(A free translation of the original slation in Portuguese)
Centrais Elétricas de Santa Catarina S.A. CNPJ – 83.878.892/0001-55
2011 Management Report and Financial Statements
AND MANAGEMENT Dear Stockholders, We present the Annual Management Report and the Financial Statements of Centrais Elétricas de Santa Catarina S.A. – Celesc, for the year ended December 31, 2010, together with the Independent Auditor's Report, the message from the Board of Directors, and the Opinion of the Statutory Audit Board.
2
MESSAGE FROM MANAGEMENT
In its first year in the management of Celesc Group, the new Executive Board, appointed in January 2011, invested mainly in the improvement of the relations with its different publics - employees, stockholders, market, corporate entities and regulatory agencies. During the whole period, efforts were made to improve the internal practices and studies were initiated to restructure the Company, focused on the efficient management, which included the preparation of new By-law for Celesc Group. In Celesc Distribuição, attention should be given to the review of the purchase, inventories, payments and collections processes, with the objective of adapting its budget to the regulatory parameters, and the restructuring of the cash flows through a financial diagnosis and monthly planning of the income and expenses, in addition to the preparation of the Investment Plan for the 2011 – 2015 period, which is starting to perceive improvement in the industry-related indicators, in association with the economic and social strengthening of the concession area. In the electric power generation, efforts remained focused on the expansion of the installed capacity. A strategic group was created to study new sources of investment and new alternatives, which vary from the diversification of the energy matrix to a more positive performance of Celesc Geração in the selling environment. In SCGAS, the gas distribution network expansion plan is evolving with the purpose of making that input available outside the coastal region and, through the Serra I project, first reaching the mountainous plateau region, and, subsequently, the West region of the State. Through an auction, Empresa Catarinense de Transmissão de Energia Elétrica ECTE obtained the right to construct the substations Abdon Batista (525/230 kV) and Gaspar (230/138 kV), both located in the State of Santa Catarina. To develop and operate both facilities, on December 28, 2011 Empresa de Transmissão Serrana S.A. was formed. Dona Francisca Energética S.A. is a company that also presented strategic enhancements and approved, with ANEEL, a basic project for the installation of two new Small Hydroelectric Power Plants (PCHs): Santo Cristo, with installed capacity of 19.4MW, and Coxilha Rica, with 17.4MW.
3
As a result of the set of actions carried out, associated with the impacts of the economic environment and of the regulatory environment, Celesc Group ends 2011 with a consolidated net profit of R$323.89 million, an amount 18.42% higher than the one recorded in 2010. For the next years, our good perspectives are increased by the Master Plan, which will, mainly, be used to consolidate the planning culture in the Company. This instrument arises with the introduction of the new by-law, which reinforces the commitment of Celesc with the best corporate governance practices. Everyone concentrated on the same purposes was our greatest advantage in this first year. Now, our main mission is to maintain the harmony and strengthen Celesc even more.
Antônio Marcos Gavazzoni CEO
4
1 - BUSINESS PROFILE
Centrais Elétricas de Santa Catarina S.A. – Celesc, is a mixedpublic and privately-held corporation that has been operating for more than five decades in the areas of electric energy generation, transmission and distribution. During this period, it has consolidated itself as one of the largest companies of the Brazilian Electricity Sector, being recognized domestically and internationally for the quality of its services and for its actions in the technical, social and financial fields. Five year ago, in 2006, in conformity with the model established by the current legislation of the Brazilian electricity sector, the Company was structured as a holding company, already making its debut as one of the 100 largest companies in the Brazil, controlling two wholly-owned subsidiaries, Celesc Geração S.A. and Celesc Distribuição S.A., with investments in Empresa Catarinense de Transmissão de Energia Elétrica – ECTE (30,9%), Dona Francisca Energética S.A. – DFESA (23%), Companhia Catarinense de Água e Saneamento – CASAN (15,5%), and Usina Hidrelétrica Cubatão S.A. (40%), and other minor equity interests One year after its transformation into a Holding company, in 2007, Celesc acquired the shareholding of Companhia de Gás de Santa Catarina – SCGAS (51% of the ON shares and 17% of the share capital), the company holder of the concession to distribute natural gas in the State of Santa Catarina. In 2009, the Holding company increased its interest in the electric energy transmission area, acquiring more shares of ECTE. In 2010, in a ranking prepared by the newspaper Valor Econômico published in December 2011, Celesc was the 70th in the ranking of the 200 largest groups of Brazil, and the 11th among the largest corporate groups of the Brazilian Electricity Sector. At December 31, 2011, the restated share capital of Celesc S.A., fully subscribed and paid up, totaled R$ 1,017,700,000.00, represented by 38,571,591 shares with no par value, divided into 15,527,137 common shares (40.26%) with voting right and 23,044,454 preferred shares (59.74%), with no voting right. On the same date, foreign investors represented 19.89% of the total share capital of CELESC, holding a volume of 7,673,816 shares, most of them, preferred shares. The group of foreign investors (non-residents) is basically comprised of large pension funds of the USA and Canada.
5
The Company's corporate structure and shareholding are represented in the chart below:
The wholly-owned subsidiaries:
•
Celesc Distribuição - Celesc Distribuição is the 6th largest Brazilian electric energy distribution company in volume of revenue from sales, the 7th in volume of electric energy distributed and the 9th in number of consumers. At December 31, 2011, it served 2,420,274 consumer units, with general average consumption of 555.07kWh/month. The average residential consumption reaches 198kWh/month, the largest index in the South region and the 5th in Brazil, according to data provided by the Brazilian Association of Electric Energy Distributors (ABRADEE) (2011). In 2011, the Company distributed more than 19 billion of kWh of electric energy, a volume corresponding to 26.8% of the consumption of the South region and to 5.2% of the total electric energy consumed in Brazil. Its gross billings was R$6.4 billion in the year.
6
•
Celesc Geração - Celesc Geração is responsible for the operation, maintenance and expansion of the generating complex formed by twelve Small Hydroelectric Power Plants (PCHs), and total installed capacity of 81.9MW. Over the past years, based on the strategic positioning of increasing the capacity of own generation, the Company started to invest in repowering of the existing power plants and in the formation of partnerships to make feasible projects that aim the construction of new ventures and the diversification of the energy matrix. Studies in progress have projections of an expansion of up to 148% of the current capacity and have projects including hydraulic, wind and biomass sources. At December 31, 2011, the Company held shareholdings in six special purpose entities (SPEs), interested in making feasible eight new ventures in the State. These partnerships have been formed since 2007, and their objective is the construction, commissioning, operation and maintenance of PCHs.
Subsidiary Company SCGAS is the 2nd largest distributor of piped gas in number of municipalities served in Brazil, and Santa Catarina is the 3rd state with one of the largest gas distribution network, the 3rd largest in number of industries served with natural gas, and holds the 3rd largest network of Natural Gas for Vehicles (GNV) stations in Brazil. The results reached in the year maintain the Company as the 2nd largest distributor of piped gas in number of municipalities served in Brazil (57), and Santa Catarina in the 3rd place among the states with the largest gas distribution network (958km), the 3rd largest in number of industries served with natural gas (210) and the 3rd largest network of GNV stations in Brazil.
7
2 – ECONOMIC SCENARIO
In 2011, as it occurred in 2009, when the U.S. financialcrisis contaminated the world markets - a new scenario of instability, now with focus on the Euro zone, affected the Brazilian economy.
Despite the internal demand that is still intensified due to the facility for having access to the credit, with the decrease in the levels of unemployment and the positive evolution of the family earnings, the Gross Domestic Product (GDP) increased only 2.7% as compared to 2010. The performance of the GDP in 2011 was mainly influenced by the results of the domestic industry, which recorded a slight growth of 1.6% (in view of 10.6% in 2010/2009), strongly impacted by the decrease in exports. According to the Brazilian Institute of Geography and Statistics (IBGE), in 2011, the consumption of the families grew 4.1% as compared to 2010. The index was one of the main factors to support positively the economic growth rate last year. In the electric power sector, the cooling off of the economy , associated with the high level of the reservoirs of the hydroelectric power plants, resulted in a surplus of energy in the market and reduction in the Differences Settlement Price (PLD), almost 60% less than the one practice in the previous year, reducing the earnings of the sellers. In parallel, the increase in prices of the international petroleum influenced the costs of acquisition of natural gas. In Celesc’s area of operation, the sales of the industryclosed the year with an increase of 1.4%, against 3.4% in 2010/2009. Data from the Santa Catarina Industry Federation – FIESC demonstrate significant decreases in important segments, such as the textile (-17%) and the furniture (-10.6%), which suffered strong impacts due to the sudden changes in the foreign exchange and increase of the competition of Asian countries. The consumption reduction, added to the migration of the industries to the Free Acquisition Environment (ACL), resulted in the involution of 13% of class share in the captive market.
8
3 – CELESC GROUP IN 2011
3.1 - ECONOMIC AND FINANCIAL PERFORMANCE In 2011, Celesc Group reached a consolidated net profit of R$323.89 million, an increase of 18.42% as compared to 2010 (R$273.52 million). The main consolidated financial information is as follows:
Economic and Financial Data (R$ thousand)
2011
2010
HA
Gross operating revenue
6,564,437
6,226,921
5.42%
Net operating revenue
4,191,414
4,036,765
3.83%
(=) EBITDA
585,049
421,685
38.74%
Result of activities - EBIT
430,879
266,379
61.75%
15,218
84,810
(82.06%)
5,365,230
5,001,872
7.26%
370,105
306,424
20.78%
2,174,531
1,940,507
12.06%
Profit
323,887
273,516
18.42%
Economic and Financial Indicators
2011
Finance result (except Interest on Capital) Total assets Property, plant and equipment Equity
2010
Change
EBITDA margin (EBITDA/Net Operating Revenue)
13.96%
10.50%
3.46 p.p
EBIT margin (EBIT/Net Operating Revenue)
10.28%
6.60%
3.68 p.p
7.73%
6.78%
0.95p.p
Net margin (Net Profit/Net Operating Revenue) p.p – Percentage points
9
During the period, the Gross Operating Revenue presented a growth of 5.42% (R$6,564 million in 2011 against R$6,227 million in 2010), while the Net Operating Revenue increased 3.83%, as presented in the graph below:
The performance of the Net Operating Revenue was favored by the growth in the market in the concession area of Celesc Distribuição (3.2% in relation to 2010) and the tariff adjustments made in August 2010 (average of 9.85%) and August 2011 (average of 1.19%). With that impact, EBITDA in 2011 reached R$585.05 million and the EBITDA Margin increased from 10% in 2010 to 14% in 2011.
10
The good performance of the result of the activities was leveraged by the growth in the Net Operating Revenue and the drop in the operating costs and expenses in the period (R$3,761 million in 2011 as compared to R$3,770 million in 2010), a consequence of the decrease of 4% in the cost with energy purchased and of 6.3% of the personnel and actuarial expense in Celesc Distribuição S.A.
11
In the graphs below, it is possible to note the participation of the Group companies in the Gross Operating Revenue and in the Consolidated Result in 2011.
The greatest contribution to the consolidated result (88.2% of the total) came from the growth in Net Operating Revenue of Celesc Distribuição, which reached a volume of R$ 4.03 billion (R$ 3.89 billion in 2010). During the year, the Company's Net Profit was R$ 287 million, in comparison with R$ 180 million in 2010. With energy surplus in the market, Celesc Geração recorded a decrease in Operating Revenue as compared to the result in the prior year. In 2011, Revenue amounted to R$ 52 million, and in 2010 it was R$ 55 million. The result is due to the impact of the decrease of 59.71% in the Differences Settlement Price (PLD) in 2011 (R$28.21/MWh) in relation to the one in 2010 (R$70.02/MWh). The Company's Net Profit in 2011 amounted to R$ 14 million, and in 2010 it was R$ 22 million. In 2011, SCGAS experienced a strong increase in the cost of acquisition of Natural Gas (GN), due to the increase in quotations of oil in the international market and foreign exchange variation, which impacted the increase of 49.5% in the supply tariff. This, together with the non-proportional adjustment of the supply tariff, decreased its results. During the year, the Company's Net Profit was R$ 489 million, in comparison with R$ 453 million in 2010. Net profit decreased from R$ 81 million in 2010 to R$ 44 million in 2011.
12
3.2 INVESTMENTS The volume of investments of Celesc Group in 2011 reached R$ 475.4million in comparison with the R$ 465.9 million in 2010. Of this total, R$ 352.9 million was used in the expansion and improvement of the system, operating efficiency and modernization of the management with the Distribution subsidiary. Celesc Geração, which is directed to the improvement of its own production, invested R$63.7 million in the period. The investments of SCGAS amounted to $58.8 million. The table below presents the amounts invested in 2011 and the evolution in relation to 2010 in the Company's segments: INVESTMENT PER SEGMENT (R$ thousand) 2011
2010
(%)
Distribution
352.953
382.844
(7.81)
Generation
63.660
49.621
28.29
Natural Gas
58.826
33.487
75.67
Gran total
475.439
465.952
2.04
3.3 OPERATING PERFORMANCE 3.3.1 CELESC DISTRIBUIÇÃO MARKET - The consumption of electric energy in the concession area of the Company presented a growth of 3.4%as compared to 2010. In the period, the number of customers reached 2,420,274, recording a growth of 3.2% as compared to the prior year, with an increase of 75 thousand new connections. The volume of energy distributed to the free and captive markets was 19.97 gigawatt-hour (GWh), which already includes the global losses. In the captive market, under the effect of the migrations to the free contracting environment, the volume of consumptionin 2011 (15.80 GWh)decreasedby 2.4% as compared to 2010 (16.20 GWh). In the industrial class, where migrations are more frequent, consumption in the year decreased by 13%. The volume sold in the Free Contracting Environment (ACL) represents 21% of the whole amount of electric energy distributed by Celesc Distribuição.
13
The performance of the commercial (7.3% higher than in 2010) and residential classes (2.3% higher than in 2010) was directly influenced by the changes established in ANEEL Resolution 414/2010, which reclassified 18.2 thousand residential condominiums into commercial class as from June. In the free market, growth in the year was 34.1% in relation to the same period in 2010, accumulating 4.17 GWh. The graph below presents the consumption per class and volume of energy distributed to the free and captive markets in 2010 and 2011:
LOSSES - As regards losses, during the 12 months of 2011 global losses represented 7.38% of the energy injected in the concessionaire's distribution system, 6.11% referring to technical losses defined by PRODIST – Module 7 (2009) and 1.27% corresponding to non-technical losses. According to the last periodical tariff revision of Celesc Distribuição S.A., the regulatory loss of the distribution was defined in 7.73%. Of this total, according to Technical Note No. 237/2009-SRE/ANEEL, 6.17% refers to volume of technical losses and 1.56% to non-technical losses.
REGULATORY ENVIRONMENT - The Brazilian Electricity Regulatory Agency (ANEEL), on August 5, 2011, according to Ratifying Resolution No. 1183, established the tariffs to be practiced by Celesc Distribuição from August 7, 2011 to August 6, 2012. These tariffs were adjusted, on average, 7.97%, of which 1.58% refers to the annual economic tariff adjustment and 6.39% to the related financial components, corresponding to an average effect of 1.19% to be perceived by the captive consumers.
14
In November 2011, ANEEL Public Hearing was concluded, establishing the new methodology and criteria to be adopted in the third cycle of tariff revision. The processes reviewed were the Operating Costs, Regulatory Remuneration Basis, X Factor, Energy Losses, Other Revenues and Own Generation of Energy. In the same month, ANEEL Public Hearing 120/2010 was concluded, which establishes the procedures to be applied in the definition of the Tariff Structure for theconcessionaires of electric energy distribution. In 2012, the distribution will undergo the 3rd cycle of tariff revision, where the revenues required for the fouryear period will be defined. The Company is providing the information requested by the Regulatory Agency and making studies of potential impacts. In addition to the tariff regulation aspects, in 2011 ANEEL made changes in the technical and commercial regulation. The general supply conditions were reviewed, with the substitution of the former Normative Resolution No. 456/00 with Normative Resolution No. 414/10, which provides about the commercial processes of billings, payment, consumer services, engagement rules, financial interest, measurement systems, reading, irregular procedures and reimbursement for electrical damages. The organization and performance of the Consumer Councils and Ombudsmen were also regulated in 2011 and the Distribution Procedures – PRODIST were reviewed, with alterations in six modules: Introduction, Planning of the Distribution System Expansion, Access to the Distribution System, Information and Obligations Required, Calculation of Losses in the Distribution and Quality of the Electric Energy. All these changes demanded an intensive work for internal adaptation with changes in operating processes and information systems, in addition to a significant demand for training of teams that extended to 2012.
SYSTEM EXPANSION – In 2011, in compliance with the Distribution Development Plan (PDD), five new substations were being constructed (Itapoá, Joinville Paranaguamirim, Navegantes, Vidal Ramos and GM). Of them,two (Navegantes and Joinville Paranaguamirim) were concluded and energized in 2011. Other 10 substations (Joinville Santa Catarina, Ilha Centro, Braço do Norte, Gravatal, Blumenau Bairro da Velha, Faxinal dos Guedes, Itapiranga, Araranguá, Porto Belo and Seara) were expanded. In the same period, in association with the construction of new substations, 74.26 km of Distribution Lines of 138 kV were implemented. The interventions to expand the system added 307 MVA to the installed capacity of the transformation system.
15
Considering the vegetative growth and strengthening of the distribution network system (13.8 kV and 23.1 kV), 333.1 km of Distribution Lines (Trunk Network Feeders) and 8,665 expansion works were made. The list of new equipment sums the installation of 18,223 posts and 1,555 distribution transformers. Investments benefited 14,373 consumer units. UNIVERSALIZATION – Since the implementation of the Energy Universalization Program, established by the Federal Government in April 2003, Celesc Distribuição accumulates 60 thousand connections of new consumers in its concession area. In 2011, 6,331 connections were made through the Program. In the year, the Company concluded its Light for All Program, which benefited a total of 44 thousand families in Santa Catarina. Light for All is a social program, which has subsidies from the Federal and State Governments and the related concessionaire, to install electric energy in residences settled in the rural area and with a demand limited to 15 kVA (kilovolt-ampere). The behavior of the Company's investments over the past three years X depreciation is presented below:
16
SERVICE QUALITY - In 2011, Celesc Distribuição recorded an increase in the continuity indicators (DEC and FEC) as compared with 2010. The increase in the indexes was strongly influenced by failures in the high voltage system (around 7%), due to disconnections to make maintenance and system expansion work feasible (12%) and due to the change in the formatting of the group of consumers used to measure the continuity indexes. Up to 2010, the criterion used to define the groups was the perimeter of the municipalities served by the Company and, in 2011, the groups started to be defined by the area of coverage of each substation of the Company's system (of 260 groups, Celesc started to measure 119 groups), causing an impact of approximately 4% on the increase in the continuity global indexes.
17
RESEARCH AND DEVELOPMENT – In the search for innovations to weather the technological and market challenges in the electric energy area, the R&D Program of Celesc has mainly invested in its main business focus: the distribution of electric energy, which absorbs 51% of its resources. In 2011, Celesc concluded 10 R&D projects and, currently, the Program is carrying out 17 projects, which total R$14.83 million, in addition to having, at least, 113 projects in the phase of selection. ENERGY EFFICIENCY –In 2011, Celesc Distribuição S.A. invested R$5.22 million through its program to avoid electric energy waste; the program is called “proCeleficiência”. Investments were mainly distributed to two large social projects, the “Good Energy” program (“Energia do Bem”), which promotes the modernization/replacement of the systems of lighting, refrigeration, airconditioning, motors and autoclaves of philanthropic hospitals, and the “I’m Cool, I’m Aware” program (“Sou Legal. Tô Ligado”), comprised of various actions for improvement in residences of low income communities, which range from the substitution of the electric energy input standards (group of posts, electric meter boxes, network extensions to the meter) to the installation of the water heating system through solar energy. The Company estimates that, when the projects of the area are carried out, there will be a decrease of 6294 MWh/year in the consumption of electric energy and of 1,665 MW in the demand avoided at one extreme. PROFESSIONAL TRAINING– In 2011, the Company registered a volume of 24,977 participations in internal and external trainings, which resulted in 7.18 trainings per employee. The number of hours/man of training was 132,892.2, resulting in 38.22 HMT. In September, the Executive Board renewed its commitment with the benefits granted through the Collective Bargaining Agreement. In the year, R$ 17.7 million was distributed to the employees of the holding company and of the wholly-owned subsidiaries (R$8.6 million referring to Profit and Result-sharing (PLR) in 2010 and R$9.1 million paid in October, referring to the advance of PLR of 2012). PLR is associated to meeting or exceeding the goals of the Result Management Contract and allows a strategic performance to improve the organizational performance. Also in 2011, a public service examination was made in Celesc Distribuição to contract engineers and lawyers to improve the quality of the service rendered by the Company. A total of 3,890 candidates disputed 18 vacancies for the engineering area and nine for the legal area. Among those hired, three have special needs.
18
3.3.2 CELESC GERAÇÃO During the year, with the generation of 65.5 MW average/hour, Celesc Geração registered a net production of 573.9 GWh of electric energy, with capacity factor of approximately 80.7%. The total amount of energy sold (471 GWh) was 0.2% above the 470 GWh registered in 2010. Sales by class in 2010 and 2011 were as follows:
SYSTEM EXPANSION – On December 31, Celesc Geração held shareholdings in six special purpose entities (SPEs) interested in making feasible new ventures in the State. According to the Extraordinary General Meeting held in December, the term of the articles of dissolution of SPE Boa Vista Energética S.A. was approved, considering the high value for its installation, the difficulty to obtain environmental licenses, the low return projected for the investment and the existing agrarian problem on the site of implementation of the venture.
19
The chart below presents the Company's current corporate structure :
2011 is marked by the beginning of the expansion of the Company's own generation complex. Among the new ventures that are already in progress in the partnership modality, PCH Prata (3MW), located in the far western of Santa Catarina, started operating in August and represented an increase of 0.75 MW to the installed capacity of Celesc Geração own generation complex.
Also through partnerships, the construction of PCHs Xavantina (6.07 MW) and Rondinha (9.6 MW) should start in 2012. Both SPEs study participating in auctions for the sale of energy in the regulated market. Other projects kept apace during the year. PCH Belmonte (3.6 MW) should start its commercial operations as from March 2012 and PCH Bandeirante (3 MW) has energization expected for August. Among the expansion works, made with own resources, during 2011 the Company invested in civil works and in the start of the electromechanical assembly of PCH Pery, in Planalto Serrano. With installed capacity of 4.4 MW, the Plant will start to count on the installed capacity of 30 MW. The start-up of the commercial operation is expected for October 2012. Other two projects, PCH Celso Ramos and PCH Caveiras, which represent an increase of 17.2MW in the installed capacity, were sent for ANEEL evaluation and, during the year, the basic projects of expansion of PCHs Ivo Silveira (+9.4MW), Cedros (+3.5MW) and Salto (+33.72MW) were also concluded. InNovember, a public hearing was made to expand PCH Salto, in Blumenau, complying with one more step to obtain the Environmental License in Advance. The approval of the basic project and the obtaining of the grant are the next steps to permit the beginning of the work. 20
In 2011, Celesc Geração also worked in the prospection of studies for the construction of Hydroelectric Power Plants (CGHs), starting with the studies to obtain an environmental license of use between the retaining and catchment dams of its power plants Cedros and Palmeiras, with potential to generate additional 1.75 MW. In 2011, Celesc Geração invested R$ 63.6 million, a volume 23.1% above the volume realized in 2010 (R$ 48.9 million). The performance reflects more involvement of the Company in the development of projects directed to its expansion, mainly resources directed to the maintenance, revitalization and expansion of the generating complex (R$ 58.8 million). The resources invested in new ventures are own resources of the Company, and amounted to R$ 4.4 million in the year.
3.3.3 - SCGAS In 2011, SCGAS investedR$ 58.8 million, most of it (R$ 54.3 million) in the construction of 75 km of new distribution networks, increasing to 958 km the total extension of the system in Santa Catarina. Serra Catarinense Project is a highlight, R$ 14.3 million was invested in it to implement 19.2 km of network. In the year, the Company maintained an increase in sales volume and the expansion of the natural gas distribution network and of the number of municipalities served in the concession area of the Company. Average days sales reached 1,835 thousand m³ in comparison with the 1,741 thousand m³ in 2010, representing 5.4% of global growth. In the year, an increase of 6% in the industrial market was recorded, as well as of 24.4% in the commercial market and 52.9% in the residential class. The number of Company's customers increased by 47.3%, from 1,988 at the end of 2010 to 2,928 in December 2011, with a highlight to the growth of 61.3% in the residential market, of 12.2% in the commercial market, and of 8.2% in the industrial market. The automotive market (GNV and GNC), which represented 20.1% of the Company's sales, had an increased in the number of gas stations and in sales volume as compared with 2011, mainly due to more competitiveness of the natural gas in relation to ethanol, which, during the year, had its price increased. At the end of 2011, Santa Catarina counted on 132 gas stations in 47 municipalities to serve 93,350 vehicles with installation for the use of natural gas, against 88,302 vehicles in 2010.
21
4-
CORPORATE GOVERNANCE
Celesc has given special attention to the good practices of Corporate Governance and, in 2011, various initiatives, which included reinforcement of the administrative structure, confirmed that commitment. During the year, there was the creation of the Corporate Governance Secretariat, which preferably serves to the Board of Directors and Statutory Audit Board, the Internal Audit, linked to the holding company, with the attribution of evaluating the integrity, adequacy, efficiency and economy of the corporate processes, and the Sustainability Committee, formed by the Company's executive officers and coordinated by an independent councilor, who represents the Board of Directors. In the quest for continuous improvement, the Executive Board maintained its effort to making closer its relationship with its various stakeholders (employees, customers, suppliers, stockholders, government and society), focused on the transparence and rendering of accounts, stimulating that spread of this assumption all over the organization. In 2011, various intersector meetings were made to defend the corporate interests with ANEEL, Abradee (Brazilian Association of the Electric Energy Distributors ) and other concessionaires, in addition to meetings and disclosure of the Company's acts in corporate, commercial and industrial associations of the State of Santa Catarina. In May, Celesc Distribuição, in partnership with Energisa and Abradee organized a workshop in the city of Rio de Janeiro to discuss the impacts of climate catastrophes on the electricity sector, with the participation of 16 concessionaires of energy. For the disclosure of the investment plan of the electricity system to be implemented by the Company up to 2015, a specific graphic material was prepared, which has allowed the socialization of the work scheduling for improvements and expansion of the system in the various regions of the concession area, to allow planning the economic expansion of the municipalities, ensured by the infrastructure to be made available by the Company. During the year, communication with the financial market was effectively resumed through meetings with investment banks, analysts and investors associations and teleconferences.In 2011, four public presentations were made in Brazil (São Paulo, Fortaleza, Belo Horizonte and Rio de Janeiro) to disclose the quarterly results and one was made abroad (Buenos Aires). The contacts with the specialized media were reinforced and the employees received information through a specific event.
22
Among 153 companies that presented their results in a special event of the Association of Capital Markets Analysts and Investment Professionals (APIMEC), in São Paulo, Celesc was among the 10 best presentations according to a research made among participants. The effort of Celesc in approaching the individual investor, offering information on the capital market and guidance to enter the Stock Exchange, also gave to the Company the “Capital Aberto” award, granted by Expomoney in September.
Offering full transparency in the contracts for acquisition of services and materials, among others, the Company launched its Portal of Transparency on its new website, also structured in 2011. The Portal makes available, on the Internet, the contents of all contracts signed by the Company since January 2011. The consumer was benefitted from the actions to improve the procedures of service and expansion of the Face to Face Assistance Points in the concession area. During the year, 140 assistance points of the Company were inaugurated or adapted and the certification of the process to deal with claims was obtained either. As a practice recommended by the GesPública program, which has Celesc as the anchor company in Santa Catarina, the company promoted the adhesion of the Santa Catarina Public Attorney's Office and of the State Treasury Court to the Program, and became the first Brazilian concessionaire to produce a Services Letter to the Consumer. With the intention of expanding its corporate social actions to its production chain, in 2011 the Policy of Relationship with Suppliers was approved to improve processes and construct possibilities of social inclusion, environment respect and transparency. The relationship with the employees was intensified, with the participation of the CEO and officers in the Conference of Celesc’s Employees; visits of the CEO to the Regional Agencies; video conference with the Governor (representative of the majority stockholder), and reinforcement of the internal communication. In 2011, the Ethics Committee took office and its objective is to manage the inculcation of the Code of Conduct practices. The Committee held eight meetings and established a partnership with the Ombudsman to make the violation complaints easier.
23
5 - SOCIAL PERFORMANCE
Corporate actions are guided by the Social Responsibility Policy, which is being reviewed to enhance its alignment with the companies' strategies. The process of review, which will undergo a public hearing, started in November, and the new proposal should be perfectly adapted to the principles of ISO 26000, the Social Responsibility International Standard that deals with transparency, human and labor rights, among others. In 2011, the Company supported the actions in the areas of environmental education, diversities, energetic efficiency, research and development and generation of work and income by stimulating the cooperatives. Among its initiatives are the Institution of the Policy of Relationship with Suppliers, the expansion of the Young Apprentice program, reinforcement to apprenticeship projects for generation of income, initiatives of incentive to the use of alternative sources and to make efficient the consumption of electric energy, dissemination of responsible social practices all over the production chain and support to the culture, sports, tourism and first childhood. Disbursements through Rouanet Law amounted to R$1.91 million. For the Fund to Support Childhood and Adolescence (FIA), Celesc Distribuição contributed R$522.3 thousand. In sports, supported by the Incentive Law, R$445 thousand was invested. Through the tax incentive laws, SCGAS appropriated R$ 791 thousand in 2011.
6 - ENVIRONMENTAL RESPONSIBILITY Aware of the complexity that the environmental dimension represents to the sustainability of its business, Celesc has focused its efforts on changing from the environmental compliance level to the normative compliance level. When the environmental licensing is processed and the applicable charters are obtained, each work carried out by the companies of the Group followed up – environmental supervision – to check the effectiveness of the measures to reduce/neutralize the impacts arising from it and the environmental programs prescribed to reduce/neutralize adverse impacts and increase the positive impacts.Among the various actions implemented during the year, it is highlighted the invitation to Public Bid 11/19097, with the objective of preparing the Residue Management Plan to Celesc and the thematic inclusion in the Call for SubmissionNo. 11/23650 for the presentation of Research and Development Projects.
24
7 - PERFORMANCE IN THE CAPITAL MARKET By the end of 2011, preferred shares of Celesc (CLSC4) presented a negative variation of 9.4% in relation to the last quotation in 2010, closing the period traded at R$ 36.23. If we consider the gains (dividends and interest on capital), this variation is reduced to -4.41%. Common shares (CLSC3) had an appreciation of 70.51%. In the same period, the Bovespa index (IBOVESPA) presented negative variation of 18.11%.
The market value of Celesc as of December 31, 2011 was R$ 2.1 billion. The table below presents the final quotations (at 12/31/2011) and the related percentage variations of CELESC shares and the main market indicators:
25
8 - STATEMENT OF VALUE ADDED (DVA) The amount of Value Added demonstrates the importance of Celesc for the society in general, with the distribution of R$ 3.53 billion in 2011 (R$3.05 billion in 2010). The Value Added provided by Celesc for the various segments is presented in the graph below:
26
9 – GOVERNANCE STRUCTURE Board of Directors - The Board of Directors is the first level of the administrative scale. It is formed by thirteen members, with a highlight to three independent ones, and one elected by the employees. The members have a one-year mandate, and one reelection is allowed for the same period. It has the mission of taking care of and valuing the equity, as well as maximizing the return on investments made. Formation of the Board of Directors at December 31, 2011
Derly Massaud Anunciação
Majority Stockholder Representative
Edegar Giordani
Majority Stockholder Representative
Antonio Marcos Gavazzoni
Majority Stockholder Representative
Andriei José Beber
Majority Stockholder Representative - Independent
Milton de Queiroz Garcia
Majority Stockholder Representative
Pedro Bittencourt Neto (Pr)
Majority Stockholder Representative - Independent
Marcelo Gasparino da Silva
Majority Stockholder Representative
Arlindo Magno de Oliveira
Minority Stockholder Representative
Sergio Ricardo Miranda Nazaré
Minority Stockholder Representative
Paulo Roberto Evangelista de Lima
Minority Stockholder Representative
Daniel Arduini Cavalcanti de Arruda
Preferred Stockholder Representative Independent
Edimar Rodrigues de Abreu
Minority Stockholder Representative
Jair Maurino Fonseca
Employee Representative
27
Statutory Audit Board - The Statutory Audit Board is comprised of five member and their respective alternates. Its main function is to analyze the financial statements as well as discuss the results with the independent auditors. Formation of the Statutory Audit Board at December 31, 2011: Julio Sergio de Souza Cardozo
Preferred Stockholder Representative
Valter José Gallina
Majority Stockholder Representative
Henrique Guglielmi
Majority Stockholder Representative
Telma Suzana Mezia
Common Minority Stockholder Representative
Enio de Andrade Branco
Majority Stockholder Representative
EXECUTIVE BOARD (at December 31, 2011) Celesc Holding CEO –Antonio Marcos Gavazzoni Planning Director –Clairton Belém da Silva Investor Relations Officer – André Luiz de Rezende Celesc Geração CEO –Antonio Marcos Gavazzoni Commercial and Technical Officer –Michel Becker Administrative and Financial Officer – Antonio José Linhares
28
Celesc Distribuição CEO – Antonio Marcos Gavazzoni Corporate Management Officer – Andre Luiz Bazzo Economic and Financial Officer–José Carlos Oneda Technical Officer – Cleverson Siewert Commercial Officer –Dílson Oliveira Luiz
ARBITRATION CLAUSE The Company informs that it is bound to arbitration at the Market Arbitration Chamber, in accordance with the Arbitration Clause of its Bylaws, in its article 52 “The Company, its stockholders, managers and members of the Statutory Audit Board undertake to resolve, through arbitration, any and all dispute or controversy that may arise between them, related to or arising from, especially, the application, validity, effectiveness, interpretation, breach and its effects, of the provisions of Corporation Law, the Company's Bylaws, the rules issued by the National Monetary Council, the Brazilian Central Bank and the Brazilian Securities Commission, as well as other rules applicable to the operation of the capital market in general, as well as those contained in the Rules of Differentiated Corporate Governance Practices Level 2, the Agreement for Adoption of Differentiated Corporate Governance Practices Level 2, and the Arbitration Rules of the Market Arbitration Chamber”.
INDEPENDENT AUDITORS As required by CVM Instruction 381, of January 14, 2003, and ratified by Circular Letter CVM/SEP/SNC 02, of March 20, 2003, Celesc informs that the Independent Auditor has not provided any type of service other than that strictly related to the external audit activity.
ACKNOWLEDGMENTS Celesc would like to thank the effort and dedication of its employees and suppliers, who have a fundamental role in the Company's history of success. The growing challenges have been overcome with the support of the members of the Board of Directors and Statutory Audit Board. The effort of everybody deserves the recognition of the consumers and exalts Celesc's proposals for its actions in benefit of the social and economic development of the State of Santa Catarina. Florianópolis, March 30, 2012 The Management
29
(A free translation of the original in Portuguese)
Centrais Elétricas de Santa Catarina S.A. CNPJ – 83.878.892/0001-55
Financial Statements at December 31, 2011 and Report of Independent Auditors
1
(A free translation of the original in Portuguese)
FINANCIAL STATEMENTS BALANCE SHEETS Years ended December 31 (all amounts in thousands of reais) Parent company Assets
Consolidated
2011
2010
2011
2010
37,880
32,522
442,495
260,252
-
-
15,062
13,498
509
609
858,809
789,726
Current assets Cash and cash equivalents (note 7) Marketable securities (note 8) Trade receivables (note 9) Inventories
-
-
20,510
15,061
Taxes recoverable or for offset (note 11)
14,210
12,786
73,337
47,405
Dividends receivable
71,580
70,618
2,215
955
20,303
18,894
6
452
39,460
65,219
124,185
116,987
1,472,191
1,211,010
133,013
125,656
133,013
125,656
-
457
121,430
215,791
64,888
108,818
64,888
108,818
Deferred taxes (note 16)
-
-
408,562
403,398
Taxes recoverable or for offset (note 11)
-
-
13,697
15,495
6,651
6,065
147,178
127,750
1,987,103
1,796,251
-
50
4,838
3,648
1,932,273
1,674,256
25,844
22,942
8,583
8,643
616,381
664,689
47
24
370,105
306,424
2,145,455
1,923,969
3,893,039
3,790,862
2,269,640
2,040,956
5,365,230
5,001,872
Indemnity assets - concession (note 10) Other receivables
Non-current assets Marketable securities (note 8) Trade receivables (note 9) Other credits with related parties (note 12)
Judicial deposits (note 20) Indemnity assets - concession (note 10) Other receivables Investments in subsidiary and associated companies (note 13) Intangible assets (note 15) Property, plant and equipment (note 14)
Total assets
2
(A free translation of the original in Portuguese)
BALANCE SHEETS Years ended December 31 (all amounts in thousands of reais) Parent company
Consolidated
2011
2010
2011
2010
148
257
433,503
380,410
-
-
241,298
109,720
338
433
120,632
125,301
Taxes and contributions (note 18)
14,531
16,821
129,800
122,489
Proposed dividends (note 23)
72,048
74,679
72,048
74,679
Regulatory charges (note 19)
-
-
174,941
149,494
Other liabilities with related parties (note 12)
-
-
18,113
17,446
Liabilities and equity Current liabilities Trade payables Borrowings and debentures (note 17) Salaries and social charges
Employee benefit obligations (note 21) Other liabilities
-
-
115,908
171,167
210
387
19,177
37,423
87,275
92,577
1,325,420
1,188,129
210,621
Non-current liabilities -
-
129,800
1,207
1,807
1,207
1,807
Deferred taxes (note 16)
-
-
144,142
132,858
Regulatory charges (note 19)
-
-
147,841
112,575
Borrowings and debentures (note 17) Taxes and contributions (note 18)
-
-
-
3,872
6,627
6,065
489,207
478,451
-
-
949,795
930,337
-
-
3,287
2,715
7,834
7,872
1,865,279
1,873,236
1,017,700
1,017,700
1,017,700
1,017,700
316
316
316
316
1,001,394
765,355
1,001,394
765,355
139,736
144,158
139,736
144,158
15,385
12,978
15,385
12,978
2,174,531
1,940,507
2,174,531
1,940,507
2,269,640
2,040,956
5,365,230
5,001,872
Other liabilities with related parties (note 12) Provision for contingencies (note 20) Employee benefit obligations (note 21) Other liabilities
Equity (note 22) Share capital Capital reserves Revenue reserves Carrying value adjustments Additional dividends to distribute
Total liabilities and equity
The accompanying notes are an integral part of these financial statements.
3
(A free translation of the original in Portuguese)
STATEMENTS OF INCOME Years ended December 31 (all amounts in thousands of reais unless otherwise stated)
Parent company
Consolidated
2011
2010
2011
2010
Revenue(note 26) Income from sales and services Construction revenue – CPC 17
-
-
4,191,414 3,842,488 348,926
4,036,765 3,660,593 376,172
Costs (note 27) Cost of sales and services Construction cost – CPC 17
-
-
Gross profit Selling expenses (note 27) General and administrative expenses (note 27) Other income (expenses), net (note 27) Equity in the earnings of subsidiary and associated companies (note 13)
(14,231)
Operating profit Finance income (note 28) Finance costs (note 28)
(3,263,462) (3,378,334) (2,914,536) (3,002,162) (348,926) (376,172)
325,914
(11,009) 27,938 229,874
927,952 (169,675) (283,030) (44,368) 7,953
658,431 (157,886) (205,983) (28,183) 6,660
311,683 14,437 (2,233)
246,803 39,490 (1,590)
438,832 132,177 (116,959)
273,039 145,367 (60,557)
12,204
37,900
15,218
84,810
Profit before taxation Income tax and social contribution on net income (note 16) Current Deferred
323,887
284,703
454,050
357,849
Profit for the year
323,887
273,516
323,887
273,516
7.92 8.72 8.72
6.69 7.36 7.36
7.92 8.72 8.72
6.69 7.36 7.36
Finance result
-
(11,187) -
(124,043) (6,120)
(103,186) 18,853
Earnings per share attributable to the stockholders of the Company during the year (expressed in R$ per share) Diluted earnings per share Common shares Preferred shares – Class A Preferred shares – Class B The accompanying notes are an integral part of these financial statements.
4
(A free translation of the original in Portuguese)
STATEMENTS OF CHANGES IN EQUITY Years ended December 31 (all amounts in thousands of reais)
Parent company/Consolidated Reserves Additional Carrying Retention dividends to value Legal of profits distribute adjustments
Share capital
Capital
At December 31, 2009 Reversal of unclaimed dividends Profit for the year Realization of deemed cost Additional dividends distributed Appropriation of profit Transfer to reserves Dividends and interest on capital (note 23)
1,017,700 -
316 -
72,619 -
638,839
-
-
-
At December 31, 2010 Reversal of unclaimed dividends Profit for the year Realization of deemed cost Additional dividends distributed Appropriation of profit Transfer to reserves Dividends and interest on capital (note 23) At December 31, 2011
Retained earnings (deficit)
Total
-
6,047 (6,047)
147,186 (3,028) -
(144,914) 205 273,516 3,028 -
1,737,793 205 273,516 (6,047)
13,676
40,221
-
-
(53,897)
-
-
-
-
12,978
-
(77,938)
(64,960)
1,017,700 -
316 -
86,295 -
679,060 40 -
12,978 (12,978)
144,158 (4,422) -
323,887 4,422 -
1,940,507 40 323,887 (12,978)
-
-
16,194
219,807
-
-
(236,001)
-
-
-
-
-
15,383
-
(92,308)
(76,925)
1,017,700
316
102,489
898,907
15,383
139,736
-
2,174,531
The accompanying notes are an integral part of these financial statements.
5
(A free translation of the original in Portuguese)
STATEMENTS OF CASH FLOWS Years ended December 31 (all amounts in thousands of reais) Parent company
Consolidated
2011
2010
2011
2010
323,887
284,703
454,050
357,849
1,535
1,529
155,700
156,655
-
-
11,558
6,836
Cash flows from operating activities Profit before taxation Adjustment Depreciation and amortization Gain or loss on the disposal of property, plant and equipment/intangible assets Equity in the earnings of subsidiary and associated companies (note 13) Unrealized income from investments and interest receivable Interest and monetary variation expenses Provision for post-employment benefit plan Provisions Changes in assets and liabilities Indemnity assets of concession Receivables Other assets Judicial deposits Trade payables Salaries and social charges Taxes payable Regulatory charges Other liabilities Employee benefit obligations
(28,015)
(7,953) (41,068) 53,532 78,990 32,618
(6,660) (45,708) 37,040 105,774 (84,406)
458 496 (586) (109) (95) 4,622 (177) -
552 (39) (643) (2,438) 24 (7,306) (29) -
(78,935) 3,416 19,120 (19,428) 53,093 (4,669) (18,337) 60,713 (17,674) (114,791)
(133,164) (37,715) (15,029) 34,039 89,458 21,116 (7,306) 55,494 9,084 (113,154)
Cash provided by (used in) operating activities Income tax and social contribution paid Interest paid
(4,641) (814) -
(2,520) (157) -
619,935 (128,295) (25,888)
430,203 (104,965) (13,909)
Net cash provided by (used in) operating activities
(5,455)
(2,677)
465,752
(27) (40,057) 17,096 92,233
(27) (20,539) 10,457 46,111
(74,387) (348,926) 157,778 16,759 3791
(53,502) (376,172) 142,915 10,457 2,379
36,002
(244,985)
(273,923)
(325,914) (9,419) -
(229,874) (20,984) -
661
311,329
Cash flows from investing activities Purchases of property, plant and equipment and intangible assets Acquisition of assets for concession Interest received Acquisition of equity investment Related parties Dividends received Net cash provided by (used in) investing activities
69,245
Cash flows from financing activities Related parties Repayment of borrowings Proceeds from borrowings Dividends paid
(58,432)
(40,748 )
(3,205) (104,407) 127,520 (58,432)
(2,863) (98,583) 57,668 (40,748)
Net cash used in financing activities
(58,432)
(40,748 )
(38,524)
(84,526)
5,358
(7,423 )
182,243
(47,120)
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year
32,522
39,945
260,252
307,372
Cash and cash equivalents at the end of the year
37,880
32,522
442,495
260,252
The accompanying notes are an integral part of these financial statements.
6
(A free translation of the original in Portuguese)
STATEMENTS OF VALUE ADDED Years ended December 31 (all amounts in thousands of reais)
Parent company
Revenues Gross sales and services Provision for impairment of trade receivables
Consolidated
2011
2010
2011
2010
-
-
6,564,437 (31,119)
6,226,921 (28,214)
Inputs purchased from third parties Cost of sales and services Materials, energy, third party services and other operating expenses
-
-
(2,381,818)
(2,742,646)
(4,277)
24,839
(604,913)
(400,243)
Gross value added
(4,277)
24,839
3,546,587
(1,535)
(1,529)
(155,700)
(5,812)
23,310
3,390,887
2,899,163
Value added received through transfer Equity in earnings of subsidiary and associated companies Dividends on investment carried at cost Finance income
325,914 2 14,435
229,874 1,325 38,165
7,953 2 132,175
6,660 1,325 144,042
Total value added to distribute
334,539
292,674
3,531,017
3,051,190
Depreciation, amortization and depletion Net value added generated by the entity
3,055,818 (156,655)
Distribution of value added Personnel costs Taxes and contributions Financing agents: Interest and foreign exchange variations Interest on capital and dividends Profits reinvested
(9,338) (612)
(7,552) (11,542 )
(483,611) (2,608,091)
(444,156) (2,274,489)
(702) (76,925) (246,962)
(64 ) (64,970 ) (208,546 )
(115,428) (76,925) (246,962)
(59,029) (64,970) (208,546)
Value added distributed
(334,539)
(292,674 )
(3,531,017)
(3,051,190)
The accompanying notes are an integral part of these financial statements.
7
(A free translation of the original in Portuguese)
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 2011 AND 2010
(All amounts in thousands of reais unless otherwise indicated)
1
Operations Centrais Elétricas de Santa Catarina S.A. (“Celesc” or the “Company”) is a public corporation based at Av. Itamarati, 160 – Itacorubi, in the city of Florianópolis, State of Santa Catarina, Brazil. It was initially listed on the stock exchange on March 26, 1973, and today its shares are traded in the São Paulo stock exchange at Level 2 of Corporate Governance of the Securities, Commodities and Futures Exchange – BM&FBOVESPA S.A., in São Paulo. The Company is controlled by the Government of the State of Santa Catarina. The main activity of the Company and of its direct and indirect subsidiaries (“Group”) is the distribution, transmission and generation of electric energy. It also operates in the piped natural gas distribution segment. These financial statements were approved by the Company’s Board of Directors on March 22, 2012, as required by Resolution 505 of the Brazilian Securities Commission - CVM, of June 19, 2006. At December 31, 2011, the main consolidated wholly-owned subsidiaries, jointly-owned subsidiaries proportionally consolidated, and associated companies are: Ownership percentage – %
2011
2010
Direct
Indirect
Direct
Indirect
Celesc Distribuição S.A. (“Celesc D”)
100.00
-
100.00
-
Celesc Geração S.A. (“Celesc G”)
100.00
-
100.00
-
-
100.00
-
100.00
Subsidiaries
Exclusive fund Celesc I – Receivables Investment Fund (“FIDC”)
8 CELESCDF11MEL.DOCX
2011 Direct
Indirect
2010 Direct
Indirect
Jointly-controlled subsidiaries 17.00
-
17.00
-
30.88
-
30.88
-
Campo Belo Energética S.A. (“Campo Belo”)
-
30.00
-
25.87
Painel Energética S.A. (“Painel”)
-
32.50
-
32.20
Rondinha Energética S.A. (“Rondinha”)
-
32.50
-
32.57
Companhia de Gás de Santa Catarina (“SCGAS”) Empresa Catarinense de Transmissão de Energia (“ECTE”)
Companhia Energética Rio das Flores (“Rio das Flores”)
-
25.00
-
23.91
Xavantina Energética (“Xavantina”)
-
40.00
-
39.33
Mangueira de Pedra
-
30.00
-
-
Dona Francisca Energética S.A. (“Dfesa”)
23.03
-
23.03
-
Usina Hidrelétrica de Cubatão S.A. (“Cubatão”)
40.00
-
40.00
-
Associated companies (not consolidated)
Concessions The subsidiary Celesc Distribuição S.A. (“Celesc D”) holds concessions valid through July 7, 2015 to distribute electric energy in 92% of the territory of the State of Santa Catarina and in the municipality of Rio Negro, in the State of Paraná (PR). The jointly-controlled subsidiary Companhia de Gás de Santa Catarina ("SCGAS") holds a concession to explore piped gas distribution services in all of the State of Santa Catarina, signed on March 28, 1994, and effective for 50 years. The jointly-controlled subsidiary Empresa Catarinense de Transmissão de Energia S.A (“ECTE”) holds a concession for transmission of electric energy dated November 1, 2000, effective for 30 years.
9
The subsidiary Celesc Geração S.A. (“Celesc G”) holds the following concessions for the generation of electric energy: Installed
Concession
capacity
expiration
Generating center
City
(MW)
date
Palmeiras – Rio dos Cedros
Rio dos Cedros/SC
24.60
11/7/2016
Bracinho – Rio Bracinho
Schroeder/SC
15.00
11/7/2016
Garcia – Rio Garcia
Angelina/SC
8.92
7/7/2015
Cedros – Rio dos Cedros
Rio dos Cedros/SC
8.40
11/7/2016
Salto – Rio Itajaí-Açu
Blumenau/SC
6.28
11/7/2016
Celso Ramos – Rio Chapecozinho
Faxinal do Guedes/SC
5.40
11/23/2021
Pery – Rio Canoas
Curitibanos/SC
4.40
7/9/2017
Caveiras – Rio Caveiras
Lages/SC
3.83
7/10/2018
Ivo Silveira – Rio Santa Cruz
Campos Novos/SC
2.60
7/7/2015
Pirai – Rio Pirai
Joinville/SC
0.78
11/7/2016
0.42 0.52 81.15
(i) (i)
São Lourenço – Rio São Lourenço Mafra/SC Rio do Peixe – Rio do Peixe Videira/SC Total installed capacity (i) The companies have no established concession terms.
2
Basis of preparation
2.1
Basis of measurement The financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets, and financial assets and financial liabilities at fair value through profit or loss. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.
2.2
Declaration of conformity
(a)
Consolidated financial statements The consolidated financial statements have been prepared and are being presented in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).
10
(b)
Parent company financial statements The parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil and are disclosed together with the consolidated financial statements. The accounting practices adopted in Brazil comprise the Pronouncements, Interpretations and Guidance issued by the Brazilian Accounting Pronouncements Committee (CPC), which have been approved by the Brazilian Securities Commission (CVM) and by the Federal Accounting Council (CFC), complementary standards issued by CVM and provisions of the corporate legislation. In the parent company financial statements, subsidiaries are recorded based on the equity accounting method. The same adjustments are made in the parent company and consolidated financial statements to reach the same profit or loss and equity attributable to the owners of the parent entity. In the case of Celesc, the accounting practices adopted in Brazil applicable to the parent company financial statements differ from IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, jointly-controlled subsidiaries and associates based on the equity accounting method, instead of cost or fair value in accordance with IFRS.
(c)
Changes in accounting policies and disclosures There were no pronouncements or interpretations of CPCs/IFRS that became effective in 2011 and which caused a significant impact on the financial statements of the Company.
(d)
Standards and interpretations not yet adopted The alterations to IFRS presented below, expected to occur after December 31, 2011 and not yet adopted in Brazil, may impact the Company's financial statements. They are still being evaluated by the Management and their possible effects are: IAS 1 - Presentation of Financial Statements – Presentation of Other Comprehensive Income items. This amendment will become effective for the annual reporting periods beginning on or after January 1, 2012. IAS 19 - Employee Benefits (Amendment) - IASB issued various amendments to IAS 19. These amendments comprise fundamental alterations, such as the elimination of the corridor approach and the concept of expected returns on plan assets as well as simple clarifications on valuations, devaluations and reformulation. This amendment will become effective for annual reporting periods beginning on or after January 1, 2013, and may be early adopted. IAS 27 - Consolidated and Parent Company Financial Statements (revised in 2011) - As a consequence of the recently-issued IFRS 10 and IFRS 12, what remains in IAS 27 is restricted to the accounting for subsidiaries, jointly-controlled entities, and associated companies in separate financial statements. This amendment becomes effective for annual reporting periods beginning on or after January 1, 2013.
11
IAS 28 - Accounting for Investments in Associates and Joint Ventures (revised in 2011) - As a consequence of the recently-issued IFRS 11 and IFRS 12, IAS 28 becomes redesignated as Investments in Associates and Joint Ventures, and describes the application of the equity method for investments in joint ventures and associated companies. This amendment will become effective for annual periods beginning on or after January 1, 2013. IAS 32 – The amendments to IAS 32 have the objective of clarifying the requirements for offsetting financial instruments of net settlement. The main clarifications are related to the meaning of a legally enforceable right, and that some gross settlement systems may be considered equivalent to net settlement. This amendment will become effective for annual reporting periods starting on or after January 1, 2014. IFRS 7 - Financial instruments: Disclosures - Requires increased disclosures related to derecognition of transfers. This amendment requires additional disclosure about financial assets that were transferred, however not derecognized, to allow the user of the financial statements to understand the relationship between the assets which were not derecognized and their corresponding liabilities. This amendment will become effective for annual periods starting on or after July 1, 2011, and, in Brazil, only after approval of the CPC. This amendment only affects disclosures and does not impact the results or financial position of the Group. IFRS 9 - Financial Instruments – Classification and Measurement - IFRS 9 as issued reflects the first phase of the IASB work to replace IAS 39 and refers to the classification and measurement of financial assets and financial liabilities, as established in IAS 39. This standard will become effective for annual reporting periods starting on or after January 1, 2015. In subsequent phases, IASB will examine the accounting for coverage and impairment of financial assets. This project should be completed in the first six-month period of 2012. IFRS 10 – Consolidated Financial Statements - IFRS 10 replaces parts of IAS 27 Consolidated and Individual Financial Statements that refer to the accounting treatment of the consolidated financial statements. IFRS 10 establishes one sole model of consolidation based on control that is applied to all entities, including special purpose entities. The alterations introduced by IFRS 10 will require that management exercises judgment in the determination of which entities are subsidiaries and, therefore, need to be consolidated by the parent company, in comparison with the requirements established by IAS 27. This standard will become effective for annual reporting periods starting on or after January 1, 2013. IFRS 11 – Joint Agreements – IFRS 11 is part of a new set of consolidation standards and other related standards, which also replace the current requirements for subsidiaries, altering IAS 28 Investments in Associates and Joint Ventures. The main alteration is that all jointly-controlled entities that are not classified as joint ventures must always be accounted for using the equity method, thus removing the option for consolidation on a pro rata basis. This standard will become effective for annual reporting periods starting on or after January 1, 2013, and its early adoption is encouraged. IFRS 12 – Disclosure of Interests in Other Entities - IFRS 12 has more extensive requirements for disclosures by entities that have interests in subsidiaries, jointly-
12
controlled entities, associated companies and/or unconsolidated entities, demonstrating the effects of the interest in the financial condition, financial performance and cash flows of the entity. This pronouncement will become effective for annual reporting periods starting on or after January 1, 2013. IFRS 13 – Fair Value Measurement – IFRS 13 defines fair value, establishes a conceptual structure to measure fair value and determines the requirements for disclosure about measurement of fair value. The main change was the definition of fair value as an “exit price” valuation of the transaction on the measurement date. This amendment requires that the entity uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available, maximizing the use of significant observable inputs and minimizing the use of non-observable inputs. To comply with the amendment, the entity should make minimum disclosures for each class of asset and/or liability, of the process of valuation used by it for the measurements and a narrative description of the sensitivity of the measurements. This standard will become effective for annual reporting periods starting on or after January 1, 2013, and may be early adopted.
2.3
Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
2.3.1 Critical accounting estimates and assumptions Based on assumptions, the Group makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:
13
Fair value of other financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses judgment to select among a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The Group has used discounted cash flow analysis to calculate the fair value of various available-for-sale financial assets that are not traded in active markets. 2.3.2 Critical judgments in applying the entity’s accounting policies Impairment of available-for-sale financial assets The Group follows the guidance of CPC38/IAS 39 to determine when an available-for-sale financial asset is impaired. This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the financial health of and short-term business outlook for the investee, including factors such as: industry and sector performance, changes in technology and operational and financing cash flow. The Group did not recognize in equity the reduction to fair value of taxes on income, employee benefits, and impairment of goodwill since their effects were considered immaterial. 3
Summary of significant accounting policies The main accounting practices adopted in the preparation of the financial statements are applicable both to the parent company financial statements (CPC) and to the consolidated financial statements (IFRS), except as described in note 2.2, item "b".
3.1
Basis of consolidation The following accounting policies were applied in the preparation of the consolidated financial statements.
(i)
Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity instruments issued by the Group. The consideration transferred includes the fair value of assets or liabilities resulting from a contingent consideration arrangement, when applicable. Acquisition-related costs are
14
expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the fair value of the acquiree’s identifiable net assets. The measurement of the non-controlling interest is determined in each acquisition made. The excess of the consideration transferred plus the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. For acquisitions in which the Group attributes fair value to non-controlling interests, the determination of goodwill also includes the value of any non-controlling interest in the acquiree, and the goodwill is determined considering the participations of the Group and non-controlling interests. When the consideration transferred is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income. Transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (ii)
Investments in jointly-controlled entities The financial statements of jointly-controlled entities are consolidated proportionately to the Company’s interest and the balance of the investments may be reduced by the recognition of an impairment loss. The acquisition cost of an investment in excess of the fair value of assets, liabilities and contingent liabilities of the jointly-controlled entity on the investment’s acquisition date is recorded as goodwill. This goodwill is added to the amount of the investment and its recovery is analyzed annually as an integral part of the investment. If the acquisition cost is lower than the fair value of the net assets identified, the difference is recorded as gain in the statement of income in the period the acquisition occurs. The dividends received from these companies are recorded as a reduction in the amount of the investments. Gains and losses from transactions with jointly-controlled entities are eliminated proportionately to the Company’s investment, with a corresponding entry to the amount of the related investment.
15
(iii)
Associated companies Investments in associates are recorded on the equity method of accounting. Under this method, the investments are recognized in the consolidated balance sheet at cost and adjusted periodically by the Company’s equity in the results of the investee and for other variations in the net assets acquired. In addition, the investments may also be adjusted through the recognition of impairment losses. The Group’s share of its associates’ post-acquisition profits or losses is recognized in the statement of income, and its share of post-acquisition reserve movements is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed when necessary to ensure consistency with the policies adopted by the Group. If the shareholding in an associate is reduced, but a significant influence is maintained, only a proportional part of the amounts previously recognized in other comprehensive income will be reclassified to the statement of income, where appropriate.
3.2
Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Board, which is the chief operating decision-maker responsible for allocating resources and assessing performance of the operating segments, and for making the Group’s strategic decisions (note 25).
16
3.3
Foreign currency translation
(a)
Functional and presentation currency The parent company and consolidated financial statements are presented in reais, which is the functional currency of the Company and also the presentation currency of the Group; all amounts are rounded to thousands of reais, unless otherwise stated.
(b)
Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or of valuation if items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities in foreign currencies are recognized in the statement of income.
3.4
Cash and cash equivalents Cash and cash equivalents includes cash on hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less, readily convertible into a known amount of cash and with immaterial risk of change in value.
3.5
Financial instruments (i)
Classification
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are held for active and frequent trading and are classified as current assets. Gains or losses from variations in the fair value of financial assets at fair value through profit or loss are presented under “Finance result” in the period they occur.
17
Loans and receivables This category comprises the loans and receivables classified as non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. The Company’s loans and receivables include receivables from infrastructure indemnities arising from energy and gas transmission and distribution public service concessions; loans to associates; trade accounts receivable; other receivables and cash and cash equivalents, except for short-term investments. Loans and receivables are carried at amortized cost using the effective interest rate method. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of them within 12 months of the balance sheet date. (ii)
Recognition and measurement
Regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the statement of income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred; in this latter case, provided the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest rate method. Gains or losses from variations in the fair value of financial assets at fair value through profit or loss are presented under “Finance result” in the period they occur. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in carrying value adjustments. When securities classified as available for sale are sold or become impaired, the accumulated fair value adjustments recognized in equity are included in the statement of income as "Finance result".
18
The fair value of quoted investments is obtained from current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes the fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. Based on this analysis, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, is removed from equity and recognized in the statement of income. (iii)
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. (iv) (a)
Impairment of financial assets
Assets carried at amortized cost The Group assesses at the end of each period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
19
(i)
significant financial difficulty of the issuer or debtor;
(ii)
a breach of contract, such as a default or delinquency in interest or principal payments;
(iii)
the Group, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower a concession that it would not otherwise consider;
(iv)
it becomes probable that the borrower will enter bankruptcy or other financial reorganization;
(v)
the disappearance of an active market for that financial asset because of financial difficulties; or
(vi)
observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: ● adverse changes in the payment status of borrowers in the portfolio;; ● national or local economic conditions that correlate with defaults on the assets in the portfolio. The Group first assesses whether objective evidence of impairment exists. The amount of any loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.
(b)
Assets classified as available for sale For debt securities, the Group uses the criteria referred to in (a) above to assess the objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of income. Impairment losses recognized in the statement of income on equity instruments are not reversed through the statement of income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases
20
and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the statement of income. 3.6
Trade receivables Trade receivables are amounts due from customers for the sale and supply of billed energy, estimates of unbilled energy sold and the sale of natural gas in the normal course of the Group’s activities. Trade receivables are recognized at the amount billed less a provision for impairment when there is an objective evidence that the Company will not be able to collect all of the amounts in accordance with their original maturities. The amount of the provision is the difference between the carrying amount and the recoverable amount. Amounts receivable in installments, derived from the sale of energy, are recorded together with the related financial charges, calculated up to the date of the negotiation, as determined by the National Electric Power Agency (ANEEL). Provision is made for expected losses on past due amounts.
3.7
Inventories Inventories are comprised of materials for the maintenance of operations, accounted for in current assets at the average cost of the purchases.
3.8
Current and deferred income tax and social contribution on net income The income tax and social contribution expenses for the year comprise current and deferred taxes. These taxes are recognized in the statement of income, except to the extent that they relate to items recognized in comprehensive income or directly in equity. In this case, the taxes are also recognized in comprehensive income or directly in equity. The current income tax and social contribution are calculated on the basis of the enacted tax legislation. Management periodically evaluates positions taken by the Group in income tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred taxes are recognized on the liability method in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred taxes are determined based on the tax legislation in effect on the balance sheet date and at rates which are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized.
21
Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except in the case of a deferred tax liability when the timing of the reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 3.9
Judicial deposits Judicial deposits are monetarily restated and presented as a deduction from the amount of the corresponding liability recorded when there is no possibility of redeeming the deposits, unless a favorable outcome for the Group.
3.10
Property, plant and equipment Property, plant and equipment comprises mainly reservoirs, dams, water mains, buildings, civil constructions and improvements. The assets are initially recognized at fair value and subsequently accounted for at this historical value, less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Cost includes expenditures that are directly attributable to the acquisition of an asset. The cost of assets constructed by the Company includes: The cost of materials and direct labor; Any other costs to place assets in the location and condition necessary for them to be able to operate as intended by management; and The costs of loans related to qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of replaced parts or items is derecognized. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. When parts of a property, plant and equipment item have different useful lives, they are recorded as individual items (main property, plant and equipment components). Gains and losses on sale of a property, plant and equipment item (calculated as the difference between the proceeds from sale and the carrying amount), are recognized in other operating income/expenses in the statement of income. Property, plant and equipment items are depreciated using the straight-line method for the year based on the economic useful life estimated for each component. Depreciation starts as from the date of installation of the asset and when it is available for use, or in the event of assets
22
constructed internally, on the day the construction is concluded and the asset is available for use. Land is not depreciated. The estimated useful lives for the current year result in the following depreciation rates: Annual percentages Buildings and construction Reservoirs, dams and water mains Machinery and equipment
2% 2% to 4% 2.5% to 5.9%
The depreciation methods, useful lives and residual values are reviewed at the end of each financial year and any adjustments are recognized prospectively as a change in accounting estimates. 3.11
Intangible assets Intangible assets are stated on the following bases: o At acquisition and/or construction cost, including capitalized interest during the construction period, if applicable, in the case of qualifying assets. Depending on the nature of the asset and the time of its acquisition, cost refers to the historical acquisition cost or to the amount previously recorded in accordance with Brazilian practices adopted prior to the adoption of ICPC (Interpretation of Accounting Pronouncement) 01. o Special obligations relating to electric energy public utility concessions, which comprise the amounts received from customers as contributions to the execution of expansion projects necessary to meet the demand for energy, are recorded in the financial statements as a reduction of the intangible assets. Concession agreements The electric energy distribution and natural gas supply infrastructures used by the Group, that are subject to concession agreements, are considered to be controlled by the concession authority when: o The concession authority controls or regulates which services the concessionaire must provide with the infrastructure, to whom they must be provided, and their prices; o The concession authority controls, through ownership, usufruct or otherwise, a significant residual share in the infrastructure at the end of the concession term; The rights over the infrastructures operated under a concession are accounted for as intangible assets when the Group has the right to bill for the use of the infrastructure assets and the users (consumers) are charged for the Group’s services.
23
The fair value of the construction and other work performed on the infrastructure represent the intangible asset’s cost and is recognized as revenue upon the construction of the infrastructure, provided this work generates future economic benefits. The intangible assets of concession agreements are amortized on the straight-line method over the shorter of the term of the contract or the useful life of the asset. Goodwill Goodwill represents the excess of the cost of an acquisition over the net fair value of the assets and liabilities of the acquired entity. Goodwill on acquisitions of subsidiaries is included in “intangible assets”. If the acquirer determines negative goodwill, it must record the amount as a gain in the statement of income on the date of acquisition. Goodwill is tested annually to identify indication of impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed in subsequent periods. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment. Computer software Computer software licenses are capitalized and amortized over their estimated useful lives, at the rates stated in note 15. Costs associated with ongoing development or maintenance of computer software programs are recognized as an expense as incurred. Costs that are directly attributable to identifiable and unique software products controlled by the Company that will probably generate economic benefits greater than the costs for more than one year are recognized as intangible assets. Direct costs include the remuneration of the software development team and the appropriate portion of the related general expenses. Computer software development costs recognized as assets are amortized on the straight-line method over the useful lives of the software. 3.12
Impairment of assets Property, plant and equipment and other non-current assets, including goodwill and intangible assets, are tested annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In this event, the recoverable amount is calculated to verify any loss. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For purposes of
24
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. 3.13
Trade payables Trade payables are obligations to pay for the supply of energy, natural gas, charges on the use of the electric energy system, materials and services acquired or used in the normal course of business, and are classified as liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. In practice, they are usually recognized at the amount of the related invoice.
3.14
Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the settlement value is recognized in the statement of income over the period of the borrowings using the effective rate interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
3.15
Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.
3.16
Employee benefits Pension obligations The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, adjusted for actuarial gains or losses and past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The estimated future cash outflow is discounted to its present value using the interest rates of public securities with maturity terms approximating those of the related pension obligation. Actuarial gains and losses arising from changes in actuarial assumptions and amendments to the pension plans are charged or credited to profit or loss over the average remaining service period of the related employees. For defined contribution plans, the Company pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis. The Company has no further obligations once the contributions have been paid. Regular contributions comprise
25
the periodic net costs for the period in which they are due and, thus, they are included in personnel costs. Other post-employment obligations The Company provides post-retirement healthcare benefits to their retirees. The entitlement to these benefits is conditional on the employee remaining in service up to retirement age. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. These obligations are valued annually by independent qualified actuaries. The Company also offers other benefits, such as: Voluntary Redundancy Program with Incentives (PDVI), Savings Fund Plan (for all active employees and for those retired due to permanent disability), Disabled Allowance, Funeral Grant and Minimum Benefit for Retirement, which is always paid when the employment relationship terminates before the normal date of retirement. Termination benefits The Company recognizes termination benefits when it is demonstrably committed to termination of the employment, in accordance with a detailed plan without the possibility of retraction, as a result of a voluntary termination offer. Termination benefits are paid whenever employment is terminated before the normal retirement date, that is, whenever an employee accepts voluntary termination in exchange for these benefits. Profit sharing A provision for profit sharing is recognized monthly and the accumulated amount is adjusted at the end of the year, in accordance with the actual achievement of the goals established between the Group and its employees. 3.17
Other current and non-current assets and liabilities These are stated at their realizable amounts (assets) and at known or determinable amounts plus, when applicable, the corresponding charges and monetary variations incurred (liabilities).
26
3.18
Distribution of dividends and interest on capital The distributions of dividends and interest on capital are recognized as a liability on the date the dividends are approved by the Company’s stockholders. The Company’s bylaws establish that at least 25% of the annual profits be distributed as dividends and, consequently, the Company recognizes a provision at year-end in the amount of the minimum dividend not distributed during the year up to the limit of the mandatory dividend. Amounts exceeding the minimum mandatory are provisioned only when approved by the stockholders in General Meeting. The tax benefit of interest on capital is recognized directly in the statement of income.
3.19
Share capital Common and preferred shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
3.20
Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale and supply of billed energy, estimates of energy sold but not billed, and sale of natural gas in the normal course of the Group’s activities. Revenue is shown net of taxes, returns, rebates and discounts, and after eliminating sales within the Group. The Group recognizes revenue when: (i) the amount of revenue can be reliably measured; (ii) it is probable that future economic benefits will flow to the entity, and (iii) when specific criteria have been met for each of the Group’s activities, as described below. The amount of revenue is not considered reliably measured until all sales-related contingencies have been settled. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Sale of electric energy Billed and unbilled revenue corresponding to the sale of electric energy, as well as to specified adjustments and additions. Electric energy network availability Revenue from making available the concessionaire’s distribution system. Supply of electric energy Revenue from the supply of electric energy to resellers, as well as specified adjustments and additions.
27
Distribution of piped natural gas Revenue from the distribution of piped natural gas. Construction revenue Revenue from infrastructure construction arising from the Group’s concession agreements, recognized based on the proportion of the investment plan of each concessionaire. Because the construction activity is outsourced to unrelated parties, the Group considers the construction margin insignificant and, therefore, recognizes construction revenue in an amount equal to construction costs. Interest income Interest income is recognized on the accrual basis, using the effective interest rate method. When a loan or receivable instrument is impaired, the Group reduces the carrying amount to its recoverable amount, which corresponds to the estimated future cash flow discounted at the original effective interest rate of the instrument. Subsequently, interest is incorporated into loans and receivables against interest income. This interest income is calculated at the same effective interest rate used to determine the recoverable amount, that is, the original rate of the instrument. Dividend income Dividend income is recognized when the right to receive payment is established. 4
Financial risk management
4.1
Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.
(a)
Market risk
(i)
Foreign exchange risk The Group has no receivables, borrowings or payables in foreign currencies.
28
(ii)
Cash flow and fair value interest rate risk This risk arises from the possibility of the Group incurring losses due to fluctuations in interest rates or other debt indexing factors that could increase its interest expense on borrowings obtained in the market or that could reduce interest income on the Group’s financial investments. The Group has no derivative agreements to cover this risk.
(b)
Credit risk This risk arises from the possibility of the Group incurring losses resulting from difficulty in receiving the amounts billed to consumers, concessionaires and permittees. To reduce this risk and assist in its management, the Company monitors consumer receivables and carries out various collection actions, including the interruption of supply if the consumer fails to make payment. In the case of consumers, credit risk is low in view of the large dispersion of the portfolio.
(c)
Liquidity risk Cash flow forecasting is performed in the operating areas of the Group and aggregated by the finance department. This department monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. Surplus cash held by the operating entities over and above the balance required for working capital management is transferred to the Group Treasury. Group Treasury invests surplus cash in interest-earning current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient leeway as determined by the above-mentioned forecasts. The table below analyzes the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Consolidated Less than one year
Between one and five years
Over five years
At December 31, 2011 Borrowings - as per balance sheet Borrowings - undiscounted Trade payables
241,298 252,246 433,503
110,031 137,362 -
19,769 30,810 -
At December 31, 2010 Borrowings - as per balance sheet Borrowings - undiscounted Trade payables
109,720 122,612 380,410
190,611 266,005 -
20,010 34,873 -
29
(d)
Operating risks
(i)
Electric energy shortages The Brazilian Electric Energy System is predominantly supplied by hydroelectric generation plants. A long period of scarce rains during the wet season reduces the water volume in the reservoirs of these plants, resulting in higher purchase cost of electric energy in the short-term market and increase in the amounts of system charges as a result of the delivery from thermoelectric plants. In an extreme situation, an energy rationing program could be adopted, which would imply revenue reduction. However, considering the current levels of the reservoirs and the latest simulations made, the Brazilian Electric Power System Operator (ONS) does not foresee a new rationing program in the next few years.
(ii)
Non-renewal of concessions The Group has concessions to explore electric energy generation and distribution services, and expects that they will be renewed by ANEEL and/or the Ministry of Mines and Energy. If the concession are not renewed by the regulatory agencies or are renewed with the imposition of additional costs to the Company – “onerous concession”, the current profitability and activity levels will change.
(c)
Additional sensitivity analysis required by the CVM The sensitivity analysis table of the financial instruments shown below describes the risks that could generate material effects on the Company’s profit, with the most probable scenario (scenario I) according to management’s evaluation, considering a three-month horizon when the next financial information containing such analysis will be disclosed. Two other scenarios are also shown, as determined by the CVM through Instruction No. 475/08, to present a 25% and 50% deterioration in the risk variable considered, respectively (scenarios II and III). The sensitivity analysis presented considers changes with respect to a certain risk, maintaining constant all other variables, associated to other risks, on the balances at December 31, 2011.
Assumptions
Effects on profit and loss accounts
Probable scenario Balances (Scenario I ) (Scenario II ) (Scenario III)
Current marketable securities Non-current receivables Borrowings (-)
15,062 121,430 (371,098)
9.28 1,398 11,269 (34,438) 7.60
9.50
11.40
Indemnity asset (concessions in service)
1,664,261
126,484
158,105
189,726
CDI - %
Regulatory WAAC %
11.60 1,747 14,086 (43,047)
13.92 2,097 16,903 (51,657)
30
The sensitivity analysis of the balances at December 31, 2010, for comparison purposes, was as follows:
Assumptions
Effects on profit and loss accounts
Probable scenario Balances (Scenario I ) (Scenario II ) (Scenario III)
Current marketable securities Non-current receivables Borrowings
13,498 215,791 (320,341)
12.20 1,647 26,326 (39,081)
15.25 2,058 32,908 (48,852)
18.30 2,470 39,490 (58,622
Indemnity asset (concessions in service)
1,664,261
9.95 180,607
12.44 225,804
14.93 271,001
CDI - %
Regulatory WAAC - %
4.2
Capital management The Company’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to stockholders, return capital to stockholders, issue new shares or sell assets to reduce, for example, debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt as a percentage of total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus net debt.
2011 Total borrowings (note 17) Less: cash and cash equivalents (note 7)
2010
371,098 (442,495)
320,341 (260,252)
(71,397)
60,089
Total equity
2,174,531
1,940,507
Total capital
2,103,134
2,000,596
3.28
3.00
Net debt
Gearing ratio - %
31
4.3
Fair value estimation The carrying values of trade receivables and payables, less impairment provisions, are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The Group adopted CPC 40/IFRS 7 for financial instruments that are measured in the balance sheet at fair value. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: .
Quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1).
.
Information, other than quoted prices included within level 1, adopted by the market for the asset or liability, either directly (that is, such as prices) or indirectly (that is, derived from prices) (level 2).
.
Inputs for the assets or liabilities that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the Group’s assets that are measured at fair value at December 31, 2011. The Group does not have liabilities measured at fair value on that base date. Consolidated Level 1
Level 3
Total balance
Assets Financial assets at fair value through profit or loss Government securities Shares Available-for-sale financial assets Other
15,062 -
132,796
15,062 132,796
-
217
217
Total assets
15,062
133,013
148,075
The following table presents the Group’s assets that are measured at fair value at December 31, 2010. The Group does not have liabilities measured at fair value on that base date. Consolidated Level 1
Level 3
Total balance
Assets Financial assets at fair value through profit or loss Government securities Shares Available-for-sale financial assets Other
13,498 -
125,439
13,498 125,439
-
217
217
Total assets
13,498
125,656
139,154
32
The fair value of financial instruments traded in active markets (such as trading and availablefor-sale securities) is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in Level 1. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are adopted by the market, the instrument is included in Level 2. If one or more of the significant inputs is not based on market data, the instrument is included in Level 3. Specific valuation techniques used to value financial instruments include:
5
.
quoted market prices or dealer quotes for similar instruments;
.
other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
Financial instruments by category Consolidated
At December 31, 2011 Assets Cash and cash equivalents Government securities Shares Indemnity assets (concessions) Trade receivables Other
Liabilities Trade payables Borrowings
Assets at fair value through profit or loss
Loans and Available for receivables sale
-
Total
15,062 132,796 -
442,495 2,007,406 980,239 -
217
442,495 15,062 132,796 2,007,406 976,266 217
147,858
3,430,140
217
3,574,242
-
433,503 371,098
-
433,503 371,098
-
804,608
-
804,608
33
Consolidated
At December 31, 2010 Assets Cash and cash equivalents Government securities Shares Indemnity assets (concessions) Trade receivables Other
Liabilities Trade payables Borrowings
6
Assets at fair value through profit or loss
Loans and receivables
Available for sale
13,498 125,439 -
260,252 1,815,145 1,005,517 -
217
260,252 13,498 125,439 1,815,145 1,005,517 217
138,937
3,080,914
217
3,220,068
-
380,410 320,341
-
380,410 320,341
-
700,751
-
700,751
Total
Credit quality of financial assets The credit quality of financial assets is assessed by reference to internal classification of credit limits: Consolidated
Trade receivables Group 1 Group 2 Group 3 Group 4
. . . .
2011
2010
461,769 360,487 83,285 456,104
522,951 362,934 99,972 369,912
1,361,645
1,355,769
Group 1 - Customers with no payment delays Group 2 - Customers with average delay of between 1 and 30 days in the last year. Group 3 - Customers with average delay of between 31 and 90 days in the last year. Group 4 - Customers with average delay over 90 days in the last year.
All other financial assets held by the Group, especially current accounts and financial investments, are considered as high quality and present no indications of impairment.
34
7
Cash and cash equivalents Parent company
Cash at bank and on hand Marketable securities (*)
Consolidated
2011
2010
2011
2010
192 37,688
119 32,403
31,036 411,459
37,425 222,827
37,880
32,522
442,495
260,252
(*) Marketable securities have high liquidity, are promptly convertible into a known amount of cash, and are not subject to significant risk of change in value. These securities are bank deposit certificates (CDBs), bearing on average interest at 100% of the interbank deposit certificate (CDI) interest rate.
8
Marketable securities Parent company
Held for trading Government securities Casan shares (i) Available for sale Other investments
(-) Current Non-current
(i)
Consolidated
2011
2010
2011
2010
132,796
125,439
15,062 132,796
13,498 125,439
217
217
217
217
133,013
125,656
148,075
139,154
-
-
(15,062)
(13,498)
133,013
125,656
133,013
125,656
Companhia Catarinense de Águas e Saneamento (“Casan”) The Company owns 55,364,810 Common Shares (ON) and 55,363,250 Preferred Shares (PN), representing 15.48% of Casan’s share capital. As it does not have significant influence in Casan the Company measured its equity interest at fair value. Since Casan’s shares are not frequently traded in the stock exchanges, the Company decided to establish, based on consistent methods accepted by the market, a new criterion of valuation for this investment, adopting the discounted cash flow method. Accordingly, the Company determined Casan’s fair value based on the economic and financial information of the investee.
35
The historical cost of Casan shares is R$ 110,716, and the fair value on the transition date to the new accounting practices (January 1, 2009) was estimated at R$ 108,925. In 2010 and 2011, the gains on changes in fair value, amounting to R$ 16,514 and R$ 7,357 respectively, were recognized in the Company's finance result, and the balance of the investment was R$ 132,796 at December 31, 2011.
9
Trade receivables Consumers, concessionaires and permitees Consolidated Total Overdue for more than 90 days
2011
2010
58,979
69,196
303,686
283,980
82,728
247,044
637,392
666,093
116,468
22,279
60,181
198,928
178,182
Rural
27,204
4,871
9,149
41,224
40,263
Government
25,024
3,494
33,748
62,266
70,983
Public lighting
14,190
148
14,173
28,511
28,548
9,918
57
944
10,919
9,669
675,935
172,556
434,435
1,282,926
1,277,718
49,418 1,365
5,820 4,465
3,054 14,597
58,292 20,427
56,098 21,953
50,783
10,285
17,651
78,719
78,051
726,718
182,841
452,086
1,361,645
1,355,769
-
-
-
(381,406)
-
-
-
980,239
(-) Current
-
-
-
(858,809)
Non-current
-
-
-
121,430
Balances not yet due
Past due up to 90 days
Residential
175,511
Industrial
307,620
Commerce, services and other
Consumers
Utilities
Supply to other concessionaires Concessionaires and permitees Other receivables
Provision for impairment of trade receivables (a)
(350,252) 1,005,517 (789,726) 215,791
36
Provision for impairment of trade receivables The provision for impairment of trade receivables, by consumer class, is as follows: Consolidated 2011
2010
69,184 196,408 55,533 5,154 33,484
57,558 179,356 51,584 4,725 35,243
13,209 925 1,454 6,055
14,139 936 656 6,055
381,406
350,252
Consumers Residential Industrial Commerce, services and other Rural Government Public lighting Utilities Concessionaires and permitees Other
The changes in the provision for impairment of trade receivables are as follows: Consolidated Amount Balance at December 31, 2009 Provision recorded in the year Receivables written off
322,038 49,780 (21,566)
Balance at December 31, 2010 Provision recorded in the year Receivables written off
350,252 56,432 (25,278)
Balance at December 31, 2011
381,406
In 2009, Celesc Distribuição S.A. implemented a debt recovery plan for companies in the textile segment, among them Buettner S.A., Companhia Industrial Schlösser S.A. and Fábrica de Tecidos Carlos Renaux S.A. In 2011, those companies entered into a court supervised reorganization. Buettner S.A. and Companhia Industrial Schlösser S.A. had their reorganization plans approved in 2011. Based on this, the legal advisors of Celesc Distribuição S.A. issued their opinion about the probability of recovery as follows:
37
As regards Buettner S.A., Celesc Distribuição S.A. recorded a provision for the total outstanding amount (R$ 18,231). In relation to Companhia Industrial Schlösser S.A. the court supervised reorganization plan should ensure that Celesc Distribuição S.A. receives the total debt of R$ 16,888. Because the judicial plan of Fábrica de Tecidos Carlos Renaux S.A. was not approved and the legal advisors understand that Celesc Distribuição S.A. is the main creditor, the probability of loss is remote; therefore no provision was made against the total debt of R$ 42,992. 10
Indemnity assets (concessions) Consolidated
Concession assets – Distribution of energy Concession assets – Transmission of energy
(-) Current Non-current
2011
2010
1,943,940 63,466
1,751,392 63,753
2,007,406
1,815,145
(20,303)
(18,894)
1,987,103
1,796,251
The distribution and transmission concession agreements of the Group are within the scope of Technical Interpretation ICPC 01 (IFRIC12), which deals with the accounting for concessions. Concession assets refer to receivables from the concession authority (Federal Government), in which the Company has an unconditional right, established by contract, to receive cash at the end of the concession as indemnity arising from electric energy transmission and distribution services concession agreements, for investments in infrastructure not recovered through tariffs. These financial assets are classified as “receivables”. 11
Taxes recoverable or for offset Parent company
ICMS PIS/COFINS IRPJ and CSLL Other
(-) Current Non-current
Consolidated
2011
2010
2011
2010
14,210
12,786 -
46,556 372 38,121 1,985
41,079 384 20,008 1,429
14,210
12,786
87,034
62,900
(14,210) -
(12,786) -
(73,337) 13,697
(47,405) 15,495
38
Key: . Valued-added Tax on Sales and Services (ICMS). . Social Integration Program (PIS). . Tax for Social Security Financing (COFINS). . Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL). 12
Related-party transactions
(a)
Transactions and balances Parent company
At December 31, 2010 Government of the State of Santa Catarina Loan to the State Treasury (i) Underground Network (ii) SC Parcerias S.A.(iii)
At December 31, 2011 Government of the State of Santa Catarina Loan to the State Treasury (i) Underground Network (ii) SC Parcerias S.A.(iii)
Dividends payable
Other receivables from related parties
Finance income
14,855 -
36,702 4,262 67,854
4,467 8,244
14,855
108,818
12,711
15,725 -
9,532 4,262 51,094
1,725 7,241
15,725
64,888
8,966
39
Consolidated
At December 31, 2010 Government of the State of Santa Catarina Loan to the State Treasury (i) Underground Network (ii) SC Parcerias S.A.(iii) Celos
At December 31, 2011 Government of the State of Santa Catarina Loan to the State Treasury (i) Underground Network (ii) SC Parcerias S.A.(iii) Celos
Taxes payable*
Taxes for offset*
Dividends payable
Trade receivables
Other receivables from related parties
Other liabilities to Taxes – related revenue parties deductions *
45,944 -
38,403 -
14,855 -
7,667 -
36,702 4,262
-
-
-
-
-
67,854 -
45,944
38,403
14,855
7,667
47,236 -
46,491 -
15,725 -
47,236
46,491
15,725
Sales revenue**
Finance income
1,187,338 -
64,318 -
4,467 -
21,318
-
-
8,244 -
108,818
21,318
1,187,338
64,318
12,711
7,673 -
9,532 4,262 51,094 -
18,113
1,264,560 -
46,226 -
1,725 7,241 -
7,673
64,888
18,113
1,264,560
46,226
8,966
*Operations involving taxes refer to ICMS on sales of energy and are carried out based on specific legislation. **Sales revenue refers to the sale of energy to the State Government made on conditions similar to those used in transactions with unrelated parties, considering that the price of the energy is defined by ANEEL through a resolution referring to the annual tariff adjustment of the Company.
(i)
Loan to the State Treasury The amounts recorded refer to loans granted by Celesc to the State Treasury of the Government of the State of Santa Catarina between 1985 and 1986, restated based on the Federal Treasury Bond (OTN), Federal Treasury Bonus (BTN) and Fiscal Reference Unit (UFIR) until the extinction of these indexes in 2000, and subsequently subject to interest of 10% p.a. through December 31, 2010, capitalized monthly, in accordance with an agreement signed with the State of Santa Catarina on April 22, 1988. On January 31, 2011, the Company signed an agreement for debt extinguishment with the Government of the State of Santa Catarina, by which settlement of loans granted by the Company to the State Treasury of the Government of the State of Santa Catarina occurs through the offset of dividends to be proposed based on future profits. The debt balance is subject to interest of 10% p.a., capitalized on a monthly basis. Therefore, the amount of R$ 36,702 established in the above agreement is being settled with the retentions of dividends made in 2009 and 2010. The amount will be fully settled on February 29, 2012 and June 28, 2012, with the retention of dividends for 2011, otherwise payable to the State of Santa Catarina, amounting to R$ 4,718 and R$ 5,139.
40
(ii)
Underground network In 1995, Celesc signed an agreement for technical cooperation with the Government of the State of Santa Catarina and the Municipal Government of Florianópolis to implement an electric energy underground network in downtown Florianópolis. The outstanding amount refers to the amount to be transferred by the State of Santa Catarina to Celesc and is currently being renegotiated.
(iii)
SC Parcerias S.A. (“SC Parcerias”) This receivable arose from a Debt Recognition, Assumption and Installment Payment Document signed on April 30, 2008, and was payable in 24 monthly installments, as from October 31, 2008. With the signature of the 1st Amendment to the Debt Recognition, Assumption and Installment Payment Document in January 2011, the remaining amount of the debt was renegotiated for settlement in 42 monthly installments, with the first payment on January 31, 2011. The debt balance is subject to interest at the rate of 1% per month.
(b)
Key management remuneration Key management includes the directors and officers. The remuneration for their services was as shown below: Parent company
Management Fees Profit sharing Social charges Other expenses
Consolidated
2011
2010
2011
2010
3,428 863 -
2,302 77 347 150
6,141 573 1,496 93
5,016 228 776 263
4,291
2,876
8,303
6,283
41
13
Equity in the earnings of subsidiary and associated companies Parent company
Consolidated
2011
2010
2011
2010
1,484,444 306,346
1,268,061 260,870
-
-
1,790,790
1,528,931
-
-
77,293 38,346
82,990 39,393
-
-
115,639
122,383
-
-
25,844 3,253 (3,253)
22,942 3,253 (3,253)
25,844 3,253 (3,253)
22,942 3,253 (3,253)
25,844
22,942
25,844
22,942
1,932,273
1,674,256
25,844
22,942
Subsidiaries Celesc D Celesc G
Jointly-controlled entities SCGAS ECTE
Associated companies Dfesa Cubatão (-) Provision for investment losses
(a)
Information on investments Parent company Thousands of shares held by the Company Common
Company's interest In the share In the voting capital capital
Adjusted net Adjusted profit/loss equity Total assets
At December 31, 2011 Celesc D Celesc G ECTE SCGás Dfesa Cubatão
630,000 43,209 13,001 45,476 153,382 1,600
100% 100% 30.88% 17% 23.03% 40%
100% 100% 30.88% 51% 23.03% 40%
1,484,444 306,346 124,158 176,147 112,215 1,656
4,497,271 395,301 233,504 311,553 370,508 5,530
287,410 13,805 30,008 43,988 34,532 (27)
At December 31, 2010 Celesc D Celesc G ECTE SCGás Dfesa Cubatão
630,000 35,000 13,001 45,476 153,382 1,600
100% 100% 30.88% 17% 23.03% 40%
100% 100% 30.88% 51% 23.03% 40%
1,251,609 260,870 222,374 201,017 99,616 1,683
4,154,867 350,393 227,942 343,379 256,889 5,550
180,379 22,043 29,587 80,778 40,308 (8)
42
Consolidated Thousands of shares held by the Company Common At December 31, 2011 Dfesa Cubatão At December 31, 2010 Dfesa Cubatão
(b)
Company's interest In the share In the voting capital capital
Adjusted net Adjusted profit/loss equity Total assets
153,382 1,600
23.03% 40%
23.03% 40%
112,215 1,656
370,508 5,530
34,532 (27)
153,382 1,600
23.03% 40%
23.03% 40%
99,616 1,683
256,889 5,550
40,308 (8)
Changes in investments Parent company
Balance at December 31, 2009 Capital increases Dividends
Celesc D
Celesc G
ECTE
SCGAS
Dfesa
Total
1,166,236
244,319
22,224
81,940
19,579
1,534,298
(3,381)
(102,786)
1,258
13,079 (5,492)
(2,884)
(11,214)
180,382
22,043
6,974
13,732
6,744
229,875
1,268,061
260,870
39,393
82,990
22,942
1,674,256
5,057
35,000
-
-
-
40,057
(76,084)
(3,329)
(10,315)
(11,704)
(5,051)
(106,483)
Amortization of goodwill Equity in the earnings
Balance at December 31, 2010 Capital increases (*) Dividends Amortization of goodwill Equity in the earnings
Balance at December 31, 2011
14,337
(79,815)
(1,468)
(1,468)
-
-
-
(1,471)
-
(1,471)
287,410
13,805
9,268
7,478
7,953
325,914
1,484,444
306,346
38,346
77,293
25,844
1,932,273
(*) The Extraordinary General Meeting of Celesc Geração approved a capital increase of R$ 63,000, as proposed at the Board of Directors' Meeting of August 11, 2011. Up to December 31, 2011, R$ 35,000 of that amount had been paid up.
43
14
Property, plant and equipment
(a)
Analysis of the balance Consolidated
Balance at December 31, 2009 Additions
Land
Reservoirs dams and water mains
Buildings and construction
Machinery and equipment
20,162
173,561
6,744
51,202
14,960
2,425
269,054
40
71
13,597
265
25,271
4,087
43,331
-
(5,800) 306,424
Disposals
Total
(161)
Depreciation
-
Balance at December 31, 2010
(2,353)
20,202
Cost Accumulated depreciation Balance at December 31, 2010
171,279
(286) 20,055
(3,158)
(3)
(161)
48,309
40,067
6,512
20,202
185,112
26,611
67,324
40,323
6,512
346,084
-
(13,833)
(6,556)
(19,015)
(256)
-
(39,660)
20,202
171,279
20,055
48,309
40,067
6,512
306,424
Additions
453
819
18,189
10,881
30,787
12,826
73,955
Disposals
(453)
(17)
-
(1,152)
(95)
(1,770)
(3,487)
-
(2,835)
(333)
(3,532)
(87)
-
(6,787)
20,202
169,246
37,911
54,506
70,672
17,568
370,105
Depreciation Balance at December 31, 2011 Cost Accumulated depreciation Balance at December 31, 2011
15
Other
Construction in progress
20,202
185,914
44,800
77,053
71,015
17,568
416,552
-
(16,668)
(6,889)
(22,547)
(343)
-
(46,447)
20,202
169,246
37,911
54,506
70,672
17,568
370,105
Intangible assets Parent company
ECTE concession agreement
December 31, 2009
Additions
2,502
6,201
Amortization (60)
December 31, 2010
Additions
Amortization
December 31, 2011
8,643
-
(60)
8,583
44
Consolidated Concession agreements (a) Celesc D SCGAS
Balances at December 31, 2009 Additions Disposals Amortization Balances at December 31, 2010 Total cost Accumulated amortization Balances at December 31, 2010 Additions Disposals Amortization Balances at December 31, 2011 Total cost Accumulated amortization Balances at December 31, 2011
Software acquired
Goodwill
Total
3
52,786
714,323
7,860
634,933
26,601
92,219 (6,602) (144,961)
5,506 (73) (4,366)
2,311 -
(1,528)
107,896 (6,675) (150,855)
575,589
27,668
2,314
59,118
664,689
850,411 (274,822)
57,539 (29,871)
2,314 -
62,174 (3,056)
972,438 (307,749)
575,589
27,668
2,314
59,118
664,689
98,429 (7,396) (143,032)
9,815 (93) (4,350)
432 -
(582) (1,531)
108,676 (8,071) (148,913)
523,590
33,040
2,746
57,005
616,381
941,444 (417,854)
67,261 (34,221)
2,746 -
61,592 (4,587)
1,073,043 (456,662)
523,590
33,040
2,746
57,005
616,381
The goodwill arising on the acquisition of SCGAS and ECTE is being amortized over the term of the concession for provision of public services of these companies (note 1). (a)
Concession agreements In conformity with Technical Interpretation ICPC 01, Accounting of concessions, the infrastructure portion that will be used during the concession, comprised of assets of the distribution of electric energy and natural gas, net of consumers participations (special obligations), was recorded in intangible assets when applicable. As regards the subsidiary Celesc Distribuição S.A., ANEEL, in conformity with the Brazilian regulations, is responsible for establishing the economic useful life of the concession assets in the electric power sector, establishing a periodical review of these rates. The rates established by the regulator are used in the processes of tariff review, calculation of indemnity at the end of the concession and are believed to be a reasonable estimate of the useful life of the concession assets. Accordingly, these rates were used as a basis for the evaluation and amortization of the intangible assets.
45
16
Income tax and social contribution on net income
(a)
Analysis of the deferred income tax and social contribution Consolidated Deferred tax asset
Temporary differences Provision for contingencies Provision for asset impairment Post-employment benefits Deemed cost Other provisions
(b)
Deferred tax liability
2011
2010
2011
2010
116,921 32,543 191,647 67,451
95,915 26,414 206,230 74,839
72,389 71,753
74,263 58,595
408,562
403,398
144,142
132,858
Estimated realization period The deferred tax asset is expected to be realized as follows: Consolidated Year Up to 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 6 years From 6 to 8 years From 8 to 10 years
2011
2010
37,183
53,020
62,800
55,874
60,854
53,985
61,362
51,093
70,643
54,746
59,080
58,508
56,640
76,172
408,562
403,398
The income tax and social contribution taxable bases arise not only from the profit generated, but also from non-taxable revenues, non-deductible expenses, tax incentives and other variables and there is no immediate correlation between the Company’s profit and the income tax and social contribution expense. Thus, the expectation of using tax credits must not be taken as the sole indication of the Company’s future profitability. (c)
Reconciliation of the income tax and the social contribution benefit (expense) The reconciliation between the income tax and the social contribution at the standard and effective rates of tax is shown below:
46
Parent company
Profit before taxation
Consolidated
2011
2010
2011
2010
323,887
284,703
454,050
357,849
110,122
96,799
154,377
121,669
Combined standard rate of income tax and social contribution - 34% Permanent additions and deductions Equity in the earnings of subsidiary and associated companies
(110,811)
(78,157)
(2,573)
(6,660)
Interest on capital
-
-
(27,000)
(25,053)
Tax benefit
-
(1,094)
485
(1,094)
Tax incentive
-
-
977
445
Non-deductible fines
-
-
175
-
118
64
236
64
(2,501)
(5,615)
(2,501)
(5,615)
322
(806)
5,987
577
(2,750)
11,187
130,163
84,333
Current
-
(11,187)
(124,043)
(103,186)
Deferred
-
-
(6,120)
18,853
-
(11,187)
(130,163)
(84,333)
Management profit sharing CASAN fair value Other additions (deductions) Income tax and social contribution on the profit for the year
(d)
Transitional Tax System The Transitional Tax System (RTT) will be in effect until the enactment of a law that will discipline the tax effects of the new accounting methods, and seeks to achieve tax neutrality. The Company opted for the RTT in 2008, and continues to use the prerogatives defined in the RTT for the purposes of computing taxes on income.
47
17
Borrowings and debentures Consolidated Annual interest and commission rate - % BNDES Bank loans (a) Eletrobrás (b) FIDC - Celesc I (c) Debentures (d) Finame (e)
TJLP + 4.50 11. 832% p.a. + IRP 5.00 CDI + 0.97 CDI+1.30% 5.00
(-) Current Non-current
2011
2010
4,008 103,376 151,092 63,425 21,484 27,713
17,474 45,472 140,510 112,604 4,281
371,098
320,341
(241,298) 129,800
(109,720) 210,621
BNDES – National Bank for Economic and Social Development IRP – Savings remuneration index Eletrobrás – Brazilian Electricity Company Finame - Government Agency for Machinery and Equipment Financing
(a)
Bank loans On April 14, 2011, the Company, through its subsidiary Celesc D, contracted with Banco do Brasil, working capital financing, with an interest rate of 11.832% p.a. plus IRP. The operation comprises R$ 80,000 to be used as working capital. Total settlement is due in 18 months with a grace period of 12 months for the payment of capital and interest, divided into six monthly installments.
(b)
Eletrobrás Borrowings contracted are used in the rural electrification and other programs, using funds from the Global Reversion Reserve (RGR) and the Eletrobrás Financing Fund. These agreements, in general, have a grace period of 24 months, are repayable over 60 months, and are subject to an interest rate of 5% p.a. plus an administration fee of 2% p.a. These agreements are guaranteed by receivables and have been approved by ANEEL.
(c)
Receivables Investment Fund (“FIDC”) The FIDC or "Receivables Fund" is an investment fund whose assets comprise credit rights. Celesc D offered as receivables the credit rights related to the future consumption of electric energy of pre-selected consumers, all of them with good credit profiles.
48
The main buyers of the quotas offered by Celesc D were investment funds which acquired 179 quotas, totaling R$179,000. Other investors were private pension entities, with R$ 11,000 and a financial institution with R$ 10,000, totaling R$ 200,000 obtained in 2007. Each quota was sold for R$ 1,000, through the bookbuilding system, coordinated by BB Investimentos jointly with the ABC Banking Corporation. In accordance with Brazilian accounting practices, the FIDC was consolidated and the portion of liabilities related to the quotas acquired by third parties is presented in liabilities as debt. (d)
Debentures On March 16, 2011, ECTE issued a sole series of 75 debentures, amounting to R$ 75,000, with effective period of 5 years as from the date of issue. These are simple, non-convertible into shares, book-entry and nominative debentures. The remuneration on the par value of debentures corresponds to 100% of the accumulated variation of the daily average rates of the one-day Interbank Deposits (DI) (over extra group), calculated and disclosed by CETIP (“DI Rate”), in its Informativo Diário (Daily Newsletter), available on its web page (http://www.cetip.com.br), plus a spread of 1.30% p.a., based on 252 business days. The unit par value of the debentures will be repaid as from the sixth month, as of the issue date, in monthly and consecutive installments, according to the schedule provided in the deed of debentures issued, starting on September 16, 2011. The restated amount for the year ended December 31, 2011 is R$ 69,239, being proportionately consolidated in the Company for R$ 21,494, which represents 30.88493% of the total balance.
(e)
Finame The loan contracted was used to provide part of the funds of Celesc Distribuição S.A., to be used in the purchase of machinery and equipment. In this case, each equipment acquisition is a contract and their sum may reach an agreed total of R$ 50,000. All the funds should be applied in 2011 and 2012. These contracts have interest rates of 4.5% p.a. and 5% p.a. The amount contracted will be repaid over 96 months as from August 2011. Interest will be paid on a quarterly basis during the grace period, and after this period, in monthly installments together with the repayments of the principal. In the event of default, the guarantee represents the receivables of Celesc Distribuição S.A., as agreed by ANEEL.
49
Breakdown of long-term maturities Non-current amounts by maturity are as follows: Consolidated
From one to five years Over five years
18
2011
2010
110,031 19,769
190,611 20,010
129,800
210,621
Taxes and contributions Parent company
ICMS PIS/COFINS Refis IRPJ and CSLL INSS refinancing Other
(-) Current Non-current
Consolidated
2011
2010
2011
2010
7,473 2,960 5,257 48
6,816 3,564 8,196 52
47,823 32,729 2,960 31,592 10,522 5,381
46,412 32,756 3,564 18,211 23,353
15,738
18,628
131,007
124,296
(14,531) 1,207
(16,821) 1,807
(129,800) 1,207
(122,489) 1,807
Refis –Tax Recovery Program INSS – National Institute of Social Security
19
Regulatory charges Consolidated
Energy efficiency program – PEE Emergency capacity charge – ECE Fuel usage account – CCC Research and development – P&D Energy development account – CDE Consumer charges payable Global Reversion Reserve - RGR Other
(-) Current Non-current
2011
2010
159,159 53,921 23,590 63,111 15,448 1,901 4,181 1,471
130,129 36,234 20,875 51,439 13,934 5,483 1,136 2,839
322,782
262,069
(174,941) 147,841
(149,494) 112,575
50
20
Contingencies and judicial deposits On the financial statement dates, the Company had the following liabilities and corresponding judicial deposits related to contingencies: Parent company Judicial deposits
Contingencies: Tax Regulatory
2011
2010
2011
24 6,627
6,065
(6,627)
(6,065)
6,651
6,065
(6,627)
(6,065)
Judicial deposits
Contingencies: Tax Labor and social security Civil Regulatory
Provisions for contingencies 2010
Consolidated Provisions for contingencies
2011
2010
2011
2010
3,080 78,821 19,212 46,065
2,073 73,299 11,821 40,557
(11,376) (108,907) (322,232) (46,692)
(11,897) (104,547) (315,908) (46,099)
147,178
127,750
(489,207)
(478,451)
The changes in the provision and deposits are shown below: Parent company Judicial deposits Balance at December 31, 2009 Additions Reductions
Balance at December 31, 2010 Additions Reductions
Balance at December 31, 2011
Provisions for contingencies
Consolidated Judicial deposits
Provisions for Contingencies
5,422 891 (248)
34,080 891 (28,906)
161,789 85,070 (119,109)
591,072 62,374 (174,995)
6,065 586
6,065 562 -
127,750 45,176 (25,748)
478,451 41,540 (30,784)
6,651
6,627
147,178
489,207
The Company is a party to labor, civil, tax and regulatory litigation in progress, and is discussing such matters at the administrative and judicial levels, which, when applicable, are supported by judicial deposits. The provisions for probable losses arising from these matters are estimated and periodically adjusted by management, supported by the opinion of its external legal advisors. The nature of the contingencies may be summarized as follows: .
Labor and social security – These refer to claims filed by employees and former employees of the Group and of service companies related to termination amounts, salaries, classification of functions, etc.
51
.
Civil – These relate to lawsuits brought by consumers (industrial class action), who demand reimbursement of amounts paid by reason of the increase in electric energy rates, based on Ordinances DNAEE 38, of February 27, 1986 and 45, of March 4, 1986, applied during the government’s economic “Cruzado” plan. Celesc D recorded a provision considered sufficient to cover expected losses in lawsuits of this nature. As to the effect on subsequent years, called “Cascading Effect”, it is not currently possible to assess possible decisions of the Court or even to estimate their effects. Provisions for various civil actions brought by individuals and companies, in which Celesc D is a defendant, related to indemnity issues caused by failure of the electric energy network, expropriation and other issues, were also recorded.
.
Regulatory - Celesc D received infringement notices from ANEEL for certain administrative deficiencies that resulted in fines for non-compliance with certain quality standards in the services provided to consumers and other issues. Celesc D appealed at the administrative level against the penalties imposed.
Possible losses not recognized in the balance sheet The Group has litigation of a regulatory, tax, civil and labor nature involving risk of loss classified by management as possible, based on the evaluation of its legal advisors, for which no provision has been recognized, in accordance with the following analysis and estimate: Consolidated
Contingencies: Regulatory Tax Labor and social security Civil
2011
2010
9,133 1,385 1,149 14,635
1,385 382 6,535
26,302
8,302
52
21
Employee benefit obligations Consolidated
Balance sheet obligations recorded for: Pension plan benefits Mixed plan (a) Transitory plan (a)
Other employee benefits Celos health plan (b) Voluntary Redundancy Program with Incentives (PDVI) (c) Other post-employment benefits (d)
(-) Current Non-current
2011
2010
187,824 420,185
192,571 408,876
608,009
601,447
351,928
397,762
73,254 32,512
98,163 4,132
457,694
500,057
1,065,703
1,101,504
(115,908)
(171,167)
949,795
930,337
Celesc D is a sponsor of Fundação Celesc de Seguridade Social (“Celos”), a non-profit civil society, whose main objective is to grant benefits in addition to those provided by the Social Security to all Celesc, Celesc D and Celesc G employees (jointly, “employees”). On the base date December 31, 2011, the amounts related to the post-employment benefits were calculated in an annual actuarial evaluation, conducted by independent actuaries, and are recognized in the financial statements. The actuarial liability recorded at December 31, 2011 totaled R$1,065,703 (R$ 1,101,504 at December 31, 2010). a) Pension benefits In January 1997, a new supplementary pension plan was implemented, with variable contributions to provide for a programmed retirement income. When this new “mixed plan” was introduced, current employees were offered the opportunity to transfer to the new plan. Over 98% of the active employees opted to transfer. The Mixed Plan has the characteristics of defined plan for the portion of the mathematical reserve already existing on the transfer date, and of a defined contribution plan for the contributions subsequent to the transfer. The previous defined benefit plan, called “Transitory Plan” continues to exist, covering almost exclusively retired participants and their beneficiaries.
53
Celesc D signed an agreement on November 30, 2001 for the payment of 277 additional monthly contributions, bearing interest of 6% per year and restatement based on the IGP-M inflation index to cover the actuarial liability of the Mixed and Transitory Plans. In October 2010, an amendment changed the inflation index from the IGP-M (General Market Price Index) to the IPCA (Adjusted Consumer Price Index). b) Healthcare plan Celesc offers to its current and retired employees a healthcare plan (health, hospital and dental care). c) Voluntary Redundancy Program with Incentives – PDVI On December 9, 2002, Celesc D signed Deliberation 243, approving the Voluntary Redundancy Program with Incentives (PDVI), ratified by the Government of the State of Santa Catarina, aimed at reducing its operating costs. This program was implemented from January 2003 and 1,089 employees adhered to it. By December 31, 2011, Celesc D had settled its obligations with 780 beneficiaries (550 at December 31, 2010). d) Other benefits This refers to reference values of indemnity due to natural or accidental death (Savings Fund Plan), Disabled Allowance, Funeral Grant and Minimum Retirement Benefit.
54
e) (i)
Results of the actuarial evaluation Changes in the present value of obligations Consolidated
Mixed plan At December 31, 2009 Cost of current service Interest on actuarial obligations Actuarial losses (gains) Benefits paid
972,431 1,215 106,083 122,771 (55,685)
Transitory plan
Health care plan
PDVI
Other benefits 10,451
680,721 723 73,073 43,842 (59,906)
462,006 8,794 49,752 (379,679) (39,676)
122,673 11,707 (6,320) (38,505)
1,152 636 (215)
At December 31, 2010 Cost of current service Interest on actuarial obligations Actuarial losses (gains) Benefits paid
1,146,815 1,879 117,677 95,745 (67,912)
738,453 949 74,542 (25,836) (64,329)
101,197 5,577 8,602 51,958 (59,295)
89,555 7,966 (1,270) (32,875)
12,024 27,834 1,253 826 (232)
At December 31, 2011
1,294,204
723,779
108,039
63,376
41,705
(ii)
Changes in the fair value of assets Consolidated
Mixed plan
Transitory plan
Health care plan 19,291 2,156 2,526 21,515 21,550 (39,676)
PDVI 38,505 (38,505)
Other benefits
At December 31, 2009 Expected return on assets Actuarial losses/gains Employer contributions Employee contributions Benefits paid
760,869 84,118 22,727 29,857 3,445 (55,685)
312,885 33,405 19,531 24,519 3,918 (59,906)
6,043 659 342 (215)
At December 31, 2010 Expected return on assets Actuarial losses/gains Employer contributions Employee contributions Benefits paid
845,331 87,698 74,798 32,493 4,112 (67,912)
334,352 33,528 (12,052) 26,504 4,150 (64,329)
27,362 3,049 8,821 22,709 23,007 (59,295)
32,875 (32,875)
6,829 707 (232) (232)
At December 31, 2011
976,520
322,153
25,653
-
7,072
55
(iii)
Reconciliation of assets and liabilities recorded in the balance sheet Consolidated
Mixed plan At December 31, 2010 Present value of obligations Fair value of assets Unrecognized gains/losses
192,571 1,146,815 (845,331)
At December 31, 2011 Present value of obligations Fair value of assets Unrecognized gains/losses
(iv)
Transitory plan
PDVI
Other benefits
397,762 101,197 (27,362)
98,163 89,555
4,132 12,024 (6,829)
4,775
323,927
8,608
(1,063)
187,824 1,294,204 (976,520)
420,185 723,779 (322,153)
351,928 108,039 (25,653)
73,254 63,376 -
32,512 41,705 (7,072)
(129,860)
18,559
269,542
9,878
(2,121)
(108,913)
408,876 738,453 (334,352)
Health care plan
Costs recorded in the statement of income for the year Consolidated
Mixed plan
Transitory plan 36,473 723 73,073 (33,405) (3,918)
Health care plan 38,608 8,794 49,752 (2,156) (21,550)
PDVI
Other obligations
11,707
493
11,707 -
1,152 (659) -
At December 31, 2010 Current service cost Interest on actuarial obligations Expected return on assets Participant contributions Amortization of actuarial adjustments, net
19,735 1,215 106,083 (84,118) (3,445) -
-
3,768
-
-
At December 31, 2011 Current service cost Interest on actuarial obligations Expected return on assets Participant contributions Amortization of actuarial adjustments, net
27,746 1,879 117,677 (87,698) (4,112)
37,813 949 74,542 (33,528) (4,150)
(23,125) 5,577 8,602 (3,049) (23,007)
7,966 7,966 -
546 1,253 (707) -
-
-
(11,248)
-
-
56
(v)
Actuarial and economic assumptions
The actuarial and economic assumptions used were as follows: Consolidated
Discount rate Expected return on assets Salary increase Future inflation Increase in medical costs Increase in medical costs per aging factor Turnover rate or table Plan benefit actual growth rate Salary adjustment index Benefit adjustment index Salary actual value determination factor Benefit actual value determination factor
(vi)
2011
2010
10.25 10.25 5.55 4.5 7.64
10.51 10.51 5.55 4.50 7.64
7.64 0.80 0.00 INPC IPCA 98 98
7.64 0.80 0.00 INPC IPCA 98 98
Biometric tables Consolidated
General mortality Mortality of invalids
Entry in invalidity
22
Equity
a)
Share capital
2011
2010
AT-1983 AT-1949 Light Media increased by 40%
AT-1983 AT-1949 Light Media increased by 40%
The Company’s subscribed and fully paid share capital is R$ 1,017,700, represented by 38,571,591 shares with no par value, divided into 15,527,137 registered common shares (40.26%) and 23,044,454 registered preferred shares (59.74%) with no voting right. Preferred shares have priority in receiving non-cumulative dividends of 25%. Ownership control, in number of shares held by stockholders with more than 5% of any type or class, is as follows:
57
Stockholder State of Santa Catarina PREVI – Caixa de Previdência dos Funcionários do Banco do Brasil Celos Geração Futuro (Investment Fund) Eletrobrás – Centrais Elétricas Brasileiras Tarpon Investment (Investment Fund) mcap Poland FIA Other
Common shares Number %
Preferred shares Number %
Number
Total %
7,791,010
50.18
191
0.00
7,791,201
20.20
5,140,864 1,087,374 499,700 4,233
33.11 7.00 3.22 0.03
1,004,056
6.47
437,807 230,800 3,769,100 4,142,774 5,178,823 2,669,700 6,615,259
1.90 1.00 16.36 17.98 22.47 11.59 28.71
5,578,671 1,318,074 4,366,900 4,147,007 5,176,323 2,562,900 7,630,515
14.46 3.42 11.07 10.75 13.43 6.92 19.75
15,527,037
40.26
23,044,454
59.74
38,571,591
100.00
Foreign interest in capital Foreign investors owned 19.89% of the total capital of CELESC at the end of 2011, holding 7,673,816 shares, most of them preferred shares. Investors’ interest per domicile Foreign investors Local investors
b)
Number
%
7,673,816 30,897,775
19.89 80.11
Legal and retention of profits reserves The legal reserve is recorded annually as an appropriation of 5% of the profit for the year and may not exceed 20% of the share capital. The purpose of the legal reserve is to protect the integrity of share capital and it may only be used to offset losses and to increase capital. The retention of profits reserve refers to the remaining balance of retained earnings to be used in the business growth project established in the Company’s investment plan, in accordance with the capital budged approved and proposed by the Company’s management, and to be decided on at the Annual General Meeting of stockholders, in accordance with article 196 of the Corporation Law.
c)
Interest on capital In compliance with Law 9,249/95, the Company’s management approved, in a Board of Directors’ meeting held on December 9, 2011, the distribution to its stockholders of interest on capital, calculated based on the Long-Term Interest Rate (TJLP) variation, to be considered as part of the mandatory minimum dividend. In compliance with tax legislation, the amount of interest on capital of R$ 82,501 (corresponding to R$ 2.01831360 per common share and R$ 2.22014496 per preferred share, net of withholding income tax) was accounted for as a finance cost. However, for the purposes of these financial statements, the interest on capital is presented as a distribution of profit for the year and, consequently, reclassified to equity at its gross amount. The tax benefits generated are recognized in the income statement.
58
Analysis of the basic and diluted earnings per share Parent company
Weighted average number of shares (in thousands): Common shares Preferred shares – Class A Preferred shares – Class B Basic and diluted earnings per share attributed to Company's stockholders (in R$): Common shares Preferred shares – Class A Preferred shares – Class B Basic and diluted profit attributed to the Company’s stockholders: Common shares Preferred shares – Class A Preferred shares – Class B
23
2011
2010
15,527 47 22,997
15,527 51 22,994
7.92 8.72 8.72
6.69 7.36 7.36
123,031 417 200,439
47,254 169 76,976
323,887
273,516
Dividends and interest on capital The proposal of dividends recorded in the Company's financial statements, subject to the approval of the stockholders at the General Meeting and calculated under the terms of the Brazilian Corporation Law, especially articles 196 and 197 thereof, is as follows: Parent company 2011
2010
323,887
273,516
(16,194)
(13,676)
307,693
259,840
Proposed dividend Interest on capital Dividend to be approved at the General Meeting
82,501 9,807
77,938 -
(Pay-Out practiced 30%)
92,308
77,938
(15,383)
(12,978)
Mandatory minimum dividend (25%)
76,925
64,960
(-) Withholding income tax on interest on capital
(5,164)
(4,538)
287
14,257
72,048
74,679
Profit for the year Transfer to reserves Legal Dividend calculation basis
(-) Portion exceeding the mandatory minimum
(+) Balance of prior-year dividends payable Balance of dividends payable
59
24
Insurance The insurance cover at December 31, 2011 was contracted at the amounts indicated in the insurance policies, as follows: Consolidated Effectiveness date 1/4/2011 to 1/4/2012 8/9/2011 to 12/31/2011 1/25/2011 to 12/31/2011
Amount insured 8,000 52,360 3,500
Premium 2,420 8 5
11/8/2011 to 12/31/2012
400,000
23
General civil liability General civil. liability Nominated Risks Fire/lightning/explosion
Assets covered Substations Office Building Transportation of goods Concessionaire assets and rights Distribution network Sundry Vehicle Plant and substations
10/18/2011 to 10/18/2012 7/7/2011 to 7/7/2012 3/15/2011 to 3/15/2012 6/8/2011 to 6/8/2012
6,000 2,500 Market value 18,768
213 8 5 200
Celesc G
Aircraft crash
Plant and substations
6/8/2011 to 6/8/2012
9,384
Celesc G
Windstorm
Plant and substations
6/8/2011 to 6/8/2012
9,384
Celesc G
Electric damages
Plant and substations
6/8/2011 to 6/8/2012
18,768
After 10% Minimum loss of 50 thousand After 10% Minimum loss of 50 thousand 200
Company Celesc D Celesc D Celesc D
Risk Nominated Risks Nominated Risks Domestic Transport.
Celesc D
Guarantee insurance
SCGAS ECTE ECTE Celesc G
The risk assumptions adopted, due to their nature, are not part of the scope of the audit of the financial statements, and, consequently, they were not examined by our independent auditors. 25
Segment information Management has defined the Company’s operating segments based on the reports used for making strategic decisions, reviewed by the Executive Board. Presentation of the segments is consistent with the internal reports provided to the Company’s Executive Board, which is responsible for allocating funds to and for evaluating the performance of the segments. Information by business segment, reviewed by the Executive Board, for the years ended December 31, 2011 and 2010, is as follows:
60
2011 Celesc Distribution (a) Revenue Cost of sales Gross profit Selling expenses General and administrative expenses Other income (expenses), net Equity in the results of subsidiary and associated companies
Celesc SC Gás Generation (b)
Other
Total
4,031,621 (3,168,381)
92,420 (76,471)
51,810 (20,230)
15,563 1,620
4,191,414 (3,263,462)
863,240 (165,732)
15,949 (1,270)
31,580 (2,673)
17,183 -
927,952 (169,675)
(256,943)
(2,801)
(7,965)
(15,321)
(283,030)
(41,545)
(1,388)
(1,431)
-
-
(4)
(153)
8,106
(44,368)
7,953
399,020 113,138 (109,607)
10,490 1,943 (1,691)
19,358 2,227 (699)
9,964 14,869 (4,962)
438,832 132,177 (116,959)
402,551
10,742
20,886
19,871
454,050
Income tax and social contribution
(115,140)
(3,265)
(7,082)
(4,676)
(130,163)
Profit for the year
287,411
7,477
13,804
15,195
323,887
4,497,271 3,012,828
52,963 21,242
395,300 88,955
419,696 67,890
Operating profit Finance income Finance costs Profit before taxation
Additional information Total assets Total liabilities
61
2010 Celesc Distribution Revenue Cost of sales Gross profit Selling expenses General and administrative expenses Other income (expenses), net
Celesc SC Gás Generation
Other
Total
3,888,854 (3,278,009)
82,434 (57,728)
54,747 (18,888)
10,730 (23,709)
4,036,765 (3,378,334)
579,080 (151,912)
24,706 (1,031)
35,859 -
14,030 (4,943)
658,431 (157,886)
(265,843)
(3,257)
(7,660)
70,777
(205,983)
(593)
(571)
(1,552)
(25,467)
(28,183)
-
6,660
Equity in the results of subsidiary and associated companies
-
-
6,660
Operating profit Finance income Finance costs
192,497 100,071 (57,867)
19,847 1,644 (846)
26,647 4,342 (344)
34,048 39,310 (1,500)
273,039 145,367 (60,557)
Profit before taxation
234,701
20,645
30,645
71,858
357,849
Income tax and social contribution
(54,322)
(6,913)
(8,602)
(14,496)
(84,333)
180,379
13,732
22,043
57,362
273,516
4,033,182 2,765,121
58,374 24,202
350,393 89,523
432,173 54,769
Profit for the year Additional information Total assets Total liabilities
62
(a)
Celesc Distribuição S.A.
(a.1)
Revenue Distribution
Gross operating revenue Sale of electric energy (a.2) Supply of electric energy (a.2) Availability of electric energy network Other operating income Finance income from indemnity asset Construction revenue
Deductions from operating revenue ICMS PIS COFINS Global reversion reserve - RGR Energy development account - CDE Fuel usage account – CCC Research and development – P&D Energy efficiency program - PEE Other charges
Net operating revenue
(a.2)
2011
2010
5,405,716 117,604 320,947 51,700 138,145 339,698
5,156,394 109,451 226,759 55,657 129,958 370,738
6,373,810
6,048,957
(1,264,560) (99,077) (456,354) (28,231) (185,372) (261,355) (18,010) (18,010) (11,220)
(1,187,338) (95,814) (441,324) (23,295) (167,211) (198,569) (17,890) (17,890) (10,772)
(2,342,189)
(2,160,103)
4,031,621
3,888,854
Sale and supply of electric energy 2011
2010
2011
2010
No. of consumers (i) MWh or m³ thousand (i) Sale and supply of electric energy Residential Industrial Commerce, services and other Rural Government Public lighting Utilities Supply of energy
2011
2010
Gross revenue
1,870,084 85,907 213,588 229,109 18,790 445 2,302 49
1,828,451 80,645 187,398 228,077 18,251 417 2,109 50
4,407,118 4,853,384 2,983,779 1,104,602 357,713 501,981 274,839 1,307,749
4,307,519 5,580,981 2,781,629 1,184,604 358,682 471,675 264,024 1,237,733
1,812,183 1,775,474 1,214,603 261,172 146,276 109,996 86,012 117,604
1,677,855 1,850,718 1,060,723 254,967 135,971 98,802 77,358 109,451
2,420,274
2,345,398
15,791,165
16,186,847
5,523,320
5,265,845
(i) Information not audited.
63
(a.3)
Operating costs and expenses 2011
Nature of costs and expenses Electric energy purchased for resale Personnel costs Management Actuarial expense Private pension entity Materials Construction cost Third-party costs and services Depreciation and amortization Provisions Reversal of provisions ANEEL inspection fee Other costs and expenses
Selling expenses
General and administrative expenses
Other income (expenses), net
Total
2,320,692 293,671 17,416 23,111 339,698 58,092 116,615 (914)
42,193 2,413 3 56,816 53,724 (25,278) 35,861
106,723 2,309 78,990 5,867 6,482 60,476 26,417 (30,321)
12,657 618 40,633 (30,761) 9,742 8,656
2,320,692 455,244 2,309 78,990 25,696 29,596 339,698 176,002 143,032 94,357 (56,039) 9,742 13,282
3,168,381
165,732
256,943
41,545
3,632,601
Costs of goods and/or services
2010
Nature of costs and expenses Electric energy purchased for resale Personnel costs Management Actuarial expense Private pension entity Materials Construction cost Third-party costs and services Depreciation and amortization Provisions Reversal of provisions ANEEL inspection fee Other costs and expenses
Selling expenses
General and administrative expenses
Other income (expenses), net
Total
2,416,907 273,453 14,931 23,058 370,738 57,098 125,826 (4,002)
40,467 2,120 567 67,018 44,214 (16,321) 13,847
104,960 2,255 105,775 5,177 2,984 36,324 19,135 (10,767)
54,777 61,484 (146,107) 7,930 22,509
2,416,907 473,657 2,255 105,775 22,228 26,609 370,738 160,440 144,961 105,698 (162,428) 7,930 21,587
3,278,009
151,912
265,843
593
3,696,357
Costs of goods and/or services
64
(b)
Celesc Geração S.A.
(b.1)
Revenue
Gross operating revenue Sale of electric energy (b.2) Supply of electric energy (b.2)
Deductions from operating revenue ICMS PIS COFINS Global reversion reserve - RGR
Net operating revenue
(a.2)
2011
2010
27,827 30,398
26,532 35,279
58,225
61,805
(4,089) (362) (1,673) (291)
(4,524) (390) (1,800) (344)
(6,415)
(7,058)
51,810
54,747
Sale and supply of electric energy 2011
2010
2011
2010
No. of consumers (i) MWh or m³ thousand (i) Sale and supply of electric energy Industrial Commerce, services and other Supply of energy
2011
2010
Gross revenue
11 1 5
9 1 1
189,705 11,262 373,685
193,464 11,093 407,475
26,068 1,759 30,398
24,949 1,583 35,273
17
11
574,652
612,032
58,225
61,805
(i) Information not audited.
(b.3)
Operating costs and expenses 2011
Nature of costs and expenses Electric energy purchased for resale Personnel costs Management Materials Third-party costs and services Depreciation and amortization Provisions ANEEL inspection fee Other costs and expenses
Selling expenses
General and administrative expenses
Other (income) expenses, net
Total
114 6,488 509 2,855 6,859 3,405
2,673 -
4,882 1,373 130 1,199 381
250 1,181
114 11,370 1,373 639 4,054 6,859 2,673 250 4,967
20,230
2,673
7,965
1,431
32,299
Costs of goods and/or services
65
2010
Nature of costs and expenses Electric energy purchased for resale Personnel costs Management Materials Third-party costs and services Depreciation and amortization ANEEL inspection fee Other costs and expenses
26
Costs of goods and/or services
Selling general and expenses
Other (income) expenses, net
Total
247 6,308 791 2,921 5,962 2,659
4,747 1,047 193 1,204 469
282 1,270
247 11,055 1,047 984 4,125 5,962 282 4,398
18,888
7,660
1,552
28,100
Revenues Consolidated
Gross operating revenue Sale of electric energy (a) Supply of electric energy (a) Distribution of natural gas (a) Availability of electric energy network Lease and rentals Service income Other operating income Finance income from indemnity asset Construction revenue
Deductions from operating revenue ICMS PIS COFINS Global reversion reserve - RGR Energy development account - CDE Fuel usage account – CCC Research and development – P & D Energy efficiency program - PEE Other charges
Net operating revenue
2011
2010
5,433,543 148,002 106,201 318,119 34,953 8,495 8,420 157,778 348,926
5,182,903 142,586 99,045 224,182 32,589 10,671 15,858 142,915 376,172
6,564,437
6,226,921
(1,282,021) (101,287) (466,541) (29,021) (185,372) (261,355) (18,195) (18,010) (11,221)
(1,204,858) (97,900) (450,936) (23,997) (167,211) (198,569) (18,023) (17,890) (10,772)
(2,373,023)
(2,190,156)
4,191,414
4,036,765
66
(a)
Sale and supply of electric energy and gas 2011
2010
No. of consumers (i) Sale and supply of electric energy Residential Industrial Commerce, services and other Rural Government Public lighting Utilities Supply of energy
27
2010
MWh or m³ thousand (i)
2011
2010
Gross revenue
1,870,084 85,918 213,589 229,109 18,790 445 2302 54
1,828,451 80,654 187,399 228,077 18,251 417 2,109 51
4,407,118 5,043,089 2,995,041 1,104,602 357,713 501,981 274,839 1,681,434
4,307,519 5,774,445 2,792,722 1,184,604 358,682 471,675 264,024 1,494,065
1,812,183 1,801,542 1,216,362 261,172 146,276 109,996 86,012 148,002
1,677,855 1,875,644 1,062,306 254,967 135,971 98,802 77,358 142,586
2,420,291
2,345,409
16,365,817
16,647,736
5,581,545
5,325,489
213 115 223 2,356 17
192 113 192 1,466 17
529,137,346 121,788,266 5,543,378 395,706 12,755,038
499,190,043 117,979,587 4,643,766 299,237 13,507,780
79,953 22,811 1,427 148 1,862
74,357 21,543 1,172 110 1,863
2,924
1,980
669,619,734
635,620,413
106,201
99,045
Distribution of natural gas Industrial Vehicles Commercial Residential Compressed
(i)
2011
Information not audited.
Operating costs and expenses Consolidated operating costs and expenses comprise the following: Consolidated 2011
Nature of costs and expenses Electric energy purchased for resale (a) Personnel (b) Management Actuarial expense Private pension entity Materials Construction cost Natural gas and inputs for gas operations Third-party costs and services Depreciation and amortization Provisions, net ANEEL inspection fee Other costs and expenses
Costs of goods and/or services 2,320,806 300,754 17,416 23,727 348,926 61,012 62,500 127,714 100 507 3,263,462
Selling expenses
General and administrative expenses
Other income (loss), net
Total
31,119 36,192
119,254 8,256 78,990 5,867 6,703 65,404 26,455 660 (28,559)
618 9,872 10,396 10,825
2,320,806 475,526 8,303 78,990 25,696 30,436 348,926 61,012 185,559 154,169 41,651 10,496 18,965
169,675
283,030
44,368
3,760,535
42,861 47 2,413 6 57,037
12,657 -
67
Consolidated 2010
Nature of costs and expenses Electric energy purchased for resale (a) Personnel (b) Management Actuarial expense Private pension entity Materials Construction cost Natural gas and inputs for gas operations Third-party costs and services Depreciation and amortization Provisions, net ANEEL inspection fee Other costs and expenses
Costs of goods and/or services
General and administrative expenses
Selling expenses
Other income (loss), net
Total
2,417,225 273,976 33,006 14,931 23,954 376,172 46,902 61,186 136,026 (12,877) 7,833
41,029 4,943 2,120 573 67,265 27,921 14,035
122,868 6,283 15,559 5,177 3,245 40,865 19,280 (23,504) 16,210
(73,563) 8,212 (14,751)
2,417,225 492,650 6,283 107,016 22,228 27,772 376,172 46,902 169,316 155,306 (82,023) 8,212 23,327
3,378,334
157,886
205,983
28,183
3,770,386
54,777 53,508
The parent company’s operating costs and expenses comprise the following: Parent company 2011
Nature of costs and expenses Personnel (b) Management Materials Depreciation and amortization Third-party costs and services Provision Other costs and expenses
General and administrative expenses
Total
5,660 4,291 45 3 3,108 660 464
5,660 4,291 45 3 3,108 660 464
14,231
14,231
Parent company 2010
Nature of costs and expenses Personnel (b) Management Materials Third-party costs and services Depreciation and amortization Provisions Reversal of provisions Other costs and expenses
General and administrative expenses 5,031 2,876 11 2,763 1 327 11,009
Other income (expense), net 891 (28,906) 77 (27,938)
Total
5,031 2,876 11 2,763 1 891 (28,906) 404 (16,929)
68
a)
Electric energy purchased for resale Consolidated
Electric energy purchased for resale Centrais Elétricas Brasileiras S.A. Tractebel Energia S.A. Furnas Centrais Elétricas S.A. Termoelétricas Petrobrás S.A. Cemig Geração e Transmissão S.A. Copel Geração e Transmissão S.A. Companhia Energética de São Paulo – CESP Cia Hidroelétrica do São Francisco – CHESF Cia de Ger. Term. de E.E. – CGTEE Lages Bioenergética Ltda. Centrais Elétricas de Pernambuco S.A. Energética Camacari Muricy S.A. Enguia Gen Companhia Energética de Petrolina Arembepe Energia Açucareira Zillo Lorenzetti S.A. Centrais Elétricas Cachoeira Dourada S.A. Other
Charges for the Use of the Electric Energy Network Electric Energy Trade Chamber - CCEE Alternative Source Incentive Program - PROINFA PIS and COFINS credits
2011
GWh (i)
2010
GWh (i)
404,114 401,006 171,672 119,958 148,541 130,670 126,151 90,377 58,082 39,190 21,310 18,922 15,350 18,920 11,699 185,006
4,500 2,954 1,579 1,317 1,020 1,082 1,019 810 232 193 277 241 200 241 118 2,111
422,747 383,393 181,661 156,839 144,125 125,353 120,977 86,414 48,894 36,660 23,702 20,220 16,361 14,564 14,145 13,323 12,311 175,872
4,541 2,984 1,611 1,317 1,039 1,102 1,302 825 415 193 277 241 138 200 241 67 120 1,469
1,960,968
17,894
1,997,561
18,082
449,913 68,247 85,701 (244,023)
(279) 429 -
359,838 2,320,806
376,176 149,745 79,002 (185,259 )
(147) 437 -
150
419,664
290
18,044
2,417,225
18,372
(i) Information not audited.
b)
Personnel Parent company
Personnel costs Salaries Social charges Profit sharing Benefits and social assistance Provisions and indemnities Other
Consolidated
2011
2010
2011
2010
5,510
85 65
4,821 8 118 84 -
251,211 103,410 17,231 26,740 76,707 227
226,869 100,296 12,701 33,961 118,379 444
5,660
5,031
475,526
492,650
-
69
28
Finance Result Parent company
Finance income Income from financial investments Interest on receivables from the State of SC Invoice late payment charges Monetary variations
Consolidated
2011
2010
2011
2010
24,724
4,951
4,086
31,986
1,725
4,467
49,469
4,467
-
-
-
46,035
95
3,212
18,542
19,244
Financial incentive social fund
-
-
15,600
9,907
Foreign exchange gain on electric energy sold
-
-
4,872
6,197
Dividends received
2
1,325
2
1,325
7,357
16,514
7,357
16,514
Fair value gain Adjustments to present value
-
4,180
-
4,180
307
5,706
4,349
12,774
14,437
39,490
132,177
145,367
Other finance income
Parent company
Consolidated
2011
2010
2011
2010
-
-
(34,266)
(27,548)
Finance costs Charges on debt Monetary variations PAES restatement Research and development and energy efficiency restatement
29
-
(12,380)
(9,492)
-
(278)
-
-
-
(21,748)
(14,844)
(60)
(60)
(1,531)
(1,528)
(1,895)
(1,530)
(46,756)
(7,145)
(2,233)
(1,590)
(116,959)
(60,557)
Amortization of goodwill Other finance costs
(278)
Tariff adjustment of Celesc Distribuição S.A. On August 2, 2011, ANEEL authorized the adjustment of the tariffs to be practiced by the wholly-owned subsidiary Celesc Distribuição S.A. The impact was differentiated per tension level, but on average the increase to captive consumers was 1.19%.
70
30
Subsequent event As from January 1, 2012, new depreciation rates will be applied to electric power concession assets in service, based on the review of the useful lives of assets, established by ANEEL through Normative Resolution 474, of February 7, 2012. The impacts on the financial asset, intangible assets and property, plant and equipment arising from this change are being evaluated by the Company and, in conformity with the resolution above, will be recognized prospectively as from January 1, 2012.
71
Capital Budget Proposal In conformity with CVM Instruction 480, of December 7, 2009, the capital budget proposal for 2012 of Centrais Elétricas de Santa Catarina S.A. is shown below, together with the corresponding sources of funds, according to article 196 of Law 6404/76.
Investment Program PROGRAMS Equity investments Distribution of electric energy Generation of electric energy Gas distribution networks Telecommunication Sale of electric energy Information technology Buildings and properties Vehicles Other TOTAL
AMOUNTS (R$ THOUSAND) 12,000 244,700 79,300 42,259 8,200 29,450 18,449 20,386 13,770 7,440 474,954
Sources of funds ORIGIN Third-party funds Own funds, arising from retention of profits and generation of cash from the Company's operations TOTAL
AMOUNTS (R$ THOUSAND) 259,569 215,385 474,954
72
Independent auditor's report To the Directors, Officers and Stockholders Centrais Elétricas de Santa Catarina S.A. Florianópolis - SC We have audited the parent company and consolidated financial statements of Centrais Elétricas de Santa Catarina S.A. (“Company”), identified as Parent Company and Consolidated, respectively, which comprise the balance sheet as at December 31, 2011 and the statements of income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the parent company financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and in accordance with accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
73
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the parent company financial statements In our opinion, the parent company financial statements referred to above present fairly, in all material respects, the financial position of Centrais Elétricas de Santa Catarina S.A. as at December 31, 2011, and its financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Centrais Elétricas de Santa Catarina S.A. and its subsidiaries as at December 31, 2011, and their consolidated financial performance and cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil. Emphasis of matter As discussed in note 2.2b to these financial statements, the parent company financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Centrais Elétricas de Santa Catarina S.A., these practices differ from IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly-controlled entities based on equity accounting, while IFRS requires measurement based on cost or fair value. Our opinion is not qualified in respect of this matter.
74
Other matters Statements of value added We also have audited the parent company and consolidated statements of value added for the year ended December 31, 2011, prepared under the responsibility of the Company's management, the presentation of which is required by the Brazilian corporate legislation for listed companies, but is considered supplementary information for IFRS. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole. Comparative financial information On April 4, 2011, BDO Auditores Independentes, a company legally established in Brazil and which had the contractual right to use the international trademark BDO, became part of the KPMG network of professional service companies with the new name of KPMG Auditores Associados (merged on December 2 into KPMG Auditores Independentes). BDO Auditores Independentes audited the financial statements for the year ended December 31, 2010, while it still held the right to use the trademark BDO, and issued an unmodified report thereon dated March 24, 2011.
Florianópolis, March 28, 2012
KPMG Auditores Independentes CRC SC-000071/F-8
Claudio Henrique Damasceno Reis Contador CRC SC-024494/O-1
75
DECLARATION OF THE BOARD OF DIRECTORS The Board of Directors of Centrais Elétricas de Santa Catarina S.A. – Celesc declares that it has examined and reviewed all the information presented in the Financial Statements (parent company and consolidated) for the year ended December 31, 2011, and agrees with it. Consistent with the opinion of the auditors, KPMG Auditores Independentes, the Board approves the aforementioned documents and proposes their approval by the Stockholders. Florianópolis (SC), March 22, 2012.
_____________________________ Pedro Bittencourt Neto (Chairman)
______________________________ Edegar Giordani
_____________________________ Antonio Marcos Gavazzoni
______________________________ Milton de Queiroz Garcia
_____________________________ Andriei José Beber
______________________________ Marcelo Gasparino da Silva
_____________________________ Derly Massaud Anunciação
______________________________ Daniel Arduini Cavalcanti de Arruda
_____________________________ Arlindo Magno de Oliveira
______________________________ Edimar Rodrigues de Abreu
_____________________________ Sérgio Ricardo Miranda Nazaré
______________________________ Paulo Roberto Evangelista de Lima
_____________________________ Jair Maurino Fonseca
76
OPINION OF THE STATUTORY AUDIT BOARD The Statutory Audit Board of Centrais Elétricas de Santa Catarina S.A. – Celesc, in compliance with its legal and statutory duties, and in accordance with article 163, of Law 6404/76 and later amendments, examined the Management Report and the Financial Statements for the year ended December 31, 2011. Based on the work, interviews and monitoring carried out during the year, and also considering the audit report of KPMG Auditores Independentes, dated March 28, 2012, the Statutory Audit Board unanimously opine that these documents are appropriate for submission to the examination of the Stockholders.
Florianópolis (SC), March 29, 2012.
_____________________________ Enio de Andrade Branco
______________________________ Henrique Guglielmi
_____________________________ Valter José Gallina
______________________________ Telma Suzana Mezia
_____________________________ Julio Sergio de Souza Cardozo
77
OFFICERS’ DECLARATION ABOUT THE FINANCIAL STATEMENTS The officers of Centrais Elétricas de Santa Catarina S.A. declare that they have examined and reviewed all the information presented in the Financial Statements (parent company and consolidated) and agree with it.
_____________________________ Antônio Marcos Gavazzoni CEO
______________________________ Michel Becker Generation and Transmission Officer
_____________________________ Clairton Belém da Silva Planning and Internal Control Officer
______________________________ José Carlos Oneda Economic and Financial Officer
_____________________________ André Luiz Bazzo Corporate Management Officer
______________________________ Antonio José Linhares Energy Management Regulation Officer
_____________________________ Cleverson Siewert Distribution Officer
________________________________ André Luiz de Rezende Investor Relations Officer, Control of Investments and New Business
________________________________ Fabricio Santos Debortoli Contador – CRC/SC 25.570/O-0
Florianópolis (SC), March 22, 2012.
78
OFFICERS' DECLARATION ABOUT THE INDEPENDENT AUDITOR'S REPORT The officers of Centrais Elétricas de Santa Catarina S.A. declare that they have examined and reviewed all the information presented in the Independent Auditor's Report and agree with it.
_____________________________ Antônio Marcos Gavazzoni CEO
______________________________ Michel Becker Generation and Transmission Officer
_____________________________ Clairton Belém da Silva Planning and Internal Control Officer
______________________________ José Carlos Oneda Economic and Financial Officer
_____________________________ André Luiz Bazzo Corporate Management Officer
______________________________ Antonio José Linhares Energy Management Regulation Officer
_____________________________ Cleverson Siewert Distribution Officer
________________________________ André Luiz de Rezende Investor Relations Officer, Control of Investments and New Business
________________________________ Fabricio Santos Debortoli Contador – CRC/SC 25.570/O-0
Florianópolis (SC), March 30, 2012.
79
