses greater than or equal to 1.5; | |
b) | level of shareholders equity of at least 35% of total capitalization and third-party capital a maximum of 65% of capitalization for the year 2005 and a minimum of 40% of the total capitalization and third-party capital of a maximum of 60% of the capitalization as from 2006. |
a) | ratio between EBITDA and financial expenses greater than or equal to 1.5 up to 2007 and greater than or equal to 2.0 beginning in 2008; | |
b) | in relation to total capitalization, the level of equity should be at least 35% for the year 2005 and 40% as from 2006, while the level of third-party capital shall be a maximum of 65% for 2005 and 40% as from 2006. |
a) | reduction of Capital and/or amendments to the By-Laws implying the granting of the right to withdrawal of the shareholders in an amount that might directly or indirectly affect compliance with the pecuniary obligations established in the Deed of Issue; | |
b) | direct or indirect transfer or assignment of share control, or merger or spin-off, except in the event of disposal of the direct control to CPFL Energia S.A. and/or to a fully-owned subsidiary of CPFL Energia; | |
c) | disposal of the control of PSEG Américas Ltda, except in the event of transfer of control to the Exelon, except in the case of disposal to VBC Participações or to any company controlled by VBC Participações; | |
d) | VBC Participações S.A. ceases to hold a majority interest among the Parent Companies, or VBC Participações S.A., PREVI and/or a Bonaire Participações S.A. cease to jointly hold the direct or indirect control of RGE; |
| Total debt divided by EBITDA, less than or equal to 3.0; | |
| EBITDA divided by the financial expenses, greater than or equal to 2.0; |
F-42
20. | POST-RETIREMENT BENEFIT OBLIGATION | |
The subsidiaries CPFL Paulista, CPFL Geração and CPFL Piratininga, through Fundação CESP, and RGE, through Fundação ELETROCEEE, sponsor supplementary retirement and pension plans for their employees. The characteristics of these plans are as follows: | ||
CPFL Paulista and CPFL Geração | ||
Through September 30, 1997, these companies sponsored a defined benefit pension plan that, on October 27, 1997, was converted to mixed defined benefit and defined contribution plan. The mixed plan became a defined contribution plan for general retirement benefits and a defined benefit plan relating to disability or death benefits. | ||
This change required CPFL Paulista and CPFL Geração to assume an obligation arising from the Plans deficit at September 30, 1997 that was calculated by Fundação CESPs actuaries. The deficit was recorded by the Company and is being amortized over 240 monthly installments beginning September 1997. This obligation bears annual interest of 6% p.a. and is updated based on the IGP-DI (General Price Index Internal Supply, prepared by Fundação Getúlio Vargas). As of December 31, 2005 this obligation amounted to R$ 733,403 (R$ 743,045 as of December 31, 2004), and the liability was adjusted to comply with the criteria of CVM Resolution No. 371, dated December 13, 2000. | ||
CPFL Piratininga | ||
As a result of the split-off of Bandeirante in 2001, CPFL Piratininga assumed the responsibility for actuarial liabilities for its retired employees at the date of the split-off, as well as the obligations related to active employees transferred to CPFL Piratininga, from January 1, 1998 to September 30, 2001. Prior to April 2, 1998, Bandeirante sponsored a defined benefit pension plan that was converted into a mixed defined benefit and defined contribution plan in a process similar to CPFL Paulista and CPFL Geração as described above. In September 1997, through a contractual instrument of adjustment of reserves to be amortized, Eletropaulo (the predecessor of Bandeirante) recognized an obligation to pay referring to the plan deficit determined at the time by the external actuaries of the Fundação CESP, to be liquidated in 260 installments, amortized on a monthly basis, plus interest of 6% p.a. and adjusted based on the IGP-DI (FGV). As of December 31,2005 this obligation amounted to R$ 158,529 (R$ 126,496 as of December 31, 2004) and the liability was adjusted to comply with the criteria of CVM Resolution No. 371, dated December 13, 2000. | ||
Rio Grande Energia S.A. | ||
RGE sponsors a defined-benefit plan for its employees who participated in the Fundação CEEE when the privatization process occurred, with a target benefit of 100% of final salary including social security benefit, administered by ELETROCEEE RGE is responsible for coverage of deficits arising from the benefit plan and the sponsor contribution must be equivalent to the total contributions made by the participants in the same period. | ||
Following are the position of the Companys employee benefits plans, as well as other information required by CVM Resolution No. 371/2000. | ||
The amounts recognized in the balance sheet as of December 31, 2005 and 2004, according to appraisal prepared by an external actuary, are presented as follows: |
Reconciliation of Assets and Liabilities | 2005 | 2004 | ||||||
Present value of actuarial liabilities |
(3,126,091 | ) | (3,041,610 | ) | ||||
Fair value of plans assets |
2,153,018 | 1,991,113 | ||||||
Present value of liabilities exceeding fair value of assets |
(973,073 | ) | (1,050,497 | ) | ||||
Adjustments due to deferments |
||||||||
Unrecognized actuarial losses |
47,719 | 94,617 | ||||||
Unrecognized cost of past service |
101 | 112 | ||||||
Increase in liability by adopting CVM
Resolution No. 371 |
50,994 | 101,983 | ||||||
Net actuarial liability recorded |
(874,259 | ) | (853,785 | ) | ||||
F-43
The unrecognized actuarial losses as of December 31, 2005 do not exceed 10% of the Plans liabilities, and there is no need for future recognition by means of amortization during the remaining useful lives of the plans participants. These losses, if they occur, will be absorbed through future payments to the Plans. | ||
The increase in the liability due to the adoption of CVM Resolution No. 371 refers to the plans deficit calculated on December 31, 2001 that was deferred and is being amortized over five years. This amortization was classified in the statement of operations for 2005, as an extraordinary item at the amount net of the corresponding tax effects of R$ 32,559 (R$ 33,655 for 2004). | ||
Net liabilities changed as follows: |
2005 | 2004 | |||||||
Net actuarial liability at the beginning of the year |
(853,785 | ) | (770,056 | ) | ||||
Expenses recorded to statement of operations during the year |
(138,925 | ) | (202,165 | ) | ||||
Sponsors Contributions |
118,451 | 118,436 | ||||||
(874,259 | ) | (853,785 | ) | |||||
Current |
(105,696 | ) | (85,765 | ) | ||||
Long-term |
(768,563 | ) | (768,020 | ) | ||||
(874,259 | ) | (853,785 | ) | |||||
The accounting balances include other contributions relating to the Companys plans amounting to R$ 40,132 (R$ 45,648 in 2004). | ||
The external actuarys estimate the following net periodic pension cost for 2006 and 2005: |
2006 | 2005 | |||||||
Projected | Realized | |||||||
Cost of service |
6,079 | 6,860 | ||||||
Interest on actuarial liabilities |
341,095 | 331,513 | ||||||
Expected return on plan assets |
(352,681 | ) | (246,145 | ) | ||||
Unrecognized cost of past service |
11 | 11 | ||||||
Unrecognized actuarial losses |
(1,454 | ) | | |||||
Increase in liabilities due to adoption of CVM Res. No. 371 |
50,994 | 49,693 | ||||||
Total expense |
44,044 | 141,932 | ||||||
Expected participants contributions |
(2,112 | ) | (3,007 | ) | ||||
Total |
41,932 | 138,925 | ||||||
The 2006 projected expenses are lower than the 2005, mainly due to the increase in the nominal rate of return expected on the plans assets. This rate is reviewed annually by means of studies carried out by Fundação CESP and analyzed by the External Actuary. | ||
The expenses were recorded in the following accounts in the statement of operations : |
As of December 31, | ||||||||
2005 | 2004 | |||||||
Expense with the Employee Pension Plans |
||||||||
Operating Cost |
90,362 | 148,428 | ||||||
Operating (Income) Expense |
(725 | ) | 2,743 | |||||
Extraordinary Item net of Tax Effects |
32,559 | 33,655 | ||||||
Taxation of Extraordinary Item |
16,729 | 17,339 | ||||||
Total |
138,925 | 202,165 | ||||||
F-44
The main assumptions that were taken into consideration in the pension calculations at the balance sheet date were as follows: |
CPFL Paulista, | ||||||||||||||||
CPFL Piratininga and | ||||||||||||||||
CPFL Geração | RGE | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Nominal discount rate for actuarial
liabilities: |
11.3% p .a. | 11.3% p .a. | 11.3% p .a. | 11.3% p .a. | ||||||||||||
Nominal Return Rate on Assets: |
(*) | (*) | 11.3% p .a. | 11.3% p .a. | ||||||||||||
Estimated Rate of nominal salary
increases: |
7.1% p .a. | 7.1% p .a. | 7.1% p .a. | 7.1% p .a. | ||||||||||||
Estimated Rate of nominal benefits
increases: |
5.0% p .a. | 5.0% p .a. | 5.0% p .a. | 5.0% p .a. | ||||||||||||
Estimated long-term inflation rate
(as a basis for establishing the
nominal rates above) |
5.0% p .a. | 5.0% p .a. | 5.0% p .a. | 5.0% p .a. | ||||||||||||
UP94 with roll | ||||||||||||||||
Biometric mortality table: |
GAM83 | forward of 3 years | GAM83 | UP-84 (qx) | ||||||||||||
Biometric disability table: |
MERCER TABLE | MERCER TABLE | Light-Average (ix) | Light-Average (ix) | ||||||||||||
Expected turnover rate: |
0.30 / (Service | 0.30 / (Service | 0.30 / (Service | 0.30 / (Service | ||||||||||||
time + 1) | time + 1) | time + 1) | time + 1) | |||||||||||||
Probability of beginning retirement: |
100% on the first | 100% on the first | ||||||||||||||
eligibility | eligibility |
(*) | The expected Nominal Return Rate for 2006 on Plan Assets of the subsidiary CPFL Paulista is 16.97% (12.72% in 2005), for the indirect subsidiary CPFL Piratininga is 17.22% (12.82% in 2005) and for the subsidiary CPFL Geração is 16.97% (12.73% in 2005). |
21. | REGULATORY CHARGES |
2005 | 2004 | |||||||
Concession Reserve Fund RGR |
5,672 | 10,934 | ||||||
ANEEL Inspection Fee |
1,454 | 569 | ||||||
Fuel Consumption Account CCC |
2,060 | 33,249 | ||||||
Energy Development Account CDE |
21,759 | 16,752 | ||||||
30,945 | 61,504 | |||||||
Concession Reserve Fund RGR: a reserve fund managed by Eletrobrás, as a Federal Government agency, created to provide funds for payments to concessionaires upon expiration of the concession contracts, upon which the concessionaires are refunded by the net amount of permanent assets recorded in the books. Decree No. 1771/96 introduced the RGR rate of 2.5% for property, plant and equipment in service, limited to 3.0% of total gross operating revenue, less state VAT (ICMS). | ||
Fuel Consumption Account CCC: a contribution made by CPFL Paulista, CPFL Piratininga and RGE to fund the costs of fuel used in the thermoelectric power operating processes within the context of the Brazilian energy system. | ||
Energy Development Account CDE: created by Law No. 10,438, of April 26, 2002, to promote competition of energy generated through alternative sources such as wind power, small hydrogeneration plants, biomass, natural gas, and coal, in the areas served by the Brazilian electric interconnected system and to permit access to electric energy throughout Brazil. |
F-45
22. | RESERVE FOR CONTINGENCIES |
2005 | 2004 | |||||||||||||||
Escrow | Escrow | |||||||||||||||
Accrued | Deposits | Accrued | Deposits | |||||||||||||
Labor |
||||||||||||||||
Various |
57,389 | 37,239 | 63,743 | 34,865 | ||||||||||||
Civil |
||||||||||||||||
General Damages |
6,701 | 4,901 | 8,151 | 1,444 | ||||||||||||
Tariff Increase |
22,378 | 11,278 | 28,612 | 10,945 | ||||||||||||
Energy Purchased |
114,891 | 97,679 | 49,862 | 31,491 | ||||||||||||
Other |
8,288 | 555 | 8,968 | 3,078 | ||||||||||||
Subtotal |
152,258 | 114,413 | 95,593 | 46,958 | ||||||||||||
Tax |
||||||||||||||||
FINSOCIAL |
17,568 | 50,056 | 17,201 | 48,677 | ||||||||||||
PIS/COFINS Expansion of base |
104,774 | 2,317 | 95,908 | 2,317 | ||||||||||||
PIS/COFINS Interest on
shareholders equity |
8,533 | | | | ||||||||||||
Income tax |
26,528 | 14,513 | 20,492 | 4,500 | ||||||||||||
Other |
9,460 | 5,562 | 11,099 | 8,079 | ||||||||||||
Subtotal |
166,863 | 72,448 | 144,700 | 63,573 | ||||||||||||
Total |
376,510 | 224,100 | 304,036 | 145,396 | ||||||||||||
The Company records a provision for legal contingencies for which an adverse outcome is deemed probable based on the opinion of the Companys management and external legal advisors. | ||
A summary of the principal outstanding matters concerning litigation, claims and assessments, for which the Company recorded a provision is as follows: | ||
Labor: The principal labor lawsuits relate to claims by former employees or labor unions for payment of salary adjustments (overtime, salary parity, severance payments and other claims). | ||
In accordance with the terms of the Bandeirantes spin-off, CPFL Piratininga is responsible for obligations related to contingent risks of employees located in the respective regions it assumed, whereas obligations arising from corporate lawsuits relating to the period prior to the spin-off date, October 1, 2001, are assumed in the proportional percentage of the owners before the spin-off (56% for Bandeirante and 44% for CPFL Piratininga). | ||
General damages: Principally represent claims for indemnities. These matters include claims relating to accidents in the Companys electric grid, damages to consumers and vehicle accidents, among others. | ||
Tariff increase: Corresponds to various claims by industrial consumers against the subsidiaries CPFL Paulista and CPFL Piratininga as a result of increases imposed by DNAEE Ordinances 38 and 45, dated February 27 and March 4, 1986, when the Plano Cruzado economic plan price freeze was in effect. | ||
Energy purchased: As a result of the loss of several free consumers, CPFL Paulista and CPFL Piratininga requested from ANEEL a reduction in the capacity demand determined in their initial supply contracts, which was partially granted by ANEEL through Resolution No. 552 of October 21, 2003. The subsidiaries CPFL Paulista and CPFL Piratininga filed a lawsuit since they do not agree with the reduction in volume of energy determined by ANEEL, alleging a discrepancy in the calculations. Therefore, CPFL Paulista and CPFL Piratininga started to make monthly judicial deposits for the amounts challenged. | ||
FINSOCIAL: Refers to a challenge in court against the increase in the rate and payment of FINSOCIAL (tax on revenue) for the period from June 1989 to October 1991. The subsidiary CPFL Paulista obtained injunctions for the nonpayment of this tax. The judicial deposits are being recorded |
F-46
in the Escrow Deposits caption under long-term assets, and are updated, as is the contingency, in accordance with the variation in the Daily Reference Rate (TRD). | ||
PIS/COFINS Expansion of base: The Company obtained injunctions in 2002, with a view to dispensing with payment of PIS and COFINS due on the expansion of the calculation base of these taxes, laid down in Law n.º 9,718, of November 27, 1998. Although the Supreme Court has judged similar cases in favor of the taxpayer, the subsidiaries are still awaiting the final judgment of this claim. |
PIS/COFINS Interest on Shareholders equity: At the end of 2005, the Company obtained an injunction with a view to non-payment of PIS and COFINS levied on interest on shareholders equity. | ||
Income tax: In the subsidiary CPFL Piratininga, the reserve refers to an injunction obtained involving the tax deductibility of CSLL in the IRPJ calculation. In the subsidiary RGE, it basically refers to a request to suspend the decision of the Federal Revenue Service, to allow the deductibility of amounts related with complementary pension benefits of Fundação ELETROCEEE | ||
Other: Refers to other lawsuits in progress at the judicial and administrative levels and of a regulatory nature arising from the ordinary course of business involving mainly tax matters relating to INSS (Social Security), FGTS (Severance Indemnity Fund) and SAT (Labor Accident Insurance). | ||
The Company is also part to lawsuits for which an adverse outcome is deemed as possible. In connection with these lawsuits, the Companys management, based on the advice of external counsel, believes that the Company has a solid defense. However, there is not a consistent trend in decisions issued by Brazilian courts or any decisions from the Brazilian superior courts that would enable the Company to classify losses in respect of the related claims as either probable or remote. Claims relating to possible losses as of December 31, 2005 are as follows: (i) claims relating to several labor issues amounting to approximately R$ 122,848; (ii) claims relating to civil litigation, principally related to general damages, which amount to approximately R$ 115,914; and (iii) claims relating to tax litigation, principally related to income tax and revenue tax, amounting to approximately R$150,917. | ||
Management of the Company and its subsidiaries, based on the opinion of the legal counsel, considers that there are no significant risks that are not covered by reserves recorded in the financial statements or that could result in a significant impact on future results. | ||
23. | OTHER |
2005 | 2004 | |||||||
As restated | ||||||||
Note 38 | ||||||||
Current |
||||||||
Consumers and Concessionaires |
47,932 | 39,073 | ||||||
Tariff Review (Note 3) |
103,182 | | ||||||
Low Income Consumer Subsidy (Note 3) |
5,400 | 5,175 | ||||||
Research and Development and Energy Efficiency Programs |
78,508 | 50,912 | ||||||
Advances |
4,600 | 17,115 | ||||||
Interest on Compulsory Loan |
8,503 | 4,950 | ||||||
Emergency Capacity Charge and Emergency Energy
Purchase Charge ECE/EAEE |
22,879 | 35,199 | ||||||
Other |
14,561 | 14,806 | ||||||
Total |
285,565 | 167,230 | ||||||
Long Term |
||||||||
Tariff Review (Note 3) |
| 71,113 | ||||||
Fund for Reversal |
13,987 | 13,987 | ||||||
Research and Development and Energy Efficiency Programs |
87,049 | 62,529 | ||||||
Other |
6,456 | 6,511 | ||||||
Total |
107,492 | 154,140 | ||||||
F-47
As of December 31, 2005 | ||||||||
Current | Long-term | |||||||
Energy Efficiency Program PEE |
35,208 | 48,368 | ||||||
Research and Development P&D |
7,431 | 27,829 | ||||||
National Scientific and Technological Development Fund FNDCT |
18,070 | 7,235 | ||||||
Energy Research Company EPE |
17,799 | 3,617 | ||||||
Total |
78,508 | 87,049 | ||||||
24. | SHAREHOLDERS EQUITY | |
The Company only has common shares, without par value, distributed as follows: |
2005 | 2004 | |||||||||||||||
Shareholders | Shares | % | Shares | % | ||||||||||||
VBC Energia S.A. |
184,673,695 | 38.49 | 170,214,676 | 37.69 | ||||||||||||
521 Participações S.A. |
149,230,369 | 31.11 | 149,230,369 | 33.04 | ||||||||||||
Bonaire Participações S.A. |
60,713,509 | 12.65 | 61,503,529 | 13.62 | ||||||||||||
BNDES Participações S.A. |
23,005,251 | 4.80 | 23,005,251 | 5.09 | ||||||||||||
Other Shareholders |
62,089,690 | 12.94 | 47,636,252 | 10.55 | ||||||||||||
Board Members and Statutory Directors |
43,399 | 0.01 | 38,692 | 0.01 | ||||||||||||
Treasury Shares |
817 | 0 | | 0.00 | ||||||||||||
Total |
479,756,730 | 100.00 | 451,628,769 | 100.00 | ||||||||||||
Free Float |
85,094,941 | 17.74 | 70,680,174 | 15.65 |
| Acquisition of shares of the subsidiary CPFL Geração | ||
The General and Extraordinary Shareholders Meetings of the Company and of the subsidiary CPFL Geração, held on June 20, 2005, approved the acquisition of all the common and preferred shares of the minority shareholders of the subsidiary CPFL Geração into the equity of CPFL Energia, with an increase of capital in the Company of R$ 85,577, through the issuance of 3,665,488 common shares (Note 15.f). | |||
| Subscription Bonus IFC | ||
In meetings held on May 6 and July 25, 2005, the Board of Directors approved an increase in the Companys capital through the issuance of 1,440,409 and 4,159,647 common shares, |
F-48
respectively, in view of the Subscription Bonus issued on December 5, 2003 to the IFC. The subscription price used on each of these dates was R$ 17.57 and R$ 17.71, resulting in capital increases of R$ 25,308 and R$ 73,668, respectively, transferred from current liabilities (R$ 17,258) and long-term liabilities (R$ 81,718) (Note 18). | |||
| Acquisition of shares of the subsidiary CPFL Paulista | ||
The General and Extraordinary Shareholders Meetings of the Company and of the subsidiary CPFL Paulista, held on November 23 and 22, 2005, respectively, approved the acquisition of all the common and preferred shares of the non-controlling shareholders of the subsidiary CPFL Paulista into the equity of CPFL Energia, with an increase of capital in the Company of R$ 468,201, through the issuance of 18,862,417 common shares (Note 15.a). |
Accumulated Deficit |
(74,871 | ) | ||
Net Income Company |
1,021,278 | |||
Statutory Reserve Constitution |
(47,320 | ) | ||
Adjusted Net income |
899,087 | |||
Interim dividend |
(323,677 | ) | ||
Interim interest on shareholders equity |
(76,920 | ) | ||
Proposed interest on shareholders equity |
(109,295 | ) | ||
Proposed dividend |
(389,195 | ) | ||
Retained earnings |
| |||
F-49
No. of Consumers | ||||||||||||||||||||||||||||||||||||
(in thousands) (*) (**) | Gwh(*) | R$ | ||||||||||||||||||||||||||||||||||
Revenue from Electric Energy Operations | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||
Consumer class |
||||||||||||||||||||||||||||||||||||
Residential |
4,805 | 4,673 | 4,563 | 8,783 | 8,302 | 8,124 | 3,556,914 | 3,115,002 | 2,695,986 | |||||||||||||||||||||||||||
Industrial |
81 | 82 | 81 | 16,995 | 17,897 | 16,909 | 3,328,655 | 3,182,893 | 2,771,173 | |||||||||||||||||||||||||||
Commercial |
446 | 439 | 430 | 5,329 | 4,936 | 4,752 | 1,868,848 | 1,589,358 | 1,344,023 | |||||||||||||||||||||||||||
Rural |
233 | 230 | 226 | 1,730 | 1,619 | 1,550 | 312,614 | 270,917 | 226,097 | |||||||||||||||||||||||||||
Public Administration |
36 | 35 | 34 | 800 | 746 | 736 | 261,696 | 222,155 | 185,759 | |||||||||||||||||||||||||||
Public Lighting |
2 | 2 | 1 | 1,098 | 1,070 | 1,048 | 225,472 | 207,222 | 184,611 | |||||||||||||||||||||||||||
Public Services |
5 | 5 | 5 | 1,400 | 1,358 | 1,352 | 329,866 | 281,300 | 240,441 | |||||||||||||||||||||||||||
Billed |
5,608 | 5,466 | 5,340 | 36,135 | 35,928 | 34,471 | 9,884,065 | 8,868,847 | 7,648,090 | |||||||||||||||||||||||||||
Own Consumption |
| 1 | 1 | 25 | 26 | 27 | | | | |||||||||||||||||||||||||||
Unbilled (Net) |
| | | | | | 39,607 | 26,962 | 35,337 | |||||||||||||||||||||||||||
Emergency
ChargesECE/EAEE(note 25) |
| | | | | | 229,153 | 359,902 | 268,328 | |||||||||||||||||||||||||||
Losses on Realization of Extraordinary Tariff Adjustment |
| | | | | | | (32,250 | ) | | ||||||||||||||||||||||||||
Realization of Extraordinary Tariff Adjustment (note 3) |
| | | | | | (258,143 | ) | (241,637 | ) | (216,530 | ) | ||||||||||||||||||||||||
Realization of Free Energy (note 3) |
| | | | | | (96,752 | ) | (88,724 | ) | (73,591 | ) | ||||||||||||||||||||||||
Adjustment
of the Ratified Value of Free Energy (a) |
| | | | | | | 57,199 | (26,248 | ) | ||||||||||||||||||||||||||
2003 Tariff Review (note 3) |
| | | | | | (52,244 | ) | (81,182 | ) | 13,798 | |||||||||||||||||||||||||
Realization
of 2003 Tariff Review (note 3) |
| | | | | | 48,762 | | | |||||||||||||||||||||||||||
PIS and COFINS Generators Pass Through (note 3) |
| | | | | | 22,958 | | | |||||||||||||||||||||||||||
Realization PIS and COFINS Generators Pass Through(note 3) |
| | | | | | (11,424 | ) | | | ||||||||||||||||||||||||||
2005 Tariff Adjustment TUSD (note 3) |
| | | | | | 4,009 | | | |||||||||||||||||||||||||||
Realization of 2005 Tariff Adjustment TUSD (note 3) |
| | | | | | (3,956 | ) | | | ||||||||||||||||||||||||||
2005 Tariff Adjustment RGR (note 3) |
| | | | | | 2,088 | | | |||||||||||||||||||||||||||
Realization of 2005 Tariff Adjustment RGR (note 3) |
| | | | | | (328 | ) | | | ||||||||||||||||||||||||||
2005 Tariff Adjustment Purchase of electric energy from
ltaipu (note 3) |
| | | | | | 33,339 | | | |||||||||||||||||||||||||||
ELECTRICITY SALES TO FINAL CONSUMERS |
5,608 | 5,467 | 5,341 | 36,160 | 35,954 | 34,498 | 9,841,134 | 8,869,117 | 7,649,184 | |||||||||||||||||||||||||||
Furnas
Centrals Elétricas S.A. |
3,025 | 3,034 | 3,026 | 298,676 | 253,571 | 232,507 | ||||||||||||||||||||||||||||||
Other Concessionaires and Licensees |
2,197 | 693 | 449 | 123,160 | 44,019 | 24,167 | ||||||||||||||||||||||||||||||
Current Electric Energy |
938 | 395 | 1,201 | 38,293 | 12,724 | 18,573 | ||||||||||||||||||||||||||||||
ELECTRICITY SALES TO DISTRIBUTORS |
6,160 | 4,122 | 4,676 | 460,129 | 310,314 | 275,247 | ||||||||||||||||||||||||||||||
Revenue due to Network Usage Charge TUSD (b) |
472,607 | 216,750 | 36,451 | |||||||||||||||||||||||||||||||||
Low Income Consumers Subsidy (note 3) |
21,329 | 46,785 | 31,872 | |||||||||||||||||||||||||||||||||
Other Revenues and Incomes |
111,859 | 105,704 | 88,952 | |||||||||||||||||||||||||||||||||
OTHER OPERATING REVENUES |
605,795 | 369,239 | 157,275 | |||||||||||||||||||||||||||||||||
Total |
10,907,058 | 9,548,670 | 8,081,706 | |||||||||||||||||||||||||||||||||
(*) | Unaudited | |
(**) | Represents active customers (customers connected to the distribution network) |
a) | Adjustment Free Energy (Consolidated) In June 2003 and 2004 ANEEL corrected the amount relating to free energy transactions. A similar amount was recorded in Cost of Electricity (Note 26). |
b) | Revenue due to Network Usage Charge TUSD: Refers to the tariffs collected from free consumers located in the concession area of the subsidiaries for use of the distribution system. |
F-50
26. | ELECTRICITY COST |
GWh (*) | R$ (thousands) | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
Electricity Purchased for Resale
Electricity Purchased in the
Regulated Market- ACR |
||||||||||||||||||||||||
Itaipu Binacional |
10,501 | 10,336 | 10,575 | 883,901 | 947,844 | 982,589 | ||||||||||||||||||
Furnas Centrais Elétricas S.A. |
2,918 | 4,931 | 7,584 | 248,236 | 391,290 | 527,400 | ||||||||||||||||||
CESP Cia. Energética de São
Paulo |
2,556 | 4,789 | 7,362 | 217,194 | 362,066 | 502,352 | ||||||||||||||||||
Cia. de Geração de Energia
Elétrica do Tietê |
1,218 | 2,092 | 3,051 | 102,833 | 161,615 | 207,047 | ||||||||||||||||||
Duke Energy Inter. Geração.
Paranapanema S.A. |
1,506 | 2,119 | 2,827 | 137,761 | 176,203 | 202,756 | ||||||||||||||||||
Tractebel Energia S.A. |
3,789 | 3,880 | 2,193 | 425,580 | 378,191 | 163,835 | ||||||||||||||||||
Auction of energy |
580 | | | 31,597 | | | ||||||||||||||||||
EMAE Empresa Metropolitana de
Águas e Energia |
188 | 338 | 528 | 15,622 | 25,950 | 34,330 | ||||||||||||||||||
Cia. Estadual Energia Elétrica
CEEE |
186 | 309 | 463 | 12,395 | 18,262 | 24,317 | ||||||||||||||||||
AES Uruguaiana Ltda. |
834 | 773 | 773 | 96,881 | 85,541 | 70,657 | ||||||||||||||||||
Co-generation |
16 | 45 | 60 | 870 | 2,109 | | ||||||||||||||||||
Petrobrás Petróleo Brasileiro S.A |
1,769 | | | 173,058 | | | ||||||||||||||||||
CCEE |
507 | 260 | 399 | 7,326 | 3,952 | 1,278 | ||||||||||||||||||
Other |
389 | 404 | 65 | 46,344 | 36,966 | 6,387 | ||||||||||||||||||
26,957 | 30,276 | 35,880 | 2,399,598 | 2,589,989 | 2,722,948 | |||||||||||||||||||
Energy Purchased in the Free
Market ACL |
16,292 | 11,119 | 4,577 | 1,060,874 | 661,425 | 228,051 | ||||||||||||||||||
43,249 | 41,395 | 40,457 | 3,460,472 | 3,251,414 | 2,950,999 | |||||||||||||||||||
Deferral related to variations of
Parcel A (CVA), net |
57,691 | 95,406 | 94,796 | |||||||||||||||||||||
Surplus Energy (Note 3) |
(44,212 | ) | | | ||||||||||||||||||||
Free Energy adjustment |
| 67,536 | (25,620 | ) | ||||||||||||||||||||
PIS and COFINS Generators
Pass-Through (Note 3) |
22,958 | | | |||||||||||||||||||||
Credit for PIS/COFINS |
(322,144 | ) | (288,604 | ) | | |||||||||||||||||||
Subtotal |
3,174,765 | 3,125,752 | 3,020,175 | |||||||||||||||||||||
Electricity Network Usage Charges |
||||||||||||||||||||||||
Basic Network Charges |
538,359 | 494,001 | 421,020 | |||||||||||||||||||||
Charges for Transmission from
Itaipu |
59,633 | 52,320 | 44,538 | |||||||||||||||||||||
Connection Charges |
46,874 | 80,460 | 48,575 | |||||||||||||||||||||
System
Service Charges ESS |
24,291 | 14,881 | 36,345 | |||||||||||||||||||||
Subtotal |
669,157 | 641,662 | 550,478 | |||||||||||||||||||||
Deferral related to variations of
Parcel A (CVA) |
163,189 | 100,815 | (104,939 | ) | ||||||||||||||||||||
Credit for PIS/COFINS |
(75,160 | ) | (63,919 | ) | | |||||||||||||||||||
Subtotal |
757,186 | 678,558 | 445,539 | |||||||||||||||||||||
Total |
3,931,951 | 3,804,310 | 3,465,714 | |||||||||||||||||||||
(*) | Unaudited |
F-51
27. | OPERATING EXPENSES |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Sales and Marketing |
||||||||||||
Personnel |
37,190 | 30,487 | 23,304 | |||||||||
Materials |
5,955 | 3,801 | 3,791 | |||||||||
Outside Services |
46,122 | 41,033 | 35,337 | |||||||||
Allowance for Doubtful Accounts |
63,893 | 68,717 | 43,495 | |||||||||
Depreciation and Amortization |
5,997 | 4,160 | 3,565 | |||||||||
Collection Tariffs and Services |
43,453 | 40,096 | 33,086 | |||||||||
Other |
9,668 | 7,035 | 5,830 | |||||||||
Subtotal |
212,278 | 195,329 | 148,408 | |||||||||
General and Administrative Expenses |
||||||||||||
Personnel |
76,552 | 71,200 | 60,068 | |||||||||
Materials |
4,769 | 3,863 | 8,123 | |||||||||
Outside Services |
112,842 | 110,994 | 108,022 | |||||||||
Leases and Rentals |
5,716 | 2,541 | 5,902 | |||||||||
Depreciation and Amortization |
23,098 | 22,006 | 19,633 | |||||||||
Publicity and Advertising |
7,677 | 8,683 | 6,688 | |||||||||
Legal, Judicial and Indemnities |
17,183 | 16,686 | 40,679 | |||||||||
Donations, Contributions and Subsidies |
6,646 | 4,020 | 8,629 | |||||||||
PERCEE |
1,716 | 9,818 | 11,114 | |||||||||
Other |
10,728 | 18,422 | 10,361 | |||||||||
Subtotal |
266,927 | 268,233 | 279,219 | |||||||||
Other Operating Expenses |
||||||||||||
Inspection Fee |
16,637 | 13,000 | 9,389 | |||||||||
Research and Development and Energy
Efficiency Programs (Note 23) |
66,573 | 42,766 | 31,199 | |||||||||
Losses on Extraordinary Tariff
Adjustment and Free Energy (Note 3) |
91,806 | | | |||||||||
Other |
2 | 92 | | |||||||||
Subtotal |
175,018 | 55,858 | 40,588 | |||||||||
Amortization of Goodwill |
125,709 | 110,385 | 531,993 | |||||||||
Total |
779,932 | 629,805 | 1,000,208 | |||||||||
F-52
28. | FINANCIAL INCOME (EXPENSE) |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Financial Income |
||||||||||||
Income from Temporary Cash Investments |
124,761 | 70,006 | 8,392 | |||||||||
Late Payment Charges |
86,451 | 79,558 | 66,301 | |||||||||
Interest on Prepaid Income and Social Contribution Taxes |
9,381 | 4,802 | 28,024 | |||||||||
Monetary Variations |
27,906 | | 124,478 | |||||||||
Interest CVA |
144,449 | 131,175 | 141,651 | |||||||||
Discount on purchase of ICMS credit |
11,527 | 6,612 | | |||||||||
Interest Extraordinary Tariff Adjustment |
160,346 | 114,030 | 178,385 | |||||||||
Other |
39,520 | 32,035 | 36,633 | |||||||||
Subtotal |
604,341 | 438,218 | 583,864 | |||||||||
Financial Expense |
||||||||||||
Debt Charges |
(585,962 | ) | (660,836 | ) | (981,329 | ) | ||||||
Banking Expenses |
(56,916 | ) | (95,739 | ) | (79,429 | ) | ||||||
Monetary Variations |
| (132,012 | ) | | ||||||||
Derivative contracts |
(135,175 | ) | (115,700 | ) | (281,396 | ) | ||||||
Credit for PIS/COFINS |
| 44,426 | | |||||||||
Other |
(37,987 | ) | (45,858 | ) | (62,793 | ) | ||||||
Subtotal |
(816,040 | ) | (1,005,719 | ) | (1,404,947 | ) | ||||||
Net Financial Expense |
(211,699 | ) | (567,501 | ) | (821,083 | ) | ||||||
Monetary variations includes gain or losses relating to inflation adjustments of assets and liabilities as required contractually or legally, or foreign exchange gain or losses relating to assets and liabilities denominated in foreign currency. |
29. | NONOPERATING INCOME (EXPENSE) |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Nonoperating Income |
||||||||||||
Gain on sale of equity interest in subsidiaries |
| | 39,537 | |||||||||
Gain on changes in equity interest in subsidiaries |
172 | 5,911 | | |||||||||
Gain on Disposal of Property, plant and equipment |
9,533 | 6,828 | 13,398 | |||||||||
Materials and supplies overages |
| 689 | 634 | |||||||||
Other |
803 | 1,507 | 374 | |||||||||
Subtotal |
10,508 | 14,935 | 53,943 | |||||||||
Nonoperating Expenses |
||||||||||||
Loss on changes in equity interest in subsidiaries |
(1,012 | ) | (2,726 | ) | | |||||||
Loss on Disposal of Property, plant and equipment |
(6,176 | ) | (11,765 | ) | (6,581 | ) | ||||||
Loss on the Deactivation of Property, plant and equipment |
(3,180 | ) | (197 | ) | | |||||||
Losses due to Non-Utilization of Studies and Designs |
(15 | ) | (3,372 | ) | | |||||||
Materials and supplies shrinkage |
| (241 | ) | (3,279 | ) | |||||||
Other |
(485 | ) | (1,049 | ) | (231 | ) | ||||||
Subtotal |
(10,868 | ) | (19,350 | ) | (10,091 | ) | ||||||
Total |
(360 | ) | (4,415 | ) | 43,852 | |||||||
The gain on sale and changes in equity interest in subsidiaries in 2003 are related to the 26.00% and 25.01% of the share capital of ENERCAN and BAESA sold by CPFL Geração, for R$131,320 and R$91,638, respectively, resulting in a net gain of R$39,537. |
F-53
30. | PROFIT SHARING | |
In accordance with the Collective Bargaining Agreement, the Company and its subsidiaries implemented a profit sharing program, based on agreed operating and financial targets previously established with the employees. The amount of this profit-sharing for 2005 was R$ 20,252 (R$19,019 in 2004 and R$ 17,255 in 2003). | ||
31. | RELATED PARTIES | |
Transactions with related parties are summarized below: |
For the Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Fixed Asset Purchases |
||||||||||||
Construções e Comércio Camargo Corrêa S.A. |
131,142 | 286,453 | 192,700 | |||||||||
Camargo Corrêa Equipamentos e Sistemas S.A. |
2,667 | 11,306 | 74 | |||||||||
Cimento Rio
Branco S.A. Votorantim Cimentos |
6,945 | 15,869 | 5,543 | |||||||||
Siderúrgica Barra Mansa S.A. Votorantim Metais |
304 | | 3,842 | |||||||||
Operating Costs |
||||||||||||
Companhia Brasileira de Aluminio |
2,846 | 1,827 | | |||||||||
Operating Revenues |
||||||||||||
Votorantim Celulose e Papel S.A. |
36,483 | 28,177 | 41,224 | |||||||||
S.A. Industrias Votorantim |
31,057 | 24,356 | 33,522 | |||||||||
Votocel Filmes Flexiveis Ltda. |
12,040 | 9,530 | 9,551 | |||||||||
Cimento Rio
Branco S.A. Votorantim Cimentos |
22,103 | 10,074 | | |||||||||
Financial Income |
||||||||||||
Banco Bradesco S.A. |
79,086 | 53,692 | 1,365 | |||||||||
Banco Votorantim S.A. |
| 976 | 1,177 | |||||||||
Financial Expenses |
||||||||||||
Banco Votorantim S.A. |
1,940 | 12,193 | 70,752 | |||||||||
Pledges and Tied Deposits |
||||||||||||
Banco Bradesco S.A. |
3,828 | | |
The balances with related parties are summarized below: |
As of December 31, | ||||||||
2005 | 2004 | |||||||
Financial investments |
||||||||
Banco Bradesco S.A. |
708,601 | 538,944 | ||||||
Pledges and Tied Deposits |
||||||||
Banco Bradesco S.A. |
7,772 | | ||||||
Accounts receivables |
||||||||
Camargo Corrêa Cimentos S.A. |
593 | | ||||||
Companhia Brasileira de Alumínio |
955 | | ||||||
Prepaid expenses |
||||||||
Votorantim C.T.V.M. Ltda |
| 954 | ||||||
Suppliers |
||||||||
Construções e Comércio Camargo Corrêa |
23,419 | 26,926 | ||||||
Cimento Rio
Branco S.A. Votorantim Cimentos |
281 | 211 | ||||||
Companhia Brasileira de Alumínio |
428 | 66 | ||||||
Siderúrgica Barra Mansa S.A. Votorantim Metais |
304 | | ||||||
Advances to suppliers |
||||||||
Camargo Corrêa S.A. |
| 727 | ||||||
Loans and financing |
||||||||
Banco Votorantim S.A. |
4,822 | 17,438 |
The above transactions were completed with terms generally similar to those prevailing in transactions with unrelated parties. |
F-54
32. | INSURANCE | |
The subsidiaries maintain insurance policies with cover determined based on advice by specialists, taking into account the nature and degree of risk, for amounts considered sufficient to cover any significant losses on assets and/or liabilities. | ||
The principal insurance polices cover the following: |
As of December 31, | ||||||||||
DESCRIPTION | TYPE OF COVER | 2005 | 2004 | |||||||
Property, Plant and Equipment | Fire, Lightning, Explosion, Machinery breakdown and Electrical Damage | 951,146 | 679,742 | |||||||
Transport |
National Transport | 43,000 | 2,000 | |||||||
Stored Materials |
Fire, Lightning, Explosion and Robbery | 12,000 | 18,200 | |||||||
Automobiles |
Comprehensive Cover | 2,058 | 1,282 | |||||||
Civil Liability |
Electricity Distributors | 26,024 | 44,000 | |||||||
Personnel |
Group Life and Personal Accidents | 50,830 | 12,406 | |||||||
TOTAL |
1,085,058 | 757,630 | ||||||||
33. | FINANCIAL INSTRUMENTS | |
33.1 | CONSIDERATIONS ON RISKS | |
The business of the Company and its subsidiaries basically comprises the supply of energy to final consumers, as public service utilities, whose activities and tariffs are regulated by ANEEL. The principal market risk factors that affect business are the following: | ||
Exchange Rate Risk: | ||
This risk arises from the possibility that the Company may incur losses due to exchange rate fluctuations, which would increase the balances of liabilities in foreign currency. In order to protect against that risk, the Company has contracted hedge/swap operations so that their liabilities are indexed to domestic index variations. These transactions are recorded on the accrual basis and in accordance to the conditions of the contracted financial instrument. |
| Foreign Currency Loans: Exposure on loans was substantially covered through financial swap transactions operations, which allowed the Company and the subsidiaries to exchange the original risks of the operation for the cost in proportion to the CDI (Note 18). | ||
| Purchase of Energy from Itaipu: The subsidiaries are exposed in their operations to exchange variations in the purchase of electricity from Itaipu. The compensation mechanism CVA protects the companies against possible losses, as mentioned in Note 3. |
Interest Rate Risk | ||
This risk originates from the possibility that the Company may incur losses due to interest rate fluctuations, which would increase the financial expenses related to loans, financing and debentures. In the case of loans obtained abroad, the Company has contracted derivative instruments to hedge against this risk (see exchange rate risk mentioned above). For some loans borrowed in local currency, the Company has as counterparts, regulatory assets updated according to the variation of the Selic rate. The subsidiaries have also increased the participation of loans tied to the variation in the TJLP, an index less susceptible to the oscillations of the financial market. | ||
Credit risk | ||
The risk arises from the possibility that subsidiaries may incur losses due to the difficulty in receiving amounts billed to their customers. This risk is considered low by the Company in view of the dispersion in the number of customers and the policy of collection and supply cuts to delinquent customers. | ||
Energy Shortages Risk | ||
The energy purchased and distributed by the Company is primarily generated by hydroelectric plants. A long period of rain shortage may reduce the volume of water in reservoirs of power plants |
F-55
resulting in losses due to the increase in costs for purchasing energy or reduction of revenues if a new rationing program became necessary, similar to that of 2001. Given the current level of the reservoirs, the National Electric System Operator (ONS) does not expect that a new rationing program will be necessary in 2006. | ||
Risk of Acceleration of Debts | ||
The Company has loans and financing, as well as debentures, which include covenants requiring the Company to comply with certain ratios and conditions. As of the date of these financial statements, the Company was in compliance with these covenants and do not limit the capacity to operate normally. | ||
33.2 FAIR VALUES OF FINANCIAL INSTRUMENTS | ||
The Company and its subsidiaries maintain operating and financial policies and strategies aimed at ensuring the liquidity, security and profitability of their assets. As a result, control and follow-up procedures are in place on the transactions and balances of financial instruments, for the purpose of monitoring the risks and current rates in relation to those practiced in the market. | ||
The principal financial asset and liability instruments as of December 31, 2005, are described below, together with the criteria for their valuation and recording in the financial statements: | ||
Cash, cash equivalents and Financial Investments | ||
Comprise cash, banks, temporary cash investments and debt security. The market value of these assets approximate the amounts reflected in the balance sheet (Note 4 and 5). | ||
Regulatory Assets and Liabilities | ||
Basically composed of the Extraordinary Tariff Recovery, Free Energy, Parcel A, PERCEE, Assets and Liabilities related to financial compensation, result of the Periodic Tariff Review, CVA, low income subsidy, PIS and COFINS regulatory assets and other. These assets and liabilities are derived from the effects of the 2001 rationing plan, amounts related to the deferral of tariff costs and gains, and changes in tax and regulatory legislation. These amounts are valued according to the criteria defined by ANEEL, with the characteristics described in Note 3. | ||
Loans and financing | ||
Recorded in compliance with the criteria contractually established, with the characteristics defined in Note 18. As described above, on December 31, 2005, the Company and its subsidiaries maintained financial swap instruments for their foreign currency denominated loans and interest charges. The purpose of these contracted instruments is to protect the operations of the subsidiaries against exchange and interest rate fluctuations, and are not used for speculative purposes. | ||
Debentures | ||
The debentures issued by the subsidiaries are traded on the market and are recorded according to the criteria stipulated at the time of issue, according to the characteristics defined in Note 19. | ||
Investments in subsidiaries | ||
The Company has investments recorded according to the equity method in companies whose stock is traded on the capital markets. Company management considers that the trading volume and value of these shares is not representative of the market value of the respective companies given the small volume of transactions in this stock on the market. | ||
The estimated market value of the Companys financial instruments was prepared based on models that discount future cash flows to present value, comparison with similar transactions contracted on dates close to the closing date of the financial statements and comparisons with average market parameters. In the case of operations with no similar transactions in the market, principally related with the energy rationing program, regulatory assets and liabilities and credits receivable from CESP, the Company assumed that the fair value corresponds to the book value. |
F-56
Following are the book and fair values of the Companys financial instruments as of December 31, 2005 and 2004. |
2005 | 2004 | |||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | |||||||||||||
Loans and Financing |
3,053,411 | 3,028,409 | 3,048,662 | 2,888,108 | ||||||||||||
Debentures |
1,925,039 | 1,887,827 | 1,996,697 | 2,005,942 | ||||||||||||
Derivatives |
68,439 | 68,165 | 87,752 | 75,072 | ||||||||||||
Total |
5,046,889 | 4,984,401 | 5,133,111 | 4,969,122 | ||||||||||||
DERIVATIVE CONTRACTS | ||
As of December 31, 2005 and 2004 the Company has contracts swap in connection with exchange losses resulting from the devaluation of the Brazilian real compared to the U.S. dollar in the notional amount, as summarized as follows: |
Unrealized Gains | ||||||||||||||||||||
and (Losses) | ||||||||||||||||||||
Aggregate | recorded as | |||||||||||||||||||
notional | derivative | |||||||||||||||||||
Type | Date of contracts | Expiration dates | Currency | amount | contracts - R$ | |||||||||||||||
As of December 2005 | ||||||||||||||||||||
Swap (U.S.$/CDI) |
August 2005 | December 2006 | US$ | 33,488 | 3,644 | |||||||||||||||
Total Gains |
3,644 | |||||||||||||||||||
Swap (U.S.$/CDI) |
June 2001 to December 2005 | February 2006 to September 2007 | US$ | 256,983 | (69,522 | ) | ||||||||||||||
Swap (Libor/) |
December 2005 | June 2006 | US$ | 76,985 | (41 | ) | ||||||||||||||
Total Losses |
(69,563 | ) | ||||||||||||||||||
As of December 2004 | ||||||||||||||||||||
Swap (U.S.$/CDI) |
June 2001 to November 2004 | February 2005 to September 2007 | US$ | 235,318 | (87,428 | ) | ||||||||||||||
Swap (Libor/Fixed interest) |
December 2004 | June 2005 | US$ | 148,309 | (324 | ) | ||||||||||||||
Total Losses |
(87,752 | ) | ||||||||||||||||||
34. | SUBSEQUENT EVENTS |
As of December 31, | ||||
2005 | ||||
Description |
||||
Investment CPFL Piratininga |
230,538 | |||
Goodwill CPFL Piratininga |
154,826 | |||
Investment Companhia de Gás de São Paulo COMGAS |
27,152 | |||
Investment Energias do Brasil S.A |
772 | |||
Total |
413,288 | |||
F-57
With the implementation of the Corporate Reorganization, the shareholding control of CPFL Piratininga, previously held directly by CPFL Paulista and indirectly by CPFL Energia, will be held directly by CPFL Energia. This transaction does not affect the Companys consolidated financial statements. | ||
The transfer of control held by CPFL Paulista in RGE, directly to CPFL Energia should be put into effect by March 14, 2007, as agreed by ANEEL through Authorizing Resolution nº 305 of September 5, 2005. |
F-58
35. | COMMITMENTS | |
The Companys commitments under long-term energy purchase contracts and power plant construction projects are as follows: |
2011 and | ||||||||||||||||||||||||||||||||
Duration | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | |||||||||||||||||||||||||
Energy purchase
contracts (a) |
2 to 22 years | 3,611,576 | 3,772,936 | 3,682,035 | 3,745,052 | 3,677,521 | 29,517,486 | 48,006,606 | ||||||||||||||||||||||||
Power plant
construction
projects (b) |
2 to 31 years | 286,194 | 167,608 | 44,737 | 28,714 | 28,514 | 545,208 | 1,100,975 |
(a) | The amounts presented for energy purchase contracts represent the total volume contracted at the year-end contract price. These amounts include take-or-pay contracts with Itaipu amounting to R$ 19,435,571. | |
(b) | Power plant construction projects include commitments made by the Company to fund its proportional share of the construction, acquisition of the concession, and purchase of bank guarantees relating to the jointly-controlled under development companies described in Note 1. |
F-59
36. | SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ADOPTED IN BRAZIL (BRAZILIAN ACCOUNTING PRINCIPLES) AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (U.S. GAAP) | |
The accompanying consolidated financial statements are prepared in accordance with Brazilian Accounting Principles, which differs in certain significant respects from U.S. GAAP. Following is a reconciliation of net income (loss) and shareholders equity of the differences between Brazilian Accounting Principles and U.S. GAAP as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005. | ||
I Reconciliation of the differences between U.S. GAAP and Brazilian Accounting Principles |
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Net income (loss) under Brazilian Accounting Principles |
1,021,278 | 268,517 | (295,435 | ) | ||||||||
Capitalization of interest costs: |
||||||||||||
Interest capitalized under U.S. GAAP |
12,435 | 8,617 | 8,430 | |||||||||
Reversal of depreciation of capitalized interest under Brazilian Accounting Principles |
3,342 | 4,191 | 4,007 | |||||||||
Depreciation of capitalized interest under U.S. GAAP |
(7,662 | ) | (8,844 | ) | (5,333 | ) | ||||||
Effect of disposals on capitalized interest |
(581 | ) | (153 | ) | 256 | |||||||
Capitalization of administrative costs: |
||||||||||||
Reversal of administrative expenses capitalized under Brazilian Accounting Principles |
(13,822 | ) | | | ||||||||
Reversal of depreciation of capitalized administrative costs under Brazilian
Accounting Principles |
1,328 | 1,625 | 1,082 | |||||||||
Effect of disposals on capitalized administrative costs |
73 | 25 | 226 | |||||||||
Monetary restatement 1996 and 1997: |
||||||||||||
Depreciation of monetary restatement under U.S. GAAP |
(1,709 | ) | (1,798 | ) | (1,561 | ) | ||||||
Effect of disposals on monetary restatement |
(70 | ) | (15 | ) | (103 | ) | ||||||
Special obligations: |
||||||||||||
Effect of depreciation under U.S. GAAP |
16,381 | 6,193 | 4,212 | |||||||||
Accounting for the effects of regulation: |
||||||||||||
Recognition of electricity sales to final consumers (RTE) that were previously
recorded under Brazilian Accounting Principles, net of tax on revenues |
82,695 | 132,371 | 146,358 | |||||||||
Reversal of interest on RTE recorded under Brazilian Accounting Principles that
exceeds 24 months |
(6,876 | ) | (24,759 | ) | (61,198 | ) | ||||||
Recognition of interest on RTE that was previously recorded under Brazilian
Accounting Principles |
67,395 | 55,404 | 29,328 | |||||||||
Provision for expenditure on research and development and energy efficiency programs |
(21,093 | ) | (17,305 | ) | (10,684 | ) | ||||||
Business combinations and goodwill: |
||||||||||||
Basis differences: |
||||||||||||
Depreciation of basis difference in property, plant and equipment |
(20,598 | ) | (23,307 | ) | (18,561 | ) | ||||||
Effect of disposals of property, plant and equipment |
(8,724 | ) | (2,969 | ) | (6,287 | ) | ||||||
Reversal of goodwill amortization under Brazilian Accounting Principles |
117,561 | 99,730 | 453,706 | |||||||||
Amortization of intangible concession assets under U.S. GAAP |
(185,040 | ) | (163,217 | ) | (163,217 | ) | ||||||
Amortization of lease agreement intangible under U.S. GAAP |
(18,616 | ) | (18,616 | ) | (18,616 | ) | ||||||
Reversal of tax benefit of the merged goodwill recorded under Brazilian
Accounting Principles |
37,981 | 24,557 | | |||||||||
Accounting for the Serra da Mesa lease: |
||||||||||||
Reversal of revenues recorded under Brazilian Accounting Principles |
(298,676 | ) | (253,571 | ) | (232,507 | ) | ||||||
Recognition of income on the investment in direct financing lease under U.S. GAAP,
net of taxes revenues |
250,381 | 213,311 | 193,864 | |||||||||
Reversal of depreciation recorded under Brazilian Accounting Principles |
22,792 | 20,897 | 20,247 | |||||||||
Pension and other benefits: |
||||||||||||
Difference in actuarial liability |
8,460 | (4,814 | ) | (35,960 | ) | |||||||
Reversal of extraordinary item recorded under Brazilian Accounting Principles |
49,288 | 50,992 | 50,992 | |||||||||
Derivatives: |
||||||||||||
Adjustment to record derivative contracts at fair value financial income (expense) |
(9,897 | ) | 16,967 | 167,054 | ||||||||
Amortization of loan guarantees FIN 45 |
(3,288 | ) | (1,718 | ) | | |||||||
U.S. GAAP adjustments on equity in earnings of jointly-controlled subsidiaries |
7,907 | 10,756 | 110,385 | |||||||||
Share issuance costs |
| 40,648 | |
F-60
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Deferred costs: |
||||||||||||
Operating expenses amortization (reversal) of preoperating expenses capitalized
under Brazilian Accounting Principles, net |
5,164 | 1,894 | (9,734 | ) | ||||||||
Other: |
||||||||||||
Operating expenses other |
652 | 6 | 562 | |||||||||
Deferred income and social contribution taxes effect on the above adjustments
Classified as noncurrent |
(4,152 | ) | (68,000 | ) | (123,332 | ) | ||||||
Effect of above adjustments on minority interest |
5,451 | (9,039 | ) | (27,255 | ) | |||||||
Net income under U.S. GAAP |
1,109,760 | 358,576 | 180,926 | |||||||||
Other comprehensive income (loss) minimum pension liability, net of tax effects |
(2,444 | ) | 177,939 | (199,655 | ) | |||||||
Comprehensive income (loss) under U.S. GAAP |
1,107,316 | 536,515 | (18,729 | ) | ||||||||
Earnings per share: |
||||||||||||
Weighted average number of common shares outstanding basic |
458,295,875 | 421,440,789 | 353,454,466 | |||||||||
Basic earnings per share |
2.421 | 0.851 | 0.512 | |||||||||
Weighted average number of common shares outstanding diluted |
461,858,021 | 423,066,072 | 353,454,466 | |||||||||
Diluted earnings per share |
2.393 | 0.838 | 0.512 |
2005 | 2004 | |||||||
As restated | ||||||||
Note 38 | ||||||||
Shareholders equity under Brazilian Accounting Principles |
4,796,048 | 4,021,111 | ||||||
Capitalization of interest costs: |
||||||||
Reversal of capitalized interest under Brazilian Accounting Principles |
(30,389 | ) | (43,088 | ) | ||||
Reversal of accumulated depreciation recorded under Brazilian Accounting Principles |
17,291 | 22,056 | ||||||
Capitalization of interest under U.S. GAAP |
120,727 | 127,729 | ||||||
Accumulated depreciation |
(33,708 | ) | (35,547 | ) | ||||
Administrative costs capitalized under Brazilian Accounting Principles:
|
||||||||
Reversal of capitalized administrative costs recorded under Brazilian Accounting Principles |
(29,439 | ) | (20,731 | ) | ||||
Reversal of accumulated depreciation |
5,917 | 7,490 | ||||||
Monetary restatement of 1996 and 1997: |
||||||||
Monetary restatement recorded under U.S. GAAP |
12,893 | 29,266 | ||||||
Accumulated depreciation |
(6,716 | ) | (16,548 | ) | ||||
Capitalized deferred costs: |
||||||||
Reversal of deferred costs recorded under Brazilian Accounting Principles |
| (11,321 | ) | |||||
Reversal of accumulated depreciation |
| 9,922 | ||||||
Accounting for the effects of regulation: |
||||||||
Provision for expenditure on research and development and energy efficiency programs |
(54,772 | ) | (33,679 | ) | ||||
Reversal of accounts receivable for RTE recorded under Brazilian Accounting Principles, net of
tax on sales |
| (143,214 | ) | |||||
Special obligations: |
||||||||
Accumulated depreciation |
30,222 | 23,488 | ||||||
Business combinations and goodwill: |
||||||||
Basis differences: |
||||||||
Property, plant and equipment cost |
838,861 | 712,660 | ||||||
Accumulated depreciation |
(210,268 | ) | (172,161 | ) | ||||
Reversal of goodwill recorded under Brazilian Accounting Principles |
(2,787,319 | ) | (2,381,821 | ) | ||||
Reversal of accumulated amortization |
487,673 | 364,443 | ||||||
Recognition of concession intangible under U.S. GAAP |
4,931,617 | 4,648,742 | ||||||
Recognition of lease investment intangible under U.S. GAAP |
488,677 | 488,677 | ||||||
Accumulated amortization |
(1,156,351 | ) | (947,234 | ) | ||||
Reversal of tax benefit of the merged goodwill recorded under Brazilian Accounting Principles |
(731,473 | ) | (731,473 | ) | ||||
Reversal of amortization of tax benefit of the merged goodwill recorded under Brazilian
Accounting Principles |
62,538 | 24,557 | ||||||
Accounting for the Serra da Mesa lease: |
||||||||
Recognition of net investment in direct financing lease under U.S. GAAP |
598,022 | 645,617 | ||||||
Reversal of property, plant and equipment recorded under Brazilian Accounting Principles |
(939,231 | ) | (938,531 | ) | ||||
Reversal of accumulated depreciation |
172,788 | 149,996 |
F-61
2005 | 2004 | |||||||
As restated | ||||||||
Note 38 | ||||||||
Pension and other benefits: |
||||||||
Difference in actuarial liability |
(188,801 | ) | (244,413 | ) | ||||
Derivatives: |
||||||||
Adjustment to record derivative contracts at fair value |
(128 | ) | 9,769 | |||||
Accumulated amortization of loan guarantees FIN 45 |
(5,006 | ) | (1,718 | ) | ||||
U.S. GAAP adjustments on equity interest in jointly-controlled subsidiaries consolidated
proportionally |
(128,165 | ) | (148,987 | ) | ||||
Deferred costs: |
||||||||
Permanent assets reversal of preoperating expenses capitalized under Brazilian Accounting
Principles |
(33,866 | ) | (33,110 | ) | ||||
Permanent assets reversal of amortization of preoperating expenses capitalized under
Brazilian Accounting Principles |
7,373 | 1,453 | ||||||
Reversal of proposed dividends |
389,195 | 140,147 | ||||||
Other |
(322 | ) | (676 | ) | ||||
Deferred income and social contribution taxes effect on the above adjustments: |
||||||||
Deferred taxes noncurrent |
(352,755 | ) | (228,867 | ) | ||||
Effect of the above adjustments on minority interest |
| (115,679 | ) | |||||
Shareholders equity under U.S. GAAP |
6,271,133 | 5,178,325 | ||||||
II Statement of changes in shareholders equity in accordance with U.S. GAAP |
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Shareholders equity under U.S. GAAP beginning balance |
5,178,325 | 4,122,635 | 2,591,364 | |||||||||
Net income for the year |
1,109,760 | 358,576 | 180,926 | |||||||||
Capital increase |
635,538 | 644,001 | 1,550,000 | |||||||||
Treasury shares |
(8 | ) | | | ||||||||
Dividends and Interest on shareholders equity |
(650,038 | ) | (124,826 | ) | | |||||||
Other comprehensive income (loss) minimum pension
liability, net of income tax of R$1,429 (2004 R$96,540
and 2003 R$108,325) and minority interest R$329 (2004 -
R$9,461 and 2003 (R$10,623)) |
(2,444 | ) | 177,939 | (199,655 | ) | |||||||
Shareholders equity under U.S. GAAP ending balance |
6,271,133 | 5,178,325 | 4,122,635 | |||||||||
Accumulated other comprehensive income, net of tax benefit
of R$45,640 (2004 R$46,747 and 2003 R$143,287) and
minority interest of R$4,593 for 2004 and R$14,055 for 2003 |
(88,595 | ) | (86,151 | ) | (264,090 | ) | ||||||
III Description of GAAP differences | ||
Following is a summary of the significant differences between Brazilian Accounting Principles and U.S. GAAP: | ||
a) | Capitalization of Interest Costs | |
Under Brazilian Accounting Principles, the Company capitalizes both interest costs of borrowed funds and has capitalized through December 31, 2001 imputed interest on shareholders funds applied to construction in progress. Under U.S. GAAP, in accordance with SFAS No. 34, Capitalization of Interest Costs, interest incurred on borrowings is capitalized to the extent that borrowings do not exceed construction in progress. Interest on shareholders funds are not capitalized. Under U.S. GAAP, the amount of interest capitalized excludes foreign exchange gains and losses on foreign currency borrowings. |
F-62
b) | Capitalization of Administrative Costs | |
Under Brazilian Accounting Principles, through March 31, 2002, the Company capitalized indirect administrative costs related to construction in progress, which had been allocated monthly to construction in progress, limited to 10% of direct expenses for personnel, and outside services attributable to construction in progress. As from 2005, administrative expenses are being capitalized by apportioning personnel expenses based on the time spent on the activities linked to the investments. This practice is not accepted under U.S. GAAP and consequently, the effects have been reversed in the U.S. GAAP reconciliation. | ||
c) | Monetary restatement of 1996 and 1997 | |
As mentioned in Note 2, under Brazilian Accounting Principles, the Company was required to discontinue accounting for the effects of inflation in Brazil as of December 31, 1995. As of January 1, 1996, the carrying value of all non-monetary assets and liabilities became their historical cost basis. Under U.S. GAAP, Brazil was still considered to be a highly inflationary economy until July 1, 1997, and consequently, the Company continued to record the effects of inflation using the Market General Price Index (IGP-M) up to 1997. | ||
The U.S. GAAP income adjustment represents the amortization of the monetary restatement of fixed assets, which resulted from the inflation accounting applied during 1996 and 1997. | ||
d) | Special Obligations | |
Under Brazilian Accounting Principles, the Company presents special obligations, representing consumers contributions to the cost of expanding power electric supply systems, as a reduction to property, plant and equipment. These obligations are not subject to amortization over the applicable useful lives of the underlying assets. | ||
Under U.S. GAAP, contributions received from customers are considered reimbursement of construction costs and are credited against the cost of the related fixed assets. For U.S. GAAP reconciliation purposes, the depreciation is adjusted for the effects of the amortization of special obligations using the same depreciation rates applicable to the corresponding class of property, plant and equipment acquired with such consumers contributions. | ||
e) | Accounting for the Effects of Regulation | |
Under U.S. GAAP, as a result of various actions taken by the Federal Government and ANEEL in 2001, the Company is subject to the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. This is because the rate-setting structure in Brazil is currently designed to provide for recovery of the Companys allowable costs, including those incurred as a result of Federal Government-mandated power rationing measures imposed in 2001. Accordingly, the Company capitalizes incurred allowable costs as deferred regulatory assets when there is a probable expectation that future revenue equal to the costs incurred will be billed and collected as a direct result of the inclusion of the costs in an increased rate set by the regulator. The deferred regulatory asset is eliminated when the Company collects the related costs through billings to customers. ANEEL performs a rate review on an annual basis. If ANEEL excludes all or part of a cost from recovery, the deferred regulatory asset is impaired and is accordingly reduced to the extent of the excluded cost. | ||
The agreement also comprised the Parcel A costs, which are certain costs that each distribution company is permitted to defer and pass through to its customers via a future rate adjustment. Parcel A costs are defined by the concession contracts to the cost of purchased power and certain other costs and taxes. The agreement provided a tracking account mechanism, previously created in October 2001 through Executive Order No. 296 to record the variation in the Parcel A costs for rate adjustment calculation purposes. Parcel A costs incurred prior to January 1, 2001 |
F-63
are not recoverable though the tracking account. As a result, the Company has not recognized any regulatory asset for Parcel A costs incurred prior to 2001. | ||
As described in Note 3, during 2001, the electricity market in significant parcels of Brazil experienced rationing, or reduced availability of electricity to customers, due to low rainfall, reduced reservoir levels and that countrys significant dependence on electricity generated from hydrological resources. These factors resulted in lower sales for the Company. In December 2001, electricity concessionaires including the Company reached an agreement with the Federal Government that provided resolution to the principal rationing related issues as well as to certain other electricity rate-related issues. The rate increase set forth in the agreement will remain in effect during a period set by ANEEL and considered sufficient by the Company to allow recovery of lost revenues, which the Company estimates will take approximately 2 years. Under Brazilian Accounting Principles, the Company recorded the entire amount to be recognized in accordance with this agreement. Under U.S. GAAP, pursuant to Emerging Issues Task Force (EITF) No. 92-7, Accounting by Rate Regulated Utilities for the Effects of Certain Alternative Revenue Programs, the Company records only the amount expected to be recovered over the next 24 months. The U.S.GAAP adjustment represents the reversal of the differences between the amounts recorded under Brazilian Accounting Principles and U.S. GAAP. As of December 31, 2005 the Company recorded all the RTEs different effects of this accounting | ||
Additionally, the Company is obliged to invest, through its subsidiaries, 1% of the Net Operating Revenue in research and development and energy efficiency programs. This income is recorded on invoicing by the concessionaires, which also establish a provision in respect of expenditure not yet incurred for these programs, as mentioned in notes 2, 23 and 27. A parcel of the amounts realized includes capitalized amounts. In accordance with U.S. GAAP, the provisions of SFAS 71 require recognition of the amount invoiced in income (loss) only when the expense incurred for these programs is recognized, including the effects of the amounts capitalized, so as to eliminate all the effects on the Companys income (loss). Accordingly, the US GAAP adjustment refers to the reversal of the income corresponding to the expenditure capitalized with the research and development and energy efficiency programs, and is only recognized on amortization of these assets. |
F-64
Following is a summary of regulatory assets and liabilities under U.S.GAAP, excluding RGE, which is accounted for under equity method under U.S. GAAP (see item t) below): |
As of December 31, | ||||||||||||||||
Current | Noncurrent | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
As restated | As restated | |||||||||||||||
Note 38 | Note 38 | |||||||||||||||
Accounts receivable |
||||||||||||||||
RTE extraordinary tariff adjustment |
259,988 | 226,835 | 157,024 | 215,063 | ||||||||||||
Tariff Review and Tariff Adjustment |
46,567 | 2,360 | 33,100 | | ||||||||||||
Free Energy |
101,159 | 99,789 | 180,000 | 186,975 | ||||||||||||
PIS and COFINS Generators Pass-Through |
11,534 | | | | ||||||||||||
Deferred cost variations |
||||||||||||||||
Parcel A |
| | 486,626 | 408,757 | ||||||||||||
CVA |
452,185 | 418,532 | 19,919 | 151,432 | ||||||||||||
Prepaid Expenses |
||||||||||||||||
PIS and COFINS change in legislation |
22,251 | | 1,898 | 30,089 | ||||||||||||
Surplus Energy from 2005 (Auctions) |
27,003 | | 17,209 | | ||||||||||||
Others assets |
||||||||||||||||
PERCEE- rationing program
implementation cost |
172 | 3,627 | | | ||||||||||||
Low income consumers Subsidy -
losses |
43,200 | 41,697 | | |||||||||||||
Suppliers |
||||||||||||||||
Free energy |
(90,218 | ) | (91,838 | ) | (201,982 | ) | (229,874 | ) | ||||||||
PIS and COFINS Generators Pass-Through |
(11,456 | ) | | | | |||||||||||
Deferred gain variations |
||||||||||||||||
Parcel A |
| | (10,720 | ) | (9,004 | ) | ||||||||||
CVA |
(254,210 | ) | (140,452 | ) | | (33,523 | ) | |||||||||
Other liabilities |
||||||||||||||||
Tariff Review |
(103,182 | ) | | | (71,113 | ) | ||||||||||
Low income consumers Subsidy gains |
(5,400 | ) | (5,175 | ) | | | ||||||||||
Research and Development and Energy
Efficiency Programs |
(60,423 | ) | (42,629 | ) | (137,611 | ) | (91,941 | ) | ||||||||
Total |
439,170 | 512,746 | 545,463 | 556,861 | ||||||||||||
f) | Comprehensive income | |
Brazilian Accounting Principles do not encompass the concept of Comprehensive income. Under U.S. GAAP, SFAS 130, Reporting comprehensive income, requires the disclosure of comprehensive income. Comprehensive income is comprised of net income and other comprehensive income that include charges or credits directly to equity. For U.S. GAAP reconciliation purposes, the amounts related to the additional minimum liability of the pension plan and the related deferred tax and minority interest effects that were recorded as adjustments directly to shareholders equity and have been considered as other comprehensive income. | ||
g) | Business Combinations and Goodwill | |
Under Brazilian Accounting Principles, the difference between the purchases price of the majority of the shares of another company and the book value is recorded as goodwill. Beginning January 2004, the goodwill is amortized proportionally to the future projected net income for the remaining term of the concession contract of each investee, as required by ANEEL. Previously, the goodwill was amortized over a 10-year period under the straight-line method. If the fair value of the property, plant and equipment of the acquired company exceeds the book value, the goodwill |
F-65
relating to this excess is amortized over the remaining useful lives of the related assets. Companies also have the option of amortizing the goodwill over the remaining term of the related concession. If the goodwill does not fall into one of the above categories, it is written off. The acquirer is permitted to defer amortization of goodwill for several months until the acquired company become operational. | ||
Under U.S. GAAP, pursuant to SFAS 141, Business Combinations, are accounted for by the purchase method utilizing fair values. The cost of an acquired entity is allocated to assets acquired, including identifiable intangible assets and liabilities assumed based on their estimated fair values on the date of acquisition. The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed is recognized as goodwill. SFAS No. 141 requires disclosure of the primary reasons for a business combination and the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption. SFAS No. 141 also requires that when the amounts of goodwill and intangible assets acquired are significant to the purchase price paid, disclosure of other information about those assets is required, such as the amount of goodwill by reportable segment and the amount of the purchase price assigned to each major intangible asset class. The Company has not recorded any goodwill under U.S. GAAP. | ||
Under Brazilian Accounting Principles, the Company recorded goodwill arising from the acquisition of minority interest of CPFL Paulista, CPFL Piratininga and CPFL Geração. Consequently, the U.S. GAAP adjustments represent the reversal of the goodwill and related amortization recorded under Brazilian Accounting Principles, and the recognition and amortization of the fair value adjustments as required by the purchase method. | ||
SFAS No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142) addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life, but rather it will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Additionally, negative goodwill is recognized as an extraordinary gain at the time of the business combination. The adoption of SFAS No. 142 on January 1, 2002 had no effect on the Companys financial statements. | ||
The principal business combinations occurred in 2005, are as follows: | ||
As described in Note 15, on May 6, 2005, the Company acquired 0.093% voting interest in CPFL Geração for R$ 1,606, in an auction held in the São Paulo Stock Exchange BOVESPA. | ||
As described in Note 15, on June 20, 2005, the Company acquired 2.89% voting interest in CPFL Geração for R$ 85,577, from minority shareholders. | ||
As described in Note 15, on November 22, 2005, CPFL Paulista acquired 2.59% voting interest in CPFL Piratininga for R$ 55,407, from minority shareholders. | ||
As described in Note 15, on November 23, 2005, the Company acquired 5.06% voting interest in CPFL Paulista for R$ 468,201, from minority shareholders. | ||
h) | Impairment of Long-lived Assets | |
Under Brazilian Accounting Principles, the carrying value of fixed assets are written down to realizable values when it is estimated that such assets will not be realized when compared to the results of future discounted cash flow projection. Under U.S. GAAP, Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed of, addresses accounting for the impairment of long-lived |
F-66
assets. Under SFAS 144, a provision for impairment is recorded against long-lived assets when there is an indication, based on a review of undiscounted future cash flows, that the carrying value of an asset or a group of assets may not be recoverable. No impairment has been recorded under U.S. GAAP for all periods presented. | ||
i) | Accounting for the Serra da Mesa Lease | |
As described in Note 14, the Company has entered into a 30-year lease agreement relating to the Serra da Mesa power plant under which Furnas holds the concession and operates the plant, and is entitled to 49% of the related output. In exchange for the use of the plant, the Company receives 51% of the assured energy of the plant. The Company has entered into a 15-year sales agreement to sell back its parcel of the energy generated by the plant to Furnas for a fixed initial price, adjusted yearly by inflation (IGP-M). Under Brazilian Accounting Principles, the lease is accounted for similar to an operating lease. Under U.S. GAAP, using the criteria set forth in SFAS No. 13, Accounting for Leases, the lease is classified as a direct-financing lease. Consequently, under U.S. GAAP, the power plant is removed from the Companys financial statements and an investment in the lease is recorded. The unearned income is amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease. The investment in the lease is adjusted annually for inflation. The assets relating to this lease are presented separately in Note 14. |
Year ended December 31, | ||||||||
2005 | 2004 | |||||||
Net investment in direct financing lease current |
42,660 | 41,089 | ||||||
Net investment in direct financing lease non-current |
555,362 | 604,528 | ||||||
Total net investment in direct financing lease |
598,022 | 645,617 | ||||||
Minimum lease payments receivable (*) |
5,959,715 | 5,551,778 | ||||||
Less: Unearned income |
(5,361,693 | ) | (4,906,161 | ) | ||||
Total net investment in direct financing lease |
598,022 | 645,617 | ||||||
(*) | At December 31, 2005, minimum lease payments for each of the five succeeding fiscal years are as follows: R$ 286,207 in 2006, R$ 286,207 in 2007, R$ 286,992 in 2008, R$ 286,207 in 2009 and R$ 286,207 in 2010. |
j) | Pension and Other Benefits | |
Under Brazilian Accounting Principles, until December 31, 2000, pension plan and other benefits were recognized on a cash basis except for CPFL Paulista and CPFL Geração. With the enactment of CVM Resolution No. 371 of December 13, 2000, as of December 31, 2001, companies were required to record pension and post-retirement benefits on an accrual basis. As allowed by CVM Resolution No. 371/2000, the Company elected to record the parcel of actuarial liabilities in excess of plan assets as of December 31, 2001 over five years, commencing January 2002 (Note 2). The parcel already accrued was offset against such net obligation. | ||
Under U.S. GAAP, SFAS No. 87, Employers Accounting for Pensions and SFAS No. 106, Employers Accounting for Post-retirement Benefits Other Than Pensions require recognition of costs on a more comprehensive accrual basis. In addition, U.S. GAAP requires the recognition of either an asset or a liability, as appropriate, for the difference between projected benefit obligations (as defined in SFAS No. 87 and SFAS No. 106) and plan assets. Such assets must be stated at fair value, as adjusted for certain reconciling items. The disclosures required by SFAS No. 132 (Revised), Employers Disclosures about Pensions and Other Postretirement Benefits an amendment of FASB Statements No. 87, 88, and 106 are presented in Note IV a below. |
F-67
k) | Derivatives | |
As discussed in Note 33, in order to minimize its financing costs and to manage interest rate exposure, the Company enters into cross currency swap agreements to effectively convert a parcel of its U.S. dollar denominated variable-rate debt to Brazilian reais accruing interest at the CDI rate (Interbank deposit rate). The Company also uses foreign exchange forward contracts from time to time to manage its exposure to movements in foreign exchange rates on debt maturities and interest payments. Under Brazilian Accounting Principles, any differential to be paid or received under these contracts is recorded as an asset or liability with a corresponding adjustment to interest expense in the statement of operations. The fair value of these contracts is not recognized in the consolidated financial statements. | ||
Under U.S. GAAP, in June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, establishes accounting and reporting standards requiring that all derivative instruments be recorded on the balance sheet as either an asset or liability and measured at fair value. SFAS No. 133 requires that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivatives gains and losses to offset related results on the hedged item in the income statement, and requires that a Company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997. | ||
Since the Companys swap agreements and foreign exchange forward contracts do not qualify for hedging accounting, under U.S. GAAP, changes in fair value of these contracts are recognized in earnings in the current period. | ||
l) | Effect of guarantees recorded under FIN 45 | |
Under Accounting Practices Adopted in Brazil, no specific pronouncement addresses the accounting requirements for guarantees. Therefore, the issuance of guarantees are not recorded in the financial statements. | ||
Under U.S. GAAP, for guarantees issued the Company follows the Financial Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. | ||
In February 2004, the investee CERAN, obtained a loan from BNDES to exploit the hydroelectric potential of the Rio das Antas complex. The total loan obtained by CERAN, totaling R$ 435,805 is to be released by the financial institution in several tranches scheduled to be amortized by CERAN from December 2005 through January 2018. As of December 31, 2005, this loan amounted to R$ 258,831. Although CPFL Geração has a 65% ownership interest in CERAN, CPFL Energia issued a guarantee for 100% of the loan. In exchange for this guarantee, the other shareholders reimburse CPFL Energia on a quarterly basis, proportionally to their respective ownership interest, an amount representing 1.5% per year of the average outstanding loan balance, paid on a quarterly basis. These payments are recorded as a financial income under Brazilian Accounting Principles. For this loan, in addition to the guarantee issued by CPFL Energia there are other guarantees given by CERAN shareholders, such as the pledge of their shares and the rights emerging from the concession. In case of default, CPFL Energia may take judicial action against CERAN, and attempt to recover any amounts disbursed. |
F-68
In April 2005, the investee ENERCAN, obtained a loan from IDB to finance the Campos Novos Hydropower Plant. The loan obtained by ENERCAN, totaling US$ 75 million, is schedule to be amortized in 49 quarterly installments from June 2007. As of December 31, 2005, this loan amounted to R$ 141,859. Although CPFL Geração has a 48.72% ownership interest in the ENERCAN, the Company issued a guarantee for 57.27% of the loan, up to December 2007. The effective date of this guarantee is up to the Project Completion Date. | ||
Under U.S. GAAP, the Company does not consolidate CERAN and ENERCAN, since the respective control is shared with other shareholders. Consequently, for U.S. GAAP purposes, pursuant to FIN No. 45, the Company is required to record a liability corresponding to the fair value of the guarantee issued amounting to R$ 29,997 and R$ 3,036 for CERAN and ENERCAN, respectively, which will be reduced through earnings as CPFL Energia is released from risk under the guarantee. | ||
The offsetting entries were recorded as asset and are being realized through: | ||
a) CERAN guarantee (i) reimbursement to CPFL Energia by the other CERAN shareholders representing 35% ownership and; (ii) realization of the amount relating to the Companys investment, which represents 65% ownership in CERAN. | ||
b) ENERCAN guarantee realization of 57.27% given by the Company, as mentioned above, up to the Project Completion Date. | ||
As of December 31, 2005, liabilities relating to the guarantees given to CERAN totaled R$ 29,997 (R$ 29.997 in 2004), and the assets amounted to R$ 25,745 (R$ 28,279 in 2004), of which R$ 15,853 (R$ 18,223 in 2004) refers to the costs of CPFL Energia and R$ 9,892 (R$ 10,056 in 2004) refers to the accounts receivable from the other CERAN shareholders. | ||
As of December 31, 2005, liabilities relating to the guarantees given to ENERCAN totaled R$ 3,036, and the assets amounted to R$ 2,282. | ||
m) | Subscription rights granted to International Finance Corporation IFC | |
As discussed in Note 24, in connection with a loan obtained from the IFC, CPFL Energia subscription rights granted the IFC the right to subscribe a number of ordinary shares of CPFL Energia equal to the principal and interest accrued, divided by the price of the subscription rights issued during the fiscal period. These subscription rights were exercise on May and June 2005. The price adopted in the respective dates was 17.57 and 17.71 (price practiced in the IPO was R$17.22 per share, adjusted according to the variation of the TJLP (Long-Term Interest Rate)). The Company determined that the value of this subscription right was de minimis on the date of its issuance. Therefore, no adjustment was recorded for U.S. GAAP purposes, as established in the APB 14 (Accounting Principles Board Opinion nº 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants). | ||
n) | U.S. GAAP adjustments on equity in earnings of jointly-controlled subsidiaries | |
RGE, CERAN, ENERCAN, BAESA, Foz do Chapecó and Sul Geradora are accounted for using proportional consolidation under Brazilian Accounting Principles. Under U.S. GAAP, they are accounted for using the equity method of accounting. The principal U.S. GAAP adjustments that affect the Companys accounting for the results of RGE are as follows: |
| Capitalization of interest costs | ||
| Deferred costs | ||
| Accounting for the effects of regulation | ||
| Derivatives | ||
| Pensions |
F-69
| Reversal of goodwill recorded under Brazilian Accounting Principles, net of amortization | ||
| Deferred income tax effect of the above adjustments |
For the remaining jointly-controlled subsidiaries, the U.S. GAAP basic adjustments are related to capitalized costs, the recognition of an intangible asset and a liability related to the use of a public asset during the time of the concession and derivative contracts. | ||
The effect of these adjustments is included as U.S. GAAP adjustments on equity in earnings of jointly-controlled subsidiaries, a line item in the reconciliations of net income (loss) and shareholders equity above. | ||
o) | Share Issuance Costs | |
The Company recorded as expenses the costs related to the public offering of shares. Under U.S. GAAP, costs related to public offering of shares are deducted from the proceeds received from such offering. This difference has no net effect on shareholders equity. | ||
p) | Deferred Costs | |
The Company has capitalized certain preoperating, research and development costs under Brazilian Accounting Principles. Under U.S. GAAP, these costs are recorded as expenses when incurred. The U.S. GAAP adjustment represents the reversal of deferred costs capitalized and the related amortization recorded under Brazilian Accounting Principles. | ||
q) | Income Taxes | |
Under Brazilian Accounting Principles, deferred income tax liabilities are recognized based on the amount of future expected taxes to be paid. Deferred income tax assets related to deductible temporary differences (expenses that are accrued but not deductible until future periods) or tax loss carryforwards are recognized when there is a reasonable certainty that the Company will generate profits against which it can offset such an asset. | ||
Under U.S. GAAP, deferred income tax assets related to deductible temporary differences or tax loss carryforwards are recognized and, if necessary, a valuation allowance is recorded if it is more likely that such assets will not be realized. Under Brazilian GAAP, the deferred tax effects related to the indexing of permanent assets for financial reporting but not for tax purposes are recorded in equity. Under U.S. GAAP, this deferred tax liability must be charged to the statement of operations. | ||
According to U.S. GAAP, the Company recorded an additional asset for deferred income tax and social contribution and a respective full valuation allowance for the realization of this additional asset in 2005, in the amount of R$ 10,445 (R$ 23,794 in 2004). Accordingly, this difference has no impact in shareholders equity and net income for the periods presented. | ||
r) | Dividends Proposed | |
Under Brazilian Accounting Principles, at each balance sheet date, the board of directors is required to propose a dividend distribution from earnings and accrue for this in the financial statements of the Company. Since this proposal may be approved or modified at the annual shareholders meeting, for U.S. GAAP reconciliation purposes, such dividends were not considered as declared at the balance sheet date as they were not approved as of that date and were reversed. |
F-70
s) | Earnings Per Share (EPS) | |
Under Brazilian Accounting Principles, net income per share is calculated on the number of shares outstanding at the balance sheet date. Subsequent changes in the Companys share capital are not retroactively reflected in the disclosure of number of shares outstanding and in the calculation of earnings per share under Brazilian Accounting Principles. Under U.S. GAAP, the Company calculates earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per share is calculated by dividing net earnings available to common shares by average common shares outstanding during the period. For 2003 the Company did not have any potentially dilutive securities outstanding. Consequently, diluted earnings per share is equal to basic earnings per share for 2003. For 2004 and 2005, in connection with subscription rights granted to IFC, the Company has potentially dilutive securities outstanding. | ||
The computation of basic earnings per share is as follows: |
December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Net income under U.S. GAAP |
1,109,760 | 358,576 | 180,926 | |||||||||
Weighted average number of common shares
outstanding during the period for basic EPS computation |
458,295,875 | 421,440,789 | 353,454,466 | |||||||||
Basic earnings per share R$ |
2.421 | 0.851 | 0.512 |
The computation of diluted earnings per share is as follows: |
December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Net income under U.S. GAAP |
1,109,760 | 358,576 | 180,926 | |||||||||
Adjusted for: Interest expense and exchange rate
variation gains, net of taxes of 2,302 (R$2,160 of 2004) |
(4,470 | ) | (4,193 | ) | | |||||||
Net income under U.S. GAAP adjusted |
1,105,290 | 354,383 | 180,926 | |||||||||
Weighted average number of common shares |
458,295,875 | 421,440,789 | 353,454,466 | |||||||||
Plus: incremental weighted average shares from assumed
conversion of IFC loan |
3,562,146 | 1,625,283 | | |||||||||
Weighted average number of common shares
outstanding during the period for diluted EPS computation |
461,858,021 | 423,066,072 | 353,454,466 | |||||||||
Diluted earnings per share R$ |
2.393 | 0.838 | 0.512 |
Earnings (Loss) per share under Brazilian Accounting Principles considering the number of shares retroactively restated to reflect the reverse stock split, occurred in 2004, would have been as follows: |
December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Net income (loss) under Brazilian
Accounting Principles |
1,021,278 | 268,517 | (295,435 | ) | ||||||||
Weighted average number of common shares
outstanding as adjusted for the reverse stock
split |
458,295,875 | 421,440,789 | 353,454,466 | |||||||||
Earnings (loss) per share R$ as
adjusted for the reverse stock split |
2.228 | 0.638 | (0.836 | ) |
F-71
t) | Proportional Consolidation | |
As discussed in Note 2, under Brazilian Accounting Principles, the Company consolidates jointly-controlled subsidiaries using proportional consolidation. The Companys investments accounted for using proportional consolidation are RGE, CERAN, ENERCAN, BAESA, FOZ DO CHAPECÓ and Sul Geradora, in which the Company has a 67.07%, 65.00%, 48.72%, 25.01%, 66.67% and 67.23% ownership interest, respectively, for all periods presented. Under U.S. GAAP, proportional consolidation is prohibited except in certain specific circumstances. Since the other shareholders interests in these jointly-controlled subsidiaries have substantive participating rights relation to, among others, (i) the approval of operating budgets, (ii) approval of transactions not provided for in the operating budget that exceed low threshold amounts, (iii) approval of the placement of executive officers, and (iv) approval of ordinary dividends, the Company would be precluded from consolidating these entities under U.S. GAAP and, consequently, these investments are accounted for using the equity method of accounting. This is a presentational difference only and does not affect the net income nor shareholders equity as determined under U.S. GAAP. Summarized balance sheet and income statement information for jointly-controlled subsidiaries of amounts proportionally consolidated in the Companys Brazilian Accounting Principles financial statements is presented below: |
As of December 31, | ||||||||
2005 | 2004 | |||||||
As restated | ||||||||
Note 38 | ||||||||
Current assets |
400,914 | 324,291 | ||||||
Noncurrent assets |
1,226,120 | 995,474 | ||||||
Total assets |
1,627,034 | 1,319,765 | ||||||
Current liabilities |
414,017 | 421,306 | ||||||
Long-term liabilities |
1,213,017 | 898,459 | ||||||
Total liabilities and shareholders equity |
1,627,034 | 1,319,765 |
Year ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Operating revenues |
1,483,445 | 1,286,586 | 1,067,128 | |||||||||
Operating income |
153,381 | 125,761 | 77,159 | |||||||||
Cash flow provided by operating activities |
75,742 | 109,263 | 116,218 | |||||||||
Cash flow used in investing activities |
(278,073 | ) | (358,517 | ) | (390,314 | ) | ||||||
Cash flow provided by financing activities |
230,549 | 197,189 | 346,131 |
u) | Subsequent Acquisitions: | |
In June, 2006 the Company acquired 100% share equity of (i) Ipê Energia Ltda., that owns 213,495,786 common shares and 50,221,954 preferred shares corresponding to 32.69% of the total shares of RGE, and 70,683,052 common shares corresponding to 32.75% of the total shares of Sul Geradora; (ii) PSEG Brasil Ltda; and (iii) PSEG Trader S.A. Ipê Energia Ltda., PSEG Brasil Ltda. and PSEG Trader S.A. are now know as CPFL Serra Ltda., CPFL Comercialização Cone Sul S.A. and CPFL Missões Ltda., respectively. | ||
Up to the time of this acquisition, the Company shared the control of RGE and Sul Geradora with PSEG. After this acquisition, these subsidiaries will be controlled solely by CPFL Energia, which will indirectly own 99.76% and 99.95%, respectively, of their total shares. | ||
The amount to be paid by this acquisition is equivalent to US$ 185 million and the Company will account for this acquisition under U.S. GAAP using the Purchase Method of Accounting. | ||
Up to December 31, 2005, RGE and Sul Geradora were proportionally consolidated in the Companys financial statements in accordance with Brazilian Accounting Principles, while under U.S. GAAP, the Company was required to register the investment in the jointly-controlled subsidiaries by the equity method of accounting. After this acquisition is completed, RGE and Sul Geradora will be fully consolidated also for U.S. GAAP purposes. |
F-72
The principal assets and liabilities acquired are related to the investment hold by Ipê Energia Ltda., corresponding to 32.69% of RGEs total capital. The following information shows the amount assigned to each major account captions under RGEs financial statements prepared in accordance with Brazilian Accounting Principles as of and for the year ended December 31, 2005: |
Total Assets |
2,325,572 | |||
Shareholders Equity |
1,142,161 | |||
Gross Revenue |
2,208,404 | |||
Net Operating Revenue |
1,503,261 | |||
Income from Services |
210,923 | |||
Net Income |
113,660 |
IV | SUPPLEMENTAL DISCLOSURES REQUIRED BY U.S. GAAP | |
a) Pension and Other Benefits | ||
The disclosures required by SFAS 132 (Revised), Employers Disclosures about Pensions and Other Postretirement Benefits and amendment of FASB Statements n. 87, 88 and 106 are presented below. | ||
The following information does not consolidate the balances of RGE, which is proportionately consolidated under Brazilian Accounting Principles: | ||
Obligations and Funded Status |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Change in benefit obligation |
||||||||||||
Benefit obligation at beginning of year |
2,970,087 | 2,923,889 | 2,338,813 | |||||||||
Service cost |
6,151 | 6,693 | 7,495 | |||||||||
Interest cost |
323,872 | 320,048 | 256,432 | |||||||||
Actuarial loss (gain) |
(29,817 | ) | (74,749 | ) | 497,802 | |||||||
Benefits paid during the year |
(220,877 | ) | (205,906 | ) | (176,653 | ) | ||||||
Unrecognized prior service cost |
| 112 | | |||||||||
Benefit obligation at end of year |
3,049,416 | 2,970,087 | 2,923,889 | |||||||||
Change in plan assets |
||||||||||||
Fair value of plan assets at beginning of year |
1,907,324 | 1,597,666 | 1,376,161 | |||||||||
Actual return on plan assets |
250,614 | 396,685 | 283,482 | |||||||||
Participants contributions |
2,116 | 2,057 | 1,894 | |||||||||
Sponsors contributions |
119,338 | 116,822 | 112,782 | |||||||||
Benefits paid |
(220,877 | ) | (205,906 | ) | (176,653 | ) | ||||||
Fair Value of plan assets at end of year |
2,058,516 | 1,907,324 | 1,597,666 | |||||||||
Funded status |
(990,900 | ) | (1,062,763 | ) | (1,325,318 | ) | ||||||
Unrecognized actuarial losses |
63,289 | 105,251 | 406,009 | |||||||||
Unrecognized prior service cost |
98 | 112 | | |||||||||
Net amount recognized under U.S. GAAP |
(927,513 | ) | (957,400 | ) | (919,309 | ) | ||||||
Accumulated other comprehensive loss |
(134,235 | ) | (137,491 | ) | (421,431 | ) | ||||||
Accrued liability under U.S. GAAP |
(1,061,748 | ) | (1,094,891 | ) | (1,340,740 | ) | ||||||
Amount recognized under Brazilian Accounting
Principles |
874,259 | 853,785 | 770,056 | |||||||||
Less: Proportionate accrued benefit liability of RGE |
(1,312 | ) | (3,307 | ) | (3,847 | ) | ||||||
U.S. GAAP adjustment to equity |
(188,801 | ) | (244,413 | ) | (574,531 | ) |
F-73
Amounts recognized in the statement of financial position consist of: |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Accrued benefit liability under U.S. GAAP |
(1,061,748 | ) | (1,094,891 | ) | (1,341,645 | ) | ||||||
Accumulated other comprehensive income |
134,235 | 137,491 | 421,431 | |||||||||
Net amount recognized under U.S. GAAP |
(927,513 | ) | (957,400 | ) | (920,214 | ) | ||||||
Information for pension plans with an accumulated benefit obligation in excess of plan assets: |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Projected benefit obligation |
3,049,416 | 2,970,087 | 2,923,889 | |||||||||
Accumulated benefit obligation |
3,039,991 | 2,961,611 | 2,916,144 | |||||||||
Fair value of plan assets |
2,058,516 | 1,907,324 | 1,597,666 |
Components of Net Periodic Benefit Cost |
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Service cost |
(6,151 | ) | (4,275 | ) | (4,647 | ) | ||||||
Interest cost |
(323,872 | ) | (320,048 | ) | (256,432 | ) | ||||||
Expected return on plan assets |
244,760 | 176,541 | 151,111 | |||||||||
Amortization of deferred gains (losses) , net |
2,696 | (7,132 | ) | 1,994 | ||||||||
Net periodic benefit cost under U.S. GAAP |
(82,567 | ) | (154,914 | ) | (107,974 | ) | ||||||
Net periodic benefit cost under Brazilian
Accounting Principles |
138,925 | 202,165 | 126,350 | |||||||||
Less: Proportionate net periodic benefit
income (cost) of RGE |
1,390 | (1,073 | ) | (3,344 | ) | |||||||
U.S. GAAP adjustment to net income |
57,748 | 46,178 | 15,032 | |||||||||
Additional information |
||||||||||||
Fair Value of liability recognized under
U.S.GAAP from purchase accounting |
(2,066 | ) | | | ||||||||
Increase (decrease) in additional
minimum liability included in other
comprehensive income |
4,202 | (283,940 | ) | 319,391 |
The components of the projected net periodic pension costs for 2006 are as follows: |
Cost of service |
(3,462 | ) | ||
Interest on actuarial liabilities |
(332,548 | ) | ||
Expected return on plan assets |
342,145 | |||
Amortization of deferred losses |
524 | |||
Total income |
6,659 | |||
Administrative expenses |
(4,035 | ) | ||
F-74
Assumptions used were as follows: |
2005 | 2004 | 2003 | ||||||||||
Annual discount rate |
6 | % | 6 | % | 6 | % | ||||||
Annual expected return on assets |
11 | % | 7 | % | 6 | % | ||||||
Annual salary increase |
2 | % | 2 | % | 2 | % | ||||||
Annual benefits adjustments |
0 | % | 0 | % | 0 | % | ||||||
Long term inflation |
5 | % | 5 | % | 5 | % |
Plan Assets |
The Companys pension plans asset allocations as of December 31, 2005 and 2004, by asset category is as follows: |
As of December 31, | Target | |||||||||||
Allocation | ||||||||||||
2005 | 2004 | 2006 | ||||||||||
Fixed income investments |
72 | % | 77 | % | 72 | % | ||||||
Stocks |
23 | % | 18 | % | 23 | % | ||||||
Real estate |
3 | % | 3 | % | 3 | % | ||||||
Other |
2 | % | 2 | % | 2 | % | ||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
The allocation target for 2006, was based on the recommendations for allocation of assets made at the end of 2005 by Fundação CESP, in its Investment Policy. This target may change at any time during 2006, in the light of changes in the macro-economic situation or in the return on assets, among other factors. | ||
Brazilian pension funds are subject to restrictions on investments in foreign assets. The major part of the resources of the Companys pension plans is invested in the fixed income segment and, within the segment, the greater part of the funds is invested in public federal bonds, indexed to the IGP, which is the index for adjusted of the actuarial liabilities of the Companys plans (defined benefit plans). | ||
The pension plans are monitored by the Companys Pensions Management Committee, which includes representatives of active and retired employees, as well as members appointed by the Company. Among the duties of this Committee are the analysis and approval of investment recommendations made by the investment managers of the Fundação CESP. | ||
The objective of the asset management performed by Fundação CESP is to maximize the return on investments, but always seeking to reduce to a minimum the risks of actuarial deficit. Therefore, investments are always made bearing in mind the liabilities that have to be honored. One of the main tools used by Fundação CESP to achieve its management objectives is ALM (Asset Liability Management Joint Management of Assets and Liabilities), performed at least once a year, for a horizon of more than 10 years. The ALM also assists in studying the liquidity of the pension plans, taking into consideration the benefit payment flow in relation to liquid assets. | ||
In addition to controlling market risks by the unplanned divergence methodology, as required by law, the Fundação CESP uses the following tools to control market risks in the fixed income and variable income segments: V@R, Tracking Risk, Tracking Error and Stress Test. | ||
The Fundação CESP Investment Policy imposes additional restrictions, which, together with those already laid down by law, define the percentages of diversification for investments in assets issued by or with joint liability with a single legal entity to be used internally. We set forth below some additional restrictions in relation to the limitations on diversification of investments: |
F-75
a) | Investments in any bonds or marketable securities issued by a single legal entity financial institution or otherwise by the parent company, companies directly or indirectly controlled by the entity and associated or other companies under control, may not jointly exceed 10% (ten percent) of the resources guaranteeing each Pension Plan, including not only those purchased on a permanent basis, but also those loaned and subject to purchase and sale agreements and those forming part of the portfolios of funds in which the Pension Plans participate, through Fundacao CESP, in proportion to their respective participations. | ||
b) | In the case of investments in marketable securities issued by or with the joint responsibility of a financial or other institution authorized by the Brazilian Central Bank, and of savings deposits, the total issued, and the joint liability or responsibility of a single institution may not exceed: (i) 25% of the shareholders equity of the issuer, in the case of an institution classified as having a low credit risk and 15% of the Fixed Income segment, in the same case; (ii) 10% of the shareholders equity of the issuer, in the case of an institution classified as having a medium or high credit risk and 10% of the Fixed Income segment, in the same case; | ||
c) | The total investments in shares of a single company may not exceed: (i) 20% of its voting capital; (ii) 20% of its total capital and (iii) 5% of the total resources guaranteeing each Pension Plan, with the option to increase this limit up to 10% in the case of shares corresponding to 3% or more of IBOVESPA, IBX or FGV-100 |
Cash flows | ||
Contributions |
The Company expects to contribute R$119,339 to its pension plan in 2006. | ||
Expected Benefits |
Estimated future benefit payments are as follows: |
2006 |
224,994 | |||
2007 |
236,080 | |||
2008 |
248,885 | |||
2009 |
261,687 | |||
2010 |
275,670 | |||
2011 to 2015 |
1,626,124 |
F-76
b) | Intangible assets | |
Following is a summary of the Companys intangible assets recorded under U.S. GAAP: |
2005 | 2004 | |||||||
Concession intangibles |
4,931,617 | 4,648,742 | ||||||
Lease investment intangible |
488,677 | 488,677 | ||||||
Accumulated amortization as of December 31, |
(1,156,351 | ) | (947,234 | ) | ||||
Intangibles, net |
4,263,943 | 4,190,185 | ||||||
Weighted average remaining amortization period
(years) |
22 | 23 | ||||||
Aggregate amortization expense for the above intangible assets amounted to R$ 203,656 for the year 2005 which included amortization of the intangible assets recorded as a result of the minority interest exchange transaction (Note 24) and amortization of the projects became operational in 2005 and R$ 181,833 for the years ended December 31, 2004 and 2003, respectively. Intangibles are being amortized on a straight-line basis. Consequently, aggregate amortization for the next five years will amount to R$ 192,489 per year. | ||
c) | Segment Information | |
The Companys operating segments are organized internally primarily by legal entity, and in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has aggregated similar operating segments into three reportable segments: Distribution, Generation and Commercialization. The distribution, generation and commercialization activities of the Company are described in Note 1. |
F-77
The Company evaluates segment performance and allocates resources based on several factors, of which sales and operating income are the primary financial measures. The accounting policies of the reportable segments are the same as those described in the Note 2. Following is the Companys segment information presented in accordance with Brazilian Accounting Principles. |
Total - financial | ||||||||||||||||||||||||
Distribution | Generation | Commercialization | Other | Eliminations | Statements | |||||||||||||||||||
As restated | As restated | |||||||||||||||||||||||
Note 38 | Note 38 | |||||||||||||||||||||||
2005 |
||||||||||||||||||||||||
Revenues |
10,100,010 | 305,557 | 501,491 | | | 10,907,058 | ||||||||||||||||||
Intersegment revenues |
680 | 130,350 | 918,314 | | (1,049,344 | ) | | |||||||||||||||||
Operating income (loss) (i) |
1,198,794 | 284,638 | 224,629 | (65,461 | ) | | 1,642,600 | |||||||||||||||||
Income before income taxes and extraordinary item |
| | | | | 1,430,541 | ||||||||||||||||||
Net income |
| | | | | 1,021,278 | ||||||||||||||||||
Total assets |
10,261,520 | 2,916,056 | 156,789 | 517,077 | | 13,851,442 | ||||||||||||||||||
Capital expenditures |
368,012 | 254,863 | 3,525 | 137 | | 626,537 | ||||||||||||||||||
Depreciation and amortization (ii) |
312,475 | 59,242 | 107 | 56,134 | | 427,958 | ||||||||||||||||||
2004 |
||||||||||||||||||||||||
Revenues |
9,066,026 | 260,873 | 221,771 | | | 9,548,670 | ||||||||||||||||||
Intersegment revenues |
611 | 69,745 | 670,798 | | (741,154 | ) | | |||||||||||||||||
Operating income (loss) (i) |
835,485 | 226,675 | 152,229 | (74,377 | ) | | 1,140,012 | |||||||||||||||||
Income before income taxes and extraordinary item |
| | | | | 568,096 | ||||||||||||||||||
Net income |
| | | | | 268,517 | ||||||||||||||||||
Total assets |
9,833,185 | 2,486,785 | 101,496 | 235,225 | | 12,656,691 | ||||||||||||||||||
Capital expenditures |
261,200 | 342,350 | 2,166 | | | 605,716 | ||||||||||||||||||
Depreciation and amortization (ii) |
292,711 | 52,562 | 15 | 42,423 | | 387,711 | ||||||||||||||||||
2003 |
||||||||||||||||||||||||
Revenues |
7,762,525 | 234,738 | 84,443 | | | 8,081,706 | ||||||||||||||||||
Intersegment revenues |
| 56,329 | 251,090 | | (307,419 | ) | | |||||||||||||||||
Operating income (loss) (i) |
392,233 | 176,218 | 71,310 | (18,415 | ) | | 621,346 | |||||||||||||||||
Loss before income taxes and extraordinary item |
| | | | | (155,885 | ) | |||||||||||||||||
Net loss |
| | | | | (295,435 | ) | |||||||||||||||||
Total assets |
9,732,071 | 2,181,786 | 36,676 | 120,179 | | 12,070,712 | ||||||||||||||||||
Capital expenditures |
232,776 | 330,882 | 724 | | | 564,382 | ||||||||||||||||||
Depreciation and amortization (ii) |
737,572 | 73,766 | 15 | 75 | | 811,428 |
(i) | Operating income for the commercialization segment includes the effect of intersegment transactions that have not been eliminated for the purposes of this segment presentation. The commercialization intersegment transactions are principally with the distribution segment. | |
(ii) | From the total amount of depreciation and amortization described above R$ 154,804 as of December 31, 2005, R$ 136,551 in 2004 and R$ 555,191 in 2003 is classified as Operating Expenses which is comprised of R$ 125,709 (R$ 110,385 in 2004 and R$ 531,993 in 2003) related to Amortization of Goodwill and R$ 29,095 (R$ 26,165 in 2004 and R$ 23,199 in 2003) related to sales, marketing, general and administrative expenses (Note 27). |
F-78
d) | Income Statement Classification Differences | |
Under Brazilian Accounting Principles, the Company has classified the amortization of the increase in pension liability that was recorded when the Company adopted CVM Resolution No. 371 as an extraordinary item (Note 20). Under U.S. GAAP, this item is classified as an operating expense. | ||
The Company classifies gains and losses on disposals of permanent assets (mainly property, plant and equipment), materials and, write off of feasibility studies as non-operating income or expense. Under U.S. GAAP, these items are classified as operating income or expense. Gain on disposal of permanent assets, materials and supplies overages and other, loss on disposal of permanent assets, write off of feasibility studies and materials and supplies shrinkage and other amounted to R$ 6,879, R$ (1,855) and R$ 7,529 for the years ended December 31, 2005, 2004, and 2003, respectively. | ||
e) | Reconciliation of operating income and total assets | |
The reconciliation between the balances as per the Brazilian Accounting Principles and U.S. GAAP for operating income and total assets for the years presented is as follows: |
Year ended December 31 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
Operating income under Brazilian Accounting Principles |
1,642,600 | 1,140,012 | 621,346 | |||||||||
Less: jointly-controlled subsidiaries proportionally consolidated |
(153,381 | ) | (125,761 | ) | (77,159 | ) | ||||||
Reclassification of items recorded as nonoperating under
Brazilian Accounting Principles considered as operating under
U.S. GAAP (excluded RGE): |
||||||||||||
Gain on disposal of permanent assets |
9,308 | 6,589 | 12,971 | |||||||||
Materials and supplies overages and other |
304 | 1,459 | 987 | |||||||||
Loss on disposal of permanent assets |
(2,483 | ) | (5,617 | ) | (2,962 | ) | ||||||
Write off of feasibility studies |
(15 | ) | (3,372 | ) | | |||||||
Materials and supplies shrinkage and other |
(235 | ) | (914 | ) | (3,467 | ) | ||||||
Capitalization of interest costs |
(4,901 | ) | (4,806 | ) | (1,070 | ) | ||||||
Capitalization of administrative costs |
(12,421 | ) | 1,650 | 1,308 | ||||||||
Monetary restatement 1996 and 1997 |
(1,779 | ) | (1,813 | ) | (1,664 | ) | ||||||
Depreciation of special obligation |
16,381 | 6,193 | 4,212 | |||||||||
Accounting for the effects of regulation |
||||||||||||
Extraordinary tariff adjustment |
82,695 | 132,371 | 146,358 | |||||||||
Provision for expenditure on research and
development and energy efficiency programs |
(21,093 | ) | (17,305 | ) | (10,684 | ) | ||||||
Business combinations and goodwill: |
||||||||||||
Basis differences: |
||||||||||||
Depreciation of basis difference in property, plant and equipment |
(20,598 | ) | (23,307 | ) | (19,526 | ) | ||||||
Effect of disposal of property, plant and equipment |
(8,724 | ) | (2,969 | ) | (6,429 | ) | ||||||
Reversal of goodwill amortization under Brazilian Accounting
Principles |
117,561 | 99,730 | 453,706 | |||||||||
Amortization of intangible concession assets under U.S. GAAP |
(185,040 | ) | (163,217 | ) | (163,217 | ) | ||||||
Amortization of intangible lease agreement under U.S. GAAP |
(18,616 | ) | (18,616 | ) | (18,616 | ) | ||||||
Accounting for the Serra da Mesa lease: |
||||||||||||
Operating revenues |
(48,295 | ) | (40,260 | ) | (38,643 | ) | ||||||
Operating costs |
22,792 | 20,897 | 20,247 | |||||||||
Pension and other benefits: |
8,460 | (4,814 | ) | (35,960 | ) | |||||||
Share issuance costs |
| 7,861 | | |||||||||
Deferred costs |
5,164 | 875 | (9,734 | ) | ||||||||
Other |
653 | 619 | 528 | |||||||||
Operating income under U.S. GAAP |
1,428,337 | 1,005,485 | 872,532 | |||||||||
F-79
As of December 31, | ||||||||
2005 | 2004 | |||||||
As restated | ||||||||
Note 38 | ||||||||
Total Assets under Brazilian Accounting Principles |
13,851,442 | 12,656,691 | ||||||
Less jointly-controlled subsidiaries proportionally consolidated assets in
excess of the respective investments by the equity method |
(1,627,034 | ) | (1,315,749 | ) | ||||
Capitalization of interest costs |
73,921 | 71,150 | ||||||
Administrative costs capitalized under Brazilian Accounting Principles |
(23,522 | ) | (13,241 | ) | ||||
Monetary restatement of 1996 and 1997 |
6,177 | 12,718 | ||||||
Capitalized deferred costs |
| (1,399 | ) | |||||
Accounting for the effects of regulation |
| (157,813 | ) | |||||
Depreciation of special obligations |
30,222 | 23,488 | ||||||
Business combinations and goodwill |
||||||||
Basis differences |
||||||||
Tax benefit of merged goodwill, net of income tax effect |
(668,935 | ) | (706,916 | ) | ||||
Property, plant and equipment |
639,189 | 618,130 | ||||||
Reversal of goodwill recorded under Brazilian Accounting Principles |
(2,299,646 | ) | (2,017,378 | ) | ||||
Recognition of concession intangible under U.S. GAAP |
4,931,617 | 4,648,742 | ||||||
Recognition of lease investment intangible under U.S. GAAP |
488,677 | 488,677 | ||||||
Accumulated amortization |
(1,156,351 | ) | (947,234 | ) | ||||
Accounting for the Serra da Mesa lease: |
||||||||
Recognition of net investment in direct financing lease under U.S. GAAP |
598,022 | 645,617 | ||||||
Reversal of property, plant and equipment recorded under Brazilian
Accounting Principles |
(766,443 | ) | (788,535 | ) | ||||
Derivative contracts |
(260 | ) | | |||||
Debt issuance costs related to loan guarantees granted to CERAN and
ENERCAN |
28,027 | 28,279 | ||||||
U.S. GAAP adjustments on equity interest in jointly-controlled subsidiaries |
(128,165 | ) | (148,987 | ) | ||||
Deferred costs |
(26,493 | ) | (31,657 | ) | ||||
Other |
(324 | ) | (676 | ) | ||||
Deferred income tax effects |
(12,444 | ) | (111,749 | ) | ||||
Total Assets and U.S. GAAP |
13,937,677 | 12,952,158 | ||||||
The detailed description of the nature of each adjustment in the above reconciliation is included in the previous topics of this note. |
f) | Aggregate foreign currency transaction gains (losses) | |
Total aggregate foreign currency transaction gains (losses) included in financial expense amounted to R$ 52,307 (gain) R$ 23,544 (gain) and R$ 193,850 (gain) for the years ended December 31, 2005, 2004 and 2003, respectively. |
F-80
g) | Statements of cash flows | |
The consolidated statements of cash flows for each of the three years in the period ended December 31, 2005 are presented in accordance with the presentational format determined by U.S. GAAP using amounts determined under Brazilian Accounting Principles. |
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
NET INCOME (LOSS) |
1,021,278 | 268,517 | (295,435 | ) | ||||||||
ADJUSTMENT TO RECONCILE NET INCOME/LOSS TO
CASH PROVIDED BY OPERATING ACTIVITIES |
||||||||||||
Minority interest |
40,371 | 21,596 | 1,698 | |||||||||
Monetary Restatement of Rationing Regulatory Assets |
(243,800 | ) | (171,476 | ) | (179,499 | ) | ||||||
Provision for losses on realizing the Extraordinary Tariff
Recovery |
91,805 | 32,250 | | |||||||||
Differential - 2003 tariff review |
(1,031 | ) | 81,182 | (13,798 | ) | |||||||
Tariff adjustment 2005 |
(11,043 | ) | | | ||||||||
PIS/COFINS Change in legislation |
(73,545 | ) | (44,813 | ) | | |||||||
Depreciation and amortization |
427,958 | 387,711 | 811,428 | |||||||||
Reserve for contingencies |
74,494 | 44,747 | 83,493 | |||||||||
Interest and monetary restatement |
(10,651 | ) | 100,170 | (247,035 | ) | |||||||
Unrealized loss (gains) on derivative contracts |
(21,833 | ) | 56,706 | 246,321 | ||||||||
Pension plan costs |
124,853 | 190,481 | 110,767 | |||||||||
Losses on changes in participation in
subsidiaries |
| (3,185 | ) | (39,537 | ) | |||||||
Gain (loss) on disposal of permanent assets |
156 | 5,135 | (6,817 | ) | ||||||||
Recognition of tax benefits |
(63,146 | ) | (56,364 | ) | (25,875 | ) | ||||||
Research and Development and Energy Efficiency
Programs |
49,319 | 28,264 | 20,474 | |||||||||
Low income subsidy |
(21,329 | ) | (36,522 | ) | | |||||||
Other |
3,845 | 10,684 | 9,469 | |||||||||
DECREASE (INCREASE) IN OPERATING ASSETS |
||||||||||||
Financial investments |
(32,575 | ) | (317,886 | ) | | |||||||
Accounts receivable |
174,171 | 136,835 | 346,885 | |||||||||
Other receivables |
28,868 | 20,906 | 220,288 | |||||||||
Recoverable taxes |
(22,302 | ) | 59,365 | (2,343 | ) | |||||||
Material and supplies |
(1,628 | ) | 355 | 521 | ||||||||
Deferred cost variations |
123,652 | 16,171 | (127,674 | ) | ||||||||
Deferred charges |
(1,669 | ) | | | ||||||||
Escrow deposits |
(78,704 | ) | (44,077 | ) | (33,336 | ) | ||||||
Other |
(34,442 | ) | 12,315 | (30,551 | ) | |||||||
INCREASE (DECREASE) IN OPERATING LIABILITIES |
||||||||||||
Suppliers |
251 | 46,296 | (187,411 | ) | ||||||||
Accrued payroll and employee profit sharing |
(1,859 | ) | 641 | (1,811 | ) | |||||||
Taxes and payroll charges payable |
(7,468 | ) | (12,188 | ) | 198,836 | |||||||
Deferred gain variations Parcel A (CVA) |
78,995 | 7,935 | 112,430 | |||||||||
Other credits |
| | (1,452 | ) | ||||||||
Regulatory charges |
(30,559 | ) | 25,987 | (49,846 | ) | |||||||
Pension costs |
(109,896 | ) | (102,774 | ) | (102,452 | ) | ||||||
Interest on debts accrued |
44,158 | (128,147 | ) | 108,829 | ||||||||
Loan and financing interest added to the principal |
58,780 | 134,560 | | |||||||||
Other |
12,815 | (4,921 | ) | 20,037 | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
1,588,289 | 766,456 | 946,604 |
F-81
(Continuation) | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
INVESTING ACTIVITIES |
||||||||||||
Additions to permanent assets |
(626,537 | ) | (605,716 | ) | (564,385 | ) | ||||||
Special obligations |
23,371 | 31,798 | 48,440 | |||||||||
Additions to deferred charges |
(5,433 | ) | (3,459 | ) | (15,696 | ) | ||||||
Purchase of interest of subsidiaries, net of cash of R$180
acquired |
(5,424 | ) | | | ||||||||
Proceeds from sale of permanent assets |
18,261 | 9,918 | 238,699 | |||||||||
Financial investments |
(157,967 | ) | | (12,120 | ) | |||||||
Proceeds from sales of financial investments |
11,696 | 12,120 | 82,586 | |||||||||
Other |
(2,387 | ) | | | ||||||||
NET CASH USED IN INVESTING ACTIVITIES |
(744,420 | ) | (555,339 | ) | (222,476 | ) | ||||||
FINANCING ACTIVITIES |
||||||||||||
Loans and financing obtained |
1,124,359 | 1,607,941 | 1,521,712 | |||||||||
Payments of loans and financing |
(1,230,116 | ) | (2,225,548 | ) | (3,236,525 | ) | ||||||
Debt issuance costs |
| (17,746 | ) | (16,096 | ) | |||||||
Dividends paid |
(559,170 | ) | (135,187 | ) | (28,445 | ) | ||||||
Capital increase |
| 684,649 | 1,200,000 | |||||||||
Related parties |
| | 33,179 | |||||||||
NET CASH USED IN FINANCING
ACTIVITIES |
(664,927 | ) | (85,891 | ) | (526,175 | ) | ||||||
INCREASE IN CASH AND CASH EQUIVALENTS |
178,942 | 125,226 | 197,953 | |||||||||
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR |
499,838 | 374,612 | 176,659 | |||||||||
CASH AND CASH EQUIVALENTS END OF YEAR |
678,780 | 499,838 | 374,612 | |||||||||
SUPPLEMENTAL CASH FLOWS DISCLOSURES: |
||||||||||||
Taxes paid in cash for the year |
369,825 | 238,930 | 54,984 | |||||||||
Interest paid in cash for the year |
462,882 | 689,284 | 899,983 | |||||||||
Conversion of VBC debt to equity |
| | 350,000 | |||||||||
TRANSACTIONS NOT AFFECTING CASH: |
||||||||||||
Conversion of debt into Capital (IFC Subscription Bonus) |
98,976 | | | |||||||||
Acquisition of minority shareholders with share issue |
553,778 | 609,185 | |
h) | New Accounting Pronouncements | |
In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB 29. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The statement specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date this statement is issued. Retroactive application is not permitted. The Company will apply this statement in case the exchanges of nonmonetary assets occur in fiscal years beginning after such date. | ||
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections which replaces APB Opinion 20, Accounting Changes and SFAS 3, Reporting Accounting Changes in Interim Financial Statements. This Statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the |
F-82
pronouncement does not include specific transition provisions.This Statement requires retrospective application to prior periods financial statements of change in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Requires that a change in depreciation, amortization or depletion be accounted for as change in accounting estimate effected by a change in accounting principle. This Statement carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. This Statement also carries forward the guidance in Opinion 20 requiring justification of a change in accounting principle on the basis of preferability. This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. This Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of this Statement. The Company applied this statement in case the Accounting Changes and Error Corrections, as described in Note 38. | ||
In November 2005, the FASB issued FSP FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which outlines a three-step model for identifying investment impairments in debt and equity securities within the scope of Statement 115 and cost-method investments. The three steps involve (1) determining whether the investment is impaired, (2) evaluating whether the impairment is other-than- temporary, and (3) if the impairment is other-than-temporary, recognizing an impairment loss. The FSP carries forward the disclosure requirements of issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Company will begin applying this guidance as of January 1, 2006 as circumstances arise. | ||
In July 2005, the FASB issued FSP No. APB 18-1, Accounting By an Investor for Its Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for Under The Equity Method in Accordance with APB Opinion No. 18 Upon a Loss of Significant Influence, which requires that when equity method accounting ceases upon the loss of significant influence of an investee, the investors proportionate share of the investees other comprehensive income should be offset against the carrying value of the investment. To the extent this results in a negative carrying value, the investor should adjust the carrying value to zero and record the residual balance through earnings. The Company will apply this Statement in the fiscal period beginning January 1, 2006 as the need arises. | ||
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. This Statement: |
a. | Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation | ||
b. | Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133 | ||
c. | Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation | ||
d. | Clarifies that concentrations of credit risk in the form of subordination are not Embedded derivatives | ||
e. | Amends Statement 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. |
F-83
a. | A transfer of the servicers financial assets that meets the requirements for sale accounting | |
b. | A transfer of the servicers financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. | |
c. | An acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. |
a. | Amortization methodAmortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date. | |
b. | Fair value measurement methodMeasure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur. |
F-84
37. | CONDENSED UNCONSOLIDATED FINANCIAL INFORMATION OF CPFL ENERGIA S.A. | |
Condensed unconsolidated financial information of CPFL Energia S.A., as of December 31, 2005 and 2004 and for each of the three years in the period ending on December 31, 2005 is as follows: | ||
BALANCE SHEETS AS OF DECEMBER 31, 2005 AND 2004 (UNCONSOLIDATED) |
2005 | 2004 | |||||||
As | ||||||||
restated | ||||||||
Note 38 | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
138,072 | 102,119 | ||||||
Financial investments (Note 5) |
134,303 | 84,266 | ||||||
Recoverable taxes |
60,369 | 48,838 | ||||||
Dividends receivable |
515,494 | 387,387 | ||||||
Other |
1,524 | 115 | ||||||
849,762 | 622,725 | |||||||
NONCURRENT ASSETS |
||||||||
Financial investments (Note 5) |
107,681 | | ||||||
Recoverable taxes |
2,787 | | ||||||
Deferred taxes |
72,000 | | ||||||
182,468 | | |||||||
PERMANENT ASSETS |
||||||||
Investments in subsidiaries |
2,976,208 | 2,660,439 | ||||||
Goodwill (Note 15) |
1,321,981 | 1,019,325 | ||||||
Property, plant and equipment |
137 | | ||||||
Other |
204 | | ||||||
4,298,530 | 3,679,764 | |||||||
TOTAL ASSETS |
5,330,760 | 4,302,489 | ||||||
LIABILITIES
AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Suppliers |
1,908 | 6,831 | ||||||
Taxes and payroll charges payable |
16,625 | 4,489 | ||||||
Dividends and interest on shareholders equity |
482,211 | 140,147 | ||||||
Accrued interest on loans and financing (Note 18) |
| 3,556 | ||||||
Loans and financing (Note 18) |
| 10,618 | ||||||
Derivative contracts |
| 2,934 | ||||||
Other |
71 | 67 | ||||||
500,815 | 168,642 | |||||||
LONG TERM LIABILITIES |
||||||||
Loans and financing (Note 18) |
| 95,558 | ||||||
Reserve for contingencies |
8,533 | | ||||||
Derivative contracts |
25,364 | 17,178 | ||||||
33,897 | 112,736 | |||||||
SHAREHOLDERS EQUITY |
||||||||
Common stock (without par value, 2005 5,479,756,730
authorized, 479,756,730 issued and outstanding: 2004 -
5,451,628,769 authorized, 451,628,769 issued and
outstanding) |
4,734,790 | 4,082,036 | ||||||
Treasury shares |
(8 | ) | | |||||
Profit reserves |
61,266 | 13,946 | ||||||
Retained earnings |
| (74,871 | ) | |||||
4,796,048 | 4,021,111 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
5,330,760 | 4,302,489 | ||||||
F-85
2005 | 2004 | 2003 | ||||||||||
As restated Note 38 | ||||||||||||
OPERATING EXPENSES |
||||||||||||
General and administrative expenses |
(9,327 | ) | (32,018 | ) | (18,343 | ) | ||||||
Amortization of goodwill |
(56,134 | ) | (42,359 | ) | | |||||||
(65,461 | ) | (74,377 | ) | (18,343 | ) | |||||||
EQUITY IN EARNINGS OF INVESTEES |
916,818 | 466,658 | 16,640 | |||||||||
FINANCIAL EXPENSE |
||||||||||||
Financial income |
47,316 | 42,087 | 13,317 | |||||||||
Financial expense |
(23,457 | ) | (168,472 | ) | (307,049 | ) | ||||||
23,859 | (126,385 | ) | (293,732 | ) | ||||||||
NONOPERATING INCOME (EXPENSE) |
||||||||||||
Nonoperating income |
9 | 5,272 | | |||||||||
Nonoperating expense |
(658 | ) | (2,651 | ) | | |||||||
(649 | ) | 2,621 | | |||||||||
SOCIAL CONTRIBUTION AND INCOME TAX |
||||||||||||
Social contribution tax |
||||||||||||
Current tax |
| | | |||||||||
Deferred tax |
13,000 | | | |||||||||
Income tax |
||||||||||||
Current tax |
(160 | ) | | | ||||||||
Deferred tax |
59,000 | | | |||||||||
71,840 | | | ||||||||||
NET INCOME (LOSS) FOR THE YEAR |
946,407 | 268,517 | (295,435 | ) | ||||||||
F-86
2005 | 2004 | 2003 | ||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
687,332 | (109,374 | ) | (107,349 | ) | |||||||
INVESTING ACTIVITIES |
||||||||||||
Purchase of interest in subsidiaries |
(2,837 | ) | | (3 | ) | |||||||
Increase in property, plant and equipment |
(137 | ) | | | ||||||||
Financial investments |
(130,615 | ) | | (12,120 | ) | |||||||
Proceeds from sales of financial investments |
11,696 | 12,120 | | |||||||||
Additions to deferred charges |
(204 | ) | | | ||||||||
Related parties |
| 164,556 | (155,246 | ) | ||||||||
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES |
(122,097 | ) | 176,676 | (167,369 | ) | |||||||
FINANCING ACTIVITIES |
||||||||||||
Loans and financing obtained |
| 324,764 | 900,000 | |||||||||
Payments of loans and financing |
| (931,110 | ) | (1,728,010 | ) | |||||||
Debt issuance costs |
| | (16,096 | ) | ||||||||
Dividends paid |
(529,282 | ) | (124,825 | ) | | |||||||
Capital increase |
| 684,650 | 1,200,000 | |||||||||
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES |
(529,282 | ) | (46,521 | ) | 355,894 | |||||||
INCREASE IN CASH AND CASH EQUIVALENTS |
35,953 | 20,781 | 81,176 | |||||||||
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR |
102,119 | 81,338 | 162 | |||||||||
CASH AND CASH EQUIVALENTS END OF YEAR |
138,072 | 102,119 | 81,338 | |||||||||
| Deferred Taxes As of December 31, 2005 CPFL Energia recorded part of the tax credits referring to tax loss carryforwards, based on expectations of future taxable income for income tax and social contribution up to period of 10 years. | |
| Investments As of December 31, 2005 and 2004, investments in subsidiaries are comprised as follows: |
2005 | 2004 | |||||||
As | ||||||||
restated | ||||||||
Note 38 | ||||||||
CPFL Paulista |
1,869,332 | 1,647,223 | ||||||
CPFL Geração |
1,106,328 | 1,013,212 | ||||||
CPFL Brasil |
548 | 4 | ||||||
2,976,208 | 2,660,439 | |||||||
| Goodwill As of December 31, 2005 and 2004, goodwill is comprised as follows: |
2005 | 2004 | |||||||
CPFL Paulista (Note 15) |
1,268,739 | 1,018,911 | ||||||
CPFL Geração(Note 15) |
53,242 | 414 | ||||||
1,321,981 | 1,019,325 | |||||||
F-87
| Reserve for contingencies CPFL Energia obtained an injunction with a view to non-payment of PIS and COFINS levied on interest on shareholders equity. | |
| Dividends received The dividends received are comprised as follows: |
2005 | 2004 | 2003 | ||||||||||
CPFL Paulista |
591,410 | 109,068 | 2,421 | |||||||||
CPFL Geração |
| 39,510 | 1,342 | |||||||||
CPFL Brasil |
128,125 | 102,004 | | |||||||||
CPFL Piratininga |
170 | | | |||||||||
719,705 | 250,582 | 3,763 | ||||||||||
| Restriction of transfer of funds from subsidiaries CPFL Paulista, CPFL Piratininga, RGE, Semesa, ENERCAN, CERAN, BAESA, Foz do Chapecó and CPFL Centrais Elétricas qualify as concessionaires of public services. As such, any transfer of funds to the respective parent company, in the form of loans or advances, requires approval by ANEEL. This regulatory restriction does not apply to cash dividends determined in accordance with the Brazilian corporate law. As described in Note 18, CPFL Paulista, CPFL Piratininga, RGE, ENERCAN, CERAN and BAESA may have restrictions relating to the payment of dividends. | |
As of December 31, 2005, total restricted subsidiaries net assets amount to R$ 2,484,320 composed as follows: |
CPFL Paulista |
1,869,332 | |||
ENERCAN, CERAN, BAESA and Foz do Chapecó |
391,795 | |||
Centrais Eletricas |
139,960 | |||
Semesa |
83,233 | |||
2,484,320 | ||||
The RGE shareholders Agreement restricts the payment of dividends in excess of the legal minimum under Brazilian corporate law without approval by the other investor in RGE. |
38. | RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | |
Subsequent to the issuance of the Companys 2004 financial statements, the Companys management determined that the transactions related to Research and Development and Energy Efficiency Program were not properly recorded. As a result, the Company restated its accompanying financial statements to reflect the effects of ANEEL Resolution 176, of November 28, 2005, and the provisions of the Brazilian Institute of Independent Auditors (IBRACON) Technical Interpretation n. 03/06, of January 23, 2006, which clarified the guidelines to account for the transactions related to Research and Development and Energy Efficiency Program. Because of this clarification, the Company recorded a liability related to the funds already collected from its consumers but not expended on the Programs. The Company have not expended this funds because of time spent on preparing for the projects and the process of ANEEL approval. Because this issue was considered a prior period error, the Company recorded such liability against Retained Earnings in its statutory financial statements as of and for the year ended December 31, 2005, as prior year adjustments. However, because the USGAAP has different guidelines related to the correction of prior period errors, this issue required the restatement of the Companys financial statements as of and for the years ended on December 31, 2004, 2003 and 2002, in order to record such adjustments in the corresponding years. |
F-88
2004 | 2003 | |||||||||||||||
As | As | |||||||||||||||
previously | previously | |||||||||||||||
reported | As restated | reported | As restated | |||||||||||||
Brazilian accounting practices: |
||||||||||||||||
Total assets |
12,618,121 | 12,656,691 | 12,041,751 | 12,070,712 | ||||||||||||
Total liabilities |
8,522,139 | 8,635,580 | 8,652,617 | 8,737,794 | ||||||||||||
Shareholders equity |
4,095,982 | 4,021,111 | 3,389,134 | 3,332,918 | ||||||||||||
Operating income |
1,168,276 | 1,140,012 | 641,820 | 621,346 | ||||||||||||
Net income (loss) |
287,172 | 268,517 | (281,922 | ) | (295,435 | ) | ||||||||||
U.S. GAAP: |
||||||||||||||||
Total assets |
12,908,248 | 12,952,158 | 12,627,717 | 12,657,787 | ||||||||||||
Shareholders equity |
5,277,268 | 5,178,325 | 4,191,520 | 4,122,635 | ||||||||||||
Operating income |
1,045,983 | 1,005,485 | 899,695 | 872,532 | ||||||||||||
Net income |
388,634 | 358,576 | 202,046 | 180,926 |
2004 | 2003 | |||||||||||||||
As | As | |||||||||||||||
Condensed unconsolidated | previously | previously | ||||||||||||||
statements | reported | As restated | reported | As restated | ||||||||||||
Brazilian accounting practices: |
||||||||||||||||
Total assets |
4,377,360 | 4,302,489 | 4,249,563 | 4,193,347 | ||||||||||||
Total liabilities |
281,378 | 281,378 | 860,429 | 860,429 | ||||||||||||
Shareholders equity |
4,095,982 | 4,021,111 | 3,389,134 | 3,332,918 | ||||||||||||
Net income (loss) |
287,172 | 268,517 | (281,922 | ) | (295,435 | ) |
F-89
1 | We have audited the accompanying consolidated balance sheets of Rio Grande Energia S.A. and its subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of operations, of changes in stockholders equity and of changes in financial position for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. | |
2 | We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. | |
3 | In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rio Grande Energia S.A. and its subsidiary as of December 31, 2005 and December 31, 2004 and the results of their operations, the changes in stockholders equity and the changes in their financial position for each of the three years in the period ended December 31, 2005, in accordance with accounting practices adopted in Brazil. | |
4 | As discussed in Note 12 (g), effective as from January 1, 2004, the Company changed the period and criteria of amortization of goodwill and the classification of such amount within the consolidated balance sheet. |
F-90
5 | As discussed in Note 3 (a), the Company has adjusted its financial statements as of December 31, 2004 and 2003 and for the years then ended to recognize liabilities with respect to contractually required expenses on energy efficiency programs and research and development. |
F-91
Restated | ||||||||
2005 | 2004 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and banks |
20,947 | 23,227 | ||||||
Financial investments (note 5) |
952 | 5,663 | ||||||
Consumers, concessionaires and licencees (note 6) |
364,744 | 307,881 | ||||||
Allowance for doubtful accounts (note 6) |
(31,293 | ) | (10,401 | ) | ||||
Taxes to offset (note 7) |
39,495 | 36,808 | ||||||
Deferred income tax and social contribution (note 8) |
37,382 | 19,418 | ||||||
Inventories |
4,876 | 4,376 | ||||||
Deferred costs variations (note 9) |
54,166 | 67,686 | ||||||
Prepaid expenses |
3,062 | 5,836 | ||||||
Other credits (note 10) |
22,200 | 27,771 | ||||||
516,531 | 488,265 | |||||||
Long-term receivables |
||||||||
Financial investments (note 5) |
15,813 | 5,024 | ||||||
Consumers, concessionaires and licencees (note 6) |
30,629 | 24,263 | ||||||
Allowance for doubtful accounts (note 6) |
(5,149 | ) | | |||||
Taxes to offset (note 7) |
9,952 | 6,160 | ||||||
Deferred income tax and social contribution (note 8) |
41,110 | 47,026 | ||||||
Judicial deposits (note 23) |
18,308 | 16,531 | ||||||
Deferred costs variations (note 9) |
28,223 | 54,331 | ||||||
Prepaid expenses |
3,005 | 1,225 | ||||||
Other credits (note 10) |
3,336 | 4,873 | ||||||
145,227 | 159,433 | |||||||
Permanent assets |
||||||||
Investments (note 11) |
| 940 | ||||||
Property, plant and equipment (note 12) |
1,645,263 | 1,612,495 | ||||||
Deferred charges (note 13) |
18,551 | 21,628 | ||||||
1,663,814 | 1,635,063 | |||||||
Total assets |
2,325,572 | 2,282,761 | ||||||
F-92
Restated | ||||||||
2005 | 2004 | |||||||
Liabilities |
||||||||
Current liabilities |
||||||||
Suppliers (note 14) |
145,662 | 125,717 | ||||||
Payroll |
1,103 | 1,193 | ||||||
Debentures (note 15) |
10,939 | | ||||||
Loans and financing (note 16) |
216,476 | 331,431 | ||||||
Regulatory fees (note 17) |
4,542 | 11,219 | ||||||
Taxes and social contributions (note 18) |
46,067 | 75,282 | ||||||
Deferred income tax and social contribution (note 8) |
16,807 | | ||||||
Dividends (note 19) |
63,071 | 46,752 | ||||||
Accounts payable for retirement incentives (note 20) |
7,458 | 6,555 | ||||||
Deferred gain variations (note 9) |
12,754 | 12,053 | ||||||
Estimated liabilities (note 21) |
6,663 | 6,199 | ||||||
Other accounts payable (note 22) |
39,412 | 21,952 | ||||||
570,954 | 638,353 | |||||||
Long-term liabilities |
||||||||
Debentures (note 15) |
230,000 | | ||||||
Loans and financing (note 16) |
206,174 | 325,004 | ||||||
Deferred income tax and social contribution (note 8) |
115,463 | 139,772 | ||||||
Accounts payable for retirement incentives (note 20) |
14,452 | 22,952 | ||||||
Deferred gain variations (note 9) |
1,872 | 6,981 | ||||||
Provisions for contingencies (note 23) |
37,171 | 40,662 | ||||||
Estimated liabilities (note 21) |
998 | 971 | ||||||
Other accounts payable (note 22) |
6,327 | 13,286 | ||||||
612,457 | 549,628 | |||||||
Stockholders equity (note 24) |
||||||||
Capital |
830,457 | 784,430 | ||||||
Capital reserves |
69,673 | 69,673 | ||||||
Revaluation reserve |
235,291 | 251,970 | ||||||
Profit reserve |
7,221 | 1,538 | ||||||
Accumulated deficit |
| (12,350 | ) | |||||
Treasury shares |
(481 | ) | (481 | ) | ||||
1,142,161 | 1,094,780 | |||||||
Total liabilities |
2,325,572 | 2,282,761 | ||||||
F-93
Restated | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Operating revenues (note 25) |
||||||||||||
Electricity sales to final customers |
2,148,487 | 1,862,796 | 1,552,642 | |||||||||
Electricity sales to distributors |
30,566 | 27,157 | 22,333 | |||||||||
Revenue from providing electrical network access |
13,033 | 893 | 619 | |||||||||
Other operating revenues |
16,318 | 17,918 | 15,506 | |||||||||
2,208,404 | 1,908,764 | 1,591,100 | ||||||||||
Deductions from operating revenues |
||||||||||||
Value-Added Tax on Sales and Services (ICMS) |
(461,655 | ) | (358,132 | ) | (299,186 | ) | ||||||
Social Integration Program (PIS) |
(35,898 | ) | (25,007 | ) | (25,606 | ) | ||||||
Social Contribution on Revenues (COFINS) |
(162,764 | ) | (117,113 | ) | (46,556 | ) | ||||||
Global reversal reserve |
(10,758 | ) | (9,941 | ) | (11,409 | ) | ||||||
Emergency capacity charge |
(34,068 | ) | (42,122 | ) | (39,222 | ) | ||||||
(705,143 | ) | (552,315 | ) | (421,979 | ) | |||||||
Net operating revenues |
1,503,261 | 1,356,449 | 1,169,121 | |||||||||
Cost of electricity services |
||||||||||||
Cost of electricity (note 26) |
||||||||||||
Electricity purchased for resale |
(733,582 | ) | (692,883 | ) | (592,883 | ) | ||||||
Charges for the use of electric network |
(162,917 | ) | (129,487 | ) | (75,293 | ) | ||||||
(896,499 | ) | (822,370 | ) | (668,176 | ) | |||||||
Cost of operations |
||||||||||||
Personnel |
(18,209 | ) | (22,868 | ) | (24,443 | ) | ||||||
Private pension entity |
(355 | ) | (788 | ) | (627 | ) | ||||||
Material |
(6,643 | ) | (7,320 | ) | (6,519 | ) | ||||||
Third-party services |
(17,038 | ) | (15,503 | ) | (13,646 | ) | ||||||
Depreciation and amortization |
(47,731 | ) | (43,057 | ) | (47,141 | ) | ||||||
Fuel consumption account |
(67,570 | ) | (56,590 | ) | (52,610 | ) | ||||||
Energy development account |
(46,954 | ) | (30,846 | ) | (14,202 | ) | ||||||
Other operating costs |
(4,120 | ) | (6,009 | ) | (4,305 | ) | ||||||
(208,620 | ) | (182,981 | ) | (163,493 | ) | |||||||
Cost of services rendered to third parties |
||||||||||||
Personnel |
(74 | ) | | | ||||||||
Depreciation and amortization |
(544 | ) | (461 | ) | (379 | ) | ||||||
Maintenance |
(349 | ) | (312 | ) | (257 | ) | ||||||
(967 | ) | (773 | ) | (636 | ) | |||||||
Gross operating profit |
397,175 | 350,325 | 336,816 | |||||||||
Operating expenses (note 27) |
||||||||||||
Selling |
(82,684 | ) | (51,734 | ) | (42,194 | ) | ||||||
General and administrative |
(91,419 | ) | (76,498 | ) | (59,828 | ) | ||||||
Amortization of goodwill |
(12,149 | ) | (15,779 | ) | (112,027 | ) | ||||||
(186,252 | ) | (144,011 | ) | (214,049 | ) | |||||||
Income from services |
210,923 | 206,314 | 122,767 | |||||||||
Financial income (expense) (note 28) |
||||||||||||
Income |
40,480 | 36,895 | 29,352 | |||||||||
Expense |
(141,112 | ) | (126,593 | ) | (167,746 | ) | ||||||
(100,632 | ) | (89,698 | ) | (138,394 | ) | |||||||
Operating income |
110,291 | 116,616 | (15,627 | ) | ||||||||
Non-operating income (expense) (note 29) |
||||||||||||
Income |
1,323 | 1,457 | 668 | |||||||||
Expense |
(17,505 | ) | (14,634 | ) | (6,981 | ) | ||||||
(16,182 | ) | (13,177 | ) | (6,313 | ) | |||||||
Income before social contribution and income tax |
94,109 | 103,439 | (21,940 | ) | ||||||||
Social contribution (note 8) |
5,175 | (18,265 | ) | 3,428 | ||||||||
Income tax (note 8) |
14,376 | (49,932 | ) | 9,523 | ||||||||
Net income for the year |
113,660 | 35,242 | (8,989 | ) | ||||||||
Net income per thousand shares R$ |
140.81 | 45.45 | (11.59 | ) |
F-94
Capital reserves | Profit reserve | Restated | ||||||||||||||||||||||||||||||||||
Premium on | Remuneration for | Retained earnings | ||||||||||||||||||||||||||||||||||
subscription | companys capital | Investment | Revaluation | (accumulated | Treasury | Restated | ||||||||||||||||||||||||||||||
Capital | of shares | goods and rights | subsidies | reserve | Legal reserve | deficit) | shares | Total | ||||||||||||||||||||||||||||
Balances as of December 31, 2002 as restated |
784,430 | 125,161 | 6,916 | 221 | | | (246,629 | ) | (481 | ) | 669,618 | |||||||||||||||||||||||||
Constitution of revaluation reserve |
| | | | 416,421 | | | 416,421 | ||||||||||||||||||||||||||||
Deferred taxes on revaluation |
| | | | (136,648 | ) | | | (136,648 | ) | ||||||||||||||||||||||||||
Realization of revaluation reserve |
| | | | (10,852 | ) | | 10,852 | | |||||||||||||||||||||||||||
Realization of deferred taxes on revaluation |
| | | | | | 5,587 | 5,587 | ||||||||||||||||||||||||||||
Net loss for the year |
| | | | | | (8,989 | ) | (8,989 | ) | ||||||||||||||||||||||||||
Balances as of December 31, 2003 as restated |
784,430 | 125,161 | 6,916 | 221 | 268,921 | | (239,179 | ) | (481 | ) | 945,989 | |||||||||||||||||||||||||
Net income for the year |
| | | | | | 35,242 | | 35,242 | |||||||||||||||||||||||||||
Realization of revaluation reserve |
| | | | (16,951 | ) | | 16,951 | | | ||||||||||||||||||||||||||
Waiver by preferred stockholders to fixed dividends |
| 18,000 | | | | | | | 18,000 | |||||||||||||||||||||||||||
Capitalization of part of the fixed dividends (note 34.d) |
| 141,714 | | | | | | | 141,714 | |||||||||||||||||||||||||||
Absorption of 2003 accumulated deficit balance determined on the
financial statements for statutory and regulatory purposes |
| (222,339 | ) | | | | | 222,339 | | | ||||||||||||||||||||||||||
Appropriation of net income for the year: (note 19) |
||||||||||||||||||||||||||||||||||||
Legal reserve |
| | | | | 1,538 | (1,538 | ) | | | ||||||||||||||||||||||||||
Proposed dividends: |
||||||||||||||||||||||||||||||||||||
Preferred shares (per group of thousand shares R$64.33) |
(9,310 | ) | (9,310 | ) | ||||||||||||||||||||||||||||||||
Common shares (per group of thousand shares R$58.48) |
(36,855 | ) | (36,855 | ) | ||||||||||||||||||||||||||||||||
Balances as of December 31, 2004 as restated |
784,430 | 62,536 | 6,916 | 221 | 251,970 | 1,538 | (12,350 | ) | (481 | ) | 1,094,780 | |||||||||||||||||||||||||
Net income for the year |
| | | | | | 113,660 | | 113,660 | |||||||||||||||||||||||||||
Realization of revaluation reserve |
| | | | (16,679 | ) | | 16,679 | | | ||||||||||||||||||||||||||
Capital increase share subscription (note 24) |
46,027 | | | | | | | | 46,027 | |||||||||||||||||||||||||||
Appropriation of net income for the year: (note 19) |
||||||||||||||||||||||||||||||||||||
Legal reserve |
| | | | | 5,683 | (5,683 | ) | | | ||||||||||||||||||||||||||
Interim dividends approved by Supervisory Board meeting as of
11/18/2005: |
||||||||||||||||||||||||||||||||||||
Preferred shares (per group of thousand shares R$66.93) |
(10,084 | ) | | (10,084 | ) | |||||||||||||||||||||||||||||||
Common shares (per group of thousand shares R$60.84) |
(39,916 | ) | (39,916 | ) | ||||||||||||||||||||||||||||||||
Proposed dividends: |
||||||||||||||||||||||||||||||||||||
Preferred shares (per group of thousand shares R$83.40) |
(12,565 | ) | (12,565 | ) | ||||||||||||||||||||||||||||||||
Common shares (per group of thousand shares R$75.82) |
(49,741 | ) | (49,741 | ) | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2005 |
830,457 | 62,536 | 6,916 | 221 | 235,291 | 7,221 | | (481 | ) | 1,142,161 | ||||||||||||||||||||||||||
F-95
Restated | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
FINANCIAL RESOURCES WERE PROVIDED BY |
||||||||||||
Operations |
||||||||||||
Net income for the year |
113,660 | 35,242 | (8,989 | ) | ||||||||
Expenses (income) not affecting net working capital |
||||||||||||
Depreciation and amortization |
64,835 | 56,317 | 57,523 | |||||||||
PIS and COFINS credit on depreciation and amortization |
| 3,002 | 1,129 | |||||||||
Amortization of goodwill |
12,149 | 15,779 | 112,027 | |||||||||
Provisions for contingencies |
3,874 | 7,398 | 3,808 | |||||||||
Long-term interest, monetary and exchange variations |
3,340 | 28,370 | 42,823 | |||||||||
Losses in property, plant and equipment write-offs |
20,492 | 16,317 | 6,748 | |||||||||
Losses in deferred asset write-offs |
257 | | | |||||||||
Provision for losses in investments |
940 | | | |||||||||
Deferred income tax and social contribution |
8,530 | 46,263 | (12,951 | ) | ||||||||
228,077 | 208,688 | 202,118 | ||||||||||
Stockholders |
||||||||||||
Capital increase share subscription (note 24) |
46,027 | | | |||||||||
Waiver by preferred stockholders to fixed dividends |
| 18,000 | | |||||||||
Capitalization of part of the fixed dividends (note 34.d) |
| 141,714 | | |||||||||
46,027 | 159,714 | | ||||||||||
Third parties |
||||||||||||
Loans and financing |
275,858 | 240,374 | 88,885 | |||||||||
Consumer contributions and donations |
12,351 | 9,697 | 9,013 | |||||||||
Account to offset variations in Portion A |
2,950 | 4,039 | 13,738 | |||||||||
Other additions to long-term liabilities |
7,195 | 19,556 | 15,705 | |||||||||
Long-term receivables transferred to current |
43,435 | 64,512 | 73,759 | |||||||||
341,789 | 338,178 | 201,100 | ||||||||||
Total funds obtained |
615,893 | 706,580 | 403,218 | |||||||||
FINANCIAL RESOURCES WERE USED FOR |
||||||||||||
Long-term receivables |
37,019 | 55,511 | 108,628 | |||||||||
Long-term liabilities |
18,242 | 21,524 | 169,972 | |||||||||
On property, plant and equipment |
138,976 | 98,022 | 62,432 | |||||||||
On deferred assets |
799 | 1,952 | 4,027 | |||||||||
Long-term liabilities transferred to current |
212,886 | 324,389 | 70,603 | |||||||||
Proposed dividends and Interim dividends (note 19) |
112,306 | 46,165 | | |||||||||
Total funds used |
520,228 | 547,563 | 415,662 | |||||||||
(Decrease) increase in net working capital |
95,665 | 159,017 | (12,444 | ) | ||||||||
CHANGES IN NET WORKING CAPITAL |
||||||||||||
Current assets: |
||||||||||||
At the beginning of the year |
488,265 | 434,243 | 405,114 | |||||||||
At the end of the year |
516,531 | 488,265 | 434,243 | |||||||||
28,266 | 54,022 | 29,129 | ||||||||||
Current liabilities: |
||||||||||||
At the beginning of the year |
638,353 | 743,348 | 701,775 | |||||||||
At the end of the year |
570,954 | 638,353 | 743,348 | |||||||||
(67,399 | ) | (104,995 | ) | 41,573 | ||||||||
(Decrease) increase in net working capital |
95,665 | 159,017 | (12,444 | ) | ||||||||
F-96
1 | OPERATIONS | |
Rio Grande Energia S.A., a listed corporation, is a public concessionaire of electric energy authorized to operate in the Northern and Northeastern Regions of the State of Rio Grande do Sul. It was formed on July 28, 1997 under the name Companhia Norte-Nordeste de Distribuição de Energia Elétrica (CNNDEE), and became a private company on October 21, 1997, when its name was changed to Rio Grande Energia S.A. | ||
The Companys main activities are to undertake studies, projects, construction and operation of power plants and transmission and distribution lines for electric energy and to develop activities associated with the rendering of electric energy services. Currently, the Company is focused on operating the concession of electric energy distribution. | ||
2 | CONCESSION | |
On November 6, 1997, the Company and the National Electric Energy Agency (ANEEL) signed the Agreement for the Concession of Electric Energy Distribution 13/1997, which regulates the operation of public electric energy distribution services with adequate technology and methods that guarantee the delivery of services in the area of concession. The term of the concession is 30 years as from the contract signing date, and this period can be extended by ANEEL for an equal period based on the Concession Agreement. | ||
3 | PRESENTATION OF FINANCIAL STATEMENTS | |
The financial statements and explanatory notes are presented in thousand of reais (R$), except when otherwise indicated. They were elaborated based on the accounting practices outlined in the Brazilian Corporate Law, on specific Brazilian Securities Commission (CVM) regulations, and on rules and standards established by the authorities granting the concession (represented by ANEEL) that are applicable to public electric energy utility concessionaires, as described in note 4. |
(i) | Adjustments to financial statements for statutory and regulatory purposes with respect to deferral of foreign exchange losses incurred in 2001 | |
In the financial statements for the year ended December 31, 2001 prepared by the Company for statutory and regulatory purposes, through December 31, 2004, the Company had deferred foreign exchange losses incurred in 2001 on foreign currency-denominated liabilities of its wholly-owned subsidiary Sul Geradora Participações S.A. This accounting treatment was not in accordance with the accounting practices adopted in Brazil, which require exchange variations in foreign currencies to be recognized in income and expenses when they occur. The financial statements for the years ended December 31, 2004 and 2003 were audited by our independent auditors who issued qualified opinions with respect to this matter on February 25, 2005 and January 29, 2004, respectively, and they were published in newspapers, filed with the CVM and approved at the respective annual stockholders meetings. As presented in (iii) below, these special purpose consolidated financial statements have been adjusted with respect to the financial statements for statutory and regulatory purposes in order to recognize such exchange loss in 2001 and revert the related amortization expense in 2001 and subsequent years. | ||
(ii) | Restatement of prior year financial statements with respect to liabilities for expenditures on energy efficiency programs and on research and development | |
Concessionaires of public distribution of electric energy are required to spend at least 1.0% of their annual operating revenue, after deducting ICMS and emergency capacity charges, in programs identified as Energy Efficiency Programs (EEP) and Research and Development (R&D), as prescribed |
F-97
by Law 9991/2000, and amended by Law 10848/2004. Such amount should be spent 50% for EEP and 50% for R&D. Out of the total amounts to be invested in R&D, such amounts should be spent: (i) 40% in research and development projects carried out by the Company or by third parties; (ii) 40% should be paid to a third-party, the Brazilian National Scientific and Technological Development Fund (FNDCT); and (iii) the remaining 20% should be paid to another third-party, the Brazilian Energy Research Company (EPE). | ||
The amounts related to FNDCT and EPE, were accrued on a monthly basis by the Company every year. | ||
In regards to the amounts owed for EEP and item (i) of R&D, for periods through December 31,
2004, the Company did not fully accrue the amounts owed, and only recognized the amounts paid
during the year. Thus, the Company recognized such amounts on a cash basis and accumulated
within Services in progress (see note 10) until the specific projects were finalized when the
accumulated amount for each project was expensed.
In December 2005, ANEEL, through Resolution 176/2005 and the Manual for EEP determined that a provision should be recorded for the full amounts required to be spent on EEP, and the Company should apply interest (computed as from December 15, 2005) to those amounts using the SELIC interest rate. |
||
IBRACON, through Technical Notice 03/2006, issued on January 23, 2006, concluded that the non recording of a liability for expenditures on EEP represents an error resulting from misinterpretation of facts. Moreover, the full amounts required to be spent on R&D, item (i), according to the accrual basis should be also recorded. | ||
Technical Notice 03/2006 also required: (a) to recognize a liability against retained earnings as of January 1, 2005 for the amounts accrued but not yet spent as of January 1, 2005 for EEP and R&D, and (b) to record within financial expenses for the year ended December 31, 2005 the cumulative interest on such liability based on the SELIC interest rate computed as from December 15, 2005. As a result, the Company recorded on its financial statements for statutory and regulatory purposes an adjustment to opening retained earnings as of January 1, 2005 for R$ 12,350. | ||
The statutory financial statements for the year ended December 31, 2005 were audited by our independent auditors, published in newspapers, filed with the CVM and approved at the respective annual stockholders meeting. | ||
(iii) | Adjustments included in these financial statements with respect to the financial statements for statutory and regulatory purposes and restatement of prior year financial statements | |
Considering that one of the stockholders of the Company is required to file the audited financial statements of the Company with the United States Securities and Exchange Commission (SEC), and the SEC does not accept qualified opinions, the Company has prepared these special-purpose consolidated financial statements as at December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 which differ in certain aspects from the financial statements prepared for statutory and regulatory purposes. These financial statements are not intended to replace the financial statements of the Company for statutory and regulatory purposes. | ||
In these financial statements the foreign exchange loss deferral is fully recognized in the 2001 results of operations (not presented herein), and the related amortization expense recognized in 2001 and subsequent periods is being reversed. | ||
In addition, the correction of the error in the accounting for expenditures on EEP and R&D is reflected through the restatement of prior periods, as opposed to recording the adjustment to equity as of |
F-98
January 1, 2005 as required by IBRACON. Restatement of financial statements for prior periods is not required under accounting practices generally accepted in Brazil; however, the CVM has stated that restatement of prior periods enhances comparability of financial statements and a draft Deliberation has been issued for public comments by the CVM proposing the use of restatements for the correction of errors. | ||
The following table presents the reconciliation between stockholders equity at December 31, 2004 and 2003 and net income for the years ended December 31, 2004 and 2003 to reflect the differences between (i) the amounts included in the financial statements for statutory and regulatory purposes and as previously reported in the special purposes financial statements filed with the SEC (As Previously Reported), and (ii) between the amounts As Previously Reported and As Restated in these financial statements. |
Stockholders equity | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
As presented in the financial statements for statutory and regulatory
purposes |
1,107,130 | 962,829 | ||||||
(i) Reversal of amortization of deferred foreign exchange loss,
no tax effect |
| (9,481 | ) | |||||
As previously reported |
1,107,130 | 953,348 | ||||||
(ii) Provision for EEP and R&D expenditures |
(18,712 | ) | (11,151 | ) | ||||
Related tax effect |
6,362 | 3,792 | ||||||
Net effect |
(12,350 | ) | (7,359 | ) | ||||
As presented in these restated financial statements |
1,094,780 | 945,989 | ||||||
Net income (loss) for the year | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
As presented in the financial statements for statutory and regulatory
purposes |
30,752 | (23,158 | ) | |||||
(i) Reversal of amortization of deferred foreign exchange loss,
no tax effect |
9,481 | 18,100 | ||||||
As previously reported |
40,233 | (5,058 | ) | |||||
(ii) Provision for EEP and R&D expenditures |
(7,561 | ) | (5,956 | ) | ||||
Related tax effect |
2,570 | 2,025 | ||||||
Net effect |
(4,991 | ) | (3,931 | ) | ||||
As presented in these restated financial statements |
35,242 | (8,989 | ) | |||||
F-99
As Previously | Reclassification | |||||||||||||||
Reported | Restatement | (see note 22) | As restated | |||||||||||||
Balance sheet as of December 31, 2004 |
||||||||||||||||
Current assets Deferred income tax and social contribution |
17.544 | 1.874 | | 19.418 | ||||||||||||
Long-term assets Deferred income tax and social
contribution |
42.538 | 4.488 | | 47.026 | ||||||||||||
Current liabilities Other accounts payable |
16.439 | 5.513 | | 21.952 | ||||||||||||
Long-term liabilities Other accounts payable |
6.459 | 13.199 | (6.372 | ) | 13.286 | |||||||||||
Stockholders equity Accumulated deficit |
| 12.350 | | 12.350 | ||||||||||||
Statement of Income for the year ended December 31, 2004 |
||||||||||||||||
Operating expenses |
(136.450 | ) | (7.561 | ) | | (144.011 | ) | |||||||||
Income tax an social contribution |
(70.767 | ) | 2.570 | | (68.197 | ) | ||||||||||
Statement of Income for the year ended December 31, 2003 |
||||||||||||||||
Operating expenses |
(208.093 | ) | (5.956 | ) | | (214.049 | ) | |||||||||
Income tax an social contribution |
10.926 | 2.025 | | 12.951 |
4 | SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES |
Account plan the Company adopts the account plan contained in the Accounting Manual for Public Electric Energy Services established through ANEEL Resolution 444/2001. | ||
Accounts to offset variations of non-manageable costs (Portion A) CVA correspond to variations in non-manageable costs (as defined by ANEEL) associated with the distribution of electric energy and still not included in the energy supply tariffs. These amounts are updated based on the SELIC interest rate up to the balance sheet date and appropriated to the results in accordance with billings made as from the readjustment of rates passed on to consumers (see note 9). | ||
Financial charges and inflation effects as provided by the General Account Policy Guide of the Accounting Manual for Public Electric Energy Services and CVM Instruction, interest and other financial charges, including inflation and foreign exchange effects for the year, that relate to financing from third parties for investment in construction in progress, were transferred from results to the cost of the related asset. | ||
Indirect costs of construction projects underway each month, a portion of the central administration expenses are appropriated to construction in progress through allocation of direct expenses with personnel and third-party labor, based on the General and Accounting Guidelines from the Manual for Public Electric Energy Services. | ||
Registration of the energy purchase and sale operations with the Electric Energy Trade Chamber (CCEE) purchases and sales are recognized on an accrual basis based on information published by such entity (see note 31). |
F-100
Financial investments include interest-bearing investments recorded at cost, plus the respective income accrued recorded up to the balance sheet date and reduced to market value, if necessary (see note 5). | ||
Consumers, concessionaires and licensees accounts receivable include both amounts already billed and receivables related to the energy supplied and not yet billed (see note 6). | ||
Allowance for doubtful accounts amount considered as sufficient by Management to cover probable losses arising from the collection of receivables (see note 6). | ||
Inventories valued and recorded at average historical cost and not exceeding its estimated market value. Construction materials are classified within property, plant and equipment. | ||
Investments recorded at acquisition cost and, when applicable, adjusted to market value. | ||
Property, plant and equipment Assets purchased up to March 31, 2003 are recorded at market value based on an appraisal report issued by an independent expert, and those acquired after such date are recorded based on the acquisition or construction cost, less accumulated depreciation calculated by the straight-line method based on rates that reflect the useful economic life of the assets (see note 12). | ||
Deferred charges includes expenses with system implementations, which are amortized over a 10-year period (see note 13). | ||
Suppliers include liabilities related to energy suppliers, grid usage charges, material and service providers and obligations corresponding to short-term energy bought from the CCEE (see note 14). | ||
Loans, financing and debentures restated based on monetary or exchange variations including accrued interest up to the balance sheet date (see notes 15 and 16). | ||
Accounts payable for retirement incentives as stated in the privatization notice, the Company must pay supplementary retirement benefits to employees participating in the CEEE Social Security Foundation (ELETROCEEE) who were granted retirement for years of service by the National Institute of Social Security (INSS) but who do not fulfill all requirements to obtain the benefit. Accordingly, the Company provided the amount, arising from actuarial calculations, of the commitment related to the salary supplements to be paid to the participants or handed over to ELETROCEEE, adjusted to present value at the rate of 12.0% per year. The Company also valued this benefit in accordance with CVM Deliberation 371/2000 through an independent actuarial company. The Company opted to recognize the actuarial liability in income from 2002 to 2006, or based on the time of service or remaining life of the employees, if shorter (see note 20). | ||
Provisions for contingencies recorded based on evaluations of risk associated with lawsuits whose probability for loss indicates probable losses, and quantified based considering the economic substance of the contingencies and legal opinions on the existing lawsuits and other facts known as of the balance sheet date (see note 23). | ||
Income tax and social contribution calculated based on taxable income. The Company set up deferred tax assets relating to income tax and social contribution loss carryforwards and temporary deductible differences and deferred tax liabilities on temporary taxable differences (see note 8). | ||
Results results of operations are determined on the accrual basis. The supplied and billed electric energy is recognized based on the tariff rates regulated by ANEEL. The supplied and unbilled electric energy is recorded based on billings for the previous month. Historically, the difference between the |
F-101
estimated unbilled revenue and the actual amount, recognized during the following month, has not been relevant. | ||
Accounting estimates in the preparation of financial statements, Management must use estimates as a basis to determine the impact of certain transactions that affect the Reported amounts of Companys assets, liabilities, revenues and expenses. Actual results of these transactions can differ from these estimates. Management periodically reviews these estimates and believes that no significant differences are expected to occur. | ||
Financial instruments Net income of the Company is affected, among other factors, by the exchange rate of the reais against the U.S. dollar and changes in the BNDES basket of foreign currencies since it has financings associated with these indexes. In order to manage such risk, Management has adopted a policy of contracting swap operations, swapping the original indexes by the Interbank Deposit Certificates (CDI) interest rate (see note 30). | ||
Net income and net stockholders equity per share computed based on the number of outstanding shares as of the balance sheet date. |
c) | Accounting practices for consolidation |
The former wholly owned subsidiary, Sul Geradora Participações S.A. was sold on September 2005 (see note 11). The financial statements of Sul Geradora Participações S.A. have been consolidated through the date of sale. After such sale the Company does not have any subsidiary. | ||
The main procedures for consolidation take into consideration: |
| elimination of the balances of assets and liabilities between the parent and its subsidiary, as well as income and expenses from transactions between them; and, | ||
| elimination of the participation in the capital and loss for the year of the subsidiary. |
5 | FINANCIAL INVESTMENTS |
Average rate (% of CDI) | ||||||||||||||||
Type of investment | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Short-term |
||||||||||||||||
CDB DI |
99.3 | % | 99.5 | % | 952 | 4,336 | ||||||||||
Investment funds |
| 103.7 | % | | 1,327 | |||||||||||
Total short-term |
952 | 5,663 | ||||||||||||||
Long-term |
||||||||||||||||
CDB with foreign exchange swap (i) |
100.0 | % | 100.0 | % | 5,452 | 4,677 | ||||||||||
Investment funds (ii) |
102.6 | % | 104.3 | % | 10,361 | 347 | ||||||||||
Total long-term |
15,813 | 5,024 | ||||||||||||||
Total short-term and long-term |
16,765 | 10,687 | ||||||||||||||
F-102
6 | CONSUMERS, CONCESSIONAIRES AND LICENSEES |
Allowance for doubtful | ||||||||||||||||||||||||||||||||||||
Balance | accounts | Net balance | ||||||||||||||||||||||||||||||||||
Overdue up to | Overdue over | Total | Total | |||||||||||||||||||||||||||||||||
Short-term | Not yet due | 90 days | 90 days | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||
Consumers |
||||||||||||||||||||||||||||||||||||
Residential |
48,510 | 18,112 | 5,989 | 72,611 | 60,781 | (3,751 | ) | (2,569 | ) | 68,860 | 58,212 | |||||||||||||||||||||||||
Industrial |
47,254 | 9,076 | 16,836 | 73,166 | 55,178 | (3,055 | ) | (3,053 | ) | 70,111 | 52,125 | |||||||||||||||||||||||||
Commercial and services |
25,111 | 6,836 | 12,363 | 44,310 | 38,131 | (7,460 | ) | (4,761 | ) | 36,850 | 33,370 | |||||||||||||||||||||||||
Rural |
10,089 | 1,625 | 877 | 12,591 | 11,050 | (180 | ) | (18 | ) | 12,411 | 11,032 | |||||||||||||||||||||||||
Government |
6,474 | 4,466 | 2,601 | 13,541 | 14,043 | | | 13,541 | 14,043 | |||||||||||||||||||||||||||
Public lighting |
11,923 | 2,590 | 41,563 | 56,076 | 45,332 | | | 56,076 | 45,332 | |||||||||||||||||||||||||||
Government services |
5,391 | 80 | 429 | 5,900 | 5,462 | | | 5,900 | 5,462 | |||||||||||||||||||||||||||
Unbilled supply |
61,474 | | | 61,474 | 53,517 | | | 61,474 | 53,517 | |||||||||||||||||||||||||||
Subtotal |
216,226 | 42,785 | 80,658 | 339,669 | 283,494 | (14,446 | ) | (10,401 | ) | 325,223 | 273,093 | |||||||||||||||||||||||||
Concessionary and licensee |
5,623 | | | 5,623 | 4,708 | | | 5,623 | 4,708 | |||||||||||||||||||||||||||
Spot market CCEE (see
note 31) |
3 | | | 3 | | | | 3 | | |||||||||||||||||||||||||||
AES Uruguaiana |
16,774 | | | 16,774 | 16,774 | (16,774 | ) | | | 16,774 | ||||||||||||||||||||||||||
Unrestricted energy |
2,675 | | | 2,675 | 2,905 | (73 | ) | | 2,602 | 2,905 | ||||||||||||||||||||||||||
Total |
241,301 | 42,785 | 80,658 | 364,744 | 307,881 | (31,293 | ) | (10,401 | ) | 333,451 | 297,480 | |||||||||||||||||||||||||
Long-term |
||||||||||||||||||||||||||||||||||||
Consumers |
||||||||||||||||||||||||||||||||||||
Residential |
399 | | | 399 | 1,258 | | | 399 | 1,258 | |||||||||||||||||||||||||||
Industrial |
3,451 | | | 3,451 | 1,659 | | | 3,451 | 1,659 | |||||||||||||||||||||||||||
Commercial and services |
996 | | | 996 | 1,763 | | | 996 | 1,763 | |||||||||||||||||||||||||||
Rural |
18 | | | 18 | 48 | | | 18 | 48 | |||||||||||||||||||||||||||
Government |
2,352 | | | 2,352 | 2,534 | | | 2,352 | 2,534 | |||||||||||||||||||||||||||
Public lighting |
15,508 | | | 15,508 | 13,399 | | | 15,508 | 13,399 | |||||||||||||||||||||||||||
Subtotal |
22,724 | | | 22,724 | 20,661 | | | 22,724 | 20,661 | |||||||||||||||||||||||||||
Unrestricted energy |
7,905 | | | 7,905 | 3,602 | (5,149 | ) | | 2,756 | 3,602 | ||||||||||||||||||||||||||
Total |
30,629 | | | 30,629 | 24,263 | (5,149 | ) | | 25,480 | 24,263 | ||||||||||||||||||||||||||
F-103
| For significant amounts due, or for similar types of amounts due, analyses were performed considering the due date, history of losses, Managements prior experience, existence of collaterals, renegotiation of balances and debtors in a situation of judicial recovery or bankruptcy; | ||
| For the remaining credits, provisions were set up for each consumer class according to the terms established in the Accounting Manual for Public Electric Energy Services, the amount of which is sufficient to cover probable losses. |
2005 | 2004 | |||||||
Initial balance |
10,401 | 22,458 | ||||||
Provision set up (see note 27) |
39,842 | 10,762 | ||||||
Write offs during the year |
(13,801 | ) | (22,819 | ) | ||||
Ending balance |
36,442 | 10,401 | ||||||
F-104
Balance | Allowance for doubtful accounts | Net balance | ||||||||||||||||||||||
Concessionaries | Short-term | Long-term | Short-term | Long-term | Short-term | Long-term | ||||||||||||||||||
BANDEIRANTE |
138 | 299 | | (149 | ) | 138 | 150 | |||||||||||||||||
EEB |
7 | | (7 | ) | | | | |||||||||||||||||
CAIUÁ |
2 | 49 | | (49 | ) | 2 | | |||||||||||||||||
CAT-LEO |
3 | | (3 | ) | | | | |||||||||||||||||
CEB |
35 | 137 | | (69 | ) | 35 | 68 | |||||||||||||||||
CELG |
95 | 24 | | | 95 | 24 | ||||||||||||||||||
CEMAT |
33 | | (33 | ) | | | | |||||||||||||||||
CEMIG |
407 | 1,289 | | (813 | ) | 407 | 476 | |||||||||||||||||
CENF |
2 | 4 | | (3 | ) | 2 | 1 | |||||||||||||||||
CERJ |
80 | 346 | | | 80 | 346 | ||||||||||||||||||
CESP |
18 | 44 | | (44 | ) | 18 | | |||||||||||||||||
CPFL |
240 | 642 | | (402 | ) | 240 | 240 | |||||||||||||||||
CSPE |
4 | 11 | | (2 | ) | 4 | 9 | |||||||||||||||||
ELEKTRO |
154 | 115 | | (115 | ) | 154 | | |||||||||||||||||
ELETROPAULO |
464 | 906 | | (520 | ) | 464 | 386 | |||||||||||||||||
ENERSUL |
45 | 83 | | (34 | ) | 45 | 49 | |||||||||||||||||
ESCELSA |
73 | 250 | | (195 | ) | 73 | 55 | |||||||||||||||||
CJE |
1 | 2 | | (2 | ) | 1 | | |||||||||||||||||
LIGHT |
280 | 928 | | (601 | ) | 280 | 327 | |||||||||||||||||
CNEE |
4 | 5 | | (5 | ) | 4 | | |||||||||||||||||
PIRATININGA |
33 | 317 | | (317 | ) | 33 | | |||||||||||||||||
CLFSC |
12 | 9 | | (3 | ) | 12 | 6 | |||||||||||||||||
EEVP |
5 | | (5 | ) | | | | |||||||||||||||||
CEAL |
47 | 8 | | | 47 | 8 | ||||||||||||||||||
CELB |
4 | 26 | | (20 | ) | 4 | 6 | |||||||||||||||||
CELPE |
96 | 284 | | (172 | ) | 96 | 112 | |||||||||||||||||
CEPISA |
18 | 93 | | (68 | ) | 18 | 25 | |||||||||||||||||
CHESF |
54 | 95 | | | 54 | 95 | ||||||||||||||||||
COELBA |
127 | 392 | | (244 | ) | 127 | 148 | |||||||||||||||||
COELCE |
72 | 244 | | (148 | ) | 72 | 96 | |||||||||||||||||
COSERN |
28 | 142 | | (45 | ) | 28 | 97 | |||||||||||||||||
ENERGIPE |
3 | 64 | | (64 | ) | 3 | | |||||||||||||||||
SAELPA |
34 | 85 | | (54 | ) | 34 | 31 | |||||||||||||||||
CELPA |
29 | 118 | | (118 | ) | 29 | | |||||||||||||||||
CELTINS |
2 | | (2 | ) | | | | |||||||||||||||||
CELMAR |
23 | | (23 | ) | | | | |||||||||||||||||
ELETRONORTE |
3 | 894 | | (893 | ) | 3 | 1 | |||||||||||||||||
Total |
2,675 | 7,905 | (73 | ) | (5,149 | ) | 2,602 | 2,756 | ||||||||||||||||
F-105
Short-term | Long-term | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Prepaid social contribution CSLL |
8,343 | 6,849 | | | ||||||||||||
Prepaid income tax IRPJ |
22,587 | 18,905 | | | ||||||||||||
Withheld income tax on financial investments |
1,233 | 2,264 | | | ||||||||||||
Withheld social contribution to offset |
175 | 22 | | | ||||||||||||
Withheld income tax to offset |
211 | 28 | | | ||||||||||||
ICMS on acquisitions for property, plant and equipment |
6,810 | 7,636 | 9,952 | 6,160 | ||||||||||||
Others |
136 | 1,104 | | | ||||||||||||
Total |
39,495 | 36,808 | 9,952 | 6,160 | ||||||||||||
Restated | ||||||||
Tax assets | 2005 | 2004 | ||||||
Tax losses and social contribution losses |
101,714 | 101,714 | ||||||
Applicable rate (social contribution and income tax) |
34.0 | % | 34.0 | % | ||||
Tax credit on tax losses and social contribution losses |
34,583 | 34,583 | ||||||
Temporary differences
|
||||||||
Accounts payable for retirement incentives |
21,910 | 29,507 | ||||||
Allowance for doubtful accounts |
36,442 | 10,401 | ||||||
Provisions for contingencies |
30,849 | 30,052 | ||||||
Provisions for research and development and energy efficiency |
25,171 | 18,712 | ||||||
Provisions for other accounts payable |
14,772 | 5,036 | ||||||
Calculation basis for deferred tax credits |
129,144 | 93,708 | ||||||
Applicable rate (social contribution and income tax) |
34.0 | % | 34.0 | % | ||||
Tax credits on temporary differences |
43,909 | 31,861 | ||||||
Total tax credits |
78,492 | 66,444 | ||||||
Short-term |
37,382 | 19,418 | ||||||
Long-term |
41,110 | 47,026 | ||||||
Total tax credits |
78,492 | 66,444 | ||||||
F-106
Tax liabilities | 2005 | 2004 | ||||||
Revaluation
|
||||||||
Revaluation reserve |
416,421 | 416,421 | ||||||
Land revaluation |
(14,520 | ) | (14,520 | ) | ||||
Realization of revaluation |
(66,159 | ) | (42,076 | ) | ||||
Calculation basis for deferred tax liabilities |
335,742 | 359,825 | ||||||
Applicable rate (social contribution and income tax) |
34.0 | % | 34.0 | % | ||||
Tax liabilities on revaluation |
114,152 | 122,341 | ||||||
Temporary differences |
||||||||
PIS and COFINS Regulatory Asset Provisions |
25,833 | 24,446 | ||||||
Financial ajustment of CVA (ii) |
27,455 | 26,823 | ||||||
Calculation basis for deferred tax liabilities |
53,288 | 51,269 | ||||||
Applicable rate (social contribution and income tax) |
34.0 | % | 34.0 | % | ||||
Tax liabilities on temporary differences |
18,118 | 17,431 | ||||||
Total tax liabilities |
132,270 | 139,772 | ||||||
Short-term |
16,807 | | ||||||
Long-term |
115,463 | 139,772 | ||||||
Total tax liabilities |
132,270 | 139,772 | ||||||
F-107
Social contribution | Income tax | |||||||||||||||||||||||
Restated | Restated | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
Income before social contribution and income tax |
94,109 | 103,439 | (21,940 | ) | 94,109 | 103,439 | (21,940 | ) | ||||||||||||||||
Equity in the results of subsidiary |
16,127 | 26,657 | 31,571 | 16,127 | 26,657 | 31,571 | ||||||||||||||||||
Reversal of provision for investment losses (i) |
(215,556 | ) | | | (215,556 | ) | | | ||||||||||||||||
Financial ajustment of CVA (ii) |
| 48,014 | (41,358 | ) | | 48,014 | (41,358 | ) | ||||||||||||||||
Permanent differences net |
2,792 | 24,830 | (6,364 | ) | 2,792 | 24,733 | (6,364 | ) | ||||||||||||||||
Taxable (loss) income |
(102,528 | ) | 202,940 | (38,091 | ) | (102,528 | ) | 202,843 | (38,091 | ) | ||||||||||||||
Social contribution (9.0% rate) and Income tax (25.0%
rate) |
9,228 | (18,265 | ) | 3,428 | 25,632 | (50,687 | ) | 9,523 | ||||||||||||||||
(-) Workers Meal Program (PAT) |
| 322 | | |||||||||||||||||||||
(-) Tax incentive for culture |
| 433 | | |||||||||||||||||||||
Non-constituted tax credit (iii) |
(4,053 | ) | | | (11,256 | ) | | | ||||||||||||||||
Income (expense) of social contribution and income tax |
5,175 | (18,265 | ) | 3,428 | 14,376 | (49,932 | ) | 9,523 | ||||||||||||||||
(i) | During this year, due to the sale of the former wholly-owned subsidiary Sul Geradora Participações S.A. (see note 11.a), the capital loss corresponding to the goodwill write-off on this investment was recognized for tax purposes; | |
(ii) | In 2004, the financial adjustment of CVA began to be treated as a temporary difference for tax purposes, subject to realization of revenue; | |
(iii) | The unrecorded tax credit originates from non-operating results and is related to the absence of sufficient expected future taxable non-operating results for the realization of these credits, as shown by the projection of results prepared by Management. |
F-108
9 | DEFERRED COSTS AND GAIN VARIATIONS |
Short-term | Long-term | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Assets |
||||||||||||||||
Balances already being recovered through tariff
readjustment of 2005 |
||||||||||||||||
Energy costs for resale |
22,536 | 14,624 | | 16,991 | ||||||||||||
Itaipu transportation charges |
344 | 1,371 | | 302 | ||||||||||||
Basic network charges |
6,900 | 26,003 | | 5,675 | ||||||||||||
Fuel consumption account (CCC) |
4,455 | 6,369 | | 3,184 | ||||||||||||
Energy development account (CDE) |
2,421 | 5,019 | | 1,335 | ||||||||||||
System service charges (ESS) |
3,205 | 14,300 | | 2,398 | ||||||||||||
39,861 | 67,686 | | 29,885 | |||||||||||||
Variation captured for tariff readjustment in 2006 |
||||||||||||||||
Energy costs for resale |
| | | | ||||||||||||
Itaipu transportation charges |
514 | | 257 | | ||||||||||||
Basic network charges |
8,299 | | 4,150 | | ||||||||||||
Fuel consumption account (CCC) |
| | | | ||||||||||||
Energy development account (CDE) |
1,483 | | 741 | | ||||||||||||
System service charges (ESS) |
834 | | 417 | | ||||||||||||
11,130 | | 5,565 | | |||||||||||||
Regulatory assets |
||||||||||||||||
PIS |
821 | | 4,739 | 5,776 | ||||||||||||
COFINS |
2,354 | | 17,919 | 18,670 | ||||||||||||
3,175 | | 22,658 | 24,446 | |||||||||||||
Total |
54,166 | 67,686 | 28,223 | 54,331 | ||||||||||||
Short-term | Long-term | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Liabilities |
||||||||||||||||
Balances already being reimbursed through tariff
readjustment of 2005 |
||||||||||||||||
Energy costs for resale |
4,477 | 7,384 | | 3,692 | ||||||||||||
Fuel consumption account (CCC) |
4,533 | 4,669 | | 3,289 | ||||||||||||
9,010 | 12,053 | | 6,981 | |||||||||||||
Variation captured for tariff readjustment in 2006 |
||||||||||||||||
Energy costs for resale |
3,510 | | 1,755 | | ||||||||||||
Fuel consumption account (CCC) |
234 | | 117 | | ||||||||||||
3,744 | | 1,872 | | |||||||||||||
Total |
12,754 | 12,053 | 1,872 | 6,981 | ||||||||||||
F-109
10 | OTHER CREDITS |
Short-term | Long-term | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Low-income residential classification |
5,937 | 3,426 | | | ||||||||||||
Emergency capacity charges |
4,241 | 5,726 | | | ||||||||||||
Consumer financing |
3,755 | 5,383 | 1,880 | 4,122 | ||||||||||||
Services in progress (i) |
3,044 | 6,023 | ||||||||||||||
Global reversal reserve |
1,640 | 1,817 | | | ||||||||||||
Sale of properties |
785 | 1,525 | | | ||||||||||||
Advances of 13th month salary and vacation pay |
591 | 625 | | | ||||||||||||
Rents |
475 | 2,331 | | | ||||||||||||
Related party (see note 32) |
| | 1,386 | 681 | ||||||||||||
Other |
1,732 | 915 | 70 | 70 | ||||||||||||
Total |
22,200 | 27,771 | 3,336 | 4,873 | ||||||||||||
(i) | For comparison purposes, we reclassified the group of Services in progress balance of the year 2004, for the group of Other credits, both in the current asset group. |
F-110
11 | INVESTMENTS AND SUBSIDIARY |
F-111
Statements of Operations of SGP up to | ||||||||||||
Restated | ||||||||||||
9/13/2005 | 2004 | 2003 | ||||||||||
Operating expenses |
||||||||||||
General and administrative |
(38 | ) | (27 | ) | (1 | ) | ||||||
(38 | ) | (27 | ) | (1 | ) | |||||||
Financial income (expense) |
||||||||||||
Income |
6 | | | |||||||||
Expense |
(16,095 | ) | (26,630 | ) | (31,570 | ) | ||||||
(16,089 | ) | (26,630 | ) | (31,570 | ) | |||||||
Loss for the year |
(16,127 | ) | (26,657 | ) | (31,571 | ) | ||||||
Percentage holding |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Effects on parent company up to | ||||||||||||
Restated | ||||||||||||
9/13/2005 | 2004 | 2003 | ||||||||||
Net capital deficiency initial balance |
(181,591 | ) | (172,772 | ) | (141,201 | ) | ||||||
Capital increase in subsidiary |
197,961 | 18,000 | | |||||||||
Capital to pay up |
| (162 | ) | | ||||||||
Provisions for investment losses |
(16,127 | ) | (26,657 | ) | (31,571 | ) | ||||||
Sale of
investment 9/13/2005 |
(243 | ) | | | ||||||||
Investment (net capital deficiency) ending balance |
| (181,591 | ) | (172,772 | ) |
2005 | 2004 | |||||||
Other investments |
940 | 940 | ||||||
Provisions for investment losses |
(940 | ) | | |||||
Total |
| 940 | ||||||
F-112
12 | PROPERTY, PLANT AND EQUIPMENT |
2005 | 2004 | |||||||||||||||||||
Average | Accumulated | |||||||||||||||||||
annual rates | Historical and | depreciation/ | ||||||||||||||||||
(%) | revaluated cost | amortization | Net amount | Net amount | ||||||||||||||||
In
Service Operation |
||||||||||||||||||||
Intangible |
1.2 | 27,553 | (458 | ) | 27,095 | 22,051 | ||||||||||||||
Land |
| 14,970 | | 14,970 | 15,868 | |||||||||||||||
Reservoirs, dams and water-mains |
| | | | 400 | |||||||||||||||
Buildings, civil construction and improvements |
1.8 | 16,577 | (745 | ) | 15,832 | 15,560 | ||||||||||||||
Machinery and equipment |
4.4 | 1,236,799 | (134,808 | ) | 1,101,991 | 1,044,087 | ||||||||||||||
Vehicles |
15.0 | 9,924 | (3,465 | ) | 6,459 | 7,406 | ||||||||||||||
Furniture and fixtures |
11.6 | 1,366 | (424 | ) | 942 | 809 | ||||||||||||||
1,307,189 | (139,900 | ) | 1,167,289 | 1,106,181 | ||||||||||||||||
Administration |
||||||||||||||||||||
Intangible |
18.2 | 26,799 | (9,215 | ) | 17,584 | 16,642 | ||||||||||||||
Buildings, civil construction and improvements |
2.1 | 398 | (23 | ) | 375 | 383 | ||||||||||||||
Machinery and equipment |
16.1 | 13,563 | (5,570 | ) | 7,993 | 8,370 | ||||||||||||||
Vehicles |
12.7 | 385 | (131 | ) | 254 | 302 | ||||||||||||||
Furniture and fixtures |
6.3 | 525 | (78 | ) | 447 | 434 | ||||||||||||||
41,670 | (15,017 | ) | 26,653 | 26,131 | ||||||||||||||||
Goodwill from the merger of parent company |
2.4 | 1,120,266 | (644,074 | ) | 476,192 | 488,341 | ||||||||||||||
2,469,125 | (798,991 | ) | 1,670,134 | 1,620,653 | ||||||||||||||||
In construction |
||||||||||||||||||||
Operation |
74,201 | 78,989 | ||||||||||||||||||
Administration |
1,498 | 1,072 | ||||||||||||||||||
75,699 | 80,061 | |||||||||||||||||||
Total property, plant and equipment |
1,745,833 | 1,700,714 | ||||||||||||||||||
Liabilities associated with concession services |
(100,570 | ) | (88,219 | ) | ||||||||||||||||
Net property, plant and equipment |
1,645,263 | 1,612,495 | ||||||||||||||||||
F-113
2005 | 2004 | |||||||
Government subsidies |
6,194 | 2,736 | ||||||
Consumer financial participation |
91,455 | 82,568 | ||||||
Donations |
2,921 | 2,915 | ||||||
Total |
100,570 | 88,219 | ||||||
March 31, 2003 | December 31, 2005 | |||||||||||||||||||
Net book value | ||||||||||||||||||||
before | ||||||||||||||||||||
Account | Appraisal | revaluation | Revaluation | Realization | Net | |||||||||||||||
Intangible |
35,511 | 15,725 | 19,786 | (235 | ) | 19,551 | ||||||||||||||
Land |
16,266 | 1,746 | 14,520 | (819 | ) | 13,701 | ||||||||||||||
Reservoirs, dams and water-mains |
413 | 42 | 371 | (371 | ) | | ||||||||||||||
Buildings, civil construction and
improvements |
15,208 | 7,807 | 7,401 | (872 | ) | 6,529 | ||||||||||||||
Machinery and equipment |
1,072,566 | 700,687 | 371,879 | (63,531 | ) | 308,348 | ||||||||||||||
Vehicles |
8,560 | 4,236 | 4,324 | (1,925 | ) | 2,399 | ||||||||||||||
Furniture and fixtures |
1,273 | 3,133 | (1,860 | ) | 775 | (1,085 | ) | |||||||||||||
Total |
1,149,797 | 733,376 | 416,421 | (66,978 | ) | 349,443 | ||||||||||||||
F-114
January 1, 2004, in accordance with ANEEL Resolution 166/2004. The CVM expressed agreement with the change in the goodwill balance amortization schedule and also with the reclassification of the goodwill balance from deferred asset to property, plant and equipment for accounting purposes (Circular CVM/SEP/GEA-1 197/2004, sent to ANEEL). Since as from January 1, 2004 amortization rate is no longer straight-line but based on the projected results over the remaining concession period, annual amortization rate dropped from 3.1% per year in 2004 to 2.4% per year in 2005. | ||
13 | DEFERRED ASSETS |
2005 | 2004 | |||||||
Expenses with systems implementation and others |
30,262 | 30,330 | ||||||
Accumulated amortization |
(11,711 | ) | (8,702 | ) | ||||
Total |
18,551 | 21,628 | ||||||
14 | SUPPLIERS |
2005 | 2004 | |||||||
Electric energy suppliers |
||||||||
Eletrobrás Transfer from Itaipu |
25,988 | 20,532 | ||||||
Tractebel Energia |
44,137 | 33,099 | ||||||
AES Uruguaiana Empreendimentos |
25,682 | 26,818 | ||||||
Companhia de Geração Térmica de Energia Elétrica CGTEE |
6,135 | 6,644 | ||||||
CPFL Comercialização Brasil |
8,119 | 4,443 | ||||||
Companhia Estadual de Energia Elétrica CEEE |
1,865 | 3,120 | ||||||
Other |
62 | 1,144 | ||||||
111,988 | 95,800 | |||||||
Grid usage charges |
||||||||
Use of connection |
3,226 | 3,691 | ||||||
Use of basic network |
14,824 | 11,284 | ||||||
Energy transportation |
1,019 | 860 | ||||||
19,069 | 15,835 | |||||||
Spot market CCEE (see note 31) |
64 | 296 | ||||||
Material and services |
14,541 | 13,786 | ||||||
Total suppliers |
145,662 | 125,717 | ||||||
15 | DEBENTURES |
Characteristics of Debenture Issuances | 2005 | |||||||||||||||||||||||||||
Short-term | Long- | |||||||||||||||||||||||||||
Issuance | Series | No. Outstanding | Remuneration | Charges | Principal | Total | term | |||||||||||||||||||||
2nd issuance |
1st | 2,620 | IGP-M + 9,6% | 1,206 | 565 | 1,771 | 26,200 | |||||||||||||||||||||
2nd issuance |
2nd | 20,380 | 106% of CDI | 9,168 | | 9,168 | 203,800 | |||||||||||||||||||||
Total |
23,000 | 10,374 | 565 | 10,939 | 230,000 | |||||||||||||||||||||||
F-115
| 1st series the 2,620 debentures will have a six-year term, as from the issue date, and will mature on April 1, 2011. The following will be applied to the face value: (i) IGP-M variation (calculated pro rata temporis per business day, based on a year with 252 business days); and (ii) interest at a fixed annual rate of 9.6% per year, as defined in the bookbuilding procedure. The amounts associated with remuneration for debentures will be paid annually, always on the first day of April of each year, with the first payment due on April 1, 2006. | ||
| 2nd series the 20,380 debentures will have a four-year term, as from the issue date, and will mature on April 1, 2009. The following will be applied to the face value: interest, as defined in the bookbuilding procedure, at a rate of 106.0% of the accumulated daily average InterBank Deposit (DI) rates (overnight extra group) calculated and informed by the Settlement and Custodian Chamber (CETIP). The amounts associated with the remuneration the debentures will be paid each six months, always on the first day of April and October of each year. |
(i) | reduce capital and/or amendments to the Bylaws that grant stockholders the right to withdraw amounts that may directly or indirectly affect compliance with the Companys monetary liabilities described in the Issue Deed; | ||
(ii) | transfer or assignment, either direct or indirect, of stockholder control, or incorporation, merger or split-off operations, with the exception of sale of direct control to CPFL Energia S.A. and/or to a wholly owned subsidiary of CPFL Energia; | ||
(iii) | sale of control of PSEG Américas Ltda., with the exception of transfer of control to the Exelon Group; | ||
(iv) | resignation of controlling interest by VBC Participações S.A. or resignation of direct or indirect control of the Company by the group including VBC Participações S.A., PREVI and/or Bonaire Participações S.A. |
- Total Debt divided by EBITDA, equal to or lower than 3.0; | |||
- EBITDA divided by the Financial Expenses, equal to or higher than 2.0; | |||
- Total Debt divided by Total Capitalization, equal to or lower than 0.55. |
Year Due | 2005 | |||
2009 |
203,800 | |||
2011 |
26,200 | |||
Total |
230,000 | |||
F-116
2005 | 2004 | |||||||||||||||||||||||||||||||||||||||||||||
Initial | Final | Interest | Current | Long- | Current | Long- | ||||||||||||||||||||||||||||||||||||||||
Institution | Indexer | maturity | maturity | % per year | Principal | Charges | Total | term | Principal | Charges | Total | term | ||||||||||||||||||||||||||||||||||
Brazilian currency |
||||||||||||||||||||||||||||||||||||||||||||||
BRDE |
IGPM | 8.31.97 | 10.2.06 | 12.0 | 23,922 | | 23,922 | | 28,080 | 532 | 28,612 | 26,123 | ||||||||||||||||||||||||||||||||||
ELETROCEEE Foundation |
INPC | 8.31.97 | 7.31.12 | 9.0 | 3,050 | | 3,050 | 17,028 | 2,890 | | 2,890 | 19,026 | ||||||||||||||||||||||||||||||||||
Consumers |
IGPM | | | 6.2 | 24,057 | | 24,057 | 803 | 10,250 | | 10,250 | 2,201 | ||||||||||||||||||||||||||||||||||
Eletrobrás |
RGR | 5.30.00 | 7.30.16 | 6.0 to 9.0 | 1,941 | 19 | 1,960 | 3,001 | 2,524 | | 2,524 | 4,612 | ||||||||||||||||||||||||||||||||||
BNDES Emergency Support Program |
SELIC | 3.17.03 | 2.15.08 | 1.0 | 2,280 | 50 | 2,330 | 3,267 | 28,269 | 409 | 28,678 | 18,028 | ||||||||||||||||||||||||||||||||||
BNDES FINEM |
TJLP | 12.15.99 | 11.17.08 | 3.5 to 4.5 | 45,499 | 484 | 45,983 | 65,149 | 19,250 | 295 | 19,545 | 69,140 | ||||||||||||||||||||||||||||||||||
BNDES FINEM |
UMBNDES | 1.15.05 | 1.15.09 | 4.5 | 4,496 | 337 | 4,833 | 10,217 | | 24 | 24 | 9,390 | ||||||||||||||||||||||||||||||||||
UNIBANCO |
CDI | 11.16.04 | 8.16.07 | 2.15 | 20,000 | 973 | 20,973 | 20,000 | | 955 | 955 | 40,000 | ||||||||||||||||||||||||||||||||||
Banco Itaú BBA |
CDI | 7.27.04 | 4.28.08 | 1.75 | 32,949 | 3,255 | 36,204 | 67,051 | | 3,124 | 3,124 | 100,000 | ||||||||||||||||||||||||||||||||||
Banco Alfa |
CDI | 5.27.04 | 4.27.05 | 2.0 | | | | | 30,000 | 87 | 30,087 | | ||||||||||||||||||||||||||||||||||
Banco Alfa |
103,95 % CDI | 1.2.06 | 1.25.06 | | 3,460 | | 3,460 | | | | | | ||||||||||||||||||||||||||||||||||
Banrisul |
CDI | 7.7.03 | 6.6.05 | 3.5 | | | | | 3,333 | 49 | 3,382 | | ||||||||||||||||||||||||||||||||||
Banco Santander |
CDI | 10.25.04 | 7.23.07 | 2.0 | 10,286 | 677 | 10,963 | 7,714 | | 608 | 608 | 18,000 | ||||||||||||||||||||||||||||||||||
FINEP |
TJLP | 7.15.04 | 7.15.10 | 4.0 | 235 | 29 | 264 | 1,683 | | 11 | 11 | 534 | ||||||||||||||||||||||||||||||||||
Banco Safra |
103.5 % CDI | 1.5.06 | 1.5.06 | | 28,088 | | 28,088 | | | | | | ||||||||||||||||||||||||||||||||||
Swap
operations (see note 30) |
| (84 | ) | (84 | ) | (178 | ) | | | | | |||||||||||||||||||||||||||||||||||
200,263 | 5,740 | 206,003 | 195,735 | 124,596 | 6,094 | 130,690 | 307,054 | |||||||||||||||||||||||||||||||||||||||
Foreign currency |
||||||||||||||||||||||||||||||||||||||||||||||
Banco Itaú BBA |
US$ | 1.20.04 | 6.15.05 | 7.0 | | | | | 6,197 | 20 | 6,217 | | ||||||||||||||||||||||||||||||||||
UNIBANCO |
US$ | 9.15.03 | 9.15.07 | Libor+7.25 | 4,681 | 371 | 5,052 | 4,681 | 5,309 | 441 | 5,750 | 10,618 | ||||||||||||||||||||||||||||||||||
BankBoston |
US$ | 8.28.00 | 7.27.05 | Libor+4.7 | | | | | 151,300 | 1,044 | 152,344 | | ||||||||||||||||||||||||||||||||||
Swap
operations (see note 30) |
| 5,421 | 5,421 | 5,758 | | 36,430 | 36,430 | 7,332 | ||||||||||||||||||||||||||||||||||||||
4,681 | 5,792 | 10,473 | 10,439 | 162,806 | 37,935 | 200,741 | 17,950 | |||||||||||||||||||||||||||||||||||||||
Total |
204,944 | 11,532 | 216,476 | 206,174 | 287,402 | 44,029 | 331,431 | 325,004 | ||||||||||||||||||||||||||||||||||||||
IGPM: General Market Price Index
|
SELIC: Special System for Settlement of Public Custody | UMBNDES: BNDES Monetary Unit | ||
INPC: National Consumer Price Index
|
LIBOR: London Interbank Offer Rate | CDI: Interbank Deposit Certificate | ||
RGR: Global Reversal Reserve
|
TJLP: Long-term Interest Rate | US$: American dollar |
| BRDE refers to a contract for the opening of a credit line undertaken by the Company as part of the split-up of total control with Companhia Estadual de Energia Elétrica (CEEE) during the privatization process. Amortizations are made on a monthly basis, and the proceeds from the sale of energy were offered as a guarantee. There are no restrictive and financial covenant clauses for this contract. | |
| ELETROCEEE Foundation refers to a contract for acknowledgement of debt undertaken by the Company following due to the segmentation of contract with Companhia Estadual de Energia Elétrica (CEEE) during the privatization process. Amortizations are made on a monthly basis and the proceeds from the sale of energy were offered as a guarantee. There are no restrictive and financial covenant clauses for this contract. | |
| Consumers refers to agreements to return amounts advanced by consumers interested in the supply of electric energy to finance its connections, normally including the expansion of the supply network. These amounts are currently returned as of the date of the conclusion of the installation. There are no restrictive and financial covenant clauses for this contract. Beginning in 2005, the Company began to adjust these values based on the IGPM variation with interest of 6.2% per year. | |
| Eletrobrás used to finance part of the construction implemented to improve the electricity system, to expand electric energy distribution networks, to improve the efficiency of public lighting, for rural electricity projects and for the Universalization Program, having as a guarantee the collection of proceeds from energy sales. Additionally, there is restriction on paying or declaring any dividend, or authorizing or carrying out any other distribution, in case of default in the payment of the obligations established in this contract. The Company will not undertake, without express authorization from ELETROBRÁS, new financial commitments which, alone or together, are higher than 5.0% of its fixed assets and/or which increase its indebtedness to a level higher than 66.0% of its fixed asset. | |
| BNDES Emergency Support Program during 2003 and 2002, financing related to the Emergency and Special Program for Financing Support to Public Service Concessionaires of Electric Energy Distribution was released, with the purpose of reestablishing the financial balance through the following: |
(i) | financing corresponding to the impacts arising from the General Electricity Sector Agreement, released in December 2002, in the amount of R$ 9,631, having as a guarantee the proceeds from the sale of energy equivalent to 0.4% of gross monthly invoicing, net of ICMS. There are no restrictive and financial covenant clauses for this contract. | ||
(ii) | financing corresponding to CVA not contemplated in the rate readjustment of April 2003, having as a guarantee the proceeds corresponding to 3.18% of the Companys monthly billing. There are no restrictive and financial covenant clauses for this contract. |
| BNDES FINEM the main purpose is the investment in expansion and improvement of the Companys electrical system: |
(i) | FINEM (period from 1998 to 2001) amortizations are made on a monthly basis and the proceeds from the sale of energy were offered as a guarantee in an amount equivalent to 1.4 times the amount corresponding to the debt, that is, principal and interest. |
Additionally, the Company is required to pay these contracts before the distribution of dividends higher than the minimum mandatory and interest on own capital. The Company is also required to maintain the level of capitalization: stockholders equity divided by total assets, equal to or higher than 40.0%. |
(ii) | FINEM (period from 2003 to 2005) Credit Line indexed by the long term interest rate (TJLP) at 80% and by the basket of currencies (UMBNDES) at 20%, with amortizations made on a monthly basis and interest on a quarterly basis. The reserve account (Long-term |
F-118
investment fund see note 5) and the collection on the sale of energy were offered as guarantees, in an amount equivalent to 1.4 times the amount corresponding to the debt, that is, principal and interest. Additionally, the Company can pay the interest on own capital or dividends whose sum exceeds the minimum mandatory, as far as it shows BNDES evidence of the maintenance of the following indexes: |
- | Net Financial Indebtedness divided by the EBITDA, lower than or equal to 3.0; | ||
- | Net Financial Indebtedness divided by the Net Financial Indebtedness plus the Stockholders Equity, lower than or equal to 0.5. |
In October 2005, the Company contracted exchange rate swap operations until July 2007 for the maturing financing installments linked to the basket of currencies. |
| UNIBANCO Brazilian currency used to finance the resources necessary for the payment of Company suppliers, with a 36-month term, and with an 18-month grace period for the principal and quarterly amortization of principal and interest. The contract requires compliance with financial covenants, as follows: |
- | financial debt divided by EBITDA, equal to or lower than 3.0; | ||
- | financial expenses divided by EBITDA, equal to or lower than 0.4; | ||
- | financial debt divided by total capital, equal to or lower than 3.0. |
| Banco Itaú BBA Bank Credit Certificate (CCB) in April 2004, the Company raised a loan with Banco Itaú BBA in the amount of R$100,000 for the supply of the resources necessary for the Companys operations. This loan has a grace period of 24 months on the principal, and after this period, amortizations will be made on a monthly basis. Collaterals of CPFL Energia S.A., Ipê Energia Ltda and receivables in the amount of R$38,000 are offered as guarantee. |
There are restrictive clauses regarding the change or adjustments in capital stock, as well as regarding any change, transfer or direct or indirect assignment of stockholder control, or incorporations, mergers or split-offs without the previous and express agreement of the creditor. | ||
Additionally, this loan requires compliance with financial covenants, as follows: |
- | EBITDA divided by financial expenses net, equal to or higher than 1.6; | ||
- | Net indebtedness divided by EBITDA, equal to or lower than 2.7. |
| Banco Alfa |
(i) | loan with a 12-month term intended to finance the Companys working capital with a grace period of 8 months for the principal and four monthly amortizations. There is no grace period in terms of the payment of monthly interest. A proportional collateral provided by the controlling stockholders was given as guarantee. There are no restrictions or financial covenants for this contract. | ||
(ii) | working capital financing and other similar short-term operations, with promissory notes serving as guarantees. There are no restrictive and financial covenant clauses for these contracts. |
| Banrisul targeted to refinance the Companys working capital, with amortization of the principal and monthly interest payable in 18 installments, after a six-month grace period. This loan is not guaranteed, and there are no restrictive or financial covenant clauses. | |
| Banco Santander used to finance the Company working capital. This contract has a 36-month term, with an 18-month grace period for the principal. Principal and interest installments will be paid quarterly. The contract requires compliance with financial covenants, as follows: |
F-119
- | EBITDA divided by paid financial expenses, equal to or higher than a 2.0; |
- | Financial debt divided by EBITDA, equal to or lower than 3.5. |
| FINEP used to partially finance the expenses incurred with studies and research and development projects designed to optimize distribution network performance. The contract has a 49-month term, with a 26-month grace period for the principal. Interest payments are quarterly during the grace period and monthly during the amortization period. This contract is guaranteed by the proceeds of the sale of energy. There are no restrictive clauses or financial covenants for this contract. | |
| Banco Safra to provide financing for working capital financing and other similar short-term operations, with promissory notes serving as guarantees. There are no restrictive and financial covenant clauses for these contracts. | |
| Banco Itaú BBA Resolution 2770 to finance the working capital of the Company through Brazilian Central Bank Resolution 2770, with amortization of the principal and monthly payment of interest falling due in 18 installments, as from January 2004, and with promissory notes as a guarantee. There are no restrictive and financial covenant clauses for this contract. | |
| UNIBANCO refers to a credit line to finance the investments during the period from 2002 to 2004, through resources from Deutsche Investitions und Entwicklungsgesellschaft MBH (DEG). The principal and interest are amortized twice a year in March and September. Receivables and a reserve account were provided as guarantee (CDB with foreign exchange swap see note 5). There are no restrictive clauses. This operation has foreign exchange swap operations associated with the financing installments due. Additionally, this loan requires compliance with financial covenants, as follows: |
- | EBITDA divided by interest paid plus net amortizations of the debt, equal to or higher than 1.05; | ||
- | total debt divided by EBITDA, equal to or lower than 3.0 (2004) and 2.5 (2005 to 2007); | ||
- | interest paid divided by EBITDA, equal to or lower than 0.4; | ||
- | total debt equal to or lower than R$800,000. |
| BankBoston refers to the raising of funds in May 2000 by Sul Geradora Participações S.A., through a pre-export advance arrangement in the amount of US$190,000 thousand (R$351,818), guaranteed by the surety Rio Grande Energia S.A. and letters of guarantee. The payment of interest is made on a quarterly basis and amortization of the principal occurred between 2002 and 2005. Additionally, this loan implies on financial covenants, as follows: |
- | EBITDA divided by Interest expenses, equivalent or superior to 2.0; | ||
- | Indebtness divided by Capital structure, equivalent or inferior to 0.6 (up to 2003), and 0.55 (for the other years); | ||
- | Indebtness divided by EBITDA, equivalent or inferior to 3.5; |
Management believes that the restrictive clauses and financial covenants are being adequately met as of December 31, 2005. |
F-120
The long-term installments of these loans will mature as follows: |
Year Due | 2005 | 2004 | ||||||
2006 |
| 151,965 | ||||||
2007 |
141,965 | 123,388 | ||||||
2008 |
50,437 | 37,710 | ||||||
2009 |
4,109 | 3,869 | ||||||
After 2009 |
9,663 | 8,072 | ||||||
Total |
206,174 | 325,004 | ||||||
17 | REGULATORY FEES |
2005 | 2004 | |||||||
Global reversal reserve |
131 | 2,545 | ||||||
Energy development account |
3,791 | 2,567 | ||||||
Fuel consumption account |
350 | 5,847 | ||||||
ANEEL inspection fee |
270 | 260 | ||||||
Total |
4,542 | 11,219 | ||||||
The Global Reversal Reserve (RGR) is a fund managed by Eletrobrás, as a Federal Government agency, to provide resources for payments to concessionaires upon the expiration of their concessions, when the concessionaires will be reimbursed for the amount of the net permanent assets recorded in its books. On January 3, 1996, Decree 1771 set forth the RGR fee at 2.5% of assets in service, limited to 3.0% of gross operating revenue, deducting ICMS. | ||
The energy development account (CDE) is a contribution made by the Company which aims at financing the energy development of the different Brazilian states and the competitiveness of the energy produced from alternative sources, such as wind, small hydroelectric plants, biomass, natural gas and mineral coal, in the areas served by the interconnected systems while promoting universal access to the electrical energy service in the entire national territory. | ||
The fuel consumption account (CCC) is a contribution made by the Company to finance the cost of fuel used in the processes of thermo-electrical energy generation in the Brazilian energy system. | ||
18 | TAXES AND SOCIAL SECURITY |
2005 | 2004 | |||||||
Value-Added Tax on Sales and Services (ICMS) |
33,187 | 23,554 | ||||||
Social Integration Program (PIS) |
1,884 | 1,605 | ||||||
Social Contribution on Revenues (COFINS) |
8,677 | 7,391 | ||||||
Social Contribution on Net Income (CSLL) |
| 11,037 | ||||||
Corporate Income Tax (IRPJ) |
| 29,826 | ||||||
Other |
2,319 | 1,869 | ||||||
Total |
46,067 | 75,282 | ||||||
F-121
19 | DIVIDENDS |
Restated | ||||||||
2005 | 2004 | |||||||
Net income for the year as presented in these
financial statements |
113,660 | 35,242 | ||||||
Restatement of prior year financial statements and
adjustments to financial statements for statutory and
regulatory purposes (see note 3) |
| (4,490 | ) | |||||
Net income for the year as presented in the financial
statements for statutory and regulatory purposes |
113,660 | 30,752 | ||||||
Legal reserve (5.0%) |
(5,683 | ) | (1,538 | ) | ||||
Realization of revaluation reserve |
16,679 | 16,951 | ||||||
Prior year adjustments (see note 3) |
(12,350 | ) | | |||||
Calculation basis for dividends |
112,306 | 46,165 | ||||||
Mandatory dividends |
28,601 | 11,757 | ||||||
Remaining balance |
83,705 | 34,408 | ||||||
Total dividends |
112,306 | 46,165 | ||||||
Interim dividends approved by Supervisory Board
meeting as of 11/18/2005 |
(50,000 | ) | | |||||
Proposed dividends |
62,306 | 46,165 | ||||||
20 | ACCOUNTS PAYABLE FOR RETIREMENT INCENTIVES |
F-122
2005 | ||||||||||||||||||||
Present | Long- | Short | ||||||||||||||||||
Original gross | value | term | term | |||||||||||||||||
Description | amount | adjustment | Net | balance | balance | |||||||||||||||
Retirement supplement |
25,080 | (6,042 | ) | 19,038 | 13,567 | 5,471 | ||||||||||||||
Contribution to Foundation |
1,435 | (520 | ) | 915 | 885 | 30 | ||||||||||||||
Actuarial liability complement |
1,957 | | 1,957 | | 1,957 | |||||||||||||||
Total |
28,472 | (6,562 | ) | 21,910 | 14,452 | 7,458 | ||||||||||||||
2004 | ||||||||||||||||||||
Present | Long- | Short | ||||||||||||||||||
Original gross | value | term | term | |||||||||||||||||
Description | amount | adjustment | Net | balance | balance | |||||||||||||||
Retirement supplement (i) |
30,099 | (7,983 | ) | 22,116 | 16,231 | 5,885 | ||||||||||||||
Contribution to Foundation |
3,367 | (906 | ) | 2,461 | 1,791 | 670 | ||||||||||||||
Actuarial liability complement (ii) |
4,930 | | 4,930 | 4,930 | | |||||||||||||||
Total |
38,396 | (8,889 | ) | 29,507 | 22,952 | 6,555 | ||||||||||||||
(i) | Retirement supplement R$ 471; and | ||
(ii) | Supplement of the actuarial liability related to CVM Deliberation 371/2000 R$ 4,930. |
Maturity | 2005 | 2004 | ||||||
2006 |
| 10,115 | ||||||
2007 |
4,346 | 4,073 | ||||||
2008 |
3,341 | 3,130 | ||||||
2009 |
2,370 | 2,220 | ||||||
2010 |
1,557 | 1,458 | ||||||
After 2010 |
2,838 | 1,956 | ||||||
Total |
14,452 | 22,952 | ||||||
F-123
a) | Reconciliation of assets and liabilities: |
2005 | 2004 | |||||||
Present value of actuarial liabilities |
(114,323 | ) | (106,641 | ) | ||||
Fair value of plan assets |
140,903 | 124,928 | ||||||
Actuarial assets net |
26,580 | 18,287 | ||||||
Adjustments for allowed deferrals |
||||||||
Unrecognized actuarial gains |
(31,080 | ) | (28,301 | ) | ||||
Unrecognized initial actuarial liabilities |
2,543 | 5,084 | ||||||
Net actuarial liability recognized in balance sheet |
(1,957 | ) | (4,930 | ) | ||||
b) | Movement of assets and liabilities: |
2005 | 2004 | |||||||
Changes in the plan assets |
||||||||
Fair asset value at the beginning of the year |
124,928 | 103,246 | ||||||
Sponsor contributions |
901 | 2,406 | ||||||
Participants contributions |
450 | 1,241 | ||||||
Actual return on plan assets |
18,192 | 20,464 | ||||||
Benefits paid during the year |
(3,568 | ) | (2,429 | ) | ||||
Fair value of assets at the end of the year |
140,903 | 124,928 | ||||||
Changes in the plan liabilities |
||||||||
Value of
liabilities at the beginning of the year |
(106,641 | ) | (103,980 | ) | ||||
Gross cost of current service |
(711 | ) | (796 | ) | ||||
Interest on actuarial liabilities |
(11,940 | ) | (11,684 | ) | ||||
Actuarial gains |
1,401 | 7,390 | ||||||
Benefits paid during the year |
3,568 | 2,429 | ||||||
Liabilities at the end of the year |
(114,323 | ) | (106,641 | ) | ||||
c) | Expense recognized in the statement of results: |
2005 | 2004 | 2003 | ||||||||||
Cost of current service |
(711 | ) | (796 | ) | (2,360 | ) | ||||||
Contributions expected from participants |
1,176 | 1,391 | 1,223 | |||||||||
Interest on actuarial liabilities |
(11,940 | ) | (11,684 | ) | (8,372 | ) | ||||||
Expected return on plan assets |
14,151 | 11,774 | 6,636 | |||||||||
Amortization of initial actuarial liabilities |
(2,541 | ) | (2,541 | ) | (2,541 | ) | ||||||
Recognition of actuarial gains |
1,937 | 256 | 428 | |||||||||
Appropriated income (expense) according to CVM No. 371 |
2,072 | (1,600 | ) | (4,986 | ) | |||||||
Sponsor contributions (effectively appropriated) |
901 | 2,406 | 2,295 | |||||||||
Income (expense) recognized in the statement of operations |
2,973 | 806 | (2,691 | ) | ||||||||
F-124
d) | Economic, financial and demographic assumptions: |
2005 | 2004 | |||||||
Nominal interest rate (discount) for current service cost
evaluation and total actuarial liabilities |
11.3% per year | 11.3% per year | ||||||
Yield rate expected on plan assets |
11.3% per year | 11.3% per year | ||||||
Salary growth rate |
7.1% per year | 7.1% per year | ||||||
Readjustment index for benefits granted for continued service |
5.0% per year | 5.0% per year | ||||||
Turnover rate |
[0.3 ÷ (t+1)] where |
[0.3 ÷ (t+1)] where | ||||||
t=years of service | t=years of service | |||||||
General mortality table |
GAM-83 (qx) | UP-84 | ||||||
Disability admittance table |
Light-Average (ix) | Light-Average (ix) | ||||||
Disability mortality table |
GAM-71 (qix=qx) | IAPB-55/57 (qix) | ||||||
Asset mortality table |
Hamza method using | Hamza method using | ||||||
values adopted for |
values adopted for | |||||||
qx/ix/qix | qx/ix/qix | |||||||
Actuarial evaluation method |
Projected unitary credit | Projected unitary credit |
21 | ESTIMATED LIABILITIES |
Short-term | Long-term | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Provisions for vacation pay |
4,814 | 4,228 | | | ||||||||||||
Assiduity bonus (i) |
| | 711 | 702 | ||||||||||||
Social charge provisions INSS/FGTS (i) |
1,780 | 1,568 | 287 | 269 | ||||||||||||
Other |
69 | 403 | | | ||||||||||||
Total |
6,663 | 6,199 | 998 | 971 | ||||||||||||
For comparison purposes, we reclassified the following amounts as of December 31, 2004 from Other accounts payable within long-term liabilities: |
(i) | Assiduity bonus of R$ 702 and charges in the sum of R$ 269. |
22 | OTHER ACCOUNTS PAYABLE |
Short-term | Long-term | |||||||||||||||
Restated | Restated | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Energy efficiency program |
12,888 | 4,386 | 4,484 | 8,821 | ||||||||||||
Research and development |
14,077 | 5,823 | 1,794 | 4,378 | ||||||||||||
Emergency capacity charges |
4,241 | 5,726 | | | ||||||||||||
Public lighting contribution |
3,488 | 1,279 | | | ||||||||||||
Profit sharing plan |
3,472 | 2,256 | | | ||||||||||||
Consumer-associated liabilities |
862 | 1,434 | | | ||||||||||||
Other |
384 | 1,048 | 49 | 87 | ||||||||||||
Total |
39,412 | 21,952 | 6,327 | 13,286 | ||||||||||||
F-125
For comparison purposes, we reclassified the balances as of December 31, 2004 of R$ 5,401 to accounts payable for retirement incentives and of R$ 971 for estimated liabilities. | ||
Energy efficiency programs and research and development (EEP and R&D) | ||
Concessionaires of the public distribution of electric energy services are required to invest at least 1.0% of their operating revenue annually, deducting ICMS and emergency capacity charges, to energy efficiency programs and research and development. The application of these resources until December 31 was divided into 0.5% for EEP and 0.5% for R&D. The resources related to R&D are allocated in the following manner: 40.0% in research and development projects, 40.0% for the Brazilian National Scientific and Technological Development Fund (FNDCT) and 20.0% for the Brazilian Energy Research Company (EPE). In December 2005, through Resolution 176/2005, ANEEL established the provisioning of expenses related to EEP according to the accrual basis (see Note 3). | ||
Emergency capacity charges | ||
ANEEL Resolution 249/2002 established the criteria and procedures for defining this charge, related to the contracting of generating or power capacity by Comercializadora Brasileira de Energia Emergencial CBEE, which will be apportioned to the final consumers proportionally to their individual consumption. It does not apply to the residential consumer classified as low income. The values corresponding to this charge are handed over to CBEE after being collect from consumers. | ||
Public lighting contribution (CIP) | ||
Constitutional Amendment 39/2002 established the Public Lighting Contribution designed to finance the cost of energy supply for the public lighting network in urban areas and those expanding areas in Brazilian municipalities and the Federal District, including maintenance charges for all those who receive the service, under the terms of the Constitutional Amendment as established in Article 149-A of the Brazilian Federal Constitution. | ||
Consumers-associated liabilities | ||
These obligations refer to accounts payable in duplicate and/or adjustments to billing to be compensated or returned to consumers. | ||
23 | PROVISIONS FOR CONTINGENCIES |
2005 | 2004 | |||||||||||||||||||||||||||||||
Judicial | Judicial | |||||||||||||||||||||||||||||||
Nature | Possible | Probable | Provision | deposits | Possible | Probable | Provision | deposits | ||||||||||||||||||||||||
Labor |
2,892 | 6,197 | 6,197 | 13,116 | 3,994 | 5,438 | 5,438 | 7,900 | ||||||||||||||||||||||||
Civil |
69,838 | 6,933 | 6,142 | 828 | 50,181 | 5,619 | 4,227 | 28 | ||||||||||||||||||||||||
Tax |
217,212 | 20,185 | 20,185 | 4,364 | 208,452 | 24,155 | 24,155 | 4,042 | ||||||||||||||||||||||||
Regulatory |
7,934 | 4,647 | 4,647 | | 4,561 | 6,842 | 6,842 | 4,561 | ||||||||||||||||||||||||
Total |
297,876 | 37,962 | 37,171 | 18,308 | 267,188 | 42,054 | 40,662 | 16,531 | ||||||||||||||||||||||||
The lawsuits classified as probable contingencies are adequately provided for according to Managements estimate of loss, which is supported by the continous assessment of reports by the Companys legal advisors. The analysis of causes takes into consideration the actual elements involved in the contingency after evaluation of the financial risk involved and determination of the levels of provisioning required to protect the Companys equity. |
F-126
The lawsuits under analysis include the following: (i) labor, (ii) civil, (iii) tax and (iv) regulatory, the details of which are as follows: |
(i) | the total number of labor lawsuits is 3,478, relating to the following issues: overtime, risk premium, on-call indemnity and recognition of the employment relationship, among others. Of the total labor claims, approximately 92.3% relate to former employees of Companhia Estadual de Energia Elétrica (CEEE) who have never worked for the Company or had their contracts transferred. For the other lawsuits, 3.1% arise from employees contracted by the Company and 4.6% from claims filed by employees of third parties. | ||
(ii) | Civil lawsuits include: damage to appliances caused by electrical networks; illegal rate hikes; energy interruption; reimbursement of amounts overpaid at the time of the Cruzado Economic Plan; cancellation of debts charged based on consumption recovery and general damages caused by the electrical network, among others. There are a total of 5,100 lawsuits, 248 of which are considered significant. On December 31, 2005, the Company maintained an insurance policy in the amount of R$ 6,000 (R$ 6,000 on December 31, 2004) to cover civil liability risk. Probable losses amounted to R$ 6,933 on December 31, 2005 (R$ 5,619 on December 31, 2004). However, considering the contract terms of insurance policies, there was coverage for the amount of R$ 791 on December 31, 2005 (R$ 1,392 on December 31, 2003), linked to the corresponding amounts. Because of this, the Company made a provision for the probable losses not covered by insurance. Moreover, there are environmental lawsuits regarding the alleged illegal cutting of trees by the Company due to risks to electricity networks and consumers. | ||
(iii) | Among the main tax lawsuits, the following are highlighted: |
| in December 2004, the Brazilian Federal Revenue Department assessed the Company for following matters: | ||
a) | IRPJ and CSLL for the period prior to the change of the goodwill amortization term (see note 12.g); | ||
b) | PIS and COFINS on the financial restatement of the account to offset variations of non-manageable costs (CVA) by SELIC; | ||
c) | IRPJ and CSLL on the depreciation rate differences between the revaluation appraisal and ANEEL rates; | ||
| assessment notice from the Federal Revenue Department relating to a fine on the spontaneous declaration of debt for PIS/COFINS; | ||
| request to cancel the effect of the Federal Revenue Department decision to consider the deductibility, for the purpose of calculating income tax and social contribution, of the amounts relating to the retirement supplement for the Companys retired employees (beneficiaries of Fundação ELETROCEEE); | ||
| collection of tax for the use of land by city governments and other state authorities; | ||
| Non-payment of PIS and COFINS on financial income of the wholly-owned subsidiary Sul Geradora Participações S.A., through court order for injunction with suspensive effect. |
(iv) | the main contingencies of a regulatory nature are as follows: |
| amendment to the loan agreement between the Company and its former fully owned subsidiary Sul Geradora Participações S.A., to replace the index of debt charges not submitted for approval by ANEEL; | ||
| the Companys approval for the loan undertaken by its former fully owned subsidiary, Sul Geradora Participações S.A. with BankBoston, not submitted to approval by ANEEL; and |
F-127
\
| non-compliance with the continuity indicator goals for the Equivalent Duration of Interruption per Client (DEC) and the Equivalent Frequency of Interruption per Consumer (FEC), relative to the years 2003, 2004 and 2005. |
24 | STOCKHOLDERS EQUITY | |
In the Extraordinary General Assembly held on June 27, 2005, stockholders decided to increase the Companys capital stock from R$ 784,430 to R$ 830,457 by issuing 5,928,362 preferred shares and 25,814,397 common shares, at an issue price of R$ 1.45 per share, with the capital stock represented by 807,168,582 shares, 656,502,720 of which are nominal common shares without face value and 150,665,862 of which are preferred shares. The aforementioned increase in capital was designed to meet the requirements of Article 2, §2 of ANEEL Ratifying Resolution 166/2004, seeing that the annual accumulated financial flow on December 21, 2004 was negative at R$ 38,207. | ||
The Company has 444,837 treasury shares acquired in 1998 for the average price of R$ 1.08 per share. These shares will either be sold or cancelled in the future. | ||
The preferred shares have the following characteristics: |
| no voting rights; | ||
| entitled to a dividend 10.0% (ten percent) higher than that attributed to common shares, linked to the existence of profit to be distributed in accordance with current legislation; | ||
| priority in the reimbursement of capital in case of the Companys liquidation. |
The Companys stockholder structure is represented as follows: |
2005 | 2004 | |||||||||||||||||||||||
Stockholders | Common | Preferred | Total | Common | Preferred | Total | ||||||||||||||||||
Cia. Paulista de Força e Luz |
440,614,754 | 100,443,908 | 541,058,662 | 423,277,558 | 96,491,667 | 519,769,225 | ||||||||||||||||||
Ipê Energia |
213,495,786 | 50,221,954 | 263,717,740 | 205,095,210 | 48,245,833 | 253,341,043 | ||||||||||||||||||
521 Participações |
52,033 | | 52,033 | 50,000 | | 50,000 | ||||||||||||||||||
VBC Energia |
52,033 | | 52,033 | 50,000 | | 50,000 | ||||||||||||||||||
Supervisory board |
1,060 | | 1,060 | 1,018 | | 1,018 | ||||||||||||||||||
Treasury shares |
444,837 | | 444,837 | 444,837 | | 444,837 | ||||||||||||||||||
Other |
1,842,217 | | 1,842,217 | 1,769,700 | | 1,769,700 | ||||||||||||||||||
Total shares |
656,502,720 | 150,665,862 | 807,168,582 | 630,688,323 | 144,737,500 | 775,425,823 | ||||||||||||||||||
The book value per share, per group of thousand shares on December 31, 2005, was R$ 1,415.02 (R$ 1,411.84 on December 31, 2004 as restated). |
F-128
25 | SUPPLY AND DISTRIBUTION OF ELECTRICAL ENERGY |
Consumers | GWh | R$ | ||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||
Consumers |
||||||||||||||||||||||||||||||||||||
Residential |
823,227 | 805,276 | 790,201 | 1,466 | 1,437 | 1,419 | 684,934 | 584,331 | 506,771 | |||||||||||||||||||||||||||
Industrial |
30,090 | 30,152 | 29,784 | 2,762 | 2,813 | 2,564 | 745,787 | 654,587 | 508,596 | |||||||||||||||||||||||||||
Commercial |
95,429 | 93,873 | 92,916 | 832 | 801 | 766 | 369,074 | 311,821 | 260,535 | |||||||||||||||||||||||||||
Rural |
134,154 | 131,300 | 127,775 | 875 | 838 | 810 | 142,468 | 124,737 | 103,379 | |||||||||||||||||||||||||||
Government |
10,015 | 9,976 | 9,902 | 118 | 112 | 107 | 54,515 | 45,264 | 37,504 | |||||||||||||||||||||||||||
Public lighting |
254 | 253 | 252 | 227 | 230 | 235 | 50,179 | 46,608 | 42,070 | |||||||||||||||||||||||||||
Government services |
1,369 | 1,357 | 1,366 | 188 | 186 | 184 | 59,504 | 48,692 | 40,805 | |||||||||||||||||||||||||||
Own consumption |
107 | 91 | 79 | 2 | 1 | 1 | | | | |||||||||||||||||||||||||||
Billed supply |
1,094,645 | 1,072,278 | 1,052,275 | 6,470 | 6,418 | 6,086 | 2,106,461 | 1,816,040 | 1,499,660 | |||||||||||||||||||||||||||
Other |
||||||||||||||||||||||||||||||||||||
Unbilled supply for the year |
| | | | | | 61,474 | 53,517 | 48,883 | |||||||||||||||||||||||||||
Unbilled supply from the prior year |
| | | | | | (53,516 | ) | (48,883 | ) | (35,201 | ) | ||||||||||||||||||||||||
Agreement for the reimbursment of unrestricted energy |
78 | |||||||||||||||||||||||||||||||||||
Emergency capacity charges |
| | | 34,068 | 42,122 | 39,222 | ||||||||||||||||||||||||||||||
Total energy supply |
1,094,645 | 1,072,278 | 1,052,275 | 6,470 | 6,418 | 6,086 | 2,148,487 | 1,862,796 | 1,552,642 | |||||||||||||||||||||||||||
Energy supply |
6 | 6 | 6 | 317 | 299 | 291 | 30,566 | 27,157 | 22,333 | |||||||||||||||||||||||||||
Revenue from providing electrical network access |
| | | | | | 13,033 | 893 | 619 | |||||||||||||||||||||||||||
Other |
| | | | | | 16,318 | 17,918 | 15,506 | |||||||||||||||||||||||||||
Total operating revenue |
1,094,651 | 1,072,284 | 1,052,281 | 6,787 | 6,717 | 6,377 | 2,208,404 | 1,908,764 | 1,591,100 | |||||||||||||||||||||||||||
F-129
26 | COST OF ELECTRICAL ENERGY |
GWh | R$ | |||||||||||||||||||||||
Electric energy purchased for resale | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||
Suppliers |
||||||||||||||||||||||||
Companhia Estadual de Energia Elétrica CEEE |
230 | 461 | 690 | 14,252 | 24,854 | 36,257 | ||||||||||||||||||
Companhia de Geração Térmica de Energia Elétrica CGTEE |
527 | 604 | 678 | 39,908 | 41,384 | 44,099 | ||||||||||||||||||
Eletrobrás Transfer from Itaipu |
1,501 | 1,475 | 1,475 | 114,414 | 123,708 | 137,797 | ||||||||||||||||||
Tractebel Energia |
3,522 | 3,451 | 3,165 | 357,347 | 295,537 | 236,919 | ||||||||||||||||||
AES Uruguaiana Empreendimentos |
1,243 | 1,152 | 1,152 | 130,494 | 116,427 | 105,350 | ||||||||||||||||||
CPFL Comercialização Brasil |
783 | 495 | 138 | 63,140 | 36,012 | 10,259 | ||||||||||||||||||
Other |
19 | 73 | 2 | 999 | 1,442 | 1,108 | ||||||||||||||||||
7,825 | 7,711 | 7,300 | 720,554 | 639,364 | 571,789 | |||||||||||||||||||
Variation of costs of Installment A (CVA) |
| | | 13,028 | 53,519 | 21,094 | ||||||||||||||||||
7,825 | 7,711 | 7,300 | 733,582 | 692,883 | 592,883 | |||||||||||||||||||
Charges for the use of electric network |
||||||||||||||||||||||||
Basic network charges |
| | | 108,086 | 84,895 | 76,676 | ||||||||||||||||||
Itaipu transportation charges |
| | | 7,719 | 6,826 | 6,267 | ||||||||||||||||||
Connection charges |
| | | 24,999 | 25,395 | 13,547 | ||||||||||||||||||
System service charges (ESS) |
| | | 1,773 | 3,387 | 6,343 | ||||||||||||||||||
| | | 142,577 | 120,503 | 102,833 | |||||||||||||||||||
Variation of costs of Installment A (CVA) |
| | | 20,340 | 8,984 | (27,540 | ) | |||||||||||||||||
| | | 162,917 | 129,487 | 75,293 | |||||||||||||||||||
Total |
7,825 | 7,711 | 7,300 | 896,499 | 822,370 | 668,176 | ||||||||||||||||||
F-130
27 | OPERATING EXPENSES |
Restated | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Selling |
||||||||||||
Personnel |
17,947 | 16,029 | 13,078 | |||||||||
Material |
780 | 774 | 832 | |||||||||
Third-party services |
12,657 | 10,569 | 8,658 | |||||||||
Leases and rents |
165 | 27 | 12 | |||||||||
Depreciation and amortization |
8,261 | 6,792 | 4,720 | |||||||||
Allowance for doubtful accounts |
39,842 | 10,762 | 10,577 | |||||||||
Telecommunications and data transmission |
4,377 | 3,567 | 2,904 | |||||||||
Indemnities for consumers |
1,185 | 1,178 | 830 | |||||||||
Expense recovery |
(4,058 | ) | (1,429 | ) | (144 | ) | ||||||
Other |
1,528 | 3,465 | 727 | |||||||||
82,684 | 51,734 | 42,194 | ||||||||||
General and administrative |
||||||||||||
Personnel |
15,661 | 20,261 | 22,422 | |||||||||
Managers |
2,547 | 2,312 | 745 | |||||||||
Material |
422 | 278 | 354 | |||||||||
Third-party services |
18,773 | 14,137 | 9,940 | |||||||||
Leases and rents |
3,858 | 2,793 | 1,788 | |||||||||
Depreciation and amortization |
8,299 | 6,007 | 5,283 | |||||||||
Provisions for contingencies |
3,874 | 7,343 | 2,413 | |||||||||
Value-Added Tax (ICMS) on telecommunications (i) |
6,245 | | | |||||||||
Telecommunications and data transmission |
2,962 | 1,991 | 1,166 | |||||||||
Advertising and publicity |
1,483 | 1,170 | 1,307 | |||||||||
Investments in culture |
1,775 | 3,051 | 4,587 | |||||||||
Insurance |
884 | 966 | 574 | |||||||||
ANEEL inspection fee |
3,207 | 2,894 | 1,889 | |||||||||
Research and development (see note 22) |
9,715 | 5,909 | 1,499 | |||||||||
Energy efficiency program (see note 22) |
8,551 | 5,414 | 4,461 | |||||||||
Other |
3,163 | 1,972 | 1,400 | |||||||||
91,419 | 76,498 | 59,828 | ||||||||||
Amortization of goodwill |
12,149 | 15,779 | 112,027 | |||||||||
Total |
186,252 | 144,011 | 214,049 | |||||||||
F-131
28 | FINANCIAL INCOME AND EXPENSES |
2005 | 2004 | 2003 | ||||||||||
Financial income |
||||||||||||
Interest income on financial investments |
2,933 | 10,528 | 6,591 | |||||||||
Interest on arrears |
30,325 | 23,410 | 18,718 | |||||||||
Monetary variations |
5,659 | 1,565 | 2,714 | |||||||||
Other |
1,563 | 1,392 | 1,329 | |||||||||
Total |
40,480 | 36,895 | 29,352 | |||||||||
Financial expense |
||||||||||||
Debt charges |
(91,186 | ) | (69,829 | ) | (80,694 | ) | ||||||
Bank expenses |
(245 | ) | (1,949 | ) | (1,331 | ) | ||||||
Monetary variations |
(19,058 | ) | (14,031 | ) | (16,939 | ) | ||||||
Debt charges on foreign currency liabilities,
net of results from swaps |
(14,768 | ) | (26,650 | ) | (55,222 | ) | ||||||
Provisional Contribution on Financial Activities (CPMF) |
(8,995 | ) | (9,745 | ) | (6,986 | ) | ||||||
Tax on financial operations (IOF) |
(1,312 | ) | (1,434 | ) | (1,775 | ) | ||||||
Other |
(5,548 | ) | (2,955 | ) | (4,799 | ) | ||||||
Total |
(141,112 | ) | (126,593 | ) | (167,746 | ) | ||||||
Financial expenses net |
(100,632 | ) | (89,698 | ) | (138,394 | ) | ||||||
F-132
29 | NON-OPERATING INCOME AND EXPENSES |
2005 | 2004 | 2003 | ||||||||||
Non-operating income |
||||||||||||
Gains on disposal of fixed assets |
335 | 356 | 637 | |||||||||
Gains on deactivation of fixed assets |
540 | 277 | | |||||||||
Revenue from investment sales |
243 | | | |||||||||
Other revenues |
205 | 824 | 31 | |||||||||
Total |
1,323 | 1,457 | 668 | |||||||||
Non-operating expense |
||||||||||||
Losses on disposal of fixed assets |
(497 | ) | (392 | ) | (1,569 | ) | ||||||
Losses on deactivation of fixed assets |
(15,450 | ) | (13,684 | ) | (5,348 | ) | ||||||
Expenses related to sale of investments |
(243 | ) | | | ||||||||
Other expenses |
(1,315 | ) | (558 | ) | (64 | ) | ||||||
Total |
(17,505 | ) | (14,634 | ) | (6,981 | ) | ||||||
Non-operating expenses net |
(16,182 | ) | (13,177 | ) | (6,313 | ) | ||||||
30 | FINANCIAL INSTRUMENTS | |
The Company uses financial instruments, the risks of which are managed through financial position strategies and systems to control exposure limits. All operations are recognized in accounting records and are restricted to the following instruments: |
a) | Exchange rate fluctuation risk |
The Company results are affected by fluctuations in the dollar exchange rate and variations in the BNDES basket of currencies, since the Company has financing associated with these indexes (see note 16). In order to reduce this type of risk, the Company contracted swap operations to replace the indexes, interest rate and spread to CDI for the principal and interest amounts. The financial instrument covers the exchange rate fluctuation risk of the debt in dollars through a contracted sum plus a coupon in dollars to be received during the debt maturity term, so that on the maturity dates, the amounts in U.S. relating to the debt and swap dollars are equivalent. In the case of BNDES financing associated with the basket of currencies, the swap offers sufficient, although not complete, coverage for the risk, since the variation of the basket of currencies is not equal but comes close to the variations in the dollar. The gain or loss generated by swaps is accrued for accounting purposes and recognized in income based on the contractual rates measured through the period end considering the intent of not liquidating the swap agreements before debt maturity. |
F-133
Net exposure to foreign currency compared to the fair value of the swap agreements based on the market quotation at the date of the balance sheet is presented below: |
Book value | Fair value | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Loans and financing in Brazilian currency |
(15,050 | ) | (9,414 | ) | (15,050 | ) | (9,414 | ) | ||||||||
Assets in dollars |
15,340 | | 14,566 | | ||||||||||||
Hedge instruments |
(15,078 | ) | | (14,265 | ) | | ||||||||||
Swap operation adjustments |
262 | | 301 | | ||||||||||||
Book value | Fair value | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Loans and financing in foreign currency |
(9,733 | ) | (174,929 | ) | (9,733 | ) | (174,929 | ) | ||||||||
Assets in dollars |
11,557 | 183,689 | 11,048 | 180,648 | ||||||||||||
Hedge instruments |
(22,736 | ) | (227,451 | ) | (21,420 | ) | (218,616 | ) | ||||||||
Swap operation adjustments |
(11,179 | ) | (43,762 | ) | (10,372 | ) | (37,968 | ) | ||||||||
Total swap operation adjustments |
(10,917 | ) | (43,762 | ) | (10,071 | ) | (37,968 | ) | ||||||||
Through its operating activities, the Company also has exposure to exchange rate fluctuations from the purchase of energy corresponding to R$ 25,988 on December 31, 2005 (R$ 20,532 on December 31, 2004). However, the current system for rate readjustment allows for an automatic recovery of these costs (compensation account), as detailed in note 9. |
b) | Credit risk |
The Company has a strict policy to evaluate the credit risk of the financial operations which it undertakes. Such policy emphasizes the risk classification by specialized agencies and the dispersal of the financial applications amount various financial institutions. |
31 | PURCHASE AND SALE OF SHORT-TERM ELECTRIC ENERGY WITHIN THE ELECTRIC ENERGY TRADE CHAMBER (CCEE) | |
The sums for the purchase and sale of short-term electric energy and its respective values have been provided for based on estimates prepared by Management and adjusted when disclosed in the accounting balances performed by the CCEE. Below, we present the accounting balances and liquidations for the short-term market: |
a) | Accounting balances disclosed by the CCEE for the years ending on: |
Operations | 2005 | 2004 | 2003 | |||||||||
System service charges (ESS) |
(1,773 | ) | (3,387 | ) | (6,343 | ) | ||||||
Purchases costs |
(404 | ) | (3,031 | ) | (1,067 | ) | ||||||
Sales revenue |
237 | 808 | 436 | |||||||||
Operation balance |
(1,940 | ) | (5,610 | ) | (6,974 | ) | ||||||
F-134
b) | CCEE balance deducting the liquidations on: |
2005 | ||||||||
Operations | Asset | Liability | ||||||
System service charges (ESS) |
| 1,773 | ||||||
Purchases costs |
| 404 | ||||||
Sales revenue |
237 | | ||||||
Balance before liquidations |
237 | 2,177 | ||||||
2005 operation liquidations |
(234 | ) | (2,113 | ) | ||||
Ended balance |
3 | 64 | ||||||
2004 | ||||||||
Operations | Asset | Liability | ||||||
System service charges (ESS) |
| 3,387 | ||||||
Purchases costs |
| 3,031 | ||||||
Sales revenue |
808 | | ||||||
Balance before liquidations |
808 | 6,418 | ||||||
2004 operation liquidations |
(808 | ) | (6,122 | ) | ||||
Ended balance |
| 296 | ||||||
F-135
32 | RELATED PARTIES |
Asset | Liability | Income | Expense | |||||||||||||||||||||||||||||||||||||
Company | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||
Banco Bradesco |
||||||||||||||||||||||||||||||||||||||||
Cash and banks |
841 | 544 | | | | | | | | | ||||||||||||||||||||||||||||||
Financial investments |
513 | 1,829 | | | 209 | 285 | 176 | | | | ||||||||||||||||||||||||||||||
Swap operations |
| | (262 | ) | | 262 | | | | | | |||||||||||||||||||||||||||||
Services |
| | | | | | | 335 | 285 | 181 | ||||||||||||||||||||||||||||||
Banco Votorantim |
||||||||||||||||||||||||||||||||||||||||
Financial investments |
| | | | 296 | 2,524 | | | | | ||||||||||||||||||||||||||||||
Swap operations |
| | 7,189 | 6,273 | | | | 3,154 | 2,763 | 4,688 | ||||||||||||||||||||||||||||||
Bradesco Seguros |
||||||||||||||||||||||||||||||||||||||||
Insurance premium |
213 | 238 | | | | | | 884 | 935 | 445 | ||||||||||||||||||||||||||||||
CBA Companhia Brasileira de Alumínio |
||||||||||||||||||||||||||||||||||||||||
Material purchases |
| | 603 | 98 | | | | 4,243 | 2,724 | 898 | ||||||||||||||||||||||||||||||
CPFL Comercialização Brasil |
||||||||||||||||||||||||||||||||||||||||
Other credits |
163 | | | | | | | | | | ||||||||||||||||||||||||||||||
Energy supply |
| | 8,119 | 4,443 | | | | 63,140 | 36,012 | 10,259 | ||||||||||||||||||||||||||||||
CPFL Companhia Paulista de Força e Luz |
||||||||||||||||||||||||||||||||||||||||
Other credits |
998 | 660 | | | | | | | | | ||||||||||||||||||||||||||||||
Ipê Energia |
||||||||||||||||||||||||||||||||||||||||
Other credits |
80 | | | | | | | | | | ||||||||||||||||||||||||||||||
PSEG Public Service Energy Global |
||||||||||||||||||||||||||||||||||||||||
Other credits |
145 | 21 | | | | | | | | | ||||||||||||||||||||||||||||||
SGP Sul Geradora Participações |
||||||||||||||||||||||||||||||||||||||||
Loan agreement |
| | | | | | | | 9,637 | 44,474 |
In the year of 2005, the main transaction with related parties refers to the energy purchase operations negotiated under normal market conditions, with the approval of ANEEL. |
F-136
33 | INSURANCE | |
The Company relies on the guidance of specialists to buy insurance policies with sufficient coverage to prevent significant losses and that take into consideration the nature and risk level of the assets and liabilities. The policies based on each risk category are as follows: |
Insured | |||||||
Risks | Validity |
amount | |||||
Identified risks- substations |
3/31/2005 to 3/31/2006 | 9,700 | |||||
Identified risks mobile substation |
3/31/2005 to 3/31/2006 | 4,000 | |||||
Identified risks stores and warehouses |
3/31/2005 to 3/31/2006 | 15,000 | |||||
Civil liability |
3/31/2005 to 3/31/2006 | 6,000 | |||||
Civil liability vehicles |
3/31/2005 to 3/31/2006 | 1,000 | |||||
Total |
35,700 | ||||||
34 | ANEEL RESOLUTION 166/2004 | |
Through Ratifying Resolution 166/2004, ANEEL established that the following main obligations would be part of the approval process for the merger of DOC 3 Participações by Rio Grande Energia, when the Companys Bylaws were changed, as approved in the Extraordinary General Assembly dated October 4, 2004: |
a) | amendment to Concession Agreement 13/1997 to include the requirements of the aforementioned Ratifying Resolution, with the detailing of the penalties applicable in the event of non-compliance of up to 2.0% of the Company billing. The First Amendment to the Concession Agreement was signed on November 22, 2004; | ||
b) | adjustment of the amortization curve of the goodwill balance approved by the Extraordinary General Assembly held on June 28, 2004, for the amortization curve included in Attachment I of Resolution 166 (see note 12.g); | ||
c) | change in the benefits of preferred shares issued by the Company, replacing the statutory estimate of redemption and payment of fixed and cumulative dividends for the receipt of dividends 10.0% greater than the amount attributed to the common shares, associated with the existence of the profits to be distributed in accordance with current legislation; and priority in the reimbursement of capital in the case of liquidation; | ||
d) | capitalization of the balance of fixed and declared dividends not paid, deducting the positive financial flow balance R$ 141,714; | ||
e) | stockholders undertook the commitment to maintain the counter-guarantees mentioned in item IV of Article 1 of this Resolution, directly or indirectly, up to the total settlement of the operation with BankBoston, proportionally to the respective shareholding in the Company capital stock. In compliance with this item, the Companys controlling stockholders, CPFL Energia S.A. and Ipê Energia Ltda., signed the Counter-Guarantee Agreement on October 6, 2004, becoming guarantors of any and all liability concerning the operation with BankBoston. The guarantee was proportional to the holding of the Companys controlling stockholders; |
F-137
f) | moreover, ANEEL determined through this resolution the preparation of the cash flow of this merger until the total amortization of the debt with BankBoston, aiming to guarantee the impartiality the merger effects, observing the following procedures: |
1. | record as revenues the effective income tax and social security benefits resulting from the amortization of the goodwill and interest from the original merger debt, as well as the income that was not distributed to the controlling stockholders as interest on own capital or dividends; | ||
2. | record as expenses the payments for amortization of the principal and debt charges assumed as a result of the merger, as well as fixed dividends, the redemption of preferred shares and capital increase in Sul Geradora Participações S.A.; | ||
3. | remunerate the balance of the income and expense values based on the rate forecasted for adjustment of the debt. |
In the case of negative financial flow, the Companys controlling stockholders shall provide resources of an equivalent amount in up to 60 days counting from the date of the AGO, maintaining the same minority stockholder holdings. The controlling stockholders shall be able to withhold dividends to which they are entitled in order to provide funds for the negative financial flow. If the financial flow has a positive balance, it will be used for possible compensation during a subsequent period. | ||
ANEEL Resolution 166 also establishes the elimination of the Rio Grande Energia holding in the capital of Sul Geradora Participações up to September 16, 2005 (note 11.a); | ||
The Brazilian Securities Commission (CVM), through CVM/SEP/GEA-1 Circular 197/2004, sent to ANEEL, expressed agreement with the presented terms, in the form of a draft of the aforementioned ANNEL Resolution published under Number 166 on July 13, 2004. |
F-138
35 | CASH FLOW | |
The statement of cash flow has been prepared in accordance with NPC 20 Statements of Cash Flow issued by the Institute of Independent Auditors of Brazil (IBRACON). For the purposes of the statement of cash flow, cash and cash equivalents comprise cash in hand and at banks and all short-term financial investments, which, as of December 31, 2005, 2004 and 2003, included investments with original maturities of less than 90 days and highly liquid financial market investment funds, as shown below: |
Restated | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Net income for the year |
113,660 | 35,242 | (8,989 | ) | ||||||||
Adjustments to reconcile net income to net cash flows from operating activities |
||||||||||||
Depreciation and amortization |
64,835 | 59,319 | 58,652 | |||||||||
Amortization of goodwill |
12,149 | 15,779 | 112,027 | |||||||||
Provisions for contingencies |
623 | 7,398 | 3,808 | |||||||||
Interest, monetary and exchange variations net |
119,353 | 108,945 | 150,141 | |||||||||
Reversal of provision for actuarial liabilities |
(2,973 | ) | (806 | ) | 2,691 | |||||||
Losses from sale of permanent assets |
21,689 | 16,317 | 6,748 | |||||||||
Deferred income tax and social contribution |
(19,551 | ) | 47,141 | (12,951 | ) | |||||||
Other |
26,041 | (12,057 | ) | 10,577 | ||||||||
(Increase) decrease of current assets and long-term receivables |
||||||||||||
Accounts receivable from customers |
(63,200 | ) | (22,780 | ) | (66,266 | ) | ||||||
Taxes to offset |
(4,508 | ) | (27,869 | ) | (3,326 | ) | ||||||
Inventories |
(500 | ) | (763 | ) | 355 | |||||||
Prepaid expenses |
(1,166 | ) | (1,302 | ) | (5,636 | ) | ||||||
Deferred costs variations |
39,628 | 26,631 | (5,067 | ) | ||||||||
Other |
(11,820 | ) | (1,764 | ) | (14,323 | ) | ||||||
Increase (decrease) in current liabilities and long-term liabilities |
||||||||||||
Suppliers |
19,945 | (4,997 | ) | (7,158 | ) | |||||||
Labor liabilities |
464 | 324 | 761 | |||||||||
Taxes and social contribution |
(30,524 | ) | 27,029 | 11,111 | ||||||||
Deferred gain variations |
(4,408 | ) | 463 | 4,815 | ||||||||
Regulatory fees |
(6,677 | ) | 4,655 | (814 | ) | |||||||
Others |
7,962 | 9,899 | 11,991 | |||||||||
Operating cash generated |
281,022 | 286,804 | 249,147 | |||||||||
Investments in permanent assets |
||||||||||||
Property, plant and equipment |
(138,976 | ) | (98,022 | ) | (62,432 | ) | ||||||
Deferred |
(799 | ) | (1,952 | ) | (4,027 | ) | ||||||
Consumer contributions and donations |
12,351 | 9,697 | 9,013 | |||||||||
Net cash used in investments |
(127,424 | ) | (90,277 | ) | (57,446 | ) | ||||||
Financing |
||||||||||||
Loan, financing and debendures funding |
541,314 | 455,528 | 250,988 | |||||||||
Loan and financing amortization |
(569,249 | ) | (540,993 | ) | (408,705 | ) | ||||||
Loan and financing interest amortization |
(82,654 | ) | (62,786 | ) | (52,599 | ) | ||||||
Dividend payments |
(50,000 | ) | (51,000 | ) | (1,073 | ) | ||||||
Net cash generated by financing |
(160,589 | ) | (199,251 | ) | (211,389 | ) | ||||||
Net cash generated |
(6,991 | ) | (2,724 | ) | (19,688 | ) | ||||||
Balance of cash and banks at the beginning of the year |
28,890 | 31,614 | 51,302 | |||||||||
Balance of cash and banks at the end of the year |
21,899 | 28,890 | 31,614 | |||||||||
F-139
36 | SUBSEQUENT EVENTS | |
In a Board of Directors Meeting held on December 16, 2005, members approved operations for Company financing of up to R$ 140,000, with a two-year term, with the payment of interest and the principal at the end of this period, without guarantees. The primary purpose of these operations is the liquidation of financing that would mature in 2006, including: BRDE, Banco Alfa and Banco Safra, as well as the prepayment of financing to UNIBANCO (in Brazilian currency and foreign currency) that would mature in 2006 and 2007. | ||
The Board of Directors also authorized the recontracting of financing in the Bank Credit Bill category, with a two-year term, in the sum of R$ 100,000 with Banco Itaú BBA, with the following alterations: (i) term increased to five years; (ii) payment of the principal at the end of the period; (iii) payment of interest each six months; (iv) liberation of current warrantees of receivables and the liberation of proportional controlling stockholder collateral. |
F-140