Interim financial statements ISA Capital do Brasil S.A.

Transcription

1 Interim financial statements ISA Capital do Brasil S.A. March31,2012 with Independent Auditor s Review Report

2 ISA Capital do Brasil S.A. Interim financial statements Contents Independent auditor s review report... 1 Unaudited financial statements Balance sheets... 4 Statements of income... 6 Statements of changes in equity... 7 Statements of cash flows... 8 Notes to interim financial statements... 10

3 A free translation from Portuguese into English of Independent Auditor s Review Report on Individual Interim Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and on Interim Financial Statements prepared in Brazilian currency in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB, and accounting practices adopted in Brazil Independent auditor s review report The Board of Directors, Shareholders, and Officers ISA Capital do Brasil S.A. São Paulo Introduction We have reviewed the accompanying individual and consolidated interim financial information of ISA Capital do Brasil S.A. and its subsidiary contained in the Quarterly Financial Information Form (ITR) for the quarter ended, which comprises the balance sheet at and the related statements of income, changes in equity, and cash flows for the quarter then ended, including a summary of significant accounting practices and the explanatory notes. Management is responsible for the preparation of the individual interim financial information in accordance with CPC 21 Interim Financial Reporting, issued by the Brazilian FASB (CPC), and of the consolidated interim financial information in accordance with CPC 21 and IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with specific rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Financial Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR 2410 and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 1

4 Basis of qualified conclusion on the individual and consolidated financial statements As a consequence of the debt restructuring carried out in 2010, described in Note 16.a, ISA Capital do Brasil S.A. recognized issuance of redeemable preferred shares, mentioned in Note 24.a, as an equity instrument that, in our opinion, should be recognized as financial instrument liability, according to accounting practices adopted in Brazil, specifically CPC 39 approved by CVM Rule No. 604, of November 19, 2009, and IAS 32. In addition, the Company recognized remuneration of such instrument as fixed cumulative dividend as provided for by its Articles of Incorporation and Shareholders Agreement, and not as financial expense as interest as we believe it should be. Had the Company recognized such share issuance as financial instrument liability and had such remuneration been recognized as financial expense and not as dividend, equity at would be reduced by R$ 1,200,000 million, from R$ 2,184,515 million to R$ 984,515 thousand, individual, and from R$ 4,972,500 million to R$ 3,772,500 million, consolidated. In addition, total liabilities would be increased, from R$ 461,390 thousand to R$ 1,661,390 million, individual, and from R$ 4,421,154 million to R$ 5,621,154 million, consolidated. Net income for the year ended would be reduced by R$ 35,180 thousand, from R$ 56,715 thousand to R$ 21,535 thousand, individual, and from R$ 184,138 thousand to R$ 148,958 thousand, consolidated, before non-controlling interest. Conclusion on the interim financial information Based on our review, except for the effects of the matter discussed in the paragraph Basis of qualified conclusion on the individual and consolidated financial statements, nothing has come to our attention that causes us to believe that the interim financial information does not present fairly, in all material respects, the financial position of the Company at, its financial performance, and its cash flows for the quarter then ended in accordance with accounting practices adopted in Brazil. 2

5 Emphasis paragraph As mentioned in Note 34, Law No. 4819/58 granted to employees of companies under the São Paulo State Government control those benefits already granted to other public service employees, particularly supplementary retirement benefits and granting of pension, and established that expenses arising therefrom are full responsibility of the São Paulo State Government. Payment process involves Fundação CESP, which prepares payrolls, and the São Paulo State Government, which passes on the amount to CTEEP (which passes it on to Fundação CESP to pay the final beneficiary). This has been the procedure since CESP spin-off whereby CTEEP was created, which was totally fulfilled by the parties through December Beginning 2004, the São Paulo State Government required the right to directly process payroll and pay beneficiaries. However, in January 2006, based on a report issued by the São Paulo State Attorney General, the São Paulo State Finance Department started disallowing part of the benefits paid to retired employees and, henceforth, it has generated accounts receivable from the São Paulo State Government by CTEEP, as mentioned in Note 7.c) and 7.d), since the Company has been paying the disallowed portions to meet full benefit payment, as required by decision of the 49th Labor Court. Company management and its subsidiary CTEEP, in addition to being fully and strongly supported by the opinion of its legal advisors, and considering that the São Paulo State Finance Department is not challenging its full responsibility for providing funds for the payment of benefits related to the application of Law No. 4819/58 instituted thereby, understands that no obligation or provision for losses related to such receivables should be recorded in the financial statements, Company and. São Paulo, May 17, 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 3

6 A free translation from Portuguese into English of Individual Interim Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and on Interim Financial Statements prepared in Brazilian currency in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB, and accounting practices adopted in Brazil ISA Capital do Brasil Balance sheets and December 31, 2011 (In thousands of reais) Company Note 3/31/ /31/2011 3/31/ /31/2011 Assets Current assets Cash and cash equivalents 6 407, , , ,862 Accounts receivable (concession assets) ,552,516 1,474,794 Inventories ,068 50,052 Loans receivable 11 9,365 9,393 9,365 9,393 Net interest on equity and dividends receivable 30 39,578 84, Receivables State Finance Department ,697 14,906 Taxes to be offset 9 43,678 44,950 54,642 56,276 Pledges and restricted deposits 12-2,612-2,612 Prepaid expenses ,646 3,190 Derivative financial instruments 31.a - - 1,223 1,673 Other ,481 74, , ,352 2,381,320 2,246,246 Non-current assets Long-term receivables Accounts receivable (concession assets) ,427,829 5,335,027 Receivables State Finance Department , ,750 Tax benefit merged goodwill , ,079 Deferred income and social contribution taxes 29.b 42,396 45,058 51,772 45,058 Pledges and restricted deposits ,613 61,886 Derivative financial instruments 31.a ,761 54,195 Loans receivable 11 43,788 44,653 43,788 44,653 Inventories , ,395 Other ,944 27,617 86,184 89,711 6,778,636 6,643,660 Investment 13.b 2,059,804 2,039, Property and equipment ,378 8,836 Intangible assets , ,152 2,059,850 2,039, , ,988 2,135,918 2,129,083 7,002,218 6,892,648 Total assets 45,905 22,435 9,393,654 9,138,894 4

7 Company Note 3/31/ /31/2011 3/31/ /31/2011 Liabilities and equity Current liabilities Trade accounts payable ,577 83,338 Loans and financing ,177 1,293,464 1,009,850 Debentures , ,825 Taxes and social charges payable 18 8,621 8, ,187 88,351 Tax installment payments - Law No ,532 12,273 Regulatory charges payable ,774 28,824 Fixed cumulative dividends payable 24.c - 36,004-36,004 Derivative financial instruments 31.a ,449 27,226 Interest on equity and dividends payable 24.d , ,328 Provisions ,778 23,290 Payables Law 4819/58 - State Finance Department 5.a 6,335 6,335 6,335 6,335 Payables Law 4819/58 OPA 5.b 3,715 3,715 3,715 3,715 Payables Fundação CESP ,304 6,244 Other ,007 30,185 19,984 56,647 2,082,351 1,892,788 Non-current liabilities Long-term payables Loans and financing 16 57,671 59, ,863 1,043,635 Debentures , ,636 Tax installment payments - Law No , ,236 Deferred PIS and COFINS , ,519 Deferred taxes 29.b ,602 42,176 Regulatory charges payable ,274 32,334 Provisions , ,832 Payables Law 4819/58 - State Finance Department 5.a 235, , , ,549 Payables Law 4819/58 OPA 5.b 148, , , ,068 Special liabilities reversal / amortization ,053 24, , ,988 2,338,803 2,387,038 Equity Capital 24.a 840, , , ,378 Capital reserves 24.e 1,199,400 1,199,400 1,199,400 1,199,400 Goodwill on capital transaction 24.f (7,488) (7,488) (7,488) (7,488) Income reserves 24.g 95,510 95,510 95,510 95,510 Retained earnings 56,715-56,715-2,184,515 2,127,800 2,184,515 2,127,800 Non-controlling interest - - 2,787,985 2,731,268 Equity 2,184,515 2,127,800 4,972,500 4,859,068 Total liabilities and equity 2,645,905 2,622,435 9,393,654 9,138,894 See accompanying notes. 5

8 ISA Capital do Brasil Statements of income Years ended and 2011 (In thousands of reais except when otherwise indicated) Company Note 3/31/2012 3/31/2011 3/31/2012 3/31/2011 Net operating revenue , ,039 Cost of operating services (256,913) (255,737) Gross profit , ,302 Operating income (expenses) General and administrative 26 (997) (801) (46,036) (36,455) Other expenses, net 28 (13,992) (13,992) (20,603) (20,344) Equity pickup 13.c 77,681 77, ,692 62,850 (66,639) (56,799) Income before financial income and expenses and income taxes 62,692 62, , ,503 Financial expenses 27 (16,495) (17,296) (136,013) (62,154) Financial income 27 19,389 10,583 67,888 18,169 2,894 (6,713) (68,125) (43,985) Income before income and social contribution taxes 65,586 56, , ,518 Income and social contribution taxes Current 29.a (6,208) (4,144) (75,853) (67,737) Deferred 29.a (2,663) 51, ,634 (8,871) 47,077 (75,563) (19,103) Net income for the period 56, , , ,415 Net income for the period allocated to noncontrolling shareholders - - (127,423) (128,201) Net income for the period allocated to controlling shareholders 56, ,214 56, ,214 Earnings per share - Basic and diluted in Reais 24.g Number of average shares for the period 24.g 1,434,469,504 1,434,469,504 See accompanying notes. 6

9 ISA Capital do Brasil S.A. and Subsidiary Statements of changes in equity Quarters ended and 2011 (In thousands of reais) Capital Capital reserve Goodwill on capital transaction Legal reserve Income reserve Earnings retention Retained earnings Total equity Non-controlling 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 Income for the period , , , ,415 Fixed cumulative dividends paid for the quarter (Note 24 c) (48,230) (59,407) (107,637) - (107,638) Distribution of dividends of subsidiaries (113,128) (113,128) Distribution of prescribed dividends of subsidiaries Interest on equity of subsidiaries (40,990) (40,990) Prescribed interest on equity of subsidiaries Balance after absorption of accumulated loss of subsidiaries Balances at March 31, ,378 1,199,400-5,881-43,807 2,089,466 2,712,080 4,801,545 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 period ,715 56, , ,138 Distribution of dividends of subsidiaries (31,304) (31,304) Prescribed dividends of subsidiaries Interest on equity of subsidiaries (39,773) (39,773) Other Balances at 840,378 1,199,400 (7,488) 5,881 89,629 56,715 2,184,515 2,787,985 4,972,500 See accompanying notes. 7

10 ISA Capital do Brasil S.A. and Subsidiary Statements of cash flows Quarters ended and 2011 (In thousands of reais) Company 3/31/2012 3/31/2011 3/31/2012 3/31/2011 Cash flow from operating activities Net income for the period 56, ,214 56, ,214 Adjustments to reconcile net income to cash generated by (used in) operating activities Non-controlling interest , ,201 Depreciation and amortization (Notes 14,15, and 26) 3 3 1,271 1,516 Loss on acquisition of subsidiary - - (610) - Deferred income and social contribution taxes 2,663 15,221 (290) 48,634 Deferred PIS and COFINS - - (7,280) (15,755) Provision for contingencies (Note 21) - - 1,345 (1,669) Recoverable IRRF (1,104) - (1,104) - Net book value of permanent assets written off Equity pickup (Note 13.c) (77,681) (77,643) - - Amortization of goodwill (Note 28) 13,992 13,992 21,200 21,200 Capital gains (losses) ,736 Interest and monetary and exchange rate variations on assets and liabilities 4,485 9,341 77,997 9,341 (922) 2, , ,664 (Increase) decrease in assets Trade accounts receivable - - (169,917) (191,864) Inventories ,383 Receivables 29 - (45,587) (25,620) Taxes to be offset 3,265 (56,661) 3,627 (55,728) Pledges and restricted deposits 2,612 2,325 (1,115) 731 Prepaid expenses - - (13,456) (11,341) Other - 7 5,913 22,088 5,906 (54,329) (219,639) (245,351) Increase (decrease) in liabilities Trade accounts payable 131 (42) (31,094) (15,889) Taxes and social charges payable 543 4,144 18,836 2,115 Tax installment payments - Law No (3,112) - Regulatory charges payable - (86) 7,890 1,085 Provisions - 8 (9,518) (6,984) Payables (322) Other - - 5,923 (27,226) 674 4,024 (11,015) (47,221) Net cash generated by (used in) operating activities 5,654 (1,398) 46,078 26,313 See accompanying notes. 8

11 ISA Capital do Brasil S.A. and Subsidiary Statements of cash flows (Continued) Quarters ended and 2011 (In thousands of reais) Company 3/31/2012 3/31/ /31/2011 3/31/2011 Cash flow from investing activities Property and equipment (Note 14) (2) - (36) (917) Intangible assets (Note 15) - - (7) - Investment (Note 13. d) (15,283) Opening balance of cash upon acquisition ,173 (*) Interest on equity and dividends received 88,454 65, Net cash generated by (used in) investing activities 88,452 65,845 (38) (14,027) Cash flow from financing activities Loan additions (Note 16) , ,871 Loan payments (including interest) (Notes 16 and 17) (2,423) (2,326) (290,299) (57,029) Dividends and interest on equity paid (Note 24.c) (36,004) (107,637) (172,388) (205,629) Net cash generated by (used in) financing activities (38,427) (109,963) 10,780 50,213 Net increase (decrease) in cash and cash equivalents 55,683 (45,516) 56,820 62,499 Cash and cash equivalents at the end of the period 407, , , ,743 Cash and cash equivalents at the beginning of the period 351, , , ,244 Changes in cash and cash equivalents 55,683 (45,516) 56,820 62,499 (*) In the first quarter of 2012, the Company received from CTEEP R$ 88,454 (R$ 65,845 in March 2011) relating to dividends and interest on equity approved at the end of the previous fiscal year. See accompanying notes. 9

12 ISA Capital do Brasil S.A. e controlada Notes to interim financial statements 1. Operations 1.1 Business purpose The business purpose of ISA Capital do Brasil S.A. ( ISA Capital or Company ) includes equity interest in other companies or ventures, as a partner 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 the São Paulo Stock Exchange (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 parent company. This transaction was approved by the Brazilian Electricity Regulatory Agency (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 other 10,021,687 common shares issued by CTEEP, held by the São Paulo State Government, and became the holder of 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. 10

13 1. Operations (Continued) 1.1 Business purpose (Continued) Later, the Company paid in CTEEP capital 1,727,517 common shares 574,927 shares on August 24, 2009, 594,477 shares on April 23, 2010, and 558,113 shares on December 21, Such capitalizations arise from CTEEP s tax benefit resulting from the partial amortization of the special goodwill reserve for fiscal years 2009, 2010, and By means of a remaining share auction held by CTEEP, ISA Capital acquired 63,146 common shares. Accordingly, at, the Company held 57,715,128 common shares, corresponding to 37.81% of CTEEP total capital and 89.50% of its voting capital. On March 9 and 19, 2010, in order to restructure its foreign currency denominated 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 in on the same date. Accordingly, Company s capital increased from R$ 839,778 to R$ 840,198, comprising 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 of the Company was approved within authorized capital limit, with issuance of 178,153,342 redeemable preferred shares, distributed into 13 classes, entitled to fixed cumulative dividends, amounting to R$ 360,000, which was fully subscribed and paid in on the same date, R$ 180 of which were allocated to the Company s capital and R$ 359,820 to capital reserve. 11

14 1. Operations (Continued) 1.1 Business purpose (Continued) Accordingly, at, the Company s subscribed and paid-in capital amounted to R$ 840,378 (R$ 840,378 at December 31, 2011) and comprises 840,625,000 common shares and 593,844,504 preferred shares. On May 27, 2010, as resolved by the shareholders, the Company unlisted from CVM. CTEEP shares are traded on BOVESPA. In addition, CTEEP adopts the American Depositary Receipts (ADRs) program, Rule 144 A, 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 has its preferred shares included in BOVESPA Index (IBOVESPA), in the Corporate Governance Index (IGC), and the Electric Power Index (IEE). 1.2 Concessions CTEEP is entitled to explore, either directly or indirectly, the following Public Utility Concession Agreements for Electric Power Transmission: Annual revenue allowed Periodic tariff review (RAP) Concessionaire Agreement Interest (%) Term (years) Maturity Term Next RAP in step Restatement index R$ thousand Base month CTEEP 059/2001 (*) /7/15 4 years 2013 No IGPM 1,992,484 11/6 CTEEP 143/ /20/31 n/a n/a Yes IGPM 15,793 11/6 IEMG 004/ /23/37 5 years 2012 Yes IPCA 14,193 11/6 Pinheiros 012/ /15/38 5 years 2014 No IPCA 7,386 11/6 Pinheiros 015/ /15/38 5 years 2014 No IPCA 13,474 11/6 Pinheiros 018/ /15/38 5 years 2014 No IPCA 3,174 11/6 Pinheiros 021/ /9/41 5 years 2017 No IPCA 4,400 11/9 Serra do Japi 026/ /18/39 5 years 2015 No IPCA 25,200 11/6 IENNE 001/ /16/38 5 years 2013 No IPCA 36,435 11/6 IESul 013/ /15/38 5 years 2014 No IPCA 4,447 11/6 IESul 016/ /15/38 5 years 2014 No IPCA 8,006 11/6 IEMadeira 013/ /25/39 5 years 2014 No IPCA 176,249 8/11 (**) IEMadeira 015/ /25/39 5 years 2014 No IPCA 151,788 8/11 (**) IEGaranhuns 022/ /9/41 5 years 2017 No IPCA 68,900 11/9 (*) Concession agreement No. 059 of CTEEP is subdivided into: SE (Existing Service) referring to the energized installations until December 31, 1999; and NI (New Investments) referring to energized installations as from January 1, Information related to periodic tariff review refers only to concession agreement No. 059 NI. (**) According to the concession agreement, RAP will be readjusted on an annual basis, after the venture starts up. The Company expects that IEMadeira starts up in mid-2012 (batch D) and 2013 (batch F). 12

15 1. Operations (Continued) 1.2 Concessions (Continued) Due to acquisition of the shareholding control of CTEEP by ISA Capital on June 28, 2006, an amendment to concession agreement 059/ ANEEL of CTEEP was signed on January 29, 2007, in order to reflect the new controlling shareholder. In this amendment, the conditions initially negotiated were maintained and a clause was added defining that the goodwill paid in the auction, as well as the special liabilities and the amounts arising from State Law No. 4819/58, provided for by Sales Notice SF/001/2006, will not be considered by ANEEL for evaluation of the financial and economic balance of the concession. Further as a result of this amendment, ISA Capital and ISA agreed to make capital contributions to CTEEP. All the concession agreements above provide for the right to indemnification for assets related to the concession at the end of the term thereof. Attendance at auctions (i) Auction 001/2009 Batch C - Porto Velho Jauru Transmission Line Batch C refers to the third Transmission Line (LT) circuit of 230 kv between Jauru (Mato Grosso State) and Porto Velho (Rondônia State), totaling 987 km. In order to explore this LT, Linha Verde Transmissora de Energia S.A. was incorporated on July 2, On May 19, 2010, Linha Verde filed with ANEEL a request for previous approval to transfer shares held by CTEEP to Abengoa Concessões Brasil Holding S.A. On March 15, 2011, through Authorizing Resolution No. 2814, ANEEL approved the transfer of shares held by CTEEP to Abengoa Concessões Brasil Holding S.A. On April 7, 2011, CTEEP transferred the shares it held in Linha Verde to Abengoa Concessões Brasil Holding S.A. for the equity value. 13

16 1. Operations (Continued) 1.2 Concessions (Continued) Attendance at auctions (Continued) (i) Auction 001/2009 (Continued) Batch D - Porto Velho Rio Branco Transmission Line This batch refers to the second LT circuit of 230 kv between Porto Velho (Rondônia State), Abunã and Rio Branco (Acre State), totaling 487 km. In order to explore this LT, Rio Branco Transmissora de Energia S.A. was incorporated on July 2, On October 29, 2010, Rio Branco filed with ANEEL a request for previous approval to transfer shares held by CTEEP to Centrais Elétricas do Norte do Brasil S.A. - Eletronorte. On February 15, 2011, through Authorizing Resolution No. 2774, ANEEL approved the transfer of shares held by CTEEP to Centrais Elétricas do Norte do Brasil S.A. - Eletronorte. On May 5, 2011, CTEEP transferred the shares it held in Rio Branco to Centrais Elétricas do Norte do Brasil S.A. for the equity value. (ii) Auction 001/2011 On June 10, 2011, through ANEEL auction No. 001/2011, in a public session on BM&FBOVESPA, CTEEP constituted, together with Companhia Hidro Elétrica do São Francisco - Chesf, the Extremoz consortium, which bought at the auction batch A, comprising LT Ceará-Mirim - João Câmara II, of 500 kv with 64 km; LT Ceará-Mirim - Campina Grande III, of 500 kv with 201 km; LT Ceará-Mirim - Extremoz II, of 230 kv with 26 km; LT Campina Grande III - Campina Grande II, with 8.5 km; SE João Câmara II of 500 kv, SE Campina Grande III of 500/230 kv, and SE Ceará-Mirim of 500/230 kv. This project involves estimated investment of R$ million and the Annual Revenue Allowed (RAP) of R$ 31.9 million, as of June The Company s equity interest in the venture is 51%. Start up of operation is scheduled for August

17 2. Presentation of interim financial statements and summary of significant accounting practices 2.1 Basis of preparation and presentation Individual interim financial statements, identified as Company, were prepared and are presented in accordance with accounting practices adopted in Brazil, which comprise the provisions of the Brazilian Corporation Law, pronouncements, interpretations, and guidance issued by the Brazilian FASB ( CPC ) and approved by the Brazilian Securities and Exchange Commission ( CVM ). These individual interim financial statements present the valuation of investments in subsidiaries and joint ventures under the equity method, pursuant to prevailing Brazilian law. As such, these individual interim financial statements are not considered as in accordance with International Financial Reporting Standards ( IFRS ), under which such investments must be measured at fair value or cost. interim financial statements, identified as, were prepared and are presented in accordance with accounting practices adopted in Brazil, which comprise the provisions of the Brazilian Corporation Law, pronouncements, interpretations, and guidance issued by CPC and approved by CVM, which are in accordance with IFRS issued by the International Accounting Standards Board IASB. Except for profit or loss for the period, the Company does not present other comprehensive income. In accordance with Circular Letter CVM/SNC/SEP No. 03/2011, the Company represents that the significant accounting judgments, estimates, and assumptions, as well as the significant accounting practices, are the same as those disclosed in the annual financial statements for Accordingly, the relevant information should be read in Notes 2.3 and 3 to those financial statements, except for 3.3, referring to subsidiary Interligação Elétrica de Minas Gerais S.A. ( IEMG ), which opted for the taxable profit computed as a percentage of gross sales regime to determine income and social contribution taxes for

18 2. Presentation of interim financial statements and summary of significant accounting practices (Continued) 2.1 Basis of preparation and presentation (Continued) The individual and consolidated interim financial statements were prepared based on the historical cost, unless otherwise stated, as described in accounting practices. Usually, the historical cost is based on the fair value of the consideration paid in exchange for assets. All of the amounts presented in this interim financial information are in thousands of reais, unless otherwise stated. Non-financial data included in this interim financial information, such as energy volumes, estimates or forecasts, insurance, among others, were not reviewed by independent auditors. 2.2 Functional and reporting currency The interim financial statements of the Company and its subsidiaries included in the consolidated interim financial statements are presented in reais, which is the currency of the economic environment in which the companies operate ( functional currency ). 2.3 Significant accounting judgments, estimates, and assumptions The Company represents that the information on significant accounting judgments, estimates, and assumptions described in Note 2.3 to annual financial statements for 2011 remains valid for these interim financial statements - ITR. 2.4 Consolidation procedures The consolidated interim financial statements include the quarterly information of ISA Capital, its subsidiaries, and its joint ventures. Control is obtained when the Company is entitled to control financial and operating policies of an entity to enjoy benefits arising from the activities thereof. 16

19 2. Presentation of interim financial statements and summary of significant accounting practices (Continued) 2.4 Consolidation procedures (Continued) Subsidiaries and joint ventures are fully and proportionally consolidated, respectively, as from the date control, joint control, begins through the date such control, joint control, ceases to exist. At and December 31, 2011, interest held in subsidiaries was as follows: Base date of financial statements Interest % 3/31/ /31/2011 Direct CTEEP 3/31/ Indirect Interligação Elétrica Pinheiros S.A. (Pinheiros) 3/31/ Interligação Elétrica Serra do Japi S.A. (Serra do Japi) 3/31/ Interligação Elétrica de Minas Gerais S.A. (IEMG) 3/31/ Indirect Joint venture Interligação Elétrica Norte e Nordeste S.A. (IENNE) 3/31/ Interligação Elétrica do Sul S.A. (IESUL) 3/31/ Interligação Elétrica do Madeira S.A. (IEMADEIRA) 3/31/ Interligação Elétrica Garanhuns S.A. (IEGARANHUNS) 3/31/ The following procedures were adopted in the preparation of the consolidated quarterly information: elimination of subsidiaries equity; elimination of equity pickup; and, elimination of balances of consolidated intercompany assets and liabilities, revenues and expenses; Accounting practices were uniformly applied to all consolidated companies and their fiscal year matches that of the parent company. There is no non-controlling interest to be presented in the consolidated quarterly information. 17

20 3. Significant accounting practices The Company represents that the information on significant accounting practices remains valid for these interim financial statements, and such information is contained in Note 3 to financial statements for For 2012, Interligação Elétrica de Minas Gerais S.A. ( IEMG ) opted for the taxable profit computed as a percentage of gross sales regime to determine income and social contribution taxes rather than the taxable profit regime, as determined and informed in New and revised standards and interpretations not yet adopted As mentioned in Note 4 to financial statements for 2011, new pronouncements, amendments to existing pronouncements and new interpretations were published and are mandatory for the fiscal years beginning on or after January 1, The corresponding pronouncements and amendments related to new and revised "IFRS" presented in this note have not been edited by CPC yet. Due to the commitment made by CPC and CVM to keep updated the set of standards issued on the basis of updates issued by the International Accounting Standards Board - IASB, it is expected that these pronouncements and amendments will be edited by CPC and approved by CVM until their mandatory application date. The Company and its subsidiary did not adopt in advance such amendments in their consolidated interim financial statements at and have not had the opportunity to assess a potential impact of adopting these amendments. New pronouncements in addition to those disclosed in the financial statements for 2011 were not issued. 5. Obligations assumed upon acquisition of subsidiary CTEEP Under the share purchase and sale agreement, subject matter of the privatization auction described in Note 1, the Company undertakes to supplement payment of purchase price of CTEEP shares, in the event that CTEEP is released from the burden related to supplementary payments to the private pension plan provided for by Law No. 4819/58, currently being disputed in court. 18

21 5. Obligations assumed upon acquisition of subsidiary CTEEP (Continued) At, the amount of purchase price supplementation is composed of two different transactions, as follows: a) R$ 242,029 (December 31, R$ 238,884), determined upon acquisition of the first equity interest through the privatization auction held on June 28, 2006, recorded in the Payables Law 4819/58 - State Finance Department account, R$ 6,335 (December 31, 2011 R$ 6,335) of which in current liabilities and R$ 235,694 (December 31, R$ 232,549) in non-current liabilities, were matched against R$ 188,895 in the Investments goodwill on acquisition of interest in Subsidiary account, and the difference of R$ 53,134 was recognized in the statement of income as monetary restatement of the obligation, in accordance with the Consumer Price Index- Amplified (IPC-A) as from December 31, R$ 3,146 were recognized in the statement of income for b) R$ 151,756 (December 31, R$ 149,783), determined upon acquisition of the third equity interest through a public offering auction (OPA) for the acquisition of shares, held on January 9, 2007, recorded in the Payables Law 4819/58 - OPA account, R$ 3,715 (December 31, 2011 R$ 3,715) of which in current liabilities and R$ 148,041 (March 31, R$ 146,068) in non-current liabilities, were matched against R$ 120,306 in the Investments goodwill on acquisition of interest in Subsidiary account, and the difference of R$ 31,450 was recognized in the statement of income as monetary restatement of the obligation, in accordance with the Consumer Price Index- Amplified (IPC-A) as from December 31, R$ 1,973 were recognized in the statement of income for Cash and cash equivalents Company 3/31/ /31/2011 3/31/ /31/2011 Cash and banks ,706 2,081 Short-term investments (i) 407, , , , , , , ,862 19

22 6. Cash and cash equivalents (Continued) (i) Breakdown of short-term investments is as follows: Company % of CDI 3/31/ /31/2011 3/31/ /31/2011 Bank Deposit Certificate (CDB) 97.5% to 105.0% 344, , , ,174 Repurchase agreement (*) 85.0% to 103% , , ,562 Provision for IRRF (5,059) (3,955) (5,059) (3,955) 407, , , ,781 (*) Repurchase agreements are securities issued by banks whereby the banks undertake to repurchase a security and the customer undertakes to resell it, with defined rates and predetermined deadlines, backed by private or public securities depending on the availability of the bank, and which are registered with CETIP. Short-term investments are measured at fair value through profit or loss and have daily liquidity. Company management s analysis of the exposure of these assets to interest rate risks, among others, are disclosed in Note 31 (c). 7. Accounts receivable (concession assets) Breakdown of accounts receivable is as follows: 3/31/ /31/2011 Accounts receivable from construction services (a) 6,709,080 6,565,661 Accounts receivable from O&M services (b) 271, ,160 6,980,345 6,809,821 Current 1,552,516 1,474,794 Non-current 5,427,829 5,335,027 (a) It refers to receivables from construction, expansion, and reinforcement services of electric power transmission facilities, and includes the estimated investments made and not amortized until the end of the concession and for which the Company will be entitled to receive cash or other financial assets, when concession agreement is no longer effective. They bear interest at the effective interest rate calculated for each concession agreement. (b) O&M - Operation and Maintenance refers to the portion of monthly sales reported by ONS allocated to compensation for operation and maintenance services, receivable not more than 60 days, on average. 20

23 7. Accounts receivable (concession assets) (Continued) These financial assets are classified as loans and receivables. ANEEL Regulatory Decision No. 474 of February 7, 2012 established new annual depreciation rates of assets for a service rendered in the electric power industry, effective as from January 1, In accordance with ANEEL Regulatory Decision 474, the average annual depreciation rate of CTEEP s assets shall change from 2.72% to 2.86%. Subsidiary CTEEP, considering the new periodic depreciation rates and by virtue of IFRIC 12 and OCPC 5, performed calculations to determine the new estimated amount of the indemnification of assets reversible after the expiration of the concession agreement and the amount attributable to financial asset, not resulting in material impacts to the quarterly information at. Aging list of accounts receivable are as follows: 3/31/ /31/2011 Falling due 6,945,941 6,784,301 Overdue up to 30 days 7,877 1,353 from 31 to 60 days over 61 days (i) 25,781 23,569 34,404 25,520 6,980,345 6,809,821 (i) Some participants in the system legally questioned the balances billed referring to the Rede Básica (Basic Grid). As a result of this discussion, judicial deposits of amounts considered due by such participants are made. Subsidiary CTEEP believes that the amounts are billed as authorized by regulators; therefore, it does not record any provision for loss related to these discussions. Subsidiary CTEEP has no history of losses on accounts receivable, which are secured by structures of guarantees and/or access to current accounts operated by the National System Operator (ONS) or directly by the Company; therefore, it did not set up any allowance for doubtful accounts. Changes in accounts receivable are as follows: Balances at December 31, ,809,821 Revenue from construction (note 25.1) 213,430 Financial income (note 25.1) 345,518 Revenue from operation and maintenance (note 25.1) 157,894 Settlement (546,318) Balances at 6,980, Receivables State Finance Department 21

24 3/31/ /31/2011 Current Non-current Total Total Obligation acknowledgment and consolidation agreement (a) 7,200-7,200 12,341 Disposal of real estate (b) 1,497-1,497 2,565 Payroll processing Law 4819/58 (c) - 688, , ,764 Labor claims Law 4819/58 (d) - 174, , ,986 Family allowance Law 4819/58 (e) - 2,218 2,218 2,218 Allowance for doubtful accounts - (2,218) (2,218) (2,218) 8, , , ,656 (a) On May 2, 2002, an Obligation Acknowledgment and Consolidation Agreement was executed with the State Finance Department, whereby the State acknowledges that it owes to subsidiary CTEEP amounts corresponding to disbursements originally made by CESP from 1990 to 1999 for paying supplementary retirement and pension payroll, arising from benefits under State Law No. 4819/58. The amount then acknowledged was restated through January 2002, according to São Paulo State Fiscal Unit (UFESP), and, as from February 2002, according to monthly IGP-M variation, plus 6% p.a. Repayment will be in made in 120 monthly installments, beginning August 1, 2002 and termination expected for July 1, (b) On July 31, 2002, a Private Transaction Agreement was executed with the State Finance Department, with a real estate sale commitment, obligation acknowledgment, and payment commitment, whereby the State acknowledges that it owes to subsidiary CTEEP an amount corresponding to the market value of all of the real estate area occupied by the State, partially used for the construction of prisons. The State is therefore committed to reimburse said amount to subsidiary CTEEP in 120 monthly installments, beginning on August 1, 2002 and termination expected for July 1, 2012, restated by monthly IGP-M variation, plus interest of 6% p.a. (c) It refers to accounts receivable for settlement of a portion of the supplementary pension plan governed by State Law 4819/58, from January 2005 to March 2012 (note 35). Such balance is not monetarily restated and no income is recorded until payments are made by the State Government. The increase referring to the previous year arises from the fulfillment of the obligation of Subsidiary CTEEP to transfer the funds to retired employees, as established on a monthly basis by Fundação CESP. (d) These refer to certain labor claims settled by subsidiary CTEEP, relating to retired employees supported by State Law No. 4819/58, which are the responsibility of the State Government. Such balance is not monetarily restated and no income is recorded until payments are made by the State Government. (e) CESP made prepayments of monthly expenses relating to family allowances, arising from State Law No. 4819/58 benefits, which were transferred to subsidiary CTEEP upon CESP partial spin-off. Considering the expected loss, management set up an allowance for doubtful accounts, in non-current assets, amounting to R$ 2,218. There were no significant changes in the status of the respective claims at December 31,

25 9. Taxes to be offset Company 3/31/ /31/2011 3/31/ /31/2011 COFINS - - 1,056 1,016 PIS Income tax 43,437 44,950 51,231 53,467 Social contribution tax 241-1, Other ,678 44,950 54,642 56, Tax benefit merged goodwill - Company The goodwill paid by ISA Capital on acquisition of CTEEP shareholding control is economically based on the expected profitability during the concession term, originating from the acquisition of the concession right granted by the Government, under subparagraph b, paragraph 2, article 14 of CVM Ruling No. 247 of March 27, 1996, as amended by CVM Ruling No. 285 of July 31, In order to avoid that amortization of goodwill adversely impacts the dividend flow of shareholders, the Company set up a Provision for Maintenance of Equity Integrity (PMIPL) of its acquirer and Special Goodwill Reserve on the Merger, in accordance with CVM Ruling No. 349 of March 6, Amortization of goodwill, net of reversal of corresponding tax credit and provision, is neutral with respect to profit or loss for the year and also to dividend calculation basis. Goodwill totaled R$ 689,435 at December 31, 2007 and is currently amortized over the remaining concession period, in monthly installments according to the projected future profitability and as permitted by ANEEL Resolution No of December 18, 2007, as follows: Amortization - % p.a. Concession agreement Year 059/ /2001 Total 2008 to to to

26 10. Tax benefit merged goodwill - Company (Continued) In order to better present the financial position of the Company in the quarterly information, net amount of R$ 111,871 (R$ 119,079 at December 31, 2011), which essentially represents the merged tax credit, was classified in the balance sheet into non-current assets, long-term receivables, as tax benefit merged goodwill, based on expected realization, separately from remaining goodwill, which is classified into intangible assets. Changes in the quarter ended are as follows: Total goodwill Intangible assets (Notes 13.b and 15) Tax benefit Balances at December 31, ,234 (231,155) 119,079 Realization for the period (Note 28) (21,200) 13,992 (7,208) Balances at 329,034 (217,163) 111,871 Amortization is recorded in the statement of income, under the Other expenses, net account (note 28). 11. Loans receivable The loan refers to full on-lending by the Company to its parent company Interconexión Eléctrica S.A. ESP of the loan raised in 2006 from ABN AMRO BANK, denominated in US dollars, originally amounting to US$ 23,800 thousand, whose maturity in a lump sum was on July 19, 2007 with interest calculated based on LIBOR, plus 3.00% p.a. The Company maintained the same assumptions for adjusting such operation, bearing semi-annual interest thereon; however, principal is to be repaid within eight years in a lump sum payable on January 30, On December 15, 2011, ISA Capital entered into a loan agreement with Internexa Brasil amounting to R$ 9,364 (US$ 5,000 thousand), which will expire on December 28, 2012 and with interest calculated based on CDI variation, plus 0.72% p.a., which will be paid on a quarterly basis. 24

27 11. Loans receivable (Continued) Breakdown of the balance is as follows: 3/31/ /31/2011 Principal 60,510 60,510 Interest Foreign exchange losses (7,765) (6,502) Total 53,153 54,046 Current (Note 30) 9,365 9,393 Non-current (Note 30) 43,788 44, Pledges and restricted deposits Company It refers to a deposit in Bank of New York as guarantee for interest paid biannually related to the remaining bonds after debt restructuring. The balance of the account recorded in current assets at December 31, 2011 (R$ 2,612) was used for interest payment in January Within the contractually established term, the balance of the account was recomposed with a deposit amounting to R$ 2,617, on April 24, In non-current assets, in view of the uncertainties regarding the outcome of the lawsuits to which the deposits refer, Company s procedure is to maintain these deposits at their nominal value, not recording any type of monetary restatement or interest thereon. The balance is broken down as follows: Notices of violation ANEEL (a) (Note 21 (a) (iv)) Company 3/31/ /31/2011 3/31/ /31/ ,344 6,076 Judicial deposits Labor (Note 21(a) (i)) ,974 52,867 Social security - INSS (Note 21) (b)(iii)) - - 2,745 2,745 Deposit BANK of NEW YORK (Pledge) - 2,612-2,612 Other ,612 65,613 64,498 Current - 2,612-2,612 Non-current ,613 61, Pledges and restricted deposits (Continued) 25

28 (a) These refer to deposits in connection with lawsuits to annul notices of violation issued by ANEEL: (i) Deposit made on January 17, 2000, amounting to R$ 3,040, in an annulment action filed by subsidiary CTEEP against ANEEL, related to notice of violation 001/1999-SFE, which had fined subsidiary CTEEP under alleged violations for obstructing the inspection related to disturbances from interrupted electric power transmission and distribution over a large part of the Southeast, South, and Middle West regions; non-compliance with the inspection report requirements; and non-compliance with the legal duty of rendering proper service. (ii) Deposit made on August 29, 2008, amounting to R$ 2,139, for annulment of notice of violation No. 062/2007, related to non-compliance with the date set for installation of the 3rd 345/88 kv transformer bank of SE Baixada Santista, authorized by ANEEL Resolution No. 197 of May 4, (iii) Deposit made on September 17, 2008, amounting to R$ 544, for annulment of notice of violation No. 001/2008, related to non-compliance with the date set for start-up of the Guarulhos - Anhanguera Transmission Line, of 345 kv, permitted by Authorizing Resolution No. 064/2005 of January 31, (iv) Deposit made on April 18, 2011, amounting to R$ 353, for annulment of notice of violation No. 022/10, which imposed a fine on subsidiary CTEEP due to a fact occurred on April 1, 2009, in SE Baixada Santista 88kV sector, consisting of an automatic shutdown of the transformer bank due to overheating caused by the SE cooling system that would have been the subsidiary CTEEP s fault. (v) Deposit made on March 8, 2012, amounting to R$ 268, for annulment of notice of violation No. 054/11, related to non-compliance with unavailability rates of the system (function transmission of CTEEP s assets, which were unreasonably unavailable for more than one minute). 26