Financial statements Isa Capital do Brasil S.A.

Transcription

1 Financial statements Isa Capital do Brasil S.A.

2 Financial statements Contents Independent auditor s report on financial statements... 1 Financial statements Balance sheets... 6 Income statements... 8 Statements of comprehensive income... 9 Statements of changes in equity Cash flow statements Statement of value added Notes to financial statements... 14

3 Management Report Dear Shareholders, Pursuant to legal and statutory provisions, management of ISA Capital do Brasil S.A. ( ISA Capital or Company ) submits the Management Report and the related individual and consolidated Financial Statements, and respective Independent Auditor s Report, for the year ended December 31, Management report ISA Capital is a Brazilian holding owned by Interconexión Eléctrica S.A. E.S.P., a Colombian mixed-capital company owned by the Colombian government, which is mainly engaged in operating and maintaining electric power transmission lines. ISA Capital has been the parent company of CTEEP Companhia de Transmissão de Energia Elétrica Paulista since July 26, 2006, holding 57,714,208 common shares issued by CTEEP, which represent 89.50% of voting capital and 37.81% of total capital. At December 31, 2012, the above controlling interest in CTEEP was recorded in ISA Capital s Financial Statement investment account, and amounted to R$ 2.0 billion. Due to the referred to investment, the Company recorded gains amounting to R$ million in ISA Capital and its parent company, Interconexión Eléctrica S.A. E.S.P., are committed with assuring, promoting and improving the quality of electric power transmission services provided by CTEEP, for the purpose of improving their financial performance as well, by resorting to best practices and world class management models for the benefit of their shareholders and the community. 1. Company s profile ISA Capital do Brasil S.A. ( ISA Capital or Company ) is a Brazilian holding incorporated as a limited liability company on April 28, 2006, and turned into a corporation on September 19, On January 4, 2007, the Brazilian Securities and Exchange Commission (CVM) approved its registration as a publicly-held company. ISA Capital was a publicly-held company until May 27, 2010, when the Company s shareholders decided to cancel its registration with CVM. The Company s business purpose includes holding equity interest in other companies or ventures, as a member or shareholder, partnership in joint ventures, membership in consortiums, or any type of business cooperation.

4 Management Report ISA Capital is owned by Interconexión Eléctrica S.A. E.S.P. ( ISA ), a Colombian mixed-capital company owned by the Colombian government, which is mainly engaged in operating and maintaining electric power transmission lines, in addition to taking part in activities in connection with provision of electric power-related services. ISA Capital has been the parent company of CTEEP - Companhia de Transmissão de Energia Elétrica Paulista ( Subsidiary or CTEEP ) since July 26, 2006, when the Company settled its purchase through a public tender organized by the São Paulo Government of CTEEP s controlling interest on June 28, 2006, on the São Paulo Stock Exchange (BOVESPA). For the acquisition of 31,341,890,064 common shares corresponding to 50.1% of common shares issued by CTEEP and 21.0% of its total capital, the Company paid R$ 1.2 billion corresponding to R$ per thousand shares to the São Paulo State Government. In addition to that amount, ISA Capital paid R$ 19.4 million to the São Paulo State Government as an addition to price of shares acquired in the public tender, in order to offset negative goodwill offered to CTEEP s employees for acquisition of certain lot of shares. Such amount paid for acquisition of CTEEP s controlling interest is subject to adjustment, if any, as set forth in CTEEP s share purchase and sale agreement, to be determined based on amounts effectively paid by CTEEP in connection with supplementary benefit and pension to former employees, pursuant to State Law No. 4819/58. As part of the privatization process, on September 12, 2006, the Company purchased another 10,021,687 CTEEP s common shares, corresponding to 0.016% of total common shares, for R$ 229 thousand. That share acquisition refers to excess CTEEP s common shares from the public tender conducted by the São Paulo State Government to CTEEP s employees, under Bid for Tender for CTEEP Privatization No. SF/001/2006. On January 9, 2007, by virtue of article 254-A of the Corporation Law and as determined by the referred to Bid for Tender and CTEEP s Share Purchase and Sale Agreement, ISA Capital conducted a public offering auction ( OPA ) of shares issued by CTEEP on BOVESPA. These shares are still current for a value corresponding to 80% of the amount paid for CTEEP s controlling interest. In that public offer, the Company acquired 24,572,554,070 common shares issued by CTEEP, which correspond to 39.28% of total common shares, for R$ per thousand shares, amounting to R$ million.

5 Management Report As a result of that acquisition, ISA Capital now holds 55,924,465,821 common shares issued by CTEEP, corresponding to 89.40% of CTEEP s voting capital and 37.46% of its total capital. After CTEEP's reverse stock split in August 2007, the Company became holder of 55,924,465 common shares. The Company later contributed with 1,727,517 common shares to CTEEP s capital, 574,927 of which on August 24, 2009, 594,477 on April 23, 2010 and 558,113 on December 21, That contribution results from the tax benefit granted to CTEEP for partial amortization of the special goodwill reserve for the years 2009, 2010 and By means of the public tender for excess shares held in 2011 by CTEEP, the Company acquired 63,146 common shares. On June 29, 2012 and July 5, 2012, ISA Capital sold 920 shares. Consequently, at December 31, 2012, the Company held 57,714,208 common shares (December 31, 2011, 57,715,128 common shares), which are equivalent to 37.81% of CTEEP s total capital and 89.50% of its voting capital. 2. Debt in foreign currency - "Bonds" Currently, the Company has a debt in foreign currency bonds amounting to US$ 31.6 million, equivalent to R$ 67.0 million, maturing in This amount refers to balance remaining after the restructuring conducted in 2010, when ISA Capital repurchased US$ million, equivalent to R$ million and 94.3% of total bonds traded. 3. Commitments While acquiring CTEEP s controlling interest, the Company undertook various commitments and obligations under Bid for Tender No. SF/001/2006, which were or have been fulfilled, as the case may be. CTEEP s share purchase and sale agreement entered into on July 26, 2006 has also subjected the Company and its parent company to certain obligations to be followed while managing CTEEP, in connection with previous agreements, corporate governance rules, CTEEP s employees rights, maintenance and continuity of electric power transmission service quality, among others. In 2012, for financial commitments, ISA Capital paid R$ 7.1 million and R$ 4.2 million ( R$ 6.3 million and R$ 3.7 million) to the São Paulo State Government and the shareholders taking part of OPA, respectively, for the public offer price adjustment resulting from obligations set forth by Law No. 4819/54.

6 Management Report After restructuring of debt in foreign currency - "bonds" - in 2010, covenants that hindered implementation of certain operating activities were eliminated. Consequently, in addition to better manage its business, ISA Capital continues to strictly fulfill other covenants entered into with the remaining bondholders. In addition, it should be noted that the Company has complied with all new commitments set forth in the Shareholders Agreement arising from issue of redeemable preferred shares in March 2010, such as fixed cumulative dividends to which those shares are entitled. In 2012, such shares were entitled to R$ million (2011- R$ million). 4. Subsidiary s earnings ISA Capital holds 37.81% of CTEEP s capital and, in 2012, recognized an equity pickup amounting to R$ million ( R$ million) and received earnings that totaled R$ million (2011- R$ million), R$ million (2011- R$ million) of which as Dividends and R$ 69.0 million (2011- R$ 98.9 million) as Interest on Equity. 5. Performance indicators ISA Capital s revenue is directly associated with revenue from equity pickup referring to investment in CTEEP, and the latter's revenue is associated with availability of key assets: transmission lines and transformers. Therefore, CTEEP invests permanently in order to assure maintenance and operations efficiency and quality, considering that increase in assets availability may result in deduction in its revenue (variable portion).

7 Management Report Financial performance - Consolidated In 2012, the consolidated gross operating income totaled R$ 3,173.9 million, a decrease of 2.9% against 2011 when recorded R$ 3,268.7 million. The main changes in gross operating income, which comprises (i) construction revenue, (ii) operation and maintenance revenue, and (iii) financial income, are as follows: (i) Construction revenue totaled R$ million in 2012, against R$ 1,103.7 million in 2011, due to the positive impact of construction work progress of CTEEP's subsidiary, IEMadeira, and beginning of the construction work of IEGaranhus, and due to the negative impact of startup of CTEEP's subsidiaries, Pinheiros and Serra do Japi, construction work of which was completed in the fourth quarter of 2011 and first quarter of 2012, respectively, and also due to the completion of reinforcement work and new connections in the existing assets of CTEEP. (ii) Operation and maintenance revenue totaled R$ million in 2012, against R$ million in 2011, an increase of 7.1%, arising from the General Market Price Index (IGPM) positive variation (4.26%), which adjusted the Annual Revenue Allowed (RAP) of CTEEP s master service concession arrangement, and the Extended Consumer Price Index (IPCA) positive variation (4.98%), which adjusted RAP of CTEEP s subsidiaries for the 2012/2013 cycle, as well as O&M revenue for new reinforcements. (iii) Financial income, arising from service concession arrangements, totaled R$ 1,584.8 million in 2012, against R$ 1,590.0 million in 2011, reflecting the changes in expected cash flow for realization of construction and indemnification amounts. Operating income deductions totaled R$ million in 2012, a decrease of 3.5% against R$ million in 2011, due to a decrease of 17.0% in income taxes, particularly from changes in the deferred PIS and COFINS rate of CTEEP s subsidiaries, IEMG and Serra do Japi, due to changes in the tax regime, from taxable profit to taxable profit computed as a percentage of gross sales, in addition to an increase of 15.6% in CDE (Energy Development Account), RGR (Global Reversal Reserve) and PROINFA (Alternative Electric Power Source Incentive Program) regulatory charges, arising from free consumer demand. As a result of a decrease of 11.5% in construction revenue, an increase of 7.1% in operation and maintenance revenue, a decrease of 0.3% in financial income and a decrease of 2.2% in operating income deductions, net operating income in 2012 amounted to R$ 2,819.0 million, a decrease of 2.8% against R$ 2,900.8 million in Consolidated operating costs and expenses decreased 0.8% against the same period in 2011, totaling R$ 1,442.4 million in 2012 against R$ 1,453.8 million in 2011.

8 Management Report Changes in costs and expenses for the last 12 months substantially arise from (i) increase in personnel costs, resulting from a collective bargaining on salaries stipulating a 6.0% increase granted in July 2012, and increase in the number of employees; (ii) increase in third-party service costs and expenses, resulting from construction work progress of IEMadeira, and in the parent company the decrease follows the changes in construction revenue; (iii) increase in contingency expenses, and certain expected losses were reviewed, and favorable labor claims recognized in 2011, amounting to R$ 27.6 million; (iv) offset against a decrease in material costs accompanying the changes in construction revenue, reflected by the startup of Serra do Japi, construction work of which was completed in the first quarter of In October 2012, CVM published Ruling No. 527, which provides for the calculation and disclosure, among others, of EBITDA. Based on such Ruling, EBITDA shall be accompanied by the reconciliation of amounts recorded in the financial statements and shall comprise net income for the period, plus income taxes, financial expenses and depreciation, amortization and depletion. Therefore, in 2012, CTEEP s EBITDA totaled R$ 1,443.1 million, with a margin of 51.2%, against 49.2%, R$ 1,425.7 million in In consolidated, EBITDA totaled R$ million, with a margin of 26.7%, against 50.1%, R$ 1,453.1 million. General and administrative expenses increased 47.1%, totaling R$ million in 2012 against R$ million in This variation is substantially due to an increase in personnel expenses and contingency expenses. The balance of other net operating income (expenses) was negative and totaled R$ million and particularly refers to the recognition of impacts resulting from the extension of CTEEP s service concession arrangement No. 059/2001, under MP 579/2012 and MP 591/2012, and accelerated amortization of goodwill on ISA Capital, as follows: R$ 4,444.5 million for accounts receivable adjustment to VNR by reversal of investments made and not amortized - Existing System (SE) and New Investments (NI); R$ 2,724.6 million for the write-off of accounts receivable referring to construction revenue expected through July 2015, expiration of the service concession arrangement in force prior to MP 579 and 591; R$ 1,535.3 million for provision for fair value adjustment on SE investment. R$ 87.1 million for write-off of investment replacement inventory.

9 Management Report R$ million for accelerated amortization of goodwill on ISA Capital. Financial expenses totaled R$ million in 2012, presenting a decrease of 6.2% against R$ million in 2011, basically impacted by a decrease in Company s financial expenses. Income and social contribution tax expenses increased 44.8%, totaling R$ million in 2012 against R$ million in The effective income and social contribution tax rate was 37.6% in 2012 against 24.2% in 2011, variation of which arises from the lower enjoyment of tax benefit from the payment of interest on equity in 2012 and reversal of the provision for equity integrity maintenance. Accordingly, net income of ISA Capital in 2012 totaled R$ million, a decrease of 51.6% against R$ million in Independent auditors In compliance with Brazilian Securities and Exchange Commission (CVM) Ruling No. 381 of January 14, 2003, ISA CAPITAL hereby notifies that its individual and consolidated financial statements for the years ended were audited by Ernst & Young Terco Auditores Independentes S.S. ( Ernst & Young Terco ). The latter has been providing solely external audit-related services to the Company since April As regards services not related to external audit, ISA Capital follows principles that preserve independence of the auditor, who must not audit his/her own work nor perform managerial roles or even provide legal advisory services to his/her client. 8. Policies and procedures The Company s policies and those of its subsidiary prohibit engaging independent auditors to provide services that may cause conflict of interest or loss of their objectivity. Management

10 A free translation from Portuguese into English of Independent Auditor s Report on Individual and Consolidated Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) Independent auditor s report on financial statements The Board of Directors, Shareholders and Officers Isa Capital do Brasil S.A. São Paulo SP We have audited the accompanying individual and consolidated financial statements of ISA Capital do Brasil S.A. ( Company or ISA ), identified as Company and Consolidated, respectively, which comprise the balance sheet as at December 31, 2012, and the related income statements, statements of comprehensive income, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting practices and other explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of the individual financial statements in accordance with accounting practices adopted in Brazil, and the consolidated financial statements according to 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 these financial statements are free from material misstatement. 1

11 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 preparation and fair presentation of the Company s 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 Company's internal control. An audit also includes evaluating the appropriateness of accounting practices used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the overall financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for qualified opinion As a consequence of the debt restructuring carried out in 2010, described in Note 17.a, ISA recognized issue of redeemable preferred shares, mentioned in Note 27.a, as an equity instrument, which, in our opinion, should be recognized as financial liability, according to accounting practices adopted in Brazil, specifically CPC 39 and IAS 32. In addition, the Company recognized remuneration of the referred to instrument as fixed cumulative dividend, as provided for by its Articles of Incorporation and Shareholders Agreement, rather than financial expense as interest, in the form we believe it should be. Had the Company recognized the referred to share issue as financial liability and had the referred to remuneration been recognized as financial expense rather than dividend, equity at December 31, 2012 would be reduced by R$ 1,200,000 thousand, from R$ 2,163,684 thousand to R$ 963,684 thousand, individual, and from R$ 5,230,081 thousand to R$ 4,030,081 thousand, consolidated. In addition, total liabilities would have increased, from R$ 485,999 thousand to R$ 1,685,999 thousand, individual, and from R$ 5,244,310 thousand to R$ 6,444,310 thousand, consolidated. Net income for the year ended December 31, 2012 would be reduced by R$ 107,911 thousand, from R$ 143,775 thousand to R$ 35,864 thousand, individual, and from R$ 667,646 thousand to R$ 559,735 thousand, consolidated, before noncontrolling interest. 2

12 CTEEP Companhia de Transmissão de Energia Elétrica Paulista ( CTEEP ) executed the fifth amendment to service concession arrangement No. 059/2001, extending the concession for another 30 years, based on Provisional Executive Orders ( MPs ) 579, of September 11, 2012, and 591, of November 29, 2012, which were converted into Law 12783, of January 11, 2013, and also determined indemnification receivable from assets reversible to the Granting Authority. The Brazilian IRS did not issue an opinion and any specific guidance on PIS and COFINS tax effects on such compensation. CTEEP, in turn, did not record such tax effects that would be levied on compensation already approved, amounting to R$ 2,891,291 thousand, as well as on compensation not yet approved by the Granting Authority, amounting to R$ 3,026,305 thousand, classified as Accounts receivable - MPs 579 and 591 (SE/NI). Given the lack of clarification and guidance on such matter by the corresponding agency, we were unable to obtain appropriate and sufficient audit evidence to conclude whether a provision for PIS and COFINS on the compensation mentioned above should be recorded at December 31, More detailed information can be found in Notes 1.2 and 8. Qualified opinion on individual financial statements In our opinion, except for the effects of the first matter discussed in Basis for qualified opinion" and except for the possible effects of the second matter discussed in Basis for qualified opinion", the individual financial statements referred to above present fairly, in all material respects, the financial position of ISA Capital do Brasil S.A. at December 31, 2012, its financial performance and its cash flows for the year then ended, in accordance with accounting practices adopted in Brazil. Qualified opinion on consolidated financial statements In our opinion, except for the effects of the first matter discussed in Basis for qualified opinion" and except for the possible effects of the second matter discussed in Basis for qualified opinion", the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ISA Capital do Brasil S.A. at December 31, 2012, its consolidated financial performance and its consolidated cash flows for the year then ended, according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil. 3

13 Emphasis of a matter As described in Note 2.1, the individual financial statements were prepared in accordance with accounting practices adopted in Brazil. For ISA Capital do Brasil S.A. ( Company ), such practices differ from IFRS applicable to individual financial statements solely with relation to measurement of investments in subsidiaries, affiliates and joint ventures under the equity method. IFRS require measurement of these investments at fair value or cost. As described in Note 38, Law No. 4819/58 granted to servers of companies under the São Paulo State control the advantages to which other public service employees were already entitled, particularly supplementary retirement and pensions, also establishing that resulting expenses are the full responsibility of the State Government. The operation of the payments involves Fundação CESP, charged with preparing the payroll, and the State Government, which transfers the amount to CTEEP (which, in turn, transfers to Fundação CESP for payment to the end beneficiary). This has been the procedure adopted since the spin-off of CESP, which created CTEEP, and, until December 2003, was fully complied with by all parties. From 2004, the São Paulo State Government claimed the right to process the payroll and make the payment directly to beneficiaries. In January 2006, however, the State Finance Office, based on the opinion issued by the São Paulo State Attorney s Office, began the disallowance of part of the benefits paid to pensioners and, since then, accounts receivable have been generated with the Government, as the Company makes the payment of the disallowed installments to pay up the benefits, as required by decision handed down by the 49th Labor Court. Company management, in addition to being broadly and strongly supported by the opinion of its legal advisors, and also due to the fact the State Finance Office does not challenge its full responsibility for providing funds for payment of the benefits from application of Law No. 4819/58 established thereby, understands that it is not necessary to record liability or provision for losses in relation to such accounts receivable in the Company s financial statements. As described in Note 8, total amount of R$ 3,026,305 thousand referring to assets subject to indemnification classified as Existing Service (SE) by CTEEP corresponds to the amount estimated based on the New Replacement Cost ( VNR ), net of depreciation and/or amortization, at December 31, According to Law 12783/13, CTEEP provided the Granting Authority with information for approval of the amount receivable. Accordingly, the subsidiary set up a provision for infrastructure construction cost adjustment, amounting to R$ 1,535,319 thousand, and a balance of R$ 1,490,986 thousand remains, equivalent to regulatory property and equipment. The effective compensation of this asset will be determined only after Granting Authority s approval. Our opinion is unqualified due to these matters. 4

14 Other matters Statements of value added We have also audited the individual and consolidated statements of value added ( DVA ) for the year ended December 31, 2012, the presentation of which is required by Brazilian corporation law for publicly-held companies, and as supplementary information under the IFRS, whereby no statement of value added presentation is required. These statements were subject to the same auditing procedures described above and, in our opinion, they are fairly presented, in all material respects, in relation to the overall financial statements. São Paulo, March 14, ERNST & YOUNG TERCO Auditores Independentes S.S. CRC-2SP015199/O-6 Luiz Carlos Passetti Accountant CRC-1SP144343/O-3 Marcos Alexandre S. Pupo Accountant CRC-1SP221749/O-0 5

15 A free translation from Portuguese into English of Individual and Consolidated Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) Isa Capital do Brasil S.A. Balance sheets (In thousands of reais) Company Consolidated Note 12/31/ /31/ /31/ /31/2011 Assets Current assets Cash and cash equivalents 6 127,324 61, , ,412 Short-term investments 7 294, , , ,450 Accounts receivable (concession asset) ,509,548 1,474,794 Inventories ,814 50,052 Loans receivable 12 and 33 20,510 9,393 20,510 9,393 Interest on equity and dividends receivable 33-84, Receivables - State Finance Department ,906 Taxes and contributions to be offset 10 6,678 44,950 23,903 56,276 Pledges and restricted deposits 13 2,846 2,612 2,846 2,612 Derivative financial instruments 34.a ,309 1,673 Prepaid expenses - - 3,851 3,190 Other ,176 74, , ,352 3,611,999 2,246,246 Noncurrent assets Accounts receivable (concession asset) ,406,848 5,335,027 Receivables - State Finance Department , ,750 Tax benefit merged goodwill , ,079 Deferred income and social contribution taxes 32.b 39,553 45,058 39,553 45,058 Pledges and restricted deposits ,699 61,886 Taxes and contributions to be offset 10 29,264-29,264 - Derivative financial instruments 34.a ,195 Loans receivable 12 and 33 48,645 44,653 48,645 44,653 Inventories , ,395 Other ,266 27, ,462 89,711 6,742,875 6,643,660 investments 14.b 2,080,340 2,039, Property and equipment ,624 8,836 Intangible assets , ,152 2,080,379 2,039, , ,988 Total assets 2,649,683 2,622,435 10,474,391 9,138,894 6

16 Company Consolidated Note 12/31/ /31/ /31/ /31/2011 Liabilities and equity Current liabilities Trade accounts payable ,235 83,338 Loans and financing 17 2,372 2,177 1,137,939 1,009,850 Debentures , ,825 Taxes and social charges payable , ,080 88,351 Taxes in installments Law No ,137 12,273 Taxes in installments - State VAT (ICMS) ,003 - Regulatory charges payable ,982 28,824 Fixed cumulative dividends payable 27.c and 39.a 21,334 36,004 21,334 36,004 Derivative financial instruments 34.a - - 3,770 27,226 Interest on equity and dividends payable - - 6, ,328 Provisions ,780 23,290 Payables Law No. 4819/58 State Finance Department 5.a 7,194 6,335 7,194 6,335 Payables Law No. 4819/58 - OPA 5.b 4,153 3,715 4,153 3,715 Payables Fundação CESP ,226 6,244 Other 2-22,321 30,185 35,774 56,647 1,692,161 1,892,788 Noncurrent liabilities Loans and financing 17 64,679 59,371 1,468,264 1,043,635 Debentures , ,636 Taxes in installments Law No , ,236 Taxes in installments - ICMS ,801 - Deferred PIS and COFINS , ,519 Deferred income and social contribution taxes 32.b ,951 42,176 Regulatory charges payable ,468 32,334 Provisions , ,832 Payables Law No. 4819/58 State Finance Department 5.a 236, , , ,549 Payables Law No. 4819/58 - OPA 5.b 148, , , ,068 Special obligations - reversal/amortization ,053 24, , ,988 3,552,149 2,387,038 Equity Capital 27.a 840, , , ,378 Capital reserves 27.e 1,199,400 1,199,400 1,199,400 1,199,400 Goodwill on capital transaction 27.f (7,468) (7,488) (7,468) (7,488) Income reserves 27.g 131,374 95, ,374 95,510 2,163,684 2,127,800 2,163,684 2,127,800 Noncontrolling interest - - 3,066,397 2,731,268 Total equity 2,163,684 2,127,800 5,230,081 4,859,068 Total liabilities and equity 2,649,683 2,622,435 10,474,391 9,138,894 7

17 Income statements Years ended (In thousands of reais) Company Consolidated Note 12/31/ /31/ /31/ /31/2011 Net operating income ,818,988 2,900,805 Cost of operating services (1,250,564) (1,323,409) Gross profit - - 1,568,424 1,577,396 Operating income (expenses) General and administrative 29 (3,648) (3,408) (191,811) (130,425) Other income (expenses), net 31 (162,634) (55,969) (104,767) (86,724) Equity pickup 14.c 319, , (296,578) (217,149) Income before financial income (expenses) and income taxes 153, ,400 1,271,846 1,360,247 Financial expenses 30 (50,447) (74,220) (438,428) (409,060) Financial income 30 59,212 58, , ,118 Financial income (expenses) 8,765 (15,422) (202,651) (215,942) Income before income and social contribution taxes 162, ,978 1,069,195 1,144,305 Income and social contribution taxes Current 32 (a) (12,821) (18,507) (341,271) (262,713) Deferred 32 (b) (5,505) 45,058 (60,278) (14,580) (18,326) 26,551 (401,549) (277,293) Net income for the year 143, , , ,012 Attributable to: Controlling shareholders 143, , , ,529 Noncontrolling shareholders , ,483 Earnings per share - basic and diluted 27.h Average number of shares for the period 27.h 1,434,469,504 1,434,469,504 8

18 Statements of comprehensive income Years ended (In thousands of reais) Company Consolidated Net income for the year 143, , , ,012 Other comprehensive income Comprehensive income for the year 143, , , ,012 Controlling shareholders , ,529 Noncontrolling shareholders , ,483 9

19 Statements of changes in equity Years ended (In thousands of reais) Capital Capital reserve Goodwill on capital transaction Income reserve Legal reserve Retained profits Retained earnings Total equity Noncontrolling interest Total consolidated equity Balances at December 31, ,378 1,199,400-5,881 48,230-2,093,889 2,737,364 4,831,253 Subsidiary s capital increase ,922 18,922 Payment of proposed dividend distribution (123,557) (123,557) Goodwill on capital transaction (Note 27 f) - - (7,488) (7,488) - (7,488) Income for the year , , , ,012 Fixed cumulative dividends paid for the year (Note 27 c) (48,230) (171,896) (220,126) - (220,126) Fixed cumulative dividends paid in January (Note 27 c) (36,004) (36,004) - (36,004) Dividend distribution (313,595) (313,595) Expired dividend distribution Interest on equity (158,693) (158,693) Expired interest on equity Balance after absorption of accumulated losses (Note 27.c) ,629 (89,629) Balances at December 31, ,378 1,199,400 (7,488) 5,881 89,629-2,127,800 2,731,268 4,859,068 Income for the year , , , ,646 Goodwill on capital transaction (Note 27 f) Fixed cumulative dividends paid in 2012 (Note 27 c) (86,577) (86,577) - (86,577) Fixed cumulative dividends paid in January 2013 (Note 27 c) (21,334) (21,334) - (21,334) Subsidiary s dividend distribution (91,663) (91,663) Subsidiary s expired dividend distribution Subsidiary s additional proposed dividends (19,497) (19,497) Subsidiary s interest on equity (79,546) (79,546) Subsidiary s expired interest on equity Set up of retained profits reserve (Note 27.c) ,864 (35,864) Other - subsidiary Balances at December 31, ,378 1,199,400 (7,468) 5, ,493-2,163,684 3,066,397 5,230,081 10

20 Cash flow statements Years ended (In thousands of reais) Company Consolidated 12/31/ /31/ /31/ /31/2011 Cash flow from operating activities Net income for the year 143, , , ,012 Adjustments to reconcile net income to cash provided by (used in) operating activities Depreciation and amortization (Notes 15,16 and 29) ,015 6,151 Loss on acquisition of joint venture (Note 31) - - (2,437) 28,490 Reversal of provision for loss on joint venture (2,445) Deferred income and social contribution taxes (Note 32) 5,505 (45,058) 60,278 14,580 Deferred PIS and COFINS (Note 22) , ,754 Provision for contingencies (Note 24 (a)) ,038 1,589 Residual cost of permanent assets written off (Note 15) 5-4, Residual cost of investments written off (35) (35) - Short-term investment revenue (15,062) (15,419) (15,566) (15,422) Equity pickup (Note 14.c) (319,618) (345,777) - - Effects of assets subject to indemnification - SE for extension of service concession arrangement No. 059/2001 (Note 1.2 and.8) ,375 - Amortization of goodwill (Note 31) 162,649 55, ,481 84,800 Interest, monetary restatements and foreign exchange fluctuations on assets and liabilities 21,730 29, , ,982 (1,040) (23,450) 1,869,884 1,330,520 (Increase) decrease in assets Trade accounts receivable - - (1,679,708) (1,145,961) Inventories ,766 33,584 Receivables (8,640) (7,944) (169,470) (129,533) Withholding Income Tax (IRRF) recoverable 2,288 3,979 2,288 4,003 Taxes and contributions to be offset 11,186 (998) 5,514 (876) Pledges and restricted deposits (234) (178) (13,047) (19,816) Derivative financial instruments (2,088) Other - 58 (9,918) (5,822) 4,600 (9,038) (1,759,575) (1,270,488) Increase (decrease) in liabilities Trade accounts payable (23) 160 3,658 (8,175) Taxes and social charges payable (7,679) 5,295 56,536 (3,224) Taxes in installments Law No (12,779) (9,592) ICMS in installments - IEMadeira - - 8,805 - Regulatory charges payable ,168 9,502 Provisions - - 4,359 (60,843) Payables Law No and Fundação CESP (11,411) (3,319) (11,429) (3,578) Other 25 (14) (7,854) (39,638) (19,088) 2,372 60,464 (115,548) Net cash provided by (used in) operating activities (15,528) (30,116) 170,773 (55,516) 11

21 Cash flow statements Years ended (In thousands of reais) Company Consolidated 12/31/ /31/ /31/ /31/2011 Cash flow from investing activities Short-term investment (7) 8,364 (278,609) (105,866) (281,983) Property and equipment (Note 15) (3) (28) (5,768) (2,503) Intangible assets (Note 16) - - (37,082) (2,336) Investment 62 (3,262) (32,458) (18,544) Opening balance of cash and cash equivalents of IEMG upon control acquisition - - 8,646 2,174 Subsidiary s profit or loss upon acquisition of Evrecy - - 3,431 - Interest on equity and dividends received (*) (27.d) 200, , Net cash provided by (used in) investing activities 209,175 58,973 (169,097) (303,192) Cash flow from financing activities Loan additions (Note 17 and 18) - - 2,615,795 1,554,266 Payments of loans (including interest ) (Note 17 and 18) (5,236) (4,498) (1,986,811) (457,872) Payments of derivative financial instruments - - (5,288) (3,931) Dividends and interest on equity paid (Note 27.c) (122,581) (220,126) (452,336) (794,470) Payment of capital ,883 Net cash provided by (used in) financing activities (127,817) (224,624) 171, ,876 Net increase (decrease) in cash and cash equivalents 65,830 (195,767) 173,036 (46,832) Cash and cash equivalents at end of year 127,324 61, , ,412 Cash and cash equivalents at beginning of year 61, , , ,244 Changes in cash and cash equivalents 65,830 (195,767) 173,036 (46,832) (*) In 2012, the Company received from CTEEP R$ 96,680 (R$ 65,845 in 2011) for dividends and interest on equity resolved at the previous year-end. The Company also received R$ 104,072 (R$ 275,027 in 2011) for dividends and interest on equity resolved in Company Total interest paid by the Company for the year amounted to R$ 5,236 (R$ 4,498 in 2011) for loans and financing described in Notes 17 and 18. The Company did not pay income and social contribution taxes for the year as existing tax credits were used. Consolidated Total interest paid by the Company and its subsidiaries for the year amounted to R$ 263,357 (R$ 143,474 in 2011) for loans and financing described in Note 17. Total income and social contribution taxes paid by the Company and its subsidiaries for the year amounted to R$ 260,625 (R$ 244,188 in 2011). 12

22 Statements of value added Years ended (In thousands of reais) Company Consolidated Income Operating - - 3,173,890 3,268,689 Other operating - - 4,457,511 35, ,631,401 3,304,487 Inputs acquired from third parties Costs of services rendered - - (42,126) (17,485) Materials, electric power, third-party services and others (1,449) (1,190) (5,471,487) (1,219,533) (1,449) (1,190) (5,513,613) 1,237,018) Gross value added (1,449) (1,190) 2,117,788 2,067,469 Retentions Depreciation and amortization (162,661) (55,982) (167,665) (62,120) Net value added produced by the entity (164,110) (57,172) 1,950,123 2,005,349 Equity pickup 319, , Financial income 59,216 58, , ,855 Received in transfer 378, , , ,855 Total value added to be distributed 214, ,403 2,185,904 2,200,204 Distribution of value added Personnel Direct compensation (1,148) (1,204) (191,082) (155,080) Benefits (410) (434) (39,516) (36,073) Unemployment Compensation Fund (FGTS) (4) (4) (10,830) (10,203) (1,562) (1,642) (241,428) (201,356) Taxes, charges and contributions Federal (23,944) 16,667 (808,805) (698,755) State (13) (13) (459) (709) Local - - (18,855) (18,270) (23,957) 16,654 (828,119) (717,734) Debt remuneration Rents (288) (252) (16,220) (13,428) Interest, monetary restatements and foreign exchange fluctuations (45,157) (64,634) (432,506) (400,674) Other (45,430) (64,886) (448,711) (414,102) Equity remuneration Fixed cumulative dividends distributed - (171,896) - (171,896) Fixed cumulative dividends to be distributed (18,282) (36,004) (18,282) (36,004) Noncontrolling interest - - (523,871) (569,483) Retained profits 125,493 89, ,493 89,629 13

23 Notes to financial statements 1. Operations 1.1. Business purpose The business purpose of ISA Capital do Brasil S.A. ( ISA Capital or Company ) includes holding equity interest in other companies or ventures, as a member or shareholder, partnership in joint ventures, membership in consortiums, or any type of business cooperation. At a privatization auction held on June 28, 2006 on BOVESPA, pursuant to Notice SF/001/2006, the São Paulo State Government, which was the majority shareholder of CTEEP - Companhia de Transmissão de Energia Elétrica Paulista ( CTEEP ) up to then, sold 31,341,890,064 of its common shares, which account for 50.10% of the common shares issued by CTEEP. The winner of the auction was Interconexión Eléctrica S.A. E.S.P. ( ISA ). The financial settlement of the transaction took place on July 26, 2006 with the resulting transfer of the ownership of the aforementioned shares to ISA Capital, a Brazilian company controlled by Interconexión Eléctrica S.A. E.S.P., established to operate in Brazil, thus becoming CTEEP s controlling shareholder. This transaction was approved by the National Agency of Electric Power (ANEEL) on July 25, 2006, pursuant to Authorizing Resolution No. 642/06, published in the Official Gazette on July 26, On September 12, 2006, the Company purchased another 10,021,687 common shares issued by CTEEP, held by the São Paulo State Government, thus holding 31,351,911,751 common shares. On January 9, 2007, the Company acquired, through a public offering auction (OPA) for the acquisition of shares held on BOVESPA, 24,572,554,070 common shares issued by CTEEP, corresponding to 39.28% of the total of this type of shares, pursuant to the public offering notice published on December 4, As a result of this acquisition the Company became the holder of 89.40% of the voting capital and 37.46% of the total capital of CTEEP. Thus, after the CTEEP s reverse stock split on July 12, 2007, the Company became the holder of 55,924,465 common shares. 14

24 1. Operations (Continued) 1.1. Business purpose (Continued) The Company later contributed with 1,727,517 common shares to CTEEP s capital, 574,927 of which on August 24, 2009, 594,477 on April 23, 2010 and 558,113 on December 21, That contribution results from the tax benefit granted to CTEEP for partial amortization of the special goodwill reserve for the years 2009, 2010 and By means of the public tender for excess shares held in 2011 by CTEEP, the Company acquired 63,146 common shares. On June 29, 2012 and July 5, 2012, ISA Capital sold 920 shares. Consequently, at December 31, 2012, the Company held 57,714,208 common shares (December 31, 2011, 57,715,128 common shares), which are equivalent to 37.81% of CTEEP s total capital and 89.50% of its voting capital. On March 9 and 19, 2010, in order to restructure its foreign-currencydenominated debt contracts (bonds), the Company increased capital twice by issuing preferred shares at the price of R$ per share, fully subscribed by HSBC Finance (Brasil) S.A. Banco Múltiplo, as follows: (i) In the Special Shareholders Meeting held on March 9, 2010, under Board of Directors Proposal terms dated March 8, 2010, Company s capital increase by R$ 840,000 was approved, R$ 420 of which were allocated to capital and R$ 839,580 allocated to capital reserve, by creating and issuing 415,691,162 redeemable preferred shares distributed into 13 classes, entitled to fixed cumulative dividends, which were subscribed and paid up on the same date. Accordingly, Company s capital increased from R$ 839,778 to R$ 840,198, divided into 1,256,316,162 shares. In the same meeting, mandatory dividend reduction from 25% to 1% and amendment to the Company s Articles of Incorporation were approved; and (ii) In the Board of Directors Meeting held on March 19, 2010, a new capital increase was approved within authorized capital limit, by issuing 178,153,342 redeemable preferred shares distributed into 13 classes, entitled to fixed cumulative dividends, amounting to R$ 360,000, which were fully subscribed and paid up on the same date, R$ 180 of which were allocated to the Company s capital and R$ 359,820 to capital reserve. 15

25 1. Operations (Continued) 1.1. Business purpose (Continued) Accordingly, at, the subscribed and paid-up capital of the Company amounts to R$ 840,378 and is divided into 840,625,000 common shares and 593,844,504 preferred shares (Note 14.a). On May 27, 2010, as decided by the shareholders, the Company unlisted from CVM. CTEEP s shares are traded on BOVESPA. In addition, CTEEP has a Rule 144 A American Depositary Receipts (ADRs) program in the United States. The depositary bank for the ADRs is the Bank of New York, and the custodian bank is Banco Itaú S.A. CTEEP s preferred shares are included in BOVESPA Index (IBOVESPA), in the Corporate Governance Index (IGC) and the Electric Power Index (IEE) Concessions The Company is entitled to explore, either directly or indirectly, the following Public Service Concession Arrangements for Electric Power Transmission: Periodic Tariff Review Annual Revenue Allowed (RAP) Concession Operator Arrangement Interest (%) Term (years) Maturity date Term Next RAP in step Restatement index R$ thousand Base month CTEEP 059/2001(*) /7/15 4 years 2013 No IGPM 2,113,952 6/12 CTEEP 143/ /20/31 N/A N/A Yes IGPM 15,934 6/12 IEMG 004/ /23/37 5 years 2017 Yes IPCA 13,567 6/12 Pinheiros 012/ /15/38 5 years 2014 No IPCA 8,173 6/12 Pinheiros 015/ /15/38 5 years 2014 No IPCA 19,096 6/12 Pinheiros 018/ /15/38 5 years 2014 No IPCA 3,332 6/12 Pinheiros 021/ /9/41 5 years 2017 No IPCA 4,400 9/11 (**) Serra do Japi 026/ /18/39 5 years 2015 No IPCA 25,102 6/12 Evrecy (***) 020/ /17/25 4 years 2013 No IGPM 9,844 6/12 IENNE 001/ /16/38 5 years 2013 No IPCA 41,893 6/12 IESul 013/ /15/38 5 years 2014 No IPCA 2,375 6/12 IESul 016/ /15/38 5 years 2014 No IPCA 8,406 6/12 IEMadeira 013/ /25/39 5 years 2014 No IPCA 218,933 6/12 IEMadeira 015/ /25/39 5 years 2014 No IPCA 184,866 6/12 IEGaranhuns 022/ /9/41 5 years 2017 No IPCA 68,900 9/11 (**) (*) Service concession arrangement No. 059/2001 of Subsidiary CTEEP is subdivided into: Existing Service (SE) referring to energized facilities through May 31, 2000 and New Investments (NI) referring to energized facilities from June 1, 2000 and New Investments after Amendment (NIA) referring to investments made and not reflected in the indemnification provided for by Provisional Executive Order No. 579/2012. Information on periodic tariff review refers only to service concession arrangement No. 059/2001 NI. On December 4, 2012, the amendment to service concession arrangement No. 059/2001 was executed, which entered into force on January 1, 2013, changing its expiration from July 7, 2015 to December 31, 2042 and reducing Annual Revenue Allowed (RAP) from R$ 2,113,952 to R$ 568,177 (net of PIS and COFINS, 515,621), which considers only the infrastructure operation and maintenance. 16

26 1. Operations (Continued) 1.2. Concessions (Continued) Service concession arrangement No. 059/2001 will provide, on January 1, 2013, the following information: Concession Operator Arrangem ent Intere st (%) Periodic Tariff Review Term (years ) Maturity date Term Next RAP in step Restateme nt index Annual Revenue Allowed (RAP) R$ thousan d Base month CTEEP 059/ /31/ years 2018 No IPCA 568,177 1/13 (**) According to the service concession arrangement, Annual Revenue Allowed (RAP) will be adjusted annually following the startup of the venture. Subsidiary IEMadeira, startup of which is estimated for the 2 nd quarter of 2013 (batch D) and 3 rd quarter of 2013 (batch F), is now part of 6/12 base of RAP, under Authorizing Resolution No (Note 28.4). (***) Company acquired on December 21, 2012, under Note 14. All service concession arrangements above provide for the indemnification right on concession-related assets upon expiration thereof. Provisional Executive Orders 579/2012 and 591/2012 On September 12, 2012, Provisional Executive Order 579/2012 (MP 579) was published, which governs the extension of electric power generation, transmission and distribution concessions, granted before publication of Law No. 8987, of 1995, and addressed by Law 9074, of On September 14, 2012, Decree 7805 was published, which governed MP 579. Under MP 579, electric power generation, transmission and distribution concessions, overdue or falling due 60 months after publication of such MP, could mature in December 2012, extendable, at the Granting Authority s discretion, only once, for up to 30 years. However, for transmission activities, the extension would depend on express acceptance of the following main conditions, among others: i) Revenue determined under ANEEL s criteria; ii) Amounts established for assets subject to indemnification; and iii) Adopting the service quality standard established by ANEEL. On November 1, 2012, the Ministry of Mines and Energy published: (i) Interministerial Ruling No. 580, which determined the indemnification for energized facilities as from June 1, 2000 (NI), at the prices for October 2012 for electric power transmission concessions, totaling R$ 2,891,291 for service concession arrangement No. 059/2001 (single arrangement addressed by such MP), under Attachment II of such Ruling. 17