EX-1 2 edenor-6kex1_0330.htm Unassociated Document


Exhibit 1
 
 
 
EDENOR S.A.
 




 



 
ANNUAL REPORT, CONSOLIDATED FINANCIAL STATEMENTS AND
INFORMATIVE SUMMARY
AS OF DECEMBER 31, 2011 AND 2010
TOGETHER WITH THE AUDITOR’S REPORT
AND THE REPORT OF THE SUPERVISORY COMMITTEE
 


 



Shareholders and public in general who are interested in learning more about the report related to the Consolidated Financial Statements as of December 31, 2011, to be published in the electronic database of the Securities and Exchange Commission (SEC), please visit Edenor website at www.edenor.com
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

Legal address: 6363 Del Libertador Ave. – City of Buenos Aires

FISCAL YEAR No. 20 BEGINNING ON JANUARY 1, 2011

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2011

Main business: Distribution and sale of electricity in the area and under the terms of the concession agreement by which this public service is regulated (Note 1).

Date of registration with the Public Registry of Commerce:
 
of the Articles of Incorporation: August 3, 1992

of the last amendment to the By-laws: May 28, 2007

Term of the Corporation: Through August 3, 2087

Registration number with the “Inspección General de Justicia(the Argentine governmental regulatory agency of corporations): 1,559,940
 
CAPITAL STRUCTURE

AS OF DECEMBER 31, 2011
(Note 7)
(amounts stated in pesos)


Class of shares
 
Subscribed and paid-in
 
       
Common, book-entry shares, face value 1 and 1 vote per share
     
       
Class A
    462,292,111  
Class B (1)
    442,210,385  
Class C
    1,952,604  
      906,455,100  
 
(1) Includes 9,412,500 treasury shares as of December 31, 2011 and 2010 (Notes 3.s and 7).
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
 
 (stated in thousands of pesos)
                         
   
2011
   
2010
     
2011
   
2010
 
CURRENT ASSETS
           
CURRENT LIABILITIES
           
Cash and banks (Note 26)
    23,445       8,611  
Trade accounts payable (Note 4.c)
    658,328       378,505  
Investments (Note 26 and Exhibit D)
    109,546       668,232  
Loans (Note 4.d)
    59,025       54,108  
Trade receivables (Note 4.a)
    534,732       421,193  
Salaries and social security taxes (Note 4.e)
    287,115       180,432  
Other receivables (Note 4.b)
    244,903       43,361  
Taxes (Note 4.f)
    168,993       111,080  
Supplies
    22,863       12,407  
Other liabilities (Note 4.g)
    144,777       4,542  
Other assets available for sale (Note 27 and Exhibit C)
    216,531       0  
Accrued litigation (Exhibit E)
    10,344       57,832  
Total Current Assets
    1,152,020       1,153,804  
Total Current Liabilities
    1,328,582       786,499  
                                   
                 
NON-CURRENT LIABILITIES
               
                 
Trade accounts payable (Note 4.c)
    54,344       50,984  
                 
Loans (Note 4.d)
    1,189,882       1,035,113  
NON-CURRENT ASSETS
               
Salaries and social security taxes (Note 4.e)
    69,527       50,633  
Trade receivables (Note 4.a)
    45,725       45,531  
Taxes (Note 4.f)
    290,879       262,806  
Other receivables (Note 4.b)
    70,704       14,803  
Other liabilities (Note 4.g)
    1,373,687       984,518  
Investments in other companies (Exhibit C)
    419       415  
Accrued litigation (Exhibit E)
    66,144       6,816  
Supplies
    26,862       23,249  
Total Non-Current Liabilities
    3,044,463       2,390,870  
Property, plant and equipment (Exhibit A)
    4,738,259       3,689,482  
Total Liabilities
    4,373,045       3,177,369  
Goodwill
    (289,557 )     0                    
Total Non-Current Assets
    4,592,412       3,773,480  
MINORITY INTEREST
    56,869       0  
                                   
                 
SHAREHOLDERS’ EQUITY (as per related statement)
    1,314,518       1,749,915  
                                   
  Total Assets
    5,744,432       4,927,284  
Total Liabilities and Shareholders’ Equity
    5,744,432       4,927,284  
 
The accompanying notes 1 through 31 and supplemental exhibits A, C, D, E, G and H are an integral part of these consolidated financial statements
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
 
(stated in thousands of pesos)
           
   
2011
   
2010
 
Net sales (Note 4.h)
    3,565,048       2,173,644  
Electric power purchases
    (1,593,937 )     (1,069,747 )
                 
Gross margin
    1,971,111       1,103,897  
                 
Transmission and distribution expenses (Exhibit H)
    (1,188,725 )     (636,289 )
Selling expenses (Exhibit H)
    (429,930 )     (194,236 )
Administrative expenses (Exhibit H)
    (323,438 )     (178,897 )
                 
Subtotal
    29,018       94,475  
                 
Other (Expense) Income, net (Note 4.i)
   
(25,256
   
(9,810
                 
Gain from permanent investments (Note 3.f)
    4       7  
Amortization of goodwill (Exhibit C)
    12,340       0  
Loss from valuation of other assets available for sale at net realizable value (Note 27.b and Exhibit C)
    (75,029 )     0  
                 
Financial income (expense) and holding gains (losses)
               
Generated by assets
               
Exchange difference
    17,957       7,412  
Interest
    24,417       28,372  
Holding loss (Notes 3.j and 11)
    (1,169 )     (14,687 )
Tax on financial transactions
    (30,067 )     (16,048 )
Others
    (2,421 )     0  
Generated by liabilities
               
Financial expenses
    (25,650     (12,484
Exchange difference
    (108,101 )     (40,278 )
Interest
    (189,728 )     (91,335 )
Tax on financial transactions
    (24,724 )     (21,120 )
Loss from debt restructuring
    (2,722 )     0  
Other
    (2,218 )     0  
                 
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables (Note 8.c)
    1,170       11,581  
Adjustment to present value of notes (Note 3.j)
    0       (4,198 )
Gain (Loss) from the purchase of notes
    6,546       (7,054 )
                 
Gain from investments in related companies
    924       0  
                 
Loss before taxes
    (394,709 )     (75,167 )
Minority interest
    (18,240 )        
Income tax (Notes 3.m and 5)
    (22,448 )     26,114  
                 
Net loss for the year
    (435,397 )     (49,053 )
                 
Losses per common share
    (0.485 )     (0.055 )
 
The accompanying notes 1 through 31 and supplemental exhibits A, C, D, E, G and H are an integral part of these consolidated financial statements
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
 
(stated in thousands of pesos)
     
   
2011
   
2010
 
Changes in cash and cash equivalents
           
Cash and cash equivalents at beginning of year (Note 26)
    676,843       228,372  
Cash and cash equivalents at end of year (Note 26)
    132,991       676,843  
Net (decrease) increase in cash and cash equivalents
    (543,852 )     448,471  
                 
Cash flows from operating activities
               
Net loss for the year
    (435,397 )     (49,053 )
                 
Adjustments to reconcile net loss to net cash flows provided by operating activities
               
Depreciation of property, plant and equipment (Exhibit A)
    252,233       178,380  
Residual value retirements of property, plant and equipment (Note 4.i and Exhibit A)
    22,042       1,125  
Gain from the sale of real property (Note 4.i)
    0       (5,266 )
Gain from investments in subsidiary and related companies
    (928 )     (7 )
Amortization of goodwill
    (12,340 )     0  
Gain from investments
    (44,810 )     (55,650 )
Adjustment to present value of notes (Note 3.j)
    0       4,198  
Gain (Loss) from the purchase of notes
    (6,546 )     7,054  
Loss from financial debt restructuring
    2,722       0  
Loss from valuation of other assets available for sale at net realizable value
    75,029       0  
Exchange difference and interest on loans
    306,801       49,512  
Income tax (Notes 3.m and 5)
    22,448       (26,114 )
Allowance for doubtful accounts (Exhibit E)
    37,923       16,313  
Allowance for other doubtful accounts (Exhibit E)
    1,495       4,891  
Minority interest loss
    18,240       0  
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables (Note 8.c)
    (1,170     (11,581
Changes in assets and liabilities:
               
Net (increase) decrease in trade receivables
    (157,199 )     245  
Net decrease (increase) in other receivables
    (258,938 )     (275 )
Increase in supplies
    (15,151 )     (2,218 )
Increase in other assets available for sale
    (291,560 )     0  
Increase in trade accounts payable
    283,183       34,853  
Increase in salaries and social security taxes
    125,577       69,015  
Net decrease in taxes
    63,538       (45,842 )
Increase in other liabilities
    167,797       74,495  
Increase for funds deriving from the Program for the rational use of electric power (PUREE)
    399,557       295,778  
Net increase (decrease) in accrued litigation
    11,840       (8,249 )
                 
Financial interest paid (net of interest capitalized)
    (106,158 )     (64,908 )
Financial and commercial interest collected
    51,523       60,232  
                 
Net cash flows provided by operating activities
    511,751       526,928  
                 
Cash flows from investing activities
               
Additions of property, plant and equipment (Exhibit A)
    (653,360 )     (388,770 )
Acquisition of permanent investments (Note 27)
    (567,600 )     0  
Incorporation of cash from acquisition of permanent investments (Note 27)
    119,043       0  
Collection of other investments sold
    126,701       0  
Collection of property, plant and equipment sold
    0       7,435  
Net cash flows used in investing activities
    (975,216 )     (381,335 )
                 
Cash flows from financing activities
               
Net increase in loans
    (81,066 )     302,878  
Increase in minority interest
    38,629       0  
Payment of dividends
    (37,950 )     0  
Net cash flows provided by financing activities
    (80,387 )     302,878  
                 
Net (decrease) increase in cash and cash equivalents
    (543,852 )     448,471  
 
The accompanying notes 1 through 31 and supplemental exhibits A, C, D, E, G and H are an integral part of these consolidated financial statements
 
 
 

 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2011 and 2010
 
(Amounts stated in thousands of Argentine pesos)

1. ORGANIZATION AND START UP OF THE COMPANY

Empresa Distribuidora Norte S.A. (EDENOR or the Company) was organized on July 21, 1992 by Decree No. 714/92 in connection with the privatization and concession process of the distribution and sale of electric power carried out by Servicios Eléctricos del Gran Buenos Aires S.A. (Segba S.A.).

By means of an International Public Bidding, the Federal Government awarded 51% of the Company’s capital stock, represented by the Class “A” shares, to the bid made by Electricidad Argentina S.A. (EASA). The award as well as the transfer contract were approved on August 24, 1992 by Decree No. 1,507/92 of the Federal Government.

On September 1, 1992, EASA took over the operations of EDENOR.

The corporate purpose of EDENOR is to engage in the distribution and sale of electricity within the concession area. Furthermore, among other activities, the Company may subscribe or acquire shares of other electricity distribution companies, subject to the approval of the regulatory agency, lease the network to provide electricity transmission or other voice, data and image transmission services, and render advisory, training, maintenance, consulting, and management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by EDENOR or through subsidiaries or related companies. In addition, the Company may act as trustee of trusts created under Argentine laws, including extending secured credit facilities to service vendors and suppliers acting in the distribution and sale of electricity, who have been granted guarantees by reciprocal guarantee companies owned by the Company.

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the City of Buenos Aires, Argentina (hereinafter “Argentine GAAP”) and the criteria established by the National Securities Commission (CNV), taking into account that which is mentioned in the following paragraphs.

The amounts of these consolidated financial statements are stated in thousands of Argentine pesos.

As from January 1, 2003 and as required by General Resolution No. 434/03 of the CNV, the Company reports the results of its operations, determines the values of its assets and liabilities and determines its profit and loss in conformity with the provisions of Technical Resolutions (TR) Nos. 8, 9 and 16 through 18 (consolidated text June 2003). As from January 1, 2004, the Company has applied the provisions of TR No. 21 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE) as adopted by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires (CPCECABA), with specific few exceptions and clarifications introduced by General Resolution No. 459/04 of the CNV.

 
 

 
 
The CNV, through its General Resolutions Nos. 485/05 and 487/06, decided to implement certain changes in the Argentine GAAP effective for fiscal years or interim periods beginning as from January 1, 2006, by requiring the application of TR Nos. 6, 8, 9, 11, 14, 16, 17, 18, 21, 22 and 23 and Interpretations 1, 2, 3, and 4, of the FACPCE with the amendments introduced by such Federation through April 1, 2005 (Resolution No. 312/05) and adopted by the CPCECABA (Resolution CD No. 93/05) with certain amendments and clarifications.

Among the aforementioned changes the following can be noted: i) the comparison between the values of certain assets and their recoverable values, using discounted cash flows; ii) the consideration of the difference between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets as a temporary difference, allowing the Company to either recognize a deferred tax liability or to disclose the effect of such accounting change in a note to the consolidated financial statements and (iii) the capitalization of interest cost on certain assets (only those assets that require an extended period of time to be produced or acquired would qualify) during the term of their construction and until they are in condition to be used.

With regard to the impact of the application of the change mentioned in the preceding paragraph under (i) on the Company’s property, plant and equipment, said change does not have a significant impact on the Company’s financial position or the results of operations for the year ended December 31, 2011, given that the fair value (defined as the discounted value of net cash flows arising from both the use of the assets and their final disposal) exceeds their recorded value, giving consideration to that which has been described in Notes 3.g and 28.
 
With regard to item (ii), until September 30, 2010, and as contemplated by General Resolution No. 487/06 of the CNV, the Company had elected to maintain such difference as a permanent difference, disclosing in a note the effect of recognizing such difference as temporary (Note 3.m).

On July 1, 2010, the CNV approved General Resolution No. 576/2010, pursuant to which those issuers that had elected to report in a note to the consolidated financial statements the deferred tax liability resulting from the application of the adjustment for inflation are required, with a view to IFRS implementation, to recognize such liability with a contra-account in unappropriated retained earnings. This recognition could be made in any interim period end or fiscal year end until the closing date of the fiscal year immediately preceding that in which the IFRS were applied for the first time. Furthermore, as an exception, the shareholders’ meetings that considered the financial statements for the fiscal year in which such deferred tax liability was recognized, could charge the amount of the aforementioned debit to unappropriated retained earnings, in accounts comprising capital stock not represented by shares, or in retained earnings accounts.

The Company has elected to recognize this deferred tax liability, which amounted to 358,263 with effect at December 31, 2011 in Accumulated Deficit (Notes 3.m, 3.x and 5).

Furthermore, on March 20 and June 12, 2009, the FACPCE approved TR Nos. 26 and 27 “Adoption of the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB)” and “Changes to TR Nos. 6, 8, 9, 11, 14, 16, 17, 18, 21, 22, 23 and 24” respectively, which will be in effect for fiscal years beginning as from January 1, 2011. Additionally, the aforementioned TR have been approved by the Board of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires by Resolution No. 52/2009.
 
Moreover, on December 29, 2009, the CNV issued Resolution No. 562, according to which those entities that make a public offering of their capital stock or corporate notes pursuant to Law No. 17,811, or have requested authorization for their being included in such public offering system would be required to comply with the provisions of TR No. 26. The application of such standards will be mandatory for the Company as from the fiscal year beginning January 1, 2012.

On April 27, 2010, the Company’s Board of Directors approved the specific implementation plan required by General Resolution No. 562 of the National Securities Commission. Such approval was informed as a relevant fact on April 28, 2010.

 
 

 
 
Additionally, on July 1, 2010, the CNV issued Resolution No. 576 which provides solutions to, corrections and further explanation of those aspects concerning Resolution No. 562 about which the issuers of financial statements had raised objections or asked for clarification.

Consideration of the effects of inflation

The consolidated financial statements fully reflect the effects of the changes in the purchasing power of the currency through August 31, 1995. As from such date, and in accordance with Argentine GAAP and the requirements of control authorities, the restatement of the financial statements to reflect the effects of inflation was discontinued until December 31, 2001. As from January 1, 2002, and in accordance with Argentine GAAP, the Company resumed the application of the method of adjustment for inflation considering that the accounting basis restated as a result of the change in the purchasing power of the currency through August 31, 1995, as well as those with original date between such date and December 31, 2001, were restated in the currency value as of the latter date. The financial statements have been restated to reflect the effects of inflation based on the variations of the Domestic Wholesale Price Index.

On March 25, 2003, the Federal Government issued Decree No. 664 establishing that financial statements for fiscal years ending as from such date had to be prepared in nominal currency. Consequently, and in accordance with Resolution No. 441 of the CNV, the Company discontinued the restatement of its financial statements as from March 1, 2003. This criterion does not agree with Argentine GAAP, which establish that financial statements were to be restated through September 30, 2003.

Consolidation basis

The consolidated financial statements of Empresa Distribuidora y Comercializadora Norte S.A. (hereinafter the “Company”) include the investments (Note 27.a) in Empresa Distribuidora Eléctrica Regional S.A. (“EMDERSA”), Aeseba S.A. (“AESEBA”) and Empresa Distribuidora Eléctrica Regional Holding S.A. (“EMDERSA HOLDING”).

The investment in AESEBA has been included in the Company’s consolidated financial statements on a line-by-line basis in accordance with the general consolidation method established by Technical Resolution No. 21 of the Argentine Federation of Professional Councils in Economic Sciences (“FACPCE”).

In the framework of that which has been described in Note 28, the Company’s Management has decided to disinvest from the companies comprising EMDERSA and EMDERSA HOLDING, and has begun to take the necessary steps for the sale thereof. Therefore, these investments have been classified as other assets available for sale, discontinuing their consolidation as of December 31, 2011.

Accordingly, the investments in EMDERSA and EMDERSA HOLDING have been included in the consolidated balance sheet as Other assets available for sale under Current Assets. The corresponding amounts charged to the results of operations have been included, on a line-by-line basis, in the Company’s Consolidated Statement of operations. The assets, liabilities, results of operations and cash flows relating to these companies have been detailed in Note 25.
 
 
 

 
 
The data showing the Company’s consolidated controlling interest as of December 31, 2011 are as follow:
 
Directly controlled companies
 
Percentage interest held in capital stock and possible votes
 
Controlled / Indirectly
 and jointly controlled companies
 
Percentage interest held in capital stock and possible votes
 
      12.31.11         12.31.11  
AESEBA
    99.99  
Empresa Distribuidora de Energía
 Norte S.A. (EDEN S.A.)
    90.00  

3. VALUATION CRITERIA

The consolidated financial statements of the subsidiary companies have been prepared on the basis of criteria similar to those applied by Edenor S.A.

The main valuation criteria used in the preparation of these consolidated financial statements are as follow:

a)    Cash and banks:
 
 
In local currency: at nominal value.
 
In foreign currency: at the exchange rates in effect as of the end of each year. The corresponding detail is disclosed in Exhibit G.

b)    Current investments:

  – 
Time deposits, which include the portion of interest income accrued through the end of each year.
 
Money market funds, which have been valued at the price of the unit of ownership as of the end of each year.
 
Government bonds, corporate notes and shares, which have been valued at the prevailing market price as of the end of each year.

c)    Trade receivables:

 
Services rendered and billed but not collected, and services rendered but unbilled as of the end of each year, at nominal value, except for those indicated in the following paragraphs;
 
Services rendered but unbilled as of December 31, 2010, arising from the retroactive increase deriving from the application of the electricity rate schedule resulting from the Temporary Tariff Regime (RTT) (Note 8.c) have been valued on the basis of the best estimate of the amount to be collected, discounted at a 10.5% annual nominal rate, which, in accordance with the Company’s criterion, reasonably reflected market assessments of the time value of money and risks specific to the receivable at the time of their initial measurement.
 
  The amounts thus determined:
     
 
1.
are net of an allowance for doubtful accounts, as described in more detail in paragraph h) of this Note.
 
2.
consider the effects of that which is stated in Note 9.

d)    Other receivables and liabilities (excluding loans):

 
In local currency: at nominal value.
 
In foreign currency: at the exchange rates in effect as of the end of each year (Exhibit G).
 
 
 

 
 
Other receivables and liabilities have been valued as indicated above including, if any, interest income or expense accrued as of the end of each year. The values thus obtained do not differ significantly from those that would have been obtained if the Argentine GAAP had been applied, in as much as they establish that other receivables and liabilities must be valued on the basis of the best estimated amount to be collected and paid, respectively, discounted at a rate that reflects the time value of money and the risks specific to the transaction estimated at the time of their being recorded in assets and liabilities, respectively.

Liabilities, excluding loans, have been valued at nominal value including, if any, interest expense accrued as of the closing date of each year. The values thus obtained do not differ significantly from those that would have been obtained if the Argentine GAAP had been applied, inasmuch as they establish that they must be valued at their estimated cash price at the time of the transaction, plus interest and implicit financing components accrued on the basis of the internal rate of return determined at such opportunity.

The balances corresponding to ENRE Penalties and Discounts have been valued at nominal value, plus interest accrued on the portion disclosed as current (Notes 4.g and 8.a). ENRE Penalties and Discounts included in the Adjustment Agreement have been adjusted as stipulated in the aforementioned agreement (Note 8.c).

The balances corresponding to the Program for the Rational Use of Electric Power (PUREE) have been valued at nominal value (Notes 4.g and 14).

Deferred tax assets and liabilities have been valued at nominal value (Notes 3.m and 5).
 
e)   Supplies:

Supplies were valued at acquisition cost restated to reflect the effects of inflation as indicated in Note 2. The consumption of supplies has been valued based on the average cost method.

The Company has classified supplies into current and non-current depending on whether they will be used for maintenance or capital expenditures.

The carrying value of supplies, taken as a whole, does not exceed their recoverable value as of the end of each year.
 
f)   Non-current investments and Other assets available for sale:

a)           50% interest held in the related company SACME S.A. (a company organized by means of equal contributions by distribution companies EDENOR S.A. and EDESUR S.A. in accordance with the Bid Package). SACME S.A. is in charge of monitoring the electric power supplied to the aforementioned distributors. As of December 31, 2011 and 2010, the investment in SACME has been recorded at its equity value in accordance with the provisions of Technical Resolution No. 21 of the FACPCE (Exhibit C).

In order to determine the equity value, the audited financial statements of SACME S.A. as of December 31, 2011 and 2010 have been used. The accounting principles used by SACME are similar to those applied by EDENOR for the preparation of its financial statements.

b)           Negative goodwill represents the excess market value of the net identifiable acquired assets of AESEBA over the acquisition cost effectively paid. Negative goodwill is systematically amortized throughout a period equal to the remaining weighted average useful life of the Issuer Company’s identifiable assets that are subject to depreciation.

c)           The investments in EMDERSA and EMDERSA HOLDING have been disclosed as Other current assets available for sale and have been valued at their estimated realizable value, which is lower than their equity value (Note 27.b).
 
 
 

 

In order to determine the estimated realizable value, the Company used the values of the offers received for EDELAR and EGSSA (Note 27.b) and the acquisition values for the other companies.
 
g)   Property, plant and equipment:

Property, plant and equipment transferred by SEGBA on September 1, 1992 were valued as of the privatization date as described below, and restated to reflect the effects of inflation as indicated in Note 2. The total value of the assets transferred from SEGBA was allocated to individual assets accounts on the basis of engineering studies conducted by the Company.

The total value of property, plant and equipment has been determined based on the USD 427 million price effectively paid by EASA for the acquisition of 51% of the Company’s capital stock at acquisition date. Such price was used to value the entire capital stock of EDENOR at 832 million pesos, which, when added to the fair value of the debts assumed by the Company under the SEGBA Privatization Bid Package for 139.2 million pesos less the fair value of certain assets received from SEGBA for 103.2 million, valued property plant and equipment at 868 million pesos.

SEGBA neither prepared separate financial statements nor maintained financial information or records with respect to its distribution operations or the operations in which the assets transferred to EDENOR were used. Accordingly, it was not possible to determine the historical cost of transferred assets.

Additions subsequent to such date have been valued at acquisition cost restated to reflect the effects of inflation as indicated in Note 2, net of the related accumulated depreciation. Depreciation has been calculated by applying the straight-line method over the remaining useful life of the assets which was determined on the basis of the above-mentioned engineering studies. Furthermore, in order to improve the disclosure of the account, the Company has made certain changes in the classification of property, plant and equipment based on each technical process.

In accordance with the provisions of TR No. 17, financial costs in relation to any given asset may be capitalized when such asset is in the process of production, construction, assembly or completion, and such processes, due to their nature, take long periods of time; those processes are not interrupted; the period of production, construction, assembly or completion does not exceed the technically required period; the necessary activities to put the asset in condition to be used or sold are not substantially complete; and the asset is not in condition so as to be used in the production or start up of other assets, depending on the purpose pursued with its production, construction, assembly or completion. The Company capitalized financial costs on property, plant and equipment from 1997 to 2001, from 2006 through 2010 and during the year ended December 31, 2011. Financial costs capitalized for the years ended December 31, 2011 and 2010 amounted to 16,133 and 19,522, respectively.

During the years ended December 31, 2011 and 2010, direct costs capitalized amounted to 79,894 and 57,443, respectively.
 
The Company analyzes the recoverability of its non-current assets on a periodical basis or when events or changes in circumstances indicate that the recoverable value of assets, which is measured as the economic use value as of the end of the year, may be impaired.

The economic use value is determined based on projected and discounted cash flows, using discount rates that reflect the time value of money and the specific risks of the assets considered.

Cash flows are prepared on the basis of estimates concerning the future performance of certain variables that are sensitive to the determination of the recoverable value, among which the following can be noted: (i) nature, opportunity and modality of electricity rate increases and cost adjustment recognition in accordance with the agreements described in Notes 8 and 14; (ii) demand for electricity projections; (iii) evolution of the costs to be incurred, and; (iv) macroeconomic variables, such as growth rates, inflation rates and foreign currency exchange rates.
 
 
 

 

In spite of the current economic and financial situation, which is described in Note 28, the Company has made its projections under the assumption that the electricity rates will be improved according to the circumstances. However, the Company may not ensure that the future performance of the variables used to make its projections will be in line with what it has estimated. Therefore, significant differences may arise in relation to the estimates used and assessments made as of the date of these consolidated financial statements.

In order to contemplate the estimation risk contained in the projection of the aforementioned variables, the Company has considered different probability-weighted scenarios.

Based on the previously mentioned conclusions, the valuation of property, plant and equipment, taken as a whole, does not exceed their recoverable value as of the end of each year.

Finally, and in accordance with the concession agreement, the Company may not pledge the assets used in the provision of the public service nor grant any other security interest thereon in favor of third parties, without prejudice to the Company’s right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted over an asset at the time of its acquisition and/or construction to secure payment of the purchase price and/or installation.

h)    Allowances:

a) Allowance for doubtful accounts: it has been recorded to adjust the valuation of trade receivables and other receivables up to their estimated recoverable value. The amount of the allowance has been determined based on the historical series of collections for services billed through the end of each year and collections subsequent thereto.

Furthermore, and considering that the Framework Agreement expired on December 31, 2010 (Note 9), the Company recorded an allowance for the total amount of the receivables billed for these concept as from January 1, 2011.

Additionally, for purposes of calculating the amount of the allowance, the Company has considered a detailed analysis of accounts receivable in litigation.

b) Allowance for doubtful recoverability of tax loss carryforward: it has been recorded to adjust the valuation of the deferred tax asset resulting from the tax loss carryforward estimated as of the end of the year, up to its estimated recoverable value, in accordance with that mentioned in Notes 3.m and 28.

The evolution and balances of allowances have been disclosed in Exhibit E.

i)    Accrued litigation:

Amounts have been accrued for several contingencies.

1) The Company is a party to certain lawsuits and administrative proceedings in several courts and government agencies, arising from the ordinary course of business
 
2) The Company is also a party to civil and labor lawsuits in the ordinary course of business.
 
As of the end of each year, Management evaluates these contingencies and records an accrual for related potential losses when: (i) payment thereof is probable, and (ii) the amount can be reasonably estimated. The Company estimates that any loss in excess of amounts accrued will not have a material adverse effect on the Company’s result of operations or its financial position.
 
 
 

 

The evolution and balances of the accrued litigation account have been disclosed in Exhibit E.

j)    Loans:

As of the end of each year, the notes issued in United States dollars (Note 10) have been valued on the basis of the best estimate of the amount to be paid, discounted at a rate that reasonably reflects market assessments of the time value of money and specific debt risks, net of issuance expenses.

The adjustment to present value of future cash flows of the notes, using the market interest rate in effect at the time of the initial measurement, generated a loss of 4,198 as of December 31, 2010.

The rest of the financial debts have been valued at nominal value plus interest expense accrued as of the end of each year. The values thus obtained do not differ significantly from those that would have been obtained if the Argentine GAAP had been applied, inasmuch as they establish that they must be valued in accordance with the amount of money delivered and received, respectively, net of transaction costs, plus financial results accrued on the basis of the internal rate of return estimated at the time of their initial recognition.

“Derivative financial instruments” (Note 11) have been valued in accordance with the provisions of section 2 of Technical Resolution No. 18 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE), which require that all derivative financial instruments be recognized as assets and/or liabilities at their fair value, regardless of whether they are designated as hedging instruments or not.
 
Furthermore, the changes in the accounting basis of financial instruments -Corporate Notes- have been recognized by the Company in the Financial income (expense) and holding gains (losses) generated by liabilities account of the Statement of operations as of December 31, 2011 and 2010 under Exchange difference (Note 11.a), with a contra-account in Current Assets; Other receivables, under Derivative financial instruments (Note 4.b) and in Current Liabilities; Loans, under Derivative financial instruments (Note 4.d).

The changes in the accounting basis of financial instruments -Forward and futures contracts- have been recognized by the Company in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of operations as of December 31, 2011 and 2010 under Holding loss (Note 11.b). As of December 31, 2011 and 2010, the aforementioned transactions have been fully settled.

k)    Shareholders’ equity accounts:

These accounts have been restated to reflect the effects of inflation as indicated in Note 2, except for the “Shareholders’ Contributions - Nominal value” and “Additional Paid-in Capital” accounts which have been maintained at their nominal value.

The excess of the adjusted value of Capital Stock over its nominal value has been included in the “Shareholders’ Contributions – Adjustment to Capital” account.

The Treasury Stock account represents the nominal value of the Company’s own shares acquired by the Company (Note 7).

l)    Statement of operations accounts:

The accounts that accumulate monetary transactions have been disclosed at their nominal values.
Financial income (expense) and holding gains (losses) have been disclosed separately under income (expense) generated by assets and by liabilities.
The adjustment to present value of the notes as of December 31, 2010 is stated at nominal value.

 
 

 
 
m)    Income tax and tax on minimum presumed income:

The Argentine GAAP require the application of the deferred tax method to account for income tax. This method consists of recognizing deferred tax assets and liabilities when temporary differences arise from the valuation of assets and liabilities for accounting and tax purposes. Taking into account the legal regulations in effect as of the date of issuance of these consolidated financial statements, deferred tax assets and liabilities have been determined by applying to temporary differences identified and tax losses, the tax rate that is expected to apply at the time of their reversal or use.

With regard to the consideration of the difference between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets, as a temporary difference, the Company has decided that the deferred tax liability generated by this concept be recognized in the accounting on December 31, 2011 retroactively to January 1, 2011, as contemplated by General Resolution No. 576/10 of the National Securities Commission. The recorded amount of the deferred tax liability for this concept, with a contra-account in accumulated deficit, totals 358,263 (Note 5).

Furthermore, as of December 31, 2011, due to the situation described in Note 28, the Company has recorded an allowance for the amount of the deferred tax asset resulting from the estimated tax loss carryforward at year-end, due to the fact that the generation of future taxable income for offsetting purposes within the period contemplated by the tax legislation in effect is uncertain. Moreover, the amount of the deferred tax asset not included in the allowance is considered recoverable as there exist taxable temporary differences (deferred tax liability) whose reversal is estimated to occur in the same periods in which the deductible temporary differences comprising it are expected to reverse (Note 5).

Additionally, the Company determines the tax on minimum presumed income by applying the current rate of 1% on the Company’s taxable assets as of year-end. The tax on minimum presumed income and the income tax complement each other. The Company’s tax obligation for each year will be equal to the higher of these taxes. However, should the tax on minimum presumed income exceed income tax in any given fiscal year, such excess may be computed as a payment on account of any excess of income tax over the tax on minimum presumed income that may arise in any of the ten subsequent fiscal years.

The Company has recognized the minimum presumed income tax accrued in the year and paid in the previous years as a receivable, as it estimates that in future fiscal years it may be computed as a payment on account of the Income tax (Note 5).

n)   Operating leases:

As lessee, EDENOR has lease contracts (buildings) which classify as operating leases.

The features that these lease contracts have in common are that lease payments (installments) are established as fixed amounts; there are neither purchase option clauses nor renewal term clauses (except for the lease contract of the Energy Handling and Transformation Center that has an automatic renewal clause for the term thereof); and there are prohibitions such as: transferring or sub-leasing the building, changing its use and/or making any kind of modifications thereto. All operating lease contracts have cancelable terms and lease periods of two to thirteen years.

Buildings are for commercial offices, two warehouses, the headquarters building (comprised of administration, commercial and technical offices), the Energy Handling and Transformation Center (two buildings and a plot of land located within the perimeter of Central Nuevo Puerto and Puerto Nuevo) and Las Heras substation.
 
 
 

 
 
As of December 31, 2011 and 2010, future minimum lease payments with respect to operating leases are as follow:
 
   
2011
   
2010
 
2010
    0       0  
2011
    0       6,748  
2012
    12,101       8,659  
2013
    9,483       8,470  
2014
    9,087       8,406  
2015
    3,127       2,900  
2016
    147       147  
2017
    147       0  
Total future minimum lease payments
    34,092       35,330  
 
Total rental expenses for all operating leases for the years ended December 31, 2011 and 2010 are as follow:

   
2011
   
2010
 
Total lease expenses
    11,751       13,130  
 
As lessor, Edenor has entered into operating lease contracts with certain cable television companies granting them the right to use the poles of the Company’s network. Most of these lease contracts include automatic renewal clauses.
 
As of December 31, 2011and 2010, future minimum lease collections with respect to operating leases are as follow:

   
2011
   
2010
 
2010
    0       0  
2011
    0       20,898  
2012
    26,836       1,924  
2013
    24,383       89  
2014
    22       20  
2015
    0       0  
2016
    0       0  
2017
    0       0  
Total future minimum lease collections
    51,241       22,931  

Total rental income for all operating leases for the years ended December 31, 2011 and 2010, is as follows:

   
2011
   
2010
 
Total lease income (Note 4.h)
    22,511       18,114  

o)    Labor cost liabilities and early retirements payable:

Presented below is a detail of the estimated costs and liabilities related to the following:

supplementary benefits of leaves of absence derived from accumulated vacation,
other personnel benefits (pension plan), as stipulated in collective bargaining agreements in effect, to be granted to employees who retire under the differential retirement system of Decree No. 937/74, upon reaching 55 years of age and 30 years of service, which consist of 10 salaries. As of December 31, 2011 and 2010, the accrual for these benefits amounted to 38,283 and 31,356, respectively (Note 4.e), and
 
 
 

 
 
seniority-based bonus, as stipulated in collective bargaining agreements in effect, which consists of the payment of one salary to male/female employees upon reaching 20, 30, 35 and 40, and 17, 27, 32 and 37 years of employment, respectively. As of December 31, 2011 and 2010, the accrual for such bonuses amounted to 18,065 and 12,432, respectively (Note 4.e).
 
Liabilities related to the above-mentioned seniority-based bonus and other personnel benefits (pension plan) to be granted to employees, have been determined taking into account all rights accrued by the beneficiaries of both plans as of December 31, 2011 and 2010, respectively, on the basis of actuarial studies conducted by an independent actuary as of December 31, 2011 and 2010. The actuarial method used by the Company is the Projected Unit Credit Method. Such liabilities have been disclosed in the current and non-current Salaries and social security taxes account, respectively (Note 4.e).

Early retirements payable corresponds to individual optional agreements. After employees reach a specific age, the Company may offer them this option. The related accrued liability represents future payment obligations which as of December 31, 2011 and 2010 amount to 5,219 and 6,165 (current) and 5,520 and 6,845 (non-current), respectively (Note 4.e).

The detail of the estimated amounts charged to the results of operations due to variations in the Company’s payment commitments under the personnel benefits plan as of December 31, 2011, and 2010 is as follows:
 
   
2011
   
2010
 
Cost
    2,229       1,828  
Interest
    8,163       7,825  
Amortization of recognized net actuarial loss
    1,710       814  
      12,102       10,467  
 
The detail of the variations in the Company’s payment commitments under the personnel benefits plan as of December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
Payment commitments under the personnel benefits plan at the beginning of the year
      41,492         31,195  
Cost
    2,229       1,828  
Interest
    8,163       7,825  
Actuarial loss
    11,957       4,572  
Benefits paid to participating employees
    (5,175 )     (3,928 )
Payment commitments under the personnel benefits plan as of the end of the year
      58,666         41,492  
                 
Payment commitments under the personnel benefits plan at year-end
      58,666         41,492  
Unrecognized net actuarial loss
    (20,383 )     (10,136 )
Total personnel benefits plan (Note 4.e)
    38,283       31,356  

Actuarial assumptions used were the following:

   
2011
 
2010
Discount rate
  30 %   24 %
Salary increase
  23 %   15 %
Inflation
  22 %   18 %

 
 

 

As of December 31, 2011 and 2010, the Company does not have any assets related to the personnel benefits plan (pension plan).

p)    Customer deposits and contributions (Note 4.c):

Customer deposits:

Under the Concession Agreement, the Company is allowed to receive customer deposits in the following cases:

1.
When the power supply is requested and the user is unable to provide evidence of his legal ownership of the premises;
2.
When service has been suspended more than once in one-year period;
3.
When the power supply is reconnected and the Company is able to verify the illegal use of the service (fraud).
4.
When the customer is undergoing liquidated bankruptcy or reorganization proceedings.

The Company has decided not to request customer deposits from residential tariff customers.

Customer deposits may be either paid in cash or through the customer’s bill and accrue monthly interest at a specific rate of Banco de la Nación Argentina called “reference” rate.

When a customer requests that the supply service be disconnected, the customer’s deposit is credited (principal amount plus any interest accrued up to the date of reimbursement). Any balance outstanding at the time of requesting the disconnection of the supply service is deducted from the amount so credited. Similar procedures are followed when the supply service is disconnected due to a lack of customer payment. Consequently, the Company recovers, either fully or partially, any amount owed for electric power consumption.

When the conditions for which the Company is allowed to receive customer deposits no longer exist, the principal amount plus any interest accrued thereon are credited to the customer’s account.

Customer contributions:

The Company receives advances from certain customers for services to be provided based on individual agreements. Such advances are stated at nominal value plus interest accrued as of the end of each year.

Advances received from certain customers of EDEN S.A. for services to be provided based on individual agreements are accounted for net sales.

q)    Revenue recognition:

Revenues from operations are recognized on an accrual basis and derive mainly from electricity distribution. Such revenues include electricity supplied, whether billed or unbilled, at the end of each year and have been valued on the basis of applicable tariffs.

The Company also recognizes revenues from other concepts included in distribution services, such as new connections, rights of use on poles, transportation of electricity to other distribution companies, etc.

All revenues are recognized when the Company’s revenue earning process has been completed, the amount of revenues may be reasonably measured and the economic benefits associated with the transaction flow to the Company.
 
 
 

 

MMC (Cost Monitoring Mechanism) amounts are recognized in the accounting when approved by the ENRE. Accordingly, revenues from MMC adjustments applicable until May 2008 have already been recognized in the accounting (Notes 4.a and 14).

r)    Estimates:

The preparation of the financial statements in accordance with Argentine GAAP requires the Company’s Board of Directors and Management to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported year. The Company’s Management makes estimates to calculate, for example, depreciation and amortization, the recoverable value of assets and contingencies. Future actual results and amounts may differ from the estimates used and assessments made as of the date of the financial statements.

Additionally, the Company has recorded an allowance for a portion of the deferred tax asset corresponding to tax losses carryforward due to the fact that it estimates that it will not be recovered within the period contemplated by the tax legislation in effect (Note 3.m).

Furthermore, these consolidated financial statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the effects of any adjustments or reclassifications, if there were any, that might be necessary to make if the situation described in Note 28 is not resolved.

s)    Losses per share:

It has been computed on the basis of the number of shares outstanding as of December 31, 2011 and 2010 which amounts to 897,042,600 (net of the treasury shares as of December 31, 2011 and 2010 for 9,412,500). There is no earning (loss) per share dilution, as the Company has issued neither preferred shares nor corporate notes convertible into common shares.

Segment information:

In accordance with the provisions of TR No. 18, the Company is required to disclose segment information provided certain requirements are met. This Resolution establishes the criterion to be followed for reporting information on operating segments in annual financial statements, and requires the reporting of selective information on operating segments in interim financial reports. Operating segments are those components of the Company’s activity about which different financial information may be obtained, whether for the allocation of resources or the determination of an asset’s performance. TR No. 18 also establishes the criterion to be applied by the Company to disclose its services, geographical areas and major customers.

The Company carries on its business activity in the electricity sector, acting in the distribution and generation of electricity through different legal entities in which it holds an interest.
 
Furthermore, the Company’s Management performs the analysis, follow-up and control of its business activities based on the following segments: EMDERSA, AESEBA and EDENOR (Note 25).

t)    Risk management:

The Company operates mainly in Argentina. Its business may be affected by inflation, currency devaluation, regulations, interest rates, price controls, changes in governmental economic policies, taxes and other political and economic-related issues affecting the country. The majority of the Company’s assets are either non-monetary or denominated in Argentine pesos, whereas the majority of its liabilities are denominated in U.S. dollars. As of December 31, 2011 and 2010, a minimum portion of the Company’s debts accrued interest at floating rates; consequently the Company’s exposure to interest rate risk is limited (Notes 10 and 11.a and b).
 
 
 

 

As of December 31, 2011 and 2010, the Company had entered into forward and futures contracts with the aim of mitigating the risk generated by the fluctuations in the US dollar rate of exchange (Notes 4.d and 11.b).

Additionally, as of December 31, 2011 and 2010, the Company has carried out transactions with derivative financial instruments with the aim of hedging the exchange rate of the amounts in foreign currency that it will have to pay in the next interest payment dates of its financial debt, Class 9 Fixed Rate Par Notes (Notes 3.j, 4.b, 4.d and 11.a).

u)    Concentration risks:

        Related to customers

The Company’s accounts receivable derive primarily from the sale of electric power.

No single customer accounted for more than 10% of sales for the years ended December 31, 2011 and 2010. The collectibility of trade receivables balances related to the Framework Agreement, which amount to 54,272 and 33,047 as of December 31, 2011 and 2010, respectively, as disclosed in Notes 4.a and 9, is subject to compliance with the terms of such agreement.

        Related to employees who are union members

The Bid Package sets forth the responsibilities of both SEGBA and the Company in relation to the personnel transferred by SEGBA through Resolution No. 26/92 of the Energy Secretariat. According to the Bid Package, SEGBA will be fully liable for any labor and social security obligations accrued or originated in events occurred before the take-over date, as well as for any other obligations deriving from lawsuits in process at such date.
 
During 2005, two new collective bargaining agreements were signed with the Sindicato de Luz y Fuerza de la Capital Federal (Electric Light and Power Labor Union of the City of Buenos Aires) and the Asociación de Personal Superior de Empresas de Energía (Association of Supervision Personnel of Energy Companies), which expired on December 31, 2007 and October 31, 2007, respectively. These agreements were approved by the Ministry of Labor and Social Security on November 17, 2006 and October 5, 2006, respectively.

As of December 31, 2011 and 2010, approximately 80% of the Company’s employees were union members. Although the relationship with unions is currently stable, the Company may not ensure that there will be no work disruptions or strikes in the future, which could have a material adverse effect on the Company’s business and revenue. Furthermore, collective bargaining agreements signed with unions expired at the end of the 2007 fiscal year. There is no guarantee that the Company will be able to negotiate new collective bargaining agreements under the same terms as those currently in place or that there will be no strikes before or during the negotiation process.

As of the date of issuance of these consolidated financial statements, meetings aimed at negotiating the renewal terms of both collective bargaining agreements are being held with the above-mentioned unions.

v)    Foreign currency translation/ transactions:

The Company accounts for foreign currency denominated assets and liabilities and related transactions as follows:
 
 
 

 

The accounting measurements of purchases, sales, payments, collections, other transactions and outstanding balances denominated in foreign currency are translated into pesos using the exchange rates described below. Thus, the resulting amount in pesos represents the amount collected or to be collected, paid or to be paid.

For translation purposes, the following exchange rates are used:

a)
the exchange rate in effect at the date of the transaction, for payments, collections and other transactions denominated in foreign currency; and
b)
the exchange rate in effect at the date of the consolidated financial statements, for assets and liabilities denominated in foreign currency.

For transactions and balances denominated in foreign currency, the bid price is used for assets, and the offer price is used for liabilities.
 
The effect of such transactions has been included in the Statement of operations as “Exchange difference” under “Financial income (expense) and holding gains (losses)”.
 
w)    Financial statements comparison:

Certain amounts disclosed in the financial statements as of December 31, 2010 have been reclassified for comparative purposes, following the disclosure criteria used for the consolidated financial statements as of December 31, 2011.

Additionally, the Company recognized in the accounting the deferred tax liability generated by the differences between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets retroactively to January 1, 2011 (Notes 3.m and 5). The effects of this change on the results of operations for the year ended December 31, 2010 are detailed below:

   
2010
 
Net loss for the year before adjustment
    (74,031 )
Deferred tax liability recognition adjustment
    24,978  
Net loss for the year
    (49,053 )

4. BREAKDOWN OF MAIN CONSOLIDATED ACCOUNTS

Consolidated Balance Sheets as of December 31, 2011 and 2010
 
 
 

 

a)    Trade receivables

The breakdown of trade receivables as of December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
Current:
           
Receivables from sales of electricity:
           
                 
Sales of electricity - Billed
    344,116       216,749  
Total billed
    344,116       216,749  
                 
Sales of electricity - Unbilled
    196,598       149,046  
Retroactive tariff increase arising from the application of the new electricity rate schedule
      0         21,442  
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule
      0       (1,170 )
Framework Agreement
    54,272       33,047  
National Fund of Electricity
    3,353       3,437  
Bonds for the cancellation of debts of the Province of Bs. As.
    0       8,743  
Specific fee payable for the expansion of the network, transportation and others
      6,512             4,477  
Total unbilled
    260,735       219,022  
                 
In litigation
    16,109       14,681  
Less:
               
Allowance for doubtful accounts (Exhibit E)
    (86,228 )     (29,259 )
Total Current
    534,732       421,193  
                 
Non-Current:
               
Receivables from sales of electricity:
               
Cost Monitoring Mechanism and other receivables
    45,725       45,531  
Total Non-Current
    45,725       45,531  

b)    Other receivables

The breakdown of other receivables as of December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
Current:
           
Prepaid expenses
    2,986       4,625  
Advances to suppliers
    39,163       4,014  
Advances to personnel
    4,627       6,276  
Related parties
    175,125       4,169  
Receivables from activities other than the main activity
    20,405       23,321  
Allowance for other doubtful accounts (Exhibit E)
    (12,253 )     (12,799 )
Tax on financial transactions
    829       3,693  
Note receivable from EDESUR S.A.
    2,846       0  
Derivative financial instruments
    1,316       0  
Other
    9,859       10,062  
Total Current
    244,903       43,361  

 
 

 
 
Non-Current:
           
Prepaid expenses
    1,140       1,199  
Tax on minimum presumed income
    52,013       12,283  
Tax credits
    885       0  
Receivables from EDEN S.A. Class “C” shareholders
    15,417       0  
Other
    1,249       1,321  
Total Non-Current
    70,704       14,803  
 
c)    Trade accounts payable

The breakdown of trade accounts payable as of December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
Current:
           
Payables for purchase of electricity and other purchases
    427,723       221,626  
Accrual for unbilled electric power purchases
    115,125       111,860  
Customer contributions
    79,292       33,965  
Other
    36,188       11,054  
Total Current
    658,328       378,505  
                 
Non-Current:
               
Customer deposits
    53,477       49,129  
Other
    867       1,855  
Total Non-Current
    54,344       50,984  
 
d)            Loans

The breakdown of loans as of December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
Current:
           
Financial loans
    6,785       0  
Interest
    28,978       0  
Corporate Notes
    23,262       47,027  
Derivative financial instruments
    0       7,253  
Adjustment to present value of Corporate Notes
    0         (172 )
Total Current
    59,025       54,108  
                 
Non-Current:
               
Financial loans
    6,891       0  
Corporate Notes
    1,182,991       1,052,686  
Adjustment to present value of Corporate Notes
    0       (17,573 )
Total Non-Current
    1,189,882       1,035,113  
 
 
 

 
 
e)            Salaries and social security taxes

The breakdown of salaries and social security taxes as of December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
Current:
           
Salaries payable and accruals
    260,007       160,616  
Social Security (ANSES)
    10,536       13,651  
Early retirements payable
    5,246       6,165  
Pension plans payable
    11,326       0  
Total Current
    287,115       180,432  
                 
Non-Current:
               
Early retirements payable
    5,526       6,845  
Seniority-based bonus
    18,065       12,432  
Personnel benefits plans
    45,936       31,356  
Total Non-Current
    69,527       50,633  
 
f)            Taxes

The breakdown of taxes as of December 31, 2011 and 2010 is as follows:
 
   
2011
   
2010
 
Current:
           
Provincial, municipal and federal contributions and taxes, VAT and turnover tax payable
      58,326         62,925  
Income tax and tax on minimum presumed income (net of advances and payments on account) (Note 5)
      40,266         0  
Withholdings
    20,455       9,798  
Municipal taxes
    36,855       27,159  
Tax regularization plan Law No. 26476
    1,466       1,364  
Other
    11,625       9,834  
Total Current
    168,993       111,080  
                 
Non-Current:
               
Net deferred tax liabilities (Note 5)
    279,767       253,817  
Tax regularization plan Law No. 26476
    7,161       8,989  
Other
    3,951       0  

 Total Non-Current
    290,879       262,806  
 
 
 

 

g)           Other liabilities

The breakdown of other liabilities as of December 31, 2011 and 2010 is as follows:
 
   
2011
   
2010
 
Current:
           
Program for the rational use of electric power (PUREE)
    61,566       0  
Dividends payable
    1,211       0  
Penalties and discounts
    35,636       0  
Advance payments received for EDELAR’s sale agreement
    6,455       0  
Related parties (1)
    14,288       0  
Advances for works to be performed
    17,459       0  
Other
    8,162       4,542   
Total Current
    144,777       4,542  
                 
Non-Current:
               
Program for the rational use of electric power (PUREE)
    867,089       529,097  
Penalties and discounts
    506,598       455,421  
Total Non-Current
    1,373,687       984,518  
 
(1) Related to advance payment received for EGSSA’s sale agreement and dividends payable to Pampa Inversiones S.A.
 
Consolidated Statements of Income as of December 31, 2011 and 2010

h)           Net sales

The breakdown of net sales for the years ended December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
             
Sales of electricity (1)
    3,443,714       2,125,390  
Late payment charges
    31,269       22,197  
Right of use on poles
    79,128       18,114  
Connection charges
    8,581       5,550  
Reconnection charges
    2,356            2,393  
Total
    3,565,048       2,173,644  
 
(1) Net of ENRE discounts and penalties for 81,058 and 80,006 for the years ended December 31, 2011 and 2010, respectively (Note 8.a).

 
 

 

i)           Other (Expense) Income, net

The breakdown of other (expense) income, net for the years ended December 31, 2011 and 2010 is as follows:

   
2011
   
2010
 
             
Non-operating income (expense)
    7,789       985  
Commissions on municipal taxes collection
    5,387       4,905  
Net expense from technical services
    (5,148 )     (4,114 )
Voluntary Retirements - Bonuses
    (10,897 )     (10,103 )
Severance paid
    (9,152 )     (4,658 )
Accrued litigation (Exhibit E)
    (17,169 )     (1,213 )
Residual value retirements of property, plant and equipment (Exhibit A)
    (4,913 )     (1,125 )
Income from the sale of real property
    0       5,266  
Recovery og allowonce for doubtfull accounts
    0       0  
Net recovery of accrued litigation
    0       0  
Other related party income (expense), net
    377       210  
Other
    8,470       37  
Total
    (25,256 )     (9,810 )

 
 

 

5. INCOME TAX AND DEFERRED TAX

Consolidated deferred tax assets and liabilities as of December 31, 2011 and 2010 are as follow:
 
 
 
2011
   
2010
 
Loss for the year before taxes
    (394,709 )     (75,167 )
Applicable tax rate
    35 %     35 %
Loss for the year at the applicable tax rate
    (138,148 )     (26,308 )
Permanent differences at the applicable tax rate:
               
Permanent differences
    11.585       194  
Total income tax charge for the year before allowance for impairment of net deferred assets
    (126,563 )     (26,114 )
 Increase in the allowance for impairment of net deferred assets (Exhibit E)
    149,011       0  
Total income tax charge for the year
    22,448       (26,114 )
Variation between deferred assets (liabilities) charged to the results of operations
    16,376       42,349  
Difference between accrual and tax return
    1,442       0  
Income tax for the year (Note 4.f)
    40,266       16,235  

Allowance for the impairment of net deferred assets
 
2011
   
2010
 
At beginning of year
    0       0  
Increase in the allowance for the impairment of net deferred assets (Exhibit E)
    149,011       0  
Balance at end of year (Exhibit E)
    149,011       0  

The amounts of deferred tax assets and liabilities considered as of December 31, 2011 and 2010 are as follow:

   
2011
   
2010
 
Non-current deferred tax assets
           
Tax loss carryforward
    169,477       11,586  
Trade receivables and other receivables
    32,011       0  
Accruals and other debts
    166,169       175,143  
Intangible assets
    40,650       0  
Other
    6,390       442  
Non-current deferred tax assets
    414,697       187,171  

   
2011
   
2010
 
Non-current deferred tax liabilities
           
Property, plant and equipment and other
    (518,461 )     (440,988 )
Non-current deferred tax liabilities
    (518,461 )     (440,988 )
                 
Net deferred tax liabilities before allowance for impairment of net deferred assets
    (103,764 )     (253,817 )

   
2011
   
2010
 
Allowance for impairment of net deferred assets
    (176,003 )     0  
Net deferred tax liabilities (Note 4.f)
    (279,767 )     (253,817 )

 
 

 
 
Tax losses carryforward in effect as of December 31, 2011 are as follow:
 
Tax loss carryforward
 
Amount
   
Rate 35%
   
Year of expiration
 
 Generated in fiscal year 2007
    53,324       18,663       2012  
 Generated in fiscal year 2008
    70       24       2013  
 Generated in fiscal year 2009
    46       16       2014  
 Generated in fiscal year 2010
    37,313       13,060       2015  
 Generated in fiscal year 2011
    393,468       137,714       2016  
 Total tax loss carryforward as of December 31, 2011
    484,221       169,477          

Additionally, as of December 31, 2011, the minimum presumed income tax receivable of 52,013 has been disclosed in other non-current receivables (Note 4.b), in accordance with that mentioned in Note 3.m.

The breakdown of the aforementioned receivable is as follows:

Minimum presumed income tax receivable
 
Amount
   
Year of expiration
 
 Generated in fiscal year 2010
    17,330       2020  
 Generated in fiscal year 2011
    34,683       2021  
      52,013          

6. CONSOLIDATED SEGMENT INFORMATION

The Company carries on its business activities in the electricity sector, acting in the distribution and generation of electricity through different legal entities in which it holds an interest. Furthermore, the Company’s Management performs the analysis, follow-up and control of the Company’s business activities based on the following segments:

EMDERSA, comprised of EDESA, EDELAR, EDESAL, EGSSA, EMDERSA and EMDERSA HOLDING.

AESEBA, comprised of AESEBA and EDEN.

EDENOR, comprised of Edenor S.A.

 
 

 
 
The information on each operating segment identified by the Company for the year ended December 31, 2011 is as follow:
 
Consolidated results as of December 31, 2011
 
Emdersa
   
Aeseba
   
Edenor
   
Eliminations
   
Consolidated
 
Net sales
    764,277       519,905       2,280,866       -       3,565,048  
Cost of sales
    (264,511 )     (198,536 )     (1,130,890 )     -       (1,593,937 )
Gross margin
    499,766       321,369       1,149,976       -       1,971,111  
Administrative expenses
    (99,122 )     (29,111 )     (195,205 )     -       (323,438 )
Transmission and distribution expenses
    (168,653 )     (131,288 )     (888,784 )             (1,188,725 )
Selling expenses
    (97,313 )     (49,916 )     (282,701 )     -       (429,930 )
Operating income (loss)
    134,678       111,054       (216,714 )     -       29,018  
Gain from permanent investments
    -       -       80,805       (80,801 )     4  
Amortization of goodwill
    572       3,281       13,332       (4,845 )     12,340  
Loss from valuation of assets available for sale at net realizable value
    -       -       (75,029 )             (75,029 )
Subtotal
    135,250       114,335       (197,606 )     (85,646 )     (33,667 )
Financial income (expense) and holding gains (losses):
                                       
Generated by assets
    (12,330 )     (495 )     53,928       (32,386 )     8,717  
Generated by liabilities
    (61,150 )     (21,082 )     (303,293 )     32,382       (353,143 )
Gain from investments in related companies
    924       -       -       -       924  
Other (expense) income, net
    (2,546 )     3,084       (25,794 )     -       (25,256 )
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables
    -       -       1,170       -       1,170  
Gain from the purchase of notes
    -       -       6,546       -       6,546  
Income (Loss) before income tax and minority interest
    60,148       95,842       (465,049 )     (85,650 )     (394,709 )
Income tax
    (17,455 )     (34,645 )     29,652       -       (22,448 )
Minority interest
    (6,851 )     (6,269 )     -       (5,120 )     (18,240 )
Income (Loss) for the year
    35,842       54,928       (435,397 )     (90,770 )     (435,397 )
                                         
Consolidated balance sheet information as of December 31, 2011
                                       
Total Assets
    1,295,993       900,902       5,366,949       (1,819,411 )     5,744,432  
Total Liabilities
    535,825       424,966       4,052,431       (640,177 )     4,373,045  
Shareholders’ equity and minority interest
    760,167       475,936       1,314,518       (1,179,235 )     1,371,387  
                                         
Additional consolidated information as of December 31, 2011
                                       
Additions of property, plant and equipment
    162,970       59,753       430,637       -       653,360  

As of December 31, 2011, the Company decided to discontinue EMDERSA operating segment (Note 25).

7. CAPITAL STOCK

As of December 31, 2011 and 2010, the Company’s capital stock amounts to 906,455,100 shares, represented by 462,292,111 common, book-entry Class A shares with a par value of one peso each and the right to one vote per share; 442,210,385 common, book-entry Class B shares with a par value of one peso each and the right to one vote per share; and 1,952,604 common, book-entry Class C shares with a par value of one peso each and the right to one vote per share. Each and every share maintains the same voting rights, i.e. one vote per share. There are no preferred shares of any kind, dividends and/or preferences in the event of liquidation, privileged participation rights, prices and dates, or unusual voting rights. Moreover, there are no significant terms of contracts allowing for either the issuance of additional shares or any commitment of a similar nature.

As of December 31, 2011 and 2010, the Company’s capital stock, represented by 906,455,100 shares is comprised of the following:

   
2011
   
2010
             
Holder
 
Number of shares
   
Class
   
% held
 
EASA (1)
    462,292,111       462,292,111       “A”       51.00  
Market in general (2)
    442,210,366       442,210,366       “B”       48.78  
Banco Nación (3)
    1,952,604       1,952,604       “C”       0.22  
New Equity Ventures LLC
    19       19       “B”       0  
 
(1) The shares are pledged in favor of the Argentine Government as evidenced by the certificate issued by Caja de Valores.
(2) Includes 9,412,500 treasury shares as of December 31, 2011 and 2010.
(3) Trustee of the Employee Stock Ownership Program.
 
 
 

 

On March 3, 2011, the Company held the General Annual Meeting which resolved by majority of votes to extend for 3 years the term for holding the treasury shares acquired within the framework of section 68 of Law No. 17,811 (text consolidated by Decree No. 677/01).

8. REGULATORY FRAMEWORK
 
a)   General

The Company is subject to the regulatory framework provided under Law No. 24,065 and the regulations issued by the National Regulatory Authority for the Distribution of Electricity (ENRE).

The ENRE is empowered to approve and control tariffs, and control the quality levels of the service and the technical product, the commercial service and the compliance with public safety regulations, as established in the Concession Agreement. Failure to comply with the provisions of such Agreement and the rules and regulations governing the Company‘s business will make the Company liable to penalties that may include the forfeiture of the concession.

The Distribution Company’s obligations are, among others, to make the necessary investments and carry out the necessary maintenance works in order to ensure that the quality levels established for the provision of the service in the concession area will be complied with and that electricity supply and availability will be sufficient to meet the demand in due time, securing the sources of supply.
 
If the Company repeatedly fails to comply with the obligations assumed in the Concession Agreement, the grantor of the concession will be entitled to foreclose on the pledged Class A shares and sell them in a Public Bid. This, however, will not affect the continuity of the Holder of the concession. As of the date of issuance of these consolidated financial statements, there have been no events of non-compliance by the Company that could be regarded as included within the scope of this situation.

Furthermore, the Concession Agreement may be rescinded in the event of the Distribution Company undergoing bankruptcy proceedings. Additionally, if the Grantor of the Concession fails to discharge his obligations in such a manner that the Distribution Company is prevented from providing the Service or the Service is severely affected on a permanent basis, the Distribution Company may request, after demanding the regularization of such situation in a term of 90 days, that the agreement be rescinded.

As of December 31, 2011 and 2010, the Company has accrued the penalties for resolutions not yet issued by the ENRE corresponding to the control years elapsed as of those dates. Additionally, the Company has applied the adjustment contemplated in the temporary tariff structure (caption b item vii) as well as the adjustments established by the electricity rate schedules applied during the fiscal year 2008, Resolutions Nos. 324/2008 and 628/2008.
 
On February 9, 2011, the Company was notified of the issuance of Resolution No. 32/2011 of the ENRE, whereby the Regulatory Authority fined the Company in the amount of 1,125 for the power cuts that had occurred between December 20 and December 31, 2010.

Furthermore, the Company was ordered to compensate those customers who had been affected by the power cuts in accordance with the following: 180 pesos to each small-demand residential customer who suffered power cuts that lasted from more than 12 continuous hours to 24 hours, 350 pesos to those who suffered power cuts that lasted from more than 24 continuous hours to 48 hours, and 450 pesos to those who suffered power cuts that lasted more than 48 continuous hours.

Said penalties amount to approximately 25,303, which, based on that mentioned in Note 16.e, have been recorded in Current liabilities under Other liabilities (Note 4.g).

 
 

 

As of December 31, 2011 and 2010, non-current liabilities for ENRE Penalties and Discounts amount to 506,598 and 455,421, respectively, and have been included in the Other non-current liabilities account (Notes 4.g and 14).

ENRE Penalties and Discounts included in the Adjustment Agreement are adjusted in accordance with the terms of said agreement (Note 8.c caption vii), whereas penalties imposed after the signing of the Adjustment Agreement are adjusted in accordance with the provisions of the resolutions pursuant to which such penalties were determined.

In addition, as of December 31, 2011, the Company’s Management has considered that the ENRE has mostly complied with the obligation to suspend lawsuits aimed at collecting penalties, without prejudice to maintaining an open discussion with the entity concerning the effective date of the Adjustment Agreement and, consequently, concerning the penalties included in the renegotiation and those subject to the criteria of the Transition Period.

b)    Concession

The term of the concession is 95 years and may be extended for an additional maximum period of 10 years. The term of the concession is divided into management periods: a first period of 15 years and subsequent periods of 10 years each. At the end of each management period, the Class “A” shares representing 51% of the capital stock of EDENOR S.A., currently held by EASA, must be offered for sale through a public bidding. If EASA makes the highest bid, it will continue to hold the Class “A” shares, and no further disbursements will be necessary. On the contrary, if EASA is not the highest bidder, then the bidder who makes the highest bid shall pay EASA the amount of the bid in accordance with the conditions of the public bidding. The proceeds from the sale of the Class “A” shares will be delivered to EASA after deducting any amounts receivable to which the Grantor of the concession may be entitled.

On July 7, 2007 the Official Gazette published Resolution No. 467/07 of the ENRE pursuant to which the first management period is extended for 5 years to commence as from the date on which the Review of the Company Tariff Structure (RTI) goes into effect. Its original maturity would have taken place on August 31, 2007.

In accordance with the provisions of Resolution No. 467/2007 of the ENRE, the commencement of the process for the sale of the shares shall take place when the five-year tariff period beginning after the ending of the RTI comes to an end. Additionally, the controlling shareholder -Electricidad Argentina S.A. - is authorized to present as bidder in the referred to process and if its offer is selected as the winning bid, the controlling company will not have to make any disbursement whatsoever to keep the control of Edenor.

The Company has the exclusive right to render electric power distribution and sales services within the concession area to all users who are not authorized to obtain their power supply from the Wholesale Electricity Market (MEM), thus being obliged to supply all the electric power that may be required in due time and in accordance with the established quality levels. In addition, the Company shall allow free access to its facilities to any MEM agents whenever required, under the terms of the Concession. No specific fee must be paid by the Company under the Concession Agreement during the term of the concession.

On January 6, 2002, the Federal Executive Power passed Law No. 25,561 whereby adjustment clauses in US dollars, as well as any other indexation mechanisms stipulated in the contracts entered into by the Federal Government, including those related to public utilities, were declared null and void as from such date. The resulting prices and rates were converted into Argentine pesos at a rate of 1 peso per US dollar. Furthermore, Law No. 25,561 authorized the Federal Executive Power to renegotiate public utility contracts taking certain requirements into account.

It is worth mentioning that both the declaration of economic emergency and the period to renegotiate public utility contracts were extended through December 31, 2013 by Law No. 26,729.

 
 

 
 
c)    Adjustment Agreement entered into by and between Edenor and the Federal Government:

On September 21, 2005, the Company signed an Adjustment Agreement within the framework of the process of renegotiation of the Concession Agreement set forth in Law No. 25,561 and supplementary regulations; ratified on February 13, 2006.

The Adjustment Agreement established the following:

i)
the implementation of a Temporary Tariff Structure (RTT) effective as from November 1, 2005, including a 23% average increase in the distribution margin, which may not result in an increase in the average rate of more than 15%, and an additional 5% average increase in the distribution added value, allocated to certain specified capital expenditures;
ii)
the requirement that during the term of said temporary tariff structure, dividend payment be subject to the approval of the regulatory authority;
iii)
the establishment of a “social tariff” for the needy and the levels of quality of the service to be rendered;
iv)
the suspension of the claims and legal actions filed by the Company and its shareholders in national or foreign courts due to the effects caused by the Economic Emergency Law;
v)
the carrying out of a Review of the Company Tariff Structure (RTI) which will result in a new tariff structure that will go into effect on a gradual basis and remain in effect for the following 5 years. In accordance with the provisions of Law No. 24,065, the National Regulatory Authority for the Distribution of Electricity will be in charge of such review;
vi)
the implementation of a minimum investment plan in the electric network for an amount of 178.8 million to be fulfilled by EDENOR during 2006, plus an additional investment of 25.5 million should it be required (item f below);
vii)
the adjustment of the penalties imposed by the ENRE that are payable to customers as discounts, which were notified by such regulatory agency prior to January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect through the date on which they are effectively paid, using, for such purpose, the average increase recorded in the Company’s distribution costs as a result of the increases and adjustments granted as of each date;
viii)
the waiver of the penalties imposed by the ENRE that are payable to the National State, which have been notified, or their cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect;
ix)
the payment term of the penalties imposed by the ENRE, which are described in item vii above, is 180 days after the approval of the Review of the Company Tariff Structure (RTI) in fourteen semiannual installments, which represent approximately two-thirds of the penalties imposed by the ENRE before January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect, subject to compliance with certain requirements.

Said agreement was ratified by the Federal Executive Power through Decree No. 1957/06, signed by the President of Argentina on December 28, 2006 and published in the Official Gazette on January 8, 2007. This agreement stipulates the terms and conditions that, upon compliance with the other procedures required by the regulations, will be the fundamental basis of the Comprehensive Renegotiation of the Concession Agreement of the public service of electric power distribution and sale within the federal jurisdiction, between the Federal Executive Power and the Company.

 
 

 
 

Additionally, on February 5, 2007 the Official Gazette published Resolution No. 51/2007 of the ENRE which approves the electricity rate schedule resulting from the RTI applicable to consumption recorded as from February 1, 2007. This document provides for the following:

a)
A 23% average increase in distribution costs, service connection costs and service reconnection costs in effect which the Company collects as the holder of the concession of the public service of electric power distribution, except for the residential tariffs;
b)
Implementation of an additional 5% average increase in distribution costs, to be applied to the execution of the works and infrastructure plan detailed in Appendix II of the Adjustment Agreement. In this regard, the Company has set up the required fund;
c)
Implementation of the Cost Monitoring Mechanism (MMC) contemplated in Appendix I of the Adjustment Agreement, which for the six-month period commenced November 1, 2005 and ended April 30, 2006, showed a percentage of 8.032%. This percentage has been applied to non-residential consumption recorded from May 1, 2006 through January 31, 2007 (Note 14);
d)
Invoicing in 55 equal and consecutive monthly installments of the differences arising from the application of the new electricity rate schedule for non-residential consumption recorded from November 1, 2005 through January 31, 2007 (items a) and b) above) and from May 1, 2006 through January 31, 2007 (item c) above);
e)
Invoicing of the differences corresponding to deviations between foreseen physical transactions and those effectively carried out and of other concepts related to the Wholesale Electricity Market (MEM), such as the Specific fee payable for the Expansion of the Network, Transportation and Others, included in Trade Receivables under Receivables from sales of electricity as Unbilled (Note 4.a);
f)
Presentation, within a period of 45 calendar days from the issuance of this resolution, of an adjusted annual investment plan, in physical and monetary values, in compliance with the requirements of the Adjustment Agreement.

Revenues from the retroactive tariff increase deriving from the implementation of the new electricity rate schedule applicable to non-residential consumption for the period of November 2005 through January 31, 2007 have been fully recognized in the financial statements for the year ended December 31, 2007. Such amount, which totaled 218,591, has been invoiced in 55 equal and consecutive monthly installments, as described in item d) of this note.

Resolution No. 434/2007 established, among other things, that the obligations and commitments set forth in section 22 of the Adjustment Agreement be extended until the date on which the electricity rate schedule resulting from the RTI goes into effect, allowing the Company and its shareholders to resume the claims suspended as a consequence of the Adjustment Agreement if the new electricity rate schedule does not go into effect.

Regulatory framework applicable to subsidiaries

The relevant information on the regulatory framework applicable to the subsidiary companies is summarized below.

The regulatory framework of the electricity market currently in effect is provided for by Law No. 24065, which created the National Regulatory Authority for the Distribution of Electricity (Ente Nacional Regulador de la Electricidad), hereinafter “ENRE”, as the regulatory and control authority. EMDERSA, through the Operating Companies, is also subject to compliance with the provincial laws and regulations issued by the provincial control authorities.

The corresponding provincial regulatory authorities are: (i) the Provincial Electric Power Regulatory Commission (Comisión Reguladora Provincial de Energía Eléctrica), hereinafter “CRPEE”, in the province of San Luis; (ii) the Privatizations Control Authority (Ente Único de Control de Privatizaciones), hereinafter “EUCOP”, in the province of La Rioja, (iii) the Public Services Regulatory Agency (Ente Regulador de los Servicios Públicos), hereinafter “ENRESP”, in the province of Salta, and (iv) the Electric Power Control Authority (Organismo de Control de la Energía Eléctrica), hereinafter “OCEBA”, in the province of Buenos Aires.

The regulatory authorities are responsible for the approval and control of electricity rates and for verifying that the electric power public service be provided in accordance with the quality levels agreed upon in the corresponding concession agreements.
 
 
 

 

Concession agreements

In accordance with the concession agreements, the Distribution Companies are required, among other things, (i) to provide the electric power service in conformity with the quality levels established in the concession agreement, and (ii) to make the necessary investments to properly maintain the provision of the service. Failure to comply with these requirements may make the Distribution Companies liable to penalties.

The concession agreements provide for the tariff structure, and include the initial electricity rate schedule as well as the procedure to be followed for the adjustment of the electricity rate schedule effective for a term of five years beginning as from the commencement date of the concession. Under these agreements, the electricity rates would be subject to periodical adjustments in order to reflect the variations recorded in electric power acquisition, transmission and distribution costs.

At the end of the term of the concession, all the assets owned by the Distribution Company, that are directly or indirectly used in the provision of the public service, will be transferred to the Provincial Government. The holders of the majority shareholding in Distribution Companies San Luis and La Rioja will receive, as payment for such transfer, the amount to be obtained from the sale of the totality of the shares to a new company to be organized by the respective Provincial Government, which will become the holder of the concession, after deducting any amounts receivable which the Provincial Government may have with the Distribution Company.

Distribuidora San Luis

The main features of the regulatory framework applicable to Distribuidora San Luis are described below.

The concession agreement for the provision of the public service of electricity distribution to be rendered on an exclusive basis in the Province of San Luis was entered into on March 2, 1993 for a period of 95 years that may be extended for a maximum period of ten years. The term of the concession is divided into nine management periods, a first period of 15 years, and eight subsequent periods of 10 years each. At the end of each management period, the Province of San Luis will organize an international public bid for the sale of the majority shareholding in Distribuidora San Luis, whose conditions will be similar to those pursuant to which EMDERSA acquired its interest. EMDERSA will be entitled to participate in the bid.

The person or group who makes the highest bid will acquire the majority shareholding and pay the bid price to EMDERSA. If EMDERSA were the best bidder or if EMDERSA’s bid were equal to the highest bid, it will continue to hold the majority shareholding in Distribuidora San Luis, in which case no further payments to the Province of San Luis will be necessary nor any other obligations with respect to the bidding will be imposed on EMDERSA. There are no restrictions on the amount of EMDERSA’s bid. If EMDERSA did not make a bid or its bid were lower than the best bid made, the majority shareholding will be transferred to the bidder who made the highest bid and the price paid by the buyer will be delivered to EMDERSA, after deducting any amounts receivable which the Provincial Government may have with Distribuidora San Luis.

At the end of each management period, the Government of the Province of San Luis may revoke the exclusivity clause for the provision of the service or modify the area within which such exclusivity applies.

Distribuidora San Luis has duly submitted a presentation to the regulatory authorities concerning the Company’s economic and financial situation and has requested an emergency tariff adjustment, necessary to alleviate the effects of the aforementioned circumstances. In this framework, on January 4, 2006, the Economy Ministry of the Province issued Resolution No. 03 - MC2006, which established a temporary electricity rate adjustment. Subsequently, by Resolution No. 757 dated June 24, 2008, a new Electricity Rate Schedule, applicable as from June 1, 2008, was established.
 
 
 

 
 
The Resolution also establishes that the Company shall submit to the Provincial Electric Power Regulatory Commission (CRPEE) for its analysis, approval and subsequent audit, an Investment Plan in the sub-transmission and distribution network for an amount in excess of 20,000, to be executed within a maximum period of two years. The CRPEE, after having verified the technical specifications of the works plan and total invested amount, through note No. 1146/2010 dated December 30, 2010, considered that the investment plan submitted by Distribuidora San Luis under file 0000-2008-051032 000 had been complied with.

Subsequently, on June 15, 2011, the Ministry of Public Works and Infrastructure issued Resolution No. 597-MOPeI-2011, whereby it approved an Electricity Rate Schedule, which resulted in an average increase of approximately 9% applicable as from June 1, 2011, and an investment plan to be carried out.

By note No. 8752/11, the Energy Secretariat established that any rate increase from the rate values corresponding to November 2011 applicable to final users of distribution agents and/or suppliers of the public service of electric power distribution, is to be regarded as a component of the wholesale purchase cost of the distribution agent and/or supplier of the public service of electric power distribution.

As of the date of these consolidated financial statements, Distribuidora San Luis continues renegotiating certain terms and conditions of the concession agreement with the regulatory authorities. Although it is not possible to anticipate the final wording of said terms and conditions, the Board of Directors of Distribuidora San Luis believes that they will not have a negative impact on the business.

Distribuidora La Rioja

The main features of the regulatory framework applicable to Distribuidora La Rioja are described below.

The concession agreement for the provision of the public service of electricity distribution and sale to be rendered on an exclusive basis in the Province of La Rioja was entered into on June 1, 1995 for a period of 95 years that may be extended for an additional period of ten years. The term of the concession is divided into nine management periods, a first period of 15 years, and eight subsequent periods of 10 years each. At the end of each management period, the Regulatory Authority will call for bids for the sale of the majority shareholding in Distribuidora La Rioja.
 
EMDERSA will be entitled to present its bid simultaneously with the other bidders and in accordance with the terms and conditions of the bid. If EMDERSA’s bid were higher than or equal to the best economic offer, it will continue to hold the majority shareholding and no further disbursements will be required.
 
On December 1, 2008, Distribuidora La Rioja and the Commission for the Renegotiation of Contracts, comprised of the Economy Minister, the Infrastructure Minister and the General and Legal Secretary of the Provincial Government, entered into a Memorandum of Understanding, which approved amendments to the Concession Agreement for the Public Service of Electricity Distribution and Sale, in accordance with the guidelines established in the Public Hearing for the Revision of Rates held in October 2008. The Memorandum of Understanding approves a new Electricity Rate Schedule for the Concession Agreement as well as a Customer Application Schedule, effective for consumption recorded as from November 1, 2008, with an authorized 16% average increase.

Furthermore, it was agreed that the debt owed by the Government to the Distribution Company for government grants corresponding to the period 2007/2008 and for other concepts, would be settled with the assignment of electric infrastructure works carried out and to be carried out by the Government. In addition, a cost monitoring mechanism, which will allow Distribuidora La Rioja (should the conditions stipulated in the Memorandum of Understanding concerning increases in costs and expenses be met) to request that the EUCOP begin a procedure for the analysis and review of rates, was also implemented

 
 

 

In the 2010 fiscal year, the increases recorded in the Distribution Company’s costs exceeded the conditions stipulated in the Memorandum of Understanding for the Readjustment of the Agreement for the Provision of the Public Service of Electricity Distribution signed with the Government of the Province of La Rioja and ratified by the Governor through Decree FEP No. 2318/08. Therefore, in February 2011, the Distribution Company submitted Note GPRR No. 0110/11 with the supporting documentation of the greater costs borne by EDELAR S.A.

By Note No. 236 of the EUCOP dated March 28, 2011, the Board of the Control Authority rejected the distribution company’s request. On April 11, 2011, by Note GPRR No. 0258/2011 addressed to the EUCOP, the Distribution Company requested that such decision be reconsidered.

On August 19, 2011, by Resolution No. 1 Record 66, the EUCOP, in accordance with the provisions of section 3, authorized a 4.5% increase to be applied as from the August-September-October 2011 quarter. For this purpose, Distribuidora La Rioja is required to submit, for the EUCOP’s approval, an investment plan for distribution works.

By Resolution No. 1 Record 81 dated October 20, 2011, the EUCOP, in accordance with the provisions of section 3, authorized the application of the rate schedule for the period August, September and October 2011, approving the investment plan duly submitted by the Company.

By note No. 8752/11, the Energy Secretariat established that any rate increase from the rate values corresponding to November 2011 applicable to final users of distribution agents and/or suppliers of the public service of electric power distribution, is to be regarded as a component of the wholesale purchase cost of the distribution agent and/or supplier of the public service of electric power distribution.

Distribuidora Salta and ESED

The main features of the regulatory framework applicable to Distribuidora Salta and ESED are described below.

The concession agreement for the provision of the public service of electricity distribution -which is divided into two different markets: the concentrated (urban) market and the isolated (isolated generation with non-conventional methods) market- to be rendered on an exclusive basis in the Province of Salta was entered into on August 12, 1996 for a period of 50 years that may be extended for a maximum period of ten years.

The term of the concession is divided into three management periods, a first period of 20 years, and two subsequent periods of 15 years each. At the end of each management period, the ENRESP will organize a public bid for the sale of the majority shareholding in Distribuidora Salta. The investment company must present its own bid simultaneously with the other bidders and in accordance with the terms and conditions of the bid. If the investment company’s bid were higher than or equal to the best economic offer, it will continue to hold the majority shareholding and no further disbursements will be required.

Empresa Distribuidora de Energía Norte S.A.

With regard to the adjustment for the increases recorded in costs, the Distribution Company continued to submit the information on the updated values of the Operative Costs Sample as well as on the valuation of the assets available for the rendering of service, as stipulated in caption 4.4 of Section 4 of the Protocol of Understanding. The last presentation was made in June 2010, which has been ratified by the Provincial Energy Administration.
 
 
 

 

In addition, Ministerial Resolution No. 415/11, published on June 8, 2011, established a 9% average increase in rates. The Electricity Rate Schedules approved by this resolution are applicable as from June 1, 2011 and contemplate for the June-September period, the suspension of the application of the Seasonal Prices set forth by Resolution No. 1169/08 of the Energy Secretariat for residential customers whose consumption exceeds 1,000 kWh bimonthly as defined by Resolution No. 202/11 of that Secretariat.

Furthermore, the Infrastructure Ministry of the Province of Buenos Aires issued Resolution No. 463/11 pursuant to which the System for the Expansion of Networks of the Concession Agreement and the complementary regulations was supplemented and/or modified. With the issuance of such resolution, it is the Government’s intention to implement the Reimbursable Contributions System currently in place at the national level. At present, the necessary activities aimed at regulating such resolution and assessing its impact on EDEN S.A.’ regulatory economy are being carried out.

9.  FRAMEWORK AGREEMENT

The Addendum to the New Framework Agreement entered into by the Federal Government, the Government of the Province of Buenos Aires and the Company on June 18, 2009, which contemplates its renewal for periods of four years with the consent of the parties involved, expired on December 31, 2010. The purpose of the Framework Agreement is to establish the guidelines under which the Company is to supply electricity to low-income areas and shantytowns.
 
On July 22, 2011, the Company, together with EDESUR S.A. and EDELAP S.A., entered into an Addendum with the Federal Government and the Government of the Province of Buenos Aires, for the renewal for a term of four years of the New Framework Agreement that had been signed on October 6, 2003.

The renewal is yet to be approved by the Ministry of Federal Planning, Public Investment and Services. Nevertheless, the Company has continued supplying electricity to low-income areas and shantytowns and has submitted the information related to this consumption to control authorities, under the assumption that the Agreement will continue in full force and effect in the successive periods

As of December 31, 2011 and 2010, balances with the Federal Government and the Government of the Province of Buenos Aires amount to 54,272 and 33,047, respectively (Notes 3.c, 3.v and 4.a).

With regard to the amount receivable that the Company had with the Province of Buenos Aires, in March 2010, the Company entered into a Payment Plan Agreement with the Government of that Province pursuant to which the Government of the Province of Buenos Aires verified and paid with Bonds for the Cancellation of Debts of the Province of Buenos Aires, the debt as of October 31, 2009 stated therein in the amount of 32,797. As of December 31, 2010, there is no outstanding balance for this concept (Note 4.a).

As of the date of issuance of these consolidated financial statements, the Company has made the corresponding presentations and is awaiting the extension of this Agreement. Furthermore, and following a criterion of prudence, the Company has decided to record an allowance in the amount of 28,600 for the electricity receivables accrued during the fiscal year 2011 until the administrative proceedings necessary for the aforementioned extension to come into effect are carried out by the different application authorities (Note 3.h and Exhibit E).
 
10. CORPORATE NOTES AND LOANS

CORPORATE NOTES PROGRAM

On October 25, 2010, the Company issued Corporate Notes for a nominal value of USD 140 million. Furthermore, as a result of the exchange offer, the Company accepted and exchanged Class 7 Corporate Notes for a nominal value of USD 90,301,000, for Corporate Notes due 2022 for a nominal value of USD 90,301,000 and paid USD 9,532,000 in cash, including payments of accrued and unpaid premium and interest on Class 7 Corporate Notes; and accepted and purchased Class 7 Corporate Notes for a nominal value of USD 33,593,000, having paid USD 35,750,000, including the payment of accrued and unpaid interest on Class 7 Corporate Notes.

 
 

 

The new Class 9 Corporate Notes for a total amount of USD 230,301,000 have been issued at an issue price of 100% of the principal amount. The twelve-year term corporate notes accrue interest as from the date of issuance at a fixed rate of 9.75%, payable semiannually on October 25 and April 25 of each year. The first interest payment fell due on April 25, 2011. The principal will be amortized in a lump sum payment at maturity date in 2022. The Company has requested authorization for the listing of the Corporate Notes on the Buenos Aires Stock Exchange and admission for trading on the Mercado Abierto Electrónico S.A. (the OTC market of Argentina), as well as authorization for the listing of the Corporate Notes on the Luxembourg Stock Exchange and admission for trading on the Euro MTF Market, which is the alternative market of the Luxembourg Stock Exchange.

On April 26, 2011, the Company issued Corporate Notes for a nominal value of USD 69,699,000, thereby completing the total original amount of the series of up to USD 300 million.

The Company used the net proceeds from the sale of the Corporate Notes in these offers to refinance part of its short-term debt, finance the capital expenditures plan, and increase working capital.
 
Furthermore, in the first quarter of the fiscal year being reported, the Company purchased in successive operations, at market prices, “Class A floating rate par corporate notes” due in 2019, for a nominal value of USD 12,656,000. The result of this transaction as of December 31, 2011 has been disclosed in the Statement of operations under Gain (Loss) from the purchase of notes.

Additionally, in the September-December 2011 period, the Company purchased in successive operations, at market prices, “Class 9 fixed rate par corporate notes” due in 2022, for a nominal value of USD 41,453,000. The result of this transaction as of December 31, 2011 has been disclosed in the Statement of operations under Gain (Loss) from the purchase of notes.

Furthermore, the change in the debt maturity profile allowed the Company to have the necessary funds to be able to carry out the acquisitions of companies mentioned in Note 27.

The Company’s debt structure as of December 31, 2011 and 2010 was comprised of the following Notes:

Debt issued in United States dollars:

Corporate Notes
 
Class
 
Debt structure as of Dec. 31, 2010 (in thousands of USD)
 
Debt purchase as of Dec. 31, 2011 (in thousands of USD)
   
Issuance April 26, 2011 (in thousands of USD)
 
Debt structure as of Dec. 31, 2011 (in thousands of USD)
 
Balance as of Dec. 31, 2011 (Note 4.d)
 
Balance as of Dec. 31, 2010 (Note 4.d)
 
Floating Rate Par Note
  A   12,656   (12,656 )   0   0   0   50,318  
Fixed Rate Par Note
  7   24,760   0     0   24,760   106,567   98,446  
Fixed Rate Par Note (1)
  9   219,184   (41,453 )   69,699   247,430   1,064,759   871,476  
Total
      256,600   (54,109 )   69,699   272,190   1,171,326   1,020,240  
 
 
 

 
 
As of December 31, 2011, Class 9 fixed rate par corporate notes held by the Company amount to USD 41,453 thousand.

(1) Net of issuance expenses.

Debt issued in Argentine pesos:
 
   
Debt Structure (in thousands of pesos)
 
Corporate Notes
 
Class
   
As of Dec. 31, 2010 (Note 4.d)
   
As of Dec. 31, 2011 (Note 4.d)
 
Floating Rate Par Note
    8       58,236       34,951  
Total
            58,236       34,951  
 
The principal amortization schedule of the corporate notes debt, broken down by year of total debt, without considering possible adjustments, prepayments, redemptions or cancellations is detailed in the table below:

Year
 
Amount
 
2011
    0  
2012
    23,285  
2013
    11,666  
2014
    0  
2015
    0  
2016
    0  
2017
    106,567  
2018
    0  
2019
    0  
2020
    0  
2021
    0  
2022 (1)
    1,064,759  
      1,206,277  

(1) Net of issuance expenses.

The main covenants are the following:

1) Negative Covenants

The terms and conditions of the Corporate Notes include a series of negative covenants that limit the Company’s actions with regard to, among others, the following:

- encumbrance or authorization to encumber its property or assets;
- incurrence of indebtedness, in certain specified cases;
- sale of the Company’s assets related to its main business;
- carrying out of transactions with shareholders or related companies;
- making certain payments (including, among others, dividends, purchases of Edenor’s common shares or payments on subordinated debt).
 
2) Suspension of Covenants
 
Certain negative covenants stipulated in the terms and conditions of the Corporate Notes will be suspended or adjusted if:
 
 
 

 

(a)
The Company’s long-term debt rating is raised to Investment Grade, or
(b)
The Company’s Level of Indebtedness is equal to or lower than 2.5.

If the Company subsequently losses its Investment Grade rating or its Level of Indebtedness is higher than 2.5, as applicable, the suspended negative covenants will be once again in effect.

However, the reinstatement of the covenants will not affect those acts which the Company may have performed during the suspension of such covenants.

FINANCIAL LOANS

In August 2011, the Company took out a financial loan from Banco Ciudad for a principal amount of 5,800 accruing interest at an annual rate of 14.8% and falling due on February 6, 2012. Interest is paid on a monthly basis as from August 31, 2011. As of the closing date of these consolidated financial statements, the Company entered into an Addendum with Banco Ciudad pursuant to which the maturity date of the aforementioned loan is extended to February 2014.

Additionally, in March and June 2011, the Company took out loans from Banco de la Provincia de Buenos Aires for a total principal amount of 22,000 accruing interest at an annual rate of 14% and falling due in March 2012, May 2012 and June 2014, respectively. Interest is paid on a monthly basis.

As of December 31, 2011, the outstanding balance under the aforementioned loans amounts to 13,761.

Financing structure of Subsidiaries

The relevant information on the subsidiary companies’ financing structure is summarized below.

EMDERSA

a)           Loans

In July 2010, Banco Itaú Argentina S.A. and Standard Bank Argentina S.A. granted loans to Distribuidora Salta, Distribuidora San Luis and Distribuidora La Rioja, with the aim of facilitating the implementation of the syndication process of a medium-term credit facility in pesos, whose main purpose were the early repayment of the debt under the corporate notes.

The amount disbursed under these loans totaled 163,850. The aforementioned facility became part of a medium-term syndicated loan that is part of the debt refinancing of Distribuidora Salta, Distribuidora San Luis and Distribuidora La Rioja, and whose main terms and conditions were: final maturity in July 2013 and repayment of principal in quarterly payments as from January 2012, in accordance with the following amortization schedule:

Amortization of principal
 
Date
 
%
 
Date
 
%
 
               
January 2012
  11  
January 2013
  11  
April 2012
  11  
April 2013
  15  
July 2012
  11  
July 2013
  30  
October 2012
  11          

The medium-term facility, which amounted to 208,500, was finally agreed and fully disbursed on July 15, 2010. The banks comprising the group of lenders were: Standard Bank Argentina S.A., Banco Hipotecario S.A., Banco de Galicia y Buenos Aires S.A., Banco Ciudad de Buenos Aires and Banco Itaú Argentina S.A. The syndicated loans stipulate certain conditions, restrictions and covenants which are to be assumed and complied with by the company.
 
 
 

 

The funds granted to Distribuidora La Rioja for an amount equivalent to 21,200 have been allocated to three time deposits in charge of the agent of the syndicated loan (Standard Bank Argentina S.A.).

During the term of this financing, EMDERSA as well as Distribuidora Salta, Distribuidora La Rioja and Distribuidora San Luis are required to comply, in each case and among other covenants, with the following ratios in accordance with their respective financial statements:

           The ratio of Consolidated Financial Debt-to-Consolidated EBIDTA must be lower than or equal to:

-
EMDERSA: 2.25
-
Distribuidora Salta: 3.25
-
Distribuidora La Rioja: 2.40
-
Distribuidora San Luis: 1.50

           The ratio of Consolidated EBIDTA-to-Consolidated Financial Expense must be higher than or equal to:
 
-
EMDERSA: 3.00
-
Distribuidora Salta: 1.80
-
Distribuidora La Rioja: 2.00
-
Distribuidora San Luis: 3.00

On March 4, 2011, date on which Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR) acquired the majority shareholding in EMDERSA, EDENOR disbursed a loan for 200,000 falling due on April 30, 2011 and accruing interest at an annual rate of 16%, which was applied, among other things, to the early repayment of 119,888 under the syndicated loan, plus interest accrued and applicable taxes as of that date for 5,913, with the remaining balance being applied to the repayment of a short-term bank debt.

On April 29, 2011, the Company refinanced the loans granted to EMDERSA’s subsidiary distribution companies for 31,178 in the case of Distribuidora La Rioja, 131,319 in the case of Distribuidora Salta and 37,502 in the case of Distribuidora San Luis, at an annual rate of 16% on each of them, with interest falling due semi-annually on October 31, 2011 and April 30, 2012 and principal falling due in its entirety on the latter date.

The financing conditions are in accordance with those usually obtained in the market for this type of transactions.
 
On October 25, 2011, by virtue of the corporate reorganization, Distribuidora San Luis repaid the debt with the Company for an amount of 37,503, which comprised principal, compensatory interest, commissions, expenses and other concepts applicable thereto (Note 27.a).

With regard to the proposal made to the banks concerning the early repayment of the syndicated loan, it was proposed that the allocation of funds as stipulated in the original proposal be modified, and that the early repaid principal amounts be applied to the first principal due dates instead of applying them to the final maturities of the loan. Accordingly, the remaining maturities of this debt are, at present, the following:
 
Date
 
Amount
 
       
April 15, 2013
    26,062  
July 15, 2013
    62,550  

 
 

 

Between October 17 and October 25, 2011, an amount of 4,842 corresponding to the fifth period of interest on the syndicated loan was paid, which makes a total of 26,766 during the current year.

Furthermore, on October 25, 2011 Distribuidora San Luis made an early repayment of the outstanding balance of the syndicated loan received on July 15, 2010, for an amount of 20,400 plus interest accrued and applicable taxes as of that date.

Both early repayments were made with funds disbursed under a new four-year-term syndicated loan for 60,000 granted to Distribuidora San Luis on October 25, 2011. Interest will be paid quarterly and principal will be amortized in semi-annual and consecutive installments of 7,500 each, with the first installment falling due on April 25, 2012 and the last one on October 25, 2015. The banks comprising the group of lenders are Banco Itaú Argentina S.A., Standard Bank Argentina S.A. and Banco Ciudad de Buenos Aires.

During the term of this financing, Distribuidora San Luis is required to comply, among other covenants, with the following ratios in accordance with its financial statements:

The financial debt-to-EBITDA ratio must be lower than or equal to 1.50
The EBITDA-to-financial expense ratio must be higher than or equal to 3.00

b)           Class IV and Class V Corporate Notes

The Boards of Directors of Distribuidora Salta and Distribuidora La Rioja, at their meetings of September 17, 2010, authorized in each case, the issuance of a new class of Corporate Notes for a principal amount of up to 20,000 (the “Class IV and Class V Corporate Notes”, respectively) for each of them. This placement is subject to compliance with the Public Offering Program for the Issuance of Medium-Term Debt Guaranteed by EMDERSA, authorized by Resolution No. 15,433, issued by the CNV on July 27, 2006.

On October 29, 2010, the CNV authorized both for Distribuidora Salta and Distribuidora La Rioja, the placement of the Class IV Corporate Notes for an amount of 15,000, which could be increased to 20,000.

The term for the placement of those instruments came to an end on November 5, 2010. Due to the result obtained, it was resolved that the issuance of Class IV and Class V Corporate Notes be made for a Nominal Value of 15,200, in each case, and that the issuance and payment date be November 10, 2010. The principal will be amortized quarterly, in four equal and consecutive payments as from August 10, 2011.

In accordance with the terms and conditions of the Class IV and Class V Corporate Notes, those companies paid (i) interest accrued in the period commenced August 10, 2011 and ended November 9, 2011 for an amount of 1,059, at an annual interest rate of 18%, which makes a total of 4,576 during the current fiscal year, and (ii) two principal amortization coupons corresponding to 50% thereof, for an amount of 15,200.

Furthermore, on October 18, 2011 and December 1, 2011, the Shareholders’ Meetings of Distribuidora Salta and Distribuidora La Rioja approved a Global Program for the issuance of Corporate Notes for an amount of up to USD 200,000,000 and 50,000,000, respectively, whose term will be five years to commence as from the date of its approval by the National Securities Commission (CNV).
 
In the case of Distribuidora Salta, the creation of the program was authorized by Resolution No. 16,702 of the CNV dated December 14, 2011. Distribuidora Salta initiated the placement process of the Class I – Series I Simple Corporate Notes (non convertible into shares) for a nominal value of up to USD 65,000,000.

 
 

 


Due to the unfavorable conditions of the international financial markets, on February 17, 2012, Distribuidora Salta suspended the subscription period of the aforementioned corporate notes, as well as the placement and issuance thereof.

AESEBA

Loans
 
On March 4, 2011, EDEN S.A. made an early repayment of the balance outstanding as of that date under the financial loan granted by Standard Bank Argentina S.A. and HSBC Argentina S.A. Such repayment was made with the Distribution Company’s own funds and the proceeds of a loan in local currency for 80,000 granted as of that date to EDEN S.A. by the Company. As stipulated in the loan agreement, the loan accrues compensatory interest at an annual nominal rate of 16% and both principal and interest are to be fully paid at maturity, which took place on April 30, 2011.
 
On April 29, 2011, EDEN S.A. and the Company agreed to extend the maturity date of the loan to April 30, 2012, having paid at that time interest accrued as of April 30, 2011 for 1,999. Additionally, the new agreement stipulates that interest will be paid semi-annually in arrears, with the first installment falling due on October 31, 2011.
 
Furthermore, on November 3, 2011, EDEN S.A. entered into an agreement with the Company for the granting of a USD 3,100,000 one-year term loan to be applied to the settlement of the debt with the management operator. As stipulated in the agreement, the loan accrues compensatory interest at an annual nominal rate of 8.5% payable quarterly, with principal falling due at maturity.
 
11. DERIVATIVE FINANCIAL INSTRUMENTS
 
a)    Corporate Notes – Cash flows swap
 
In November 2010, the Company carried out a transaction with a derivative financial instrument with JP Morgan Chase Bank NA with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions.

This instrument provides an economic and financial hedge of the amounts in foreign currency that the Company must pay on the interest payment dates of its financial debt –Class 9 Fixed Rate Corporate Notes (Note10)-, falling due on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012, in the event of fluctuations in foreign currency exchange rates.

Additionally, in April 2011, the Company carried out a transaction with a derivative financial instrument with Deutsche Bank S.A. with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions arising from the new issue of Class 9 fixed rate corporate notes for up to USD 69,699,000 (Note 10), payable on October 25, 2011, April 25, 2012 and October 25, 2012.

For their recording in the accounting the Company has followed the provisions of Technical Resolution No. 18 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE), which requires that derivative instruments be recorded at their net realizable value or settlement value, depending on whether they have been classified as assets or liabilities, with a contra-account in the financial gains or losses for the year.

As of December 31, 2011 and 2010, the economic impact of these transactions resulted in a loss of 2,399 and 7.253, respectively, which has been recorded in the Financial income (expense) and holding gains (losses) generated by liabilities account of the Statement of operations under Exchange difference.
 
 
 

 

b)    Forward and Futures Contracts

During the years ended December 31, 2011 and 2010, the Company entered into forward and futures contracts with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.

As of December 31, 2011 and 2010, the economic impact of these transactions resulted in a gain of 179 and a loss of 14,831, respectively, which have been recorded in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of operations under Holding loss.

As of December 31, 2011 and 2010, the aforementioned transactions were fully settled.

12. RESTRICTED ASSETS OF SUBSIDIARIES

a. Assets used in the provision of the public service

In accordance with the concession agreement, neither EMDERSA nor its subsidiaries may pledge the assets used in the provision of the public service or grant any other security interest thereon in favor of third parties, without prejudice to their right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted over an asset at the time of its acquisition and/or construction to secure payment of the purchase price and/or installation.

b. Guarantees - Distribuidora Salta, San Luis, La Rioja, ESED

The holders of ESED’s class “A” shares may only modify their interest or sell their shares with the ENRESP’s authorization. Additionally, and as stipulated in the concession agreement, all the class “A” shares have been pledged in favor of the Province of Salta as security for the performance of the obligations assumed by the Distribution Company. The shares will be pledged during the entire term of the concession, and will continue to be pledged in the successive transfers of the majority shareholding. Should ESED fail to comply with any of the obligations assumed in the concession agreement, the Provincial Government may foreclose the pledge, by selling the shares in a Public Bid.

Furthermore, the Class “A” shares, representing 51% of the capital stock of Distribuidora Salta, Distribuidora San Luis and Distribuidora La Rioja have been pledged in favor of the Grantors of the Concessions as security for the performance of the obligations assumed in the Concession Agreements.

c. Frozen funds - Distribuidora Salta

As of December 31, 2011 and 2010, Distribuidora Salta’s funds that have been frozen as a consequence of attachment orders, amount to 35 and 82, respectively.

13. OBLIGATIONS AND RESTRICTIONS ARISING FROM THE PRIVATIZATION

Restriction on the transfer of the Company’s common shares

The Company’s by-laws provide that Class “A” shareholders may transfer their shares only with the prior approval of the ENRE. The ENRE must communicate its decision within 90 days upon submission of the request for such approval, otherwise the transfer will be deemed approved.
 
Furthermore, Caja de Valores S.A. (the Public Register Office), which keeps the Share Register of the shares, is entitled (as stated in the Company’s by-laws) to reject such entries which, at its criterion, do not comply with the rules for the transfer of common shares included in (i) the Argentine Business Organizations Law, (ii) the Concession Agreement and (iii) the Company’s by-laws.
 
 
 

 

In addition, the Class “A” shares will be pledged during the entire term of the concession as security for the performance of the obligations assumed under the Concession Agreement.

Additionally, in connection with the issuance of Corporate Notes (Note 10), EASA is required to be the beneficial owner and owner of record of not less than 51% of EDENOR’s issued, voting and outstanding shares.

Section ten of the Adjustment Agreement signed with the Grantor of the Concession and ratified by Decree No. 1957/06 stipulates that from the signing of the agreement through the end of the Contractual Transition Period, the majority shareholders may not modify their ownership interest nor sell their shares.

Furthermore, in accordance with the restructuring of the totality of EASA’s financial debt that ended on July 19, 2006, if EASA did not comply with its payment obligations under the new debt, its creditors could obtain an attachment order against the Company’s Class A shares held by EASA, and, consequently, the Argentine Government would be entitled, as stipulated in the concession agreement, to foreclose on the pledged shares, with an adverse effect on the results of its operations.

14. TARIFF STRUCTURE REVIEW

Review of the Company Tariff Structure (RTI) - Cost Monitoring Mechanism (MMC) - PUREE – Electricity rate schedules

Review of the Company Tariff Structure (RTI)

On July 30, 2008, the National Energy Secretariat issued Resolution No. 865/2008 which modifies Resolution No. 434/2007 and establishes that the electricity rate schedule resulting from the Review of the Company Tariff Structure (RTI) will go into effect in February 2009. As of the date of issuance of these consolidated financial statements, no resolution has been issued concerning the application of the electricity rate schedule resulting from such process.

With regard to the commencement of the Review of the Tariff Structure, the ENRE has begun this process, and, on November 12, 2009, the Company submitted its revenue requirements proposal for the new period, which included the grounds and criteria based on which the request is made.

By Note No. 91,241, notified to the Company on December 18, 2009, the ENRE requested that the Company submit the technical rate schedules resulting from the preparation of its proposal, which have been duly submitted.

Program for the Rational Use of Electric Power (PUREE), Cost Monitoring Mechanism (MMC)

On October 4, 2007 the Official Gazette published Resolution No. 1037/2007 of the National Energy Secretariat which established that the amounts receivable that the Company maintains in the Trade receivables account as Unbilled –National Fund of Electricity, for “Quarterly Adjustment Coefficient of the National Fund of Electricity” (section 1 of Law No. 25,957) for 3,353 and 3,437 as of December 31, 2011 and 2010, respectively (Note 4.a) as well as the amounts corresponding to the Cost Monitoring Mechanism (MMC) for the period May 2006 through April 2007 (Note 8.c items b and c) be deducted from the funds resulting from the difference between surcharges billed and discounts made to customers, resulting from the implementation of the Program for the Rational Use of Electric Power (PUREE), until their transfer to the tariff is granted by the regulatory authority. On October 25, 2007 the ENRE issued Resolution No. 710/2007 which approved the aforementioned MMC compensation mechanism.

 
 

 
 
By Note No. 1383 dated November 26, 2008 of the National Energy Secretariat, the ENRE was instructed to consider the earmarking of the funds deriving from the application of the MMC corresponding to the period May 2007 through October 2007 whose recognition was pending, and to allow that such funds be deducted from the excess funds deriving from the application of the PUREE, in accordance with the provisions of Resolution No. 1037/2007 of the National Energy Secretariat. The MMC adjustment for the period May 2007 through October 2007, applicable as from November 1, 2007, is 7.56% and amounted to 45,531 (Note 4.a).

Additionally, as of December 31, 2011, the Company has submitted to the ENRE the MMC adjustment requests, in accordance with the following detail:
 
Assessment Period
 
Application Date
 
MMC Adjustment
November 2007 - April 2008
 
May 2008
 
5.791%
May 2008 – October 2008
 
November 2008
 
5.684%
November 2008 - April 2009
 
May 2009
 
5.068%
May 2009 – October 2009
 
November 2009
 
5.041%
November 2009 – April 2010
 
May 2010
 
7.103%
May 2010 – October 2010
 
November 2010
 
7.240%
November 2010 – April 2011
 
May 2011
 
6.104%
May 2011 – October 2011
 
November 2011
 
7.721%

As of the date of issuance of these consolidated financial statements, the aforementioned adjustments as well as the basis for their application are pending approval by the ENRE, for which reason the Company is unable to reasonably estimate the amount of the submitted requests. Therefore, no amount receivable for this concept has been recorded by the Company in these consolidated financial statements until approval is granted by the control authorities.

Furthermore, the necessary steps to regularize the situation are being taken in order to restore the economic and financial equation of the business, in view of the increase recorded in operating costs.

As of December 31, 2011 and 2010 liabilities generated by the excess funds deriving from the application of the PUREE, amount to 867,088 and 529,097 respectively, and have been disclosed in the Other Non-Current Liabilities account (Note 4.g). This increase in liabilities is due to the fact that the Company was allowed to keep such funds (Resolution No. 1037/07 of the Energy Secretariat) in order to cover the MMC increases not transferred to the tariff, as previously described.
 
 
 

 

Electricity rate schedules

On July 31, 2008, the ENRE issued Resolution No. 324/2008 which approves the values of the Company’s electricity rate schedule that contemplated the partial application of the adjustments corresponding to the Cost Monitoring Mechanism (MMC) and their transfer to the tariff. The aforementioned electricity rate schedule increased the Company’s distribution added value by 17.9% and has been applied to consumption recorded as from July 1, 2008. Therefore, the increase in rates for final users has ranged from 0% to 30%, on average, depending on consumption.

Furthermore, on October 31, 2008, the National Energy Secretariat issued Resolution No. 1169/2008 which approved the new seasonal reference prices of power and energy in the Wholesale Electricity Market (MEM). Consequently, the ENRE issued Resolution No. 628/2008 which approved the values of the electricity rate schedule to be applied as from October 1, 2008.

The aforementioned electricity rate schedule included the transfer of the increase in the seasonal energy price to tariffs, with the aim of reducing Federal Government grants to the electricity sector, without increasing the Company’s distribution added value.

By Resolution No. 202/2011, the National Energy Secretariat approved the winter scheduling for the Wholesale Electricity Market (MEM) for the period May 1 – October 31, 2011. Therefore, considering the level of electricity consumption during winter and with the aim of not negatively affecting user payment capacity, the National Energy Secretariat resolved to suspend the application of sections 6, 7, and 8 of its Resolution No. 1169/2008 from June 1, 2011 through September 30, 2011. It must be pointed out that this procedure had been previously implemented by the National Energy Secretariat in 2009 and in 2010 by its Resolutions Nos. 652/2009 and 347/10, respectively, which, at that time, gave rise to the issuance of Resolutions Nos. 433/2009 and 294/10 of the ENRE, ratified for this year by Resolution No. 202/11 of the Energy Secretariat.

On November 7, 2011, the Energy Secretariat issued Resolution No. 1301/11, which established the summer scheduling, eliminating government grants to certain economic activities, which, in accordance with the provisions of the Resolution, are in condition to pay the actual cost that needs to be incurred for being supplied with their demand for electricity. The removal of government grants has been extended to residential customers, who were classified by geographical areas and type of residence. The modification related only to electricity purchase prices in the Wholesale Electricity Market, for which reason the Company’s VAD (Distribution Added Value) remained practically unchanged.

Like in previous years, Resolution No. 1037/07 of the Energy Secretariat, ratified by Note No. 1383/08 of that Secretariat, continued to produce effects. The aforementioned resolution modified the earmarking of the funds resulting from the application of the Program for the Rational Use of Electric Power (“PUREE”), being it possible to deduct therefrom a) the amounts paid by the Company as Quarterly Adjustment Coefficient (“CAT”) implemented by Section 1 of Law No. 25,957, to calculate the total value of the National Fund of Electricity (FNEE); and b) the amounts corresponding to the electricity rates adjustments due to the application of the Cost Monitoring Mechanism (“MMC”) established in the Adjustment Agreement, until the transfer to the tariff of any of the aforementioned concepts, as applicable, is recognized.

The relevant information on both the Review of the subsidiary companies’ Tariff Structure and the Adjustment for increases recorded in the subsidiaries’ costs is summarized below.
 
a. Distribuidora Salta - EDESA S.A. - ESED S.A.

EDESA S.A.

By Resolution No. 74/01, the Public Services Regulatory Agency of Salta (ENRESP) established that due to the lack of sufficient elements to approve a new Tariff Structure and Electricity Rate Schedule that could go into effect in the contemplated date, the tariff structure, the electricity rate schedule and the general conditions for the electricity distribution service in Salta, included in the Concession Agreement, would continue to be temporarily in effect.

 
 

 

The review of the tariff structure was affected by the provisions of Law No. 25,561 and Decrees Nos. 214 and 260 of the Federal Government.

Furthermore, the Public Services Regulatory Agency of Salta (ENRESP) issued Resolution No. 160/06, which established the creation of a “reference indicator” that allows the Distribution Company to request the readjustment of rate values if the variation recorded in such indicator exceeds 5%. The transfer to the electricity rate will only take place after the approval of the ENRESP, as long as the Distribution Company has submitted a well-grounded presentation, demonstrating the real increase recorded in its costs as a consequence of inflation. On the contrary, if the indicator shows a negative result of more than 5%, the ENRESP will be entitled to analyze and adjust the rates accordingly.

In April 2011, EDESA S.A. submitted to the ENRESP a new proposal for the adjustment of electricity rates.

On June 16, 2011, by Resolution No. 533/11, issued within the framework of the provisions of Resolution No. 160/06, the ENRESP authorized a 19.7% adjustment in Distribuidora Salta’s average sale rate for all customer categories, applicable as from the June 2011 electricity rate schedule.

Additionally, Distribuidora Salta and the ENRESP are currently conducting the studies necessary for the Five-yearly Review of the Electricity Rate Schedule, which is estimated to be concluded in the first months of 2012 by a public hearing.

By note No. 8752/11, the Energy Secretariat established that any rate increase from the rate values corresponding to November 2011 applicable to final users of distribution agents and/or suppliers of the public service of electric power distribution, is to be regarded as a component of the wholesale purchase cost of the distribution agent and/or supplier of the public service of electric power distribution.

ESED S.A.

During the fiscal year 2005, the ENRESP approved Resolutions Nos. 126/05 and 280/05 which established a new electricity rate schedule, the quality regulations of the technical service and the system of government grants applicable to ESED’s users.

The studies for the five-yearly review of the electricity rate schedule for the year 2010 were submitted to the ENRESP in September 2010. Additional information was subsequently submitted at the ENRESP’s request. As of December 31, 2011, the review process is still in progress. In addition, the possibility of a government grant on the electricity rates as recognition of greater costs is currently being analyzed.

b. Distribuidora La Rioja –EDELAR S.A.

Due to the fact that the increases recorded in the Distribution Company’s costs exceeded the conditions stipulated in the Memorandum of Understanding for the Readjustment of the Agreement for the Provision of the Public Service of Electricity Distribution signed with the Government of the Province of La Rioja and ratified by the Governor through Decree FEP No. 2318/08, in February 2011, the Distribution Company submitted Note GPRR No. 0110/11 with the supporting documentation of the greater costs borne by EDELAR S.A.
 
 
 

 

By Note No. 236 of the EUCOP dated March 28, 2011, the Board of the Control Authority rejected the distribution company’s request. Therefore, on April 11, 2011 by Note GPRR No. 0258/2011 addressed to the EUCOP, EDELAR S.A. requested that such decision be reconsidered.

c. Distribuidora San Luis –EDESAL S.A.

In 2009 and 2010, the Distribution Company submitted to the Provincial Electric Power Regulatory Commission (CRPEE) of San Luis, technical studies with the updated recalculation of the Distribution Added Value and load curves to support the request of the Overall Electricity Rate Review.

On June 15, 2011, the Ministry of Public Works and Infrastructure issued Resolution No. 597-MOPeI-2011 whereby it approved an Electricity Rate Schedule, which resulted in an average increase of approximately 9% applicable as from June 1, 2011, and an investment plan to be carried out.

d. Distribuidora de Energía Norte -EDEN S.A.

During the year ended December 31, 2010, EDEN continued to submit information on the updated values of the Operative Costs Sample as well as on the valuation of the assets available for the rendering of service, as stipulated in caption 4.4 of Section 4 of the Protocol of Understanding. The last presentation was made in June 2010, which has been ratified by the Provincial Energy Administration.

15. FINES OF THE ELECTRIC POWER CONTROL AUTHORITY OF THE PROVINCE OF BUENOS AIRES (“OCEBA”)

On November 1, 2007, the Ministry of Infrastructure, Housing and Public Services of the Province of Buenos Aires published Resolution No. 508, whereby electricity distribution companies holding provincial and municipal concessions are authorized to “set aside” from the book account created by section 2 of Decree No. 2088/02, the balances existing therein as of January 15, 2007, which is the date on which Decrees Nos. 3192/06 and 3273/06 (which approves the Addendum duly signed by and between the Ministry of Infrastructure, Housing and Public Services and EDEN S.A.), came into effect. However, certain specific definitions of the Differential Quality System contemplated in the Protocol of Understanding, concerning the way in which such withdrawal will operate, are pending.
 
On February 5, 2009, the Ministry of Infrastructure, Housing and Public Services of the Province of Buenos Aires published Resolution No. 61, pursuant to which the withdrawal of the balances from the account created by section 2 of Decree No. 2088/02 is extended to any pecuniary penalty imposed by the OCEBA to provincial or municipal electricity distribution companies, whenever the fact or cause that gave rise to the penalty occurred prior to and including March 31, 2007.

Resolution No. 61 also states that the Differential Quality System contemplated in section 5 of the Protocols of Understanding is to be implemented as from March 31, 2007 on a temporary basis, until the overall electricity rate review contemplated in section 6 of Decree No. 1578/08 is approved by the Provincial Government. Additionally, the aforementioned resolution establishes that the Provincial Energy Administration shall inform the OCEBA the technical coefficients necessary for the calculation of net penalty amounts. In this regard, distribution companies shall submit to the OCEBA investment plans aimed at improving the quality of the technical service, for amounts equal to the amounts resulting from the application of such coefficients to the balances accumulated as from March 31, 2007 in the account created by section 2 of Decree 2088/02.

Consequently, EDEN S.A. ser aside the fines accumulated in the account created by section 2 of Decree 2088/02 until March 31, 2007 and began, as from such date, to record an accrual for OCEBA’s penalties, applying the coefficients informed by the Provincial Energy Administration.

The balance of the accrual, which amounts to 10,333 as of December 31, 2011, has been disclosed in the Other liabilities account (Note 4.g).
 
 
 

 
 
16. LEGAL ACTIONS

a) Legal action brought by the National Ombudsman

The National Ombudsman made a presentation against both the resolutions by which the new electricity rate schedule had gone into effect as from October 1, 2008 and the application of the Program for the Rational Use of Electric Power (PUREE).
 
Within the framework of the case, on January 27, 2009, the ENRE notified the Company of a prohibitory injunction issued by the Court hearing the case as a consequence of the Ombudsman’s presentation, according to which the Company is prohibited from cutting power due to the nonpayment of bills issued with the rate hike resulting from the application of the resolutions questioned by the Ombudsman, until a final ruling is issued on the case. The precautionary measure has been appealed by the Company and the Argentine Federal Government. On September 1, 2009, National Appellate Court in Contentious and Administrative Federal Matters No. V affirmed the first instance decision, thus maintaining in effect the prohibitory injunction granted by the court of original jurisdiction.

Against this decision, the Company filed an extraordinary federal appeal (“Recurso Extraordinario Federal”), which was also rejected by the appellate court hearing the case.
 
On July 29, 2009 the Company answered the summons as a third-party defendant.
 
As a final recourse, on December 7, 2009, the Company filed an appeal (“Queja por Recurso denegado”) to the Federal Supreme Court requesting that the extraordinary appeal rejected by the Appellate Court be sustained. The appeal (“Queja por Recurso denegado”) is currently being analyzed by the Supreme Court.

Therefore, no accrual has been recorded for these claims as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.

b) Legal action brought by Consumidores libres Coop. Ltda. de provisión de servicios de acción comunitaria

On October 26, 2009, notice of the complaint “CONSUMIDORES LIBRES COOP. LTADA. DE PROVISIÓN DE SERVICIOS DE ACCIÓN COMUNITARIA VS Federal Government – National Energy Secretariat – ENRE, proceedings for the determination of a claim” was served upon the Company. The complaint was filed by two consumer associations: CONSUMIDORES LIBRES COOP. LTADA. DE PROVISIÓN DE SERVICIOS DE ACCIÓN COMUNITARIA and the UNIÓN DE USUARIOS Y CONSUMIDORES against the Federal Government, the ENRE, EDESUR, EDELAP and EDENOR, and is pending in the National Court of Original Jurisdiction in Contentious and Administrative Federal Matters Number 8. In accordance with the terms of the complaint, the associations for the defense of consumer rights, ADDUC and UNIÓN DE USUARIOS Y CONSUMIDORES EN DEFENSA DE SUS DERECHOS, have joined the complaint.
 
The remedies sought in the complaint are as follow:

a) That all the last resolutions concerning electricity rates issued by the ENRE and the National Energy Secretariat be declared null and unconstitutional, and, in consequence whereof, that the amounts billed by virtue of these resolutions be refunded.

b) That all the defendants be under the obligation to carry out the Review of the Tariff Structure (RTI).

 
 

 

c) That the resolutions issued by the Energy Secretariat that extend the transition period of the Adjustment Agreement be declared null and unconstitutional.

d) That the defendants be ordered to carry out the sale process, through an international public bidding, of the class “A” shares, due to the fact that the Management Period of the Concession Agreement is considered over.

e) That the resolutions as well as any act performed by a governmental authority that modify contractual renegotiations be declared null and unconstitutional.

f) That the resolutions that extend the management periods contemplated in the Concession Agreement be declared null and unconstitutional.
 
g) Subsidiarily, should the main claim be rejected, that the defendants be ordered to bill all customers on a bimonthly basis.

Additionally, it is requested that a precautionary measure be issued with the aim of suspending the rate hikes established in the resolutions being questioned by the plaintiff. Subsidiarily, it is requested that the application of the referred to resolutions be partially suspended. Finally, it is requested that the application authority be ordered not to issue new increases other than those resulting from the Review of the Tariff Structure process. The Court has neither granted nor rejected that which has been requested. In addition, and with regard to the main cause, it has been answered by the Company within the term and under the formalities prescribed by law.

With reference to that which has been previously mentioned, the objected to rate increases, with the exception of the one granted by Resolution No. 324/08 of the ENRE, do not have a direct impact on the distribution added value, inasmuch as they are the result of the transfer to the tariff of the higher generation costs ordered by the Grantor of the Concession. These generation increases are effective for the Company within the pass-through mechanism in the tariff.

On February 11, 2010 the Court hearing the case decided to turn into ordinary the proceeding that had been brought as an extraordinary summary proceeding, thus extending the time periods involved in the process. With regard to the provisional relief sought, on that date, the court ordered the carrying out of actions to add and clarify existing evidence, prior to taking any decision thereon.

Within the contemplated legal time period, the Company answered the complaint rejecting all its terms and requesting that a summons be served upon CAMMESA as a third-party defendant. The remaining co-defendants have already answered the notice of the complaint served upon them. As of the date of preparation of these consolidated financial statements, no decision has been made by the Court hearing the case concerning the Company’s request that CAMMESA be summoned as a third-party defendant. The Federal Government has answered the complaint filed against it within the term granted for such purpose.

Therefore, no accrual has been recorded for these claims as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.

c) Legal action brought by Consumidores financieros Asociación civil para su defensa

On March 31, 2010, notice of the complaint “CONSUMIDORES FINANCIEROS ASOCIACIÓN CIVIL PARA SU DEFENSA vs. EDENOR S.A – EDESUR S.A for BREACH OF AGREEMENT” – National Court of Original Jurisdiction in Contentious and Administrative Federal Matters No. 2 – Clerk’s Office No. 15, was served upon the Company.
 
 
 

 
 
The remedies sought in the complaint are as follow:
-
Reimbursement of the VAT percentage paid on the illegally “widened” taxable basis due to the incorporation of a concept (National Fund of Electricity - FNEE) on which no VAT had been paid by the defendants when CAMMESA (the company in charge of the regulation and operation of the wholesale electricity market) invoiced them the electricity purchased for distribution purposes.
   
-
Reimbursement of part of the administrative surcharge on “second due date”, in those cases in which payment was made within the time period authorized for such second deadline (14 days) but without distinguishing the effective day of payment.
   
-
Application of the “borrowing rate” in case of customer delay in complying with payment obligation, in accordance with the provisions of Law No. 26,361.

On April 22, 2010, the Company answered the complaint and filed a motion to dismiss for lack of standing (“excepción de falta de legitimación”), requesting, at such opportunity, that a summons be served upon the Federal Government, the AFIP and the ENRE as third-party defendants. These pleadings were made available to the plaintiff. Having this procedural step been complied with, as from June 16, 2010 the proceedings are yet to be resolved.

Therefore, no accrual has been recorded for these claims as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.

d) Legal action brought by the Unión de Usuarios y consumidores

On December 9, 2009, notice of the complaint “UNION DE USUARIOS Y CONSUMIDORES VS FEDERAL GOVERNMENT DECREE 1957/06 (RESOLUTION 51/07 OF THE ENRE - EDENOR) AND OTHERS, PROCEEDINGS FOR THE DETERMINATION OF A CLAIM” was served upon the Company. The complaint, filed by the association for the defense of consumer rights Unión de Usuarios y Consumidores against the Federal Government and Edenor, is pending in National Court of Original Jurisdiction in Contentious and Administrative Federal Matters No. 12, Clerks’ Office No. 23.

The remedies sought in the complaint are as follow:
a) that clause 4.6 and related clauses of Appendix I of the Adjustment Agreement be revoked, inasmuch as they establish that the rate increase will be retroactive;
b) that Resolution No. 51/07 of the ENRE be nullified inasmuch as it authorizes the retroactive increase of rates in favor of the Company;
c) that Edenor be ordered to reimburse customers all the amounts paid as retroactive rate increase for the period of November 1, 2005 through January 31, 2007;
d) that the reimbursement be implemented through a credit in favor of customers.

The Company answered the complaint on December 9, 2009.

The judgment sustaining the complaint was entered on November 11, 2010.

An appeal with a stay of execution was filed on November 25, 2010. On December 2, 2010, the Court upheld the Company and the Federal Government’s petition granting the appeal with a stay of execution, which means that the court ruling will not be carried out until the appeal is resolved by the higher court.

On December 13, 2010, the Company formally submitted to the Court of Original Jurisdiction the written bases of the appeal concerning the merits of the case upon which judgment had been rendered. Appellate Court in Contentious and Administrative Federal Matters No. V will hear the case.

 
 

 

By resolution issued on June 1, 2011, the Court of Appeals in Contentious and Administrative Federal Matters No. V, supporting the Company‘s arguments, ordered that the lower court decision be nullified as to the merits of the case. Against such decision, the Unión de Usuarios y Consumidores filed an extraordinary federal appeal (“Recurso Extraordinario Federal”) which was granted on November 3, 2011. The proceedings will be taken to the Supreme Court.

Therefore, no accrual has been recorded for these claims as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.

e) Legal action brought by the Company (“EDENOR S.A VS RESOLUTION NO. 32/11 OF THE ENRE”)

By this action, the Company challenges such resolution, which – within the framework of the power cuts occurred between December 20 and December 30, 2010 – established the following:

That the Company be fined in the amount of 750 due to lack of compliance with the obligations arising from Section 25) sub-sections a, f and g of the Concession Agreement and Section 27 of Law No. 24,065.
That the Company be fined in the amount of 375 due to lack of compliance with the obligations arising from Section 25 of the Concession Agreement and Resolution No. 905/1999 of the ENRE.
That Company customers be paid as compensation for the power cuts suffered the following amounts: 180 to each small-demand residential customer who suffered power cuts that lasted more than 12 continuous hours, 350 to those who suffered power cuts that lasted more than 24 continuous hours, and 450 to those who suffered power cuts that lasted more than 48 continuous hours. The resolution stated that such compensation did not include damages to customers’ facilities and/or appliances, which were to be dealt with in accordance with a specific procedure.

The direct appeal is pending in Appellate Court in Contentious and Administrative Federal Matters No. I.

Prior to the merits phase, the Company filed –with the same Court No. I – a petition for the granting of a precautionary measure, aimed at suspending the application of Resolution No. 32/11 until a decision on the direct appeal is issued.

On March 23, 2011, the Court hearing the case, resolved to suspend the effects of Sections 3 and 9 of Resolution No. 32/11 of the ENRE (filing of documentation showing compliance with payment of the amounts imposed), until a decision on the precautionary measure is rendered.
 
Against this decision, the ENRE filed a post-judgment motion for reversal (“recurso de reposición”) which was rejected in all its terms.

On April 28, 2011, the Court rejected the precautionary measure petition filed by this Company. Against this decision, the Company filed an extraordinary federal appeal (“Recurso Extraordinario Federal”), which –after having been made available to the ENRE- was dismissed.

On July 8, 2011, the Company requested that the substance of the case be served on the ENRE, which is taking place as of the date of issuance of these consolidated financial statements.

On October 28, 2011, the Company filed an appeal (“Queja por Recurso Denegado”) to the Federal Supreme Court requesting that the rejected extraordinary federal appeal be sustained.

As of the end of the year ended December 31, 2011, liabilities accrued in relation to the aforementioned compensations amount to 25,303 (Note 4.g).

 
 

 

f) Legal action brought by ASOCIACIÓN DE DEFENSA DE DERECHOS DE USUARIOS Y CONSUMIDORES – ADDUC

The purpose of this ordinary action brought by ADDUC is that the Company be ordered to reduce or mitigate the default or late payment interest rates charged to customers who pay their bills after the first due date, inasmuch as they violate section 31 of Law No. 24,240, ordering both the non application of pacts or accords that stipulate the interest rates that are being applied to the users of electricity had been stipulated – their unconstitutional nature – as well as the reimbursement of interest amounts illegally collected from users of the service from August 15, 2008 through the date on which the defendant complies with the order to reduce interest. It is also requested that the value added tax (VAT) and any other taxes charged on the portion of the surcharge illegally collected be reimbursed.

On November 11, 2011, the Company answered the complaint and filed a motion to dismiss for both lack of standing (“excepción de falta de legitimación activa”) and the fact that the claims at issue were being litigated in another lawsuit (“litispendencia”), requesting, at such opportunity, that a summons be served upon the ENRE as a third-party defendant. These pleadings were made available to the plaintiff.

Therefore, no accrual has been recorded for these claims as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.

The relevant information on the subsidiary companies’ legal actions is summarized below.

TAX CONTINGENCY - DISTRIBUIDORA SAN LUIS

By Resolution No. 127 dated November 30, 2000, the Federal Administration of Public Revenues (AFIP) challenged the Value Added Tax (VAT) returns for the January 1994 - October 1999 fiscal periods and determined through a sua sponte assessment the tax for such periods, claiming the payment of the differences which, as of December 31, 2011 and 2010 amounted to approximately 26,271 and 24,733, respectively. Such amounts include interest accrued through the closing date of the financial statements as well as fines.

The origin of the claim is that the AFIP believes that the “Municipal Tax” that Distribuidora San Luis collected from its customers on behalf of the Municipalities is part of the VAT taxable base as it is included in the price of the electric power delivered, whereas in the opinion of Distribuidora San Luis it is exactly the opposite.

On December 27, 2000, Distribuidora San Luis filed an appeal against the sua sponte assessment made by the AFIP with the Federal Tax Court, whose decision, rendered on November 27, 2002, agreed with the AFIP’s criterion. On February 12, 2003, Distribuidora San Luis appealed the decision before the Federal Court of Appeals, which, on September 19, 2006 pronounced judgment in favor of the Distribution Company, although it imposed court costs on both parties. Finally, Distribuidora San Luis filed an extraordinary appeal requesting that the court costs be entirely imposed on the AFIP. The tax authorities, in turn, filed an ordinary and an extraordinary appeal against judgment rendered with the Supreme Court. On December 29, 2011, the Supreme Court rendered judgment supporting the criterion adopted by Distribuidora San Luis, thus resolving that the appeal filed by the tax authorities against the Appellate Court’s decision be dismissed and that the AFIP be held liable for court costs.

Furthermore, the AFIP carried out similar reviews for subsequent periods. In this regard, and with the same arguments, the tax authorities claimed, in a first stage, tax differences for approximately 4,980 for the periods between November 1999 and January 2001, and subsequently 7,457 for the periods between February 2001 and March 2003. Also, in May 2010, it made a new adjustment in the amount of 6,038 for the periods between May 2003 and December 2004.
 
 
 

 
 
All the reported amounts include interest accrued through the date of these consolidated financial statements as well as fines. In each case, the Distribution Company has rejected the assessments made by the AFIP and filed an appeal with the Federal Tax Court, which is awaiting resolution by the administrative authority.

In December 2011, Distribuidora San Luis filed a brief with the Federal Tax Court in connection with those proceedings, informing about the Supreme Court’s decision that supports the criterion adopted by the Distribution Company, as described in the preceding paragraph.

Additionally, on December 23, 2011, Distribuidora San Luis was notified of a sua sponte assessment resolution concerning Income Tax for the 2002 - 2006 fiscal periods, pursuant to which the AFIP claims payment of differences arising from (i) the application of the provisions of section 73 of the Income Tax Law and section 103 of its Regulatory Decree to transactions carried out by Distribuidora San Luis according to which loans were granted to related companies (presumed interest), and (ii) the objection to the expense related to the recording in the accounting of “service quality fines”. The tax differences involved amount to approximately 12,275, including interest and fines accrued through the date of these consolidated financial statements. Distribuidora San Luis will file an appeal with the Federal Tax Court against such sua sponte assessment resolution.

In view of the foregoing, the Company believes that the recording of an accrual for this concept is not necessary.

TAX CONTINGENCY - DISTRIBUIDORA SALTA

In April 2001, the Federal Administration of Public Revenues (AFIP) challenged the Income tax returns filed by Distribuidora Salta for fiscal years 1997 and 1998 on the grounds that the works carried out with the funds deriving from the Special Fund for the Electric Power Development of Argentine Provinces (FEDEI) were subject to income tax, thus rejecting the income tax deduction related to allowances for doubtful tax accounts. Furthermore, such adjustments resulted in the objection of the Minimum presumed income tax return for fiscal period 1998.
 
On April 30, 2001, Distribuidora Salta filed an appeal against the assessments referred to above with the Federal Tax Court, which, as of the date of issuance of these consolidated financial statements, has not yet pronounced any judgment.
 
On November 7, 2005, the Federal Administration of Public Revenues (AFIP) informed Distribuidora Salta that, according to its interpretation, the company reorganization notified by Distribuidora Salta in 2001 (merger of CESA into Distribuidora Salta) did not comply with the requirements set forth by the Income Tax Law and its Regulatory Decree. Consequently, neither CESA’s accumulated and effective tax losses carryforward nor its tax exemptions pending use could be transferred to Distribuidora Salta, the surviving company.

Distribuidora Salta believes that the aforementioned reorganization meets all the requirements set forth in the current legislation to be considered within the tax-free system and, therefore, it is admissible that CESA’s tax rights and obligations be transferred to and computed in the surviving company.

In November 2005, Distribuidora Salta filed an appeal against the above-mentioned AFIP’s resolution. On November 4, 2008, the AFIP notified its decision to reject the appeal lodged.

On February 10, 2009, Distribuidora Salta filed proceedings against such administrative decision with the Federal Justice on the grounds that it was an administrative act that could only be objected by means of a legal action.

 
 

 

Furthermore, on January 19, 2009, the AFIP notified Distribuidora Salta of the amendment made to the original brief so as to extend it and include the rejection of the reorganization, which EDESA answered on February 11, 2009. On August 19, 2009, the AFIP, through Resolution No. 151/09, notified the Distribution Company of a sua sponte assessment of the income tax for the referred to 2000 - 2002 fiscal periods.

On September 8, 2009, the Distribution Company filed with the Federal Tax Court an appeal against such resolution, rejecting the totality of the charges questioned, and a motion to dismiss based on the fact that the claims at issue were being litigated in another lawsuit, thus requesting that the Tax Court abstain from issuing an opinion until the Federal Court of Salta rendered judgment. This petition may be either accepted or not by the Tax Court.

Should such situation be confirmed, the final conclusion as to the admissibility and the final amount of the adjustment, if applicable, will be determined by the Federal Justice. Therefore, no accrual has been recorded in this regard, based on the favorable substantial grounds that Distribuidora Salta believes to have.

In view of the foregoing, Distribuidora Salta believes that the recording of an accrual for this concept is not necessary. Consequently, the consolidated financial statements must be read in the light of these circumstances.

17. EMPLOYEE STOCK OWNERSHIP PROGRAM

At the time of the privatization of SEGBA (the Company’s predecessor), the Argentine Government assigned the Company’s Class C shares, representing 10% of the Company’s outstanding capital stock, for the creation of an Employee Stock Ownership Program (ESOP) in compliance with the provisions of Law No. 23,696 and its regulatory decrees. Through this program, certain eligible employees (including former SEGBA employees who had been transferred to the Company) were entitled to receive a specified number of Class C shares, to be calculated on the basis of a formula that took into consideration a number of factors including employee salary, position and seniority. In order to implement the ESOP, a general transfer agreement, a voting trust agreement and a trust agreement were signed.

Pursuant to the general transfer agreement, participating employees were allowed to defer payment of the Class C shares over time. As security for the payment of the deferred purchase price, the Class C shares were pledged in favor of the Argentine government. This pledge was released on April 27, 2007 upon full payment to the Argentine Government of the deferred purchase price of all Class C shares. Additionally, in accordance with the terms of the original trust agreement, the Class C shares were held in trust by Banco de la Nación Argentina, acting as trustee, for the benefit of the ESOP participating employees and the Argentine Government. Furthermore, in accordance with the voting trust agreement, all political rights of participating employees (including the right to vote at the Company’s ordinary and extraordinary shareholders’ meetings) were to be jointly exercised until full payment of the deferred purchase price and release of the pledge in favor of the Argentine Government. On April 27, 2007, ESOP participating employees fully paid the deferred purchase price to the Argentine Government, accordingly, the pledge was released and the voting trust agreement was terminated.

In accordance with the regulations applicable to the ESOP, participating employees who retired before full payment of the deferred purchase price to the Argentine Government was made, were required to transfer their shares to the Guarantee and Repurchase Fund (Fondo de Garantía y Recompra) at a price to be calculated in accordance with a formula established in the general transfer agreement. As of the date of payment of the deferred purchase price, the Guarantee and Repurchase Fund had not fully paid the amounts due to former ESOP participating employees for the transfer of their Class C shares.
 
 
 

 
 
A number of former employees of both SEGBA and the Company have brought legal actions against the Guarantee and Repurchase Fund, the Argentine Government and, in few cases, against the Company, in cases in relation to the administration of the Employee Stock Ownership Program. The plaintiffs who are former employees of SEGBA were not deemed eligible by the corresponding authorities to participate in the Employee Stock Ownership Program at the time of its creation. This decision is being disputed by the plaintiffs who are therefore seeking compensation. The plaintiffs who are former employees of the Company are claiming payment for the unpaid amounts owed to them by the Guarantee and Repurchase Fund either due to non-payment of the transfer of their shares upon retirement in favor of the Guarantee and Repurchase Fund or incorrect calculation of amounts paid to them by the Guarantee and Repurchase Fund.
 
In several of these claims, the plaintiffs have obtained attachment orders or prohibitory injunctions against the Guarantee and Repurchase Fund on Class C shares and the amounts deposited in such Fund. Due to the fact that the resolution of these legal proceedings is still pending, the Federal Government has instructed Banco de la Nación Argentina to create a Contingency Fund so that a portion of the proceeds of the offering of the Employee Stock Ownership Program Class C shares be kept during the course of the legal actions.

No accrual has been recorded in the consolidated financial statements in connection with the legal actions brought against the Company as the Company’s management believes that EDENOR is not responsible for the above-mentioned claims.

In accordance with the agreements, laws and decrees that govern the Employee Stock Ownership Program, the Class C shares may only be held by personnel of the Company, therefore before the public offering of the Class C shares that had been separated from the Program, such shares were converted into Class B shares and sold. In conformity with the by-laws, the political rights previously attributable to Class C shares are at present jointly exercised with those attributable to Class B shares and the holders of the remaining Class C shares will vote jointly as a single class with the holders of Class B shares when electing directors and supervisory committee members. As of December 31, 2011 and 2010, 1,952,604 Class C shares, representing 0.22% of the Company’s capital stock are outstanding (Note 7).

The relevant information on the subsidiary companies’ Employee Stock Ownership Program is summarized below.

DISTRIBUIDORA SALTA

The Class “C” shares issued by Distribuidora Salta, representing 10% of its capital stock, will be assigned by the Provincial Government to the employees transferred to this distribution company in accordance with the terms and conditions of an employee stock ownership program (ESOP). As of the date of these consolidated financial statements, the ESOP has been regulated by the Provincial Government as per Decree No. 155/02 and Resolution No. 53/02 of the Economy Ministry and its subsequent Decree No. 239/02.

During fiscal year 2005, the province’s Economy and Public Works Ministry issued Resolutions Nos. 349 D and 406 D dated November 8, 2005 and December 9, 2005, respectively, which provided for the acquisition of the rights and shares of the former Provincial Energy Administration employees. Over 60% of all ESOP beneficiaries accepted the Provincial Government’s offer.

On December 25, 2007, the Provincial Government issued Decree No. 3624/07 which approved the definitive assignment made by the beneficiaries of Distribuidora Salta’s employee stock ownership program, ordered the transfer of the Class “C” shares in favor of the Provincial Government, and requested the recording of such transfer in Distribuidora Salta Shareholder Register.

 
 

 

It was requested that a profit-sharing bond be implemented by Distribuidora Salta in accordance with the provisions of the referred to Decree, decision which Distribuidora Salta appealed on January 3, 2008. By Decree No. 1223/09 dated March 12, 2009, the appeal filed by Distribuidora Salta was rejected. Therefore, the Distribution Company filed a motion for clarification, after which the only possibility available would be to resort to the judicial system, which the Distribution Company did on May 6, 2009 before the Court in Contentious and Administrative Matters of the Province of Salta. Such action is in judicial process.

On December 29, 2011, Distribuidora Salta was notified of Decree No. 754/11, pursuant to which sections 1º, 2º and 3º of Decree No. 3624/07, Resolutions 349 D/05 and 406 D/05 of the former Provincial Economy and Public Works Ministry, and Decree No. 935/03 are declared null and void. Decree No. 754/11 also invites the beneficiaries of Distribuidora Salta’s Employee Stock Ownership Program, who had been declared eligible by Resolution No. 239/02, to enter into the corresponding General Transfer Agreements and Voting Trust Agreements.

Furthermore, in accordance with section 8° of Decree No. 754/11, Distribuidora Salta is required to deposit in favor of the Province the Class C share dividends not distributed since the privatization and 50% of the profit-sharing bonds, in the terms of the referred to decree.

In January 2012, a motion for clarification was filed against section 8° of Decree No. 754/11, whose resolution is pending.

18. LIABILITY FOR WORKS TRANSFERRED

Balances comprise the debt recognized by Distribuidora Salta, Distribuidora San Luis and Distribuidora La Rioja with certain customers for the transfer in their favor of the property title of infrastructure works (electrical installations) directly carried out by those customers or by the Distribution Companies on their behalf.

As of December 31, 2011 and 2010, the balances of the liability for works transferred amount to 26,460 and 19,869, respectively, 20,353 and 13,526 of which have been recorded in current trade accounts payable and 6,108 and 6,344 in non-current trade accounts payable, respectively.
 
19. RESTRICTIONS ON THE DISTRIBUTION OF PROFITS

In accordance with the provisions of Law No. 19,550, the General Annual Meeting held on April 13, 2011 resolved that the loss for the year ended December 31, 2010 be absorbed by the Unappropriated Retained Earnings account.

Moreover, in accordance with the provisions of Law No. 25,063, passed in December 1998, dividends to be distributed, whether in cash or in kind, in excess of accumulated taxable profits as of the fiscal year-end immediately preceding the date of payment or distribution, shall be subject to a final 35% income tax withholding, except for those dividends distributed to shareholders who are residents of countries benefiting from conventions for the avoidance of double taxation who will be subject to a lower tax rate. For income tax purposes, accumulated taxable income shall be the unappropriated retained earnings as of the end of the year immediately preceding the date on which the above-mentioned law went into effect, less dividends paid plus the taxable income determined as from such year and dividends or income from related companies in Argentina.

Certain restrictions on the distribution of dividends by the Company and the need for approval by the ENRE for any distribution have been disclosed in Note 8.c).

Restrictions on the distribution of profits of the subsidiary companies are summarized below.

As established by the Argentine Business Organizations Law, the By-laws and Resolution No. 195 of the National Securities Commission, 5% of the profits for the year plus (less) prior year adjustments and absorption of accumulated losses, if any, must be allocated to the Legal Reserve, until it equals 20% of the restated capital stock.
 
 
 

 

Due to the commitments undertaken in relation to the issuance of the corporate notes, neither EMDERSA nor any of its subsidiaries may directly or indirectly distribute or pay dividends unless, after giving pro-forma effect to the transaction, EMDERSA’s consolidated financial debt-to-EBITDA ratio is lower than 2.25 and no event of default has occurred.

20. PIQUIRENDA GENERATION PLANT – EMDERSA Generación

In April 2008, EMDERSA Generación accepted the offer submitted by Industrias Juan F. Secco S.A. for the construction, assembling and start-up of an electricity generation plant under the “turnkey” procurement basis.

The plant consists of a 30 MW thermal generation plant comprised of ten GE Jenbacher JGS 620 natural gas-fired motor-generators. The fuel is obtained through a direct connection to Transportadora de Gas del Norte’s gas pipeline. The electric power generated is injected to the network of Empresa Distribuidora de Electricidad de Salta – EDESA – Sociedad Anónima and sent to the National Interconnected System, through the Tartagal Transformer Station.

The generation plant has been classified by the Energy Secretariat as “Critical Infrastructure Work”. Moreover, the National Regulatory Authority for the Distribution of Electricity granted “Access to the existing capacity in power transport lines”. The Energy Secretariat has already accepted the application to qualify as Agent of the Wholesale Electricity Market (MEM).

To complete the project, EMDERSA Generación has accepted the following offers:

 
a).
Offer from Pan American Energy LLC - Argentine Branch to provide natural gas from the “Acambuco” field. This contract was rescinded on April 11, 2011 due to the fact that the variable cost associated to the agreed-upon natural gas price was not approved by the Energy Secretariat.
     
 
b).
Offer from Industrias Juan F. Secco S.A. to carry out operation and maintenance activities of the plant for a term of 10 years.

As from the acceptance of the offer for the construction of the plant, Industrias Juan F. Secco S.A. began to work on the detailed engineering in order to commence the construction works on the site.

At the same time, EMDERSA Generación began to work on the cleaning, leveling and compressing of the land and to acquire the electric equipment not included in Industrias Juan F. Secco S.A. offer.

The aforementioned project was financed by an additional capital contribution of EMDERSA, for an amount of 2,988, and financial loans for 28,000 and USD 17,365 thousand.

The construction works ended in March 2010. The plant was conceived to operate within the framework of the “Energy Plus” program, however, due to the development of the regulatory framework, the electricity produced by the generation plant could not be sold in this market segment, for which reason the commercial strategy has been modified, as described further in below.

In December 2010, the commercial activities began with the signing of two agreements with Distribuidora Salta, for the availability of a total of 28 MW of power. These agreements made it possible not only to commence operations but also to meet the variable generation costs and the main fixed expenses through April 30, 2011, date on which they fell due.
 
 
 

 

The plant’s availability of power allowed Distribuidora Salta to overcome the serious supply problem faced in the northern area of the Province of Salta during the summer season.

On April 1, 2011, within the framework of the “Agreement for the management and operation of projects, increase of thermal generation availability and adequacy of the 2008-2011 generation remuneration”, the authorization of Piquirenda Generation Plant to carry out commercial activities was included as part of the agreement entered into by and between the National Energy Secretariat, party of the first part, and Central Piedra Buena S.A., Central Térmica Loma de la Lata S.A., Central Térmica Güemes S.A., Hidroeléctrica Diamante S.A and Hidroeléctrica Los Nihuiles S.A., parties of the second part.

This agreement stipulates that in a first stage the Piquirenda Generation Plant will be authorized to carry out commercial activities while in a second stage the plant’s capacity will be expanded to 15 MW. The remuneration of and compliance with both stages will be regarded separately. In exchange, the Energy Secretariat will instruct CAMMESA to sign a supply agreement with EMDERSA Generación within the framework of Resolution No. 220/2007 of the Energy Secretariat.

Within the framework of this agreement, the Piquirenda Generation Plant was finally authorized to carry out commercial activities on May 3, 2011. On July 15, 2011, EMDERSA Generación entered into a Supply Contract to the MEM within the framework of Resolution No. 220/2007 of the Energy Secretariat. As from such date and through the end of the current year, the electricity produced has been sold in accordance with the provisions of said agreement.

The natural gas used as fuel derives from the assignment of part of an agreement entered into by a third party with Panamerican Energy and from agreements with Pluspetrol.
 
Additionally, since August 1, 2011 the plant has been using natural gas Plus from its agreement with Petrolera Pampa S.A. approved by the Energy Secretariat.
 
Furthermore, the option to assign natural gas volumes to CAMMESA within the framework of Notes Nos. 6,866/09 and 7585/10 of the Energy Secretariat has been exercised.

As from the provisional handover of the construction works, Industrias Juan F. Secco S.A. began to carry out operation and maintenance activities in accordance with the aforementioned offer. However, on June 17, 2011, EMDERSA Generación accepted an offer from Industrias Juan F. Secco S.A. which established, among others, the following:

 
-
The definitive handover (delivery) of the construction works and the definitive amounts of additional expenses and late completion penalties.
     
 
-
The rescission, as from June 30, 2011, of the Operation and Maintenance Agreement in place and the conditions for the transfer to the company of personnel, spare-parts, supplies and tools.
     
 
-
The conditions pursuant to which Industrias Juan F. Secco S.A. will provide assistance services for a term of six months.

Therefore, as from July 1, 2011, operation and maintenance activities will be entirely carried out by EMDERSA Generación.

21. COMMITMENTS WITH PERSONNEL IN SUBSIDIARIES

a) Collective bargaining agreements

In accordance with the provisions of Section 31, sub-sections h and b of Collective Bargaining Agreement No. 887/2007 entered into by Luz y Fuerza (Electric Light and Power Labor Union) and Distribuidora La Rioja, Section 31 of Collective Bargaining Agreement No. 873/2007 entered into by Luz y Fuerza and Distribuidora Salta, and Section 31 of Collective Bargaining Agreement No. 926/2007 entered into by Luz y Fuerza and Distribuidora San Luis, any employee reaching 20, 25, 30, 35 and 40 or 17, 22, 27, 32 and 37 years of employment, respectively, or choosing to retire, as well as the beneficiary of any employee who died before retirement, will be granted a salary and seniority-based bonus. The retirement benefit is increased by 2% for each year exceeding the first 5 years of employment.

 
 

 

Furthermore, in accordance with the provisions of Sections 34 bis) and 32 of Collective Bargaining Agreements No. 855/2007 entered into by APUAYE (Association of Water and Electric Power Professional Personnel) and Distribuidora La Rioja, No. 848/2007 entered into by APUAYE and Distribuidora Salta, and No. 850/2007 entered into by APUAYE and Distribuidora San Luis, any male/female employee reaching 20, 25, 30, 35 and 40 or 17, 22, 27, 32 and 37 years of employment, respectively, or choosing to retire will be granted a salary and seniority-based bonus, which will be increased by 2% for each year exceeding the first 5 years of employment.

The main actuarial assumptions used contemplate an actual annual discount rate of 6%, an annual nominal discount rate of 27%, an annual inflation rate of 21%, and an annual salary increase rate per seniority of 1%.

Service cost is the present actuarial value estimated from the portion of compensation for the year. Interest cost is the interest on future payment obligations.

As of December 31, 2011, the related accrued liability for personnel benefits has been recorded at the present value of future cash flows and charged throughout the remaining number of years of service of the beneficiaries involved, until all the terms and conditions of each benefits plan are complied with (Note 4.e).

b)   Incentive plans

During March 2010, certain agreements were signed with key personnel of the Group, which establish the granting of restricted stock, performance share awards, as well as the possibility of subscribing non-qualified stock options in a parent company. As of December 31, 2011, these agreements have been rescinded, there being no further commitments taken on by the Group.

c)    Bonuses and benefits – EDEN S.A.

They include charges for the following concepts:
 
1.     Bonuses to be granted to employees with certain number of years of employment, as stipulated in collective bargaining agreements in effect. In accordance with the terms of Section 24 of Collective Bargaining Agreements Nos. 1041 and 1042/1994 entered into with Luz y Fuerza, any male/female employee reaching 20, 25, 30, 35 and 40 or 17, 22, 27, 32 and 37 years of employment, respectively, will be granted a salary and seniority-based bonus.

2.     Benefits to be granted to employees upon retirement, as stipulated in collective bargaining agreements in effect.

Liabilities related to the above-mentioned accumulated seniority-based bonuses and personnel benefits plans have been determined contemplating all rights accrued by the beneficiaries of the plans through the end of the year ended December 31, 2011.

The main actuarial assumptions used contemplate an annual discount rate of 30%, an interest rate of 10%, an annual inflation rate of 22%, and an annual salary increase rate per seniority of 23%.
 
 
 

 

As of December 31, 2011, the accrued liability for personnel benefits has been recorded at the present value of future cash flows and charged throughout the remaining number of years of service of the beneficiaries involved, until all the terms and conditions of each benefits plan are complied with (Note 4.e).

22. RESTRICTION ON THE TRANSFER OF THE SUBSIDIARY COMPANY’S SHARES

In accordance with the Bidding terms and conditions, EDEN is required to comply, among others, with the following obligations:

a) Not to transfer the class “A” shares without the prior approval of the Control Authority.

b) To make the necessary investments and carry out the necessary maintenance works in order to guarantee service quality levels.

c) To refrain from granting in favor of third parties any security interest on the assets used in the provision of the public service such as mortgages, pledges or any other lien, without prejudice to EDEN’s right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted by the Holder of the concession over an asset at the time of its acquisition to secure payment of the purchase price.

d) To pay the inspection and control tax to be fixed by the Control Authority.
 
23. ADMINISTRATIVE CLAIM – TAX ON MINIMUM PRESUMED INCOME

AESEBA S.A., through different administrative claims (acción de repetición1) filed with the Public Administration of Public Revenues (AFIP), claimed the excess amounts paid as Minimum Presumed Income Tax for fiscal periods 1998 through 2003.

In fiscal year 2007, the AFIP issued resolutions approving the reimbursement of the amounts claimed for fiscal years 1998 through 2001.

In 2010, the AFIP partially approved the amounts claimed for fiscal years 2002 through 2003, subsequently crediting in the subsidiary company’s account an amount of 1,999 as the amount claimed by the subsidiary company and approved by the AFIP for years 1998 through 2003 and late payment/default interest calculated from the dates of the fund reimbursement requests through the effective payment date.

The subsidiary company lodged two special appeals (recurso de reconsideración2) against the AFIP’s resolutions claming not only the approval of the amounts not approved by the tax authorities but also that interest be calculated as from the filing date of the administrative claim. As of to date, these appeals have not yet been resolved.

In August 2011, the AFIP corrected interest calculation and on August 17, 2011 made payment for the period 1998 through 2001. The appeal concerning fiscal years 2002 and 2003 is still pending resolution.
 
 
 

 
 
24. CORPORATE REORGANIZATION

The Extraordinary Shareholders’ Meeting held on December 16, 2011, which was resumed on January 13, 2012 after a recess, approved the corporate reorganization consisting of the spin-off of EMDERSA’s following assets, together with any other rights, assets, liabilities or contingencies related to such assets,: (a) the ownership of the shares held by EMDERSA in Distribuidora San Luis, together with any other rights and obligations relating to or arising from such shareholding, as well as any right, obligation or contingency related to Distribuidora San Luis’s business activity, for the setting up of a new company; (b) the ownership of the shares held by EMDERSA in Distribuidora Salta, together with any other rights and obligations relating to or arising from such shareholding, as well as any right, obligation or contingency related to Distribuidora Salta’s business activity, for the setting up of a new company; and (c) the ownership of the shares held by EMDERSA in EMDERSA Generación, together with any other rights and obligations relating to or arising from such shareholding, as well as any right, obligation or contingency related to EMDERSA Generación’s business activity, for the setting up of a new company (Note 27).
 
25. DISCONTINUED OPERATIONS
 
As described in Note 2, the Company’s Management decided to classify as other assets available for sale its shareholding in EMDERSA and EMDERSA Holding (Notes 27 and 28). Such assets comprise EMDERSA operating segment (Note 25).

Therefore, the assets, liabilities, results of operations and cash flows for the year ended December 31, 2011 are disclosed below, as required by the applicable accounting principles:
 
   
Discontinued
 
   
operations
 
Net sales
    764,277  
Electric power purchases
    (264,511 )
Gross margin
    499,766  
         
Administrative expenses
    (99,122 )
Selling expenses
    (97,313 )
Transmission and distribution expenses
    (168,653 )
Subtotal
    134,678  
         
Amortization of goodwill
    572  
Subtotal
    135,250  
         
Other (expense) income, net
    (2,546 )
         
Financial income (expense) and Holding gains (losses)
       
Generated by assets
    (12,330 )
Generated by liabilities
    (61,150 )
         
Gain from investments in related companies
    924  
         
Profit before taxes
    60,148  
         
Income tax
    (17,455 )
Minority interest
    (6,851 )
         
Net profit for the year
    35,842  
 
   
Discontinued
 
   
operations
 
Current Assets
    288,142  
Non-Current Assets
    1,007,851  
         
Current Liabilities
    349,891  
Non-Current Liabilities
    185,934  
 
 
 

 
 
   
Discontinued
 
   
operations
 
Net cash provided by operations
    91,695  
         
Net cash used in investing activities
    (136,687 )
         
Net cash provided by financing activities
    44,992  
 
26. CONSOLIDATED CASH FLOW INFORMATION

Cash and cash equivalents

For the preparation of the Consolidated Statement of Cash Flows, the Company considers as cash equivalents all highly liquid investments with original maturities of three months or less.

   
As of December 31, 2011
   
As of December 31, 2010
   
As of December 31, 2009
 
Cash and Banks
    23,445       8,611       8,685  
Time deposits
    48,511       17,523       27,191  
Money market funds
    58,903       117,458       80,055  
Government bonds, Corporate notes and Shares
    2,132       533,251       112,441  
Total cash and cash equivalents in the Consolidated Statement of Cash Flows
      132,991         676,843         228,372  

27. PERMANENT INVESTMENTS

a) Acquisition of Companies:

On March 4, 2011, the Company’s Board of Directors approved an offer from its indirect controlling company Pampa Energía S.A. (“Pampa”), pursuant to which the Company was offered the possibility of acquiring certain electricity distribution assets, which Pampa was entitled to acquire (either directly or through one or more subsidiaries), from Grupo AEI in accordance with an agreement entered into on January 19, 2011 by and between Pampa, party of the first part, and AEI Utilities, S.L., a limited company (sociedad limitada) organized under the laws of Spain (“AEIU”), AEI Servicios Argentina S.A., a corporation (sociedad anónima) organized under the laws of Argentina, and AEI, a company organized under the laws of the Cayman Islands, parties of the second part.

As a consequence of the acceptance by the Company of said offer, Edenor was appointed by Pampa as the acquiring party under the PESA-AEI Agreement. Therefore, on March 4, 2011, the Company acquired from AEIU (i) 182,224,095 common shares of EMDERSA S.A. (“Emdersa”), representing 77.19% of Emdersa’s capital stock and votes (“Emdersa Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”) representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% of EDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by the Company for the aforementioned assets amounted to USD 90,000 thousand for Emdersa’s Shares and the Residual Shares acquired from AEIU and to USD 49.998 thousand for AESEBA’s Shares acquired from AEIU.

 
 

 

Emdersa holds: (i) 99.99% of EDESAL’s capital stock and votes, (ii) 90% of the capital stock and votes of Empresa Distribuidora de Electricidad de Salta S.A. (“EDESA”), (iii) 99.98% of EGSSA’s capital stock and votes, and (iv) 99.99% of EDELAR’s capital stock and votes. EDESA holds 99.99% of ESED’s capital stock and votes. Furthermore, AESEBA in turn holds 90% of the capital stock and votes of Empresa Distribuidora de Energía Norte, S.A. (“EDEN”), which provides electricity distribution services in the northern and central parts of the Province of Buenos Aires.

Within the framework of the offer made by Pampa and accepted by the Company, the parties have additionally agreed that if within the 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, the Company sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).

In order to evaluate the above described transaction, the Company engaged the services of the investment bank Citigroup Global Markets Inc. (“Citigroup”) to render a fairness opinion to the Company’s Board of Directors, concerning the fairness of the price that would have to be paid for Emdersa’s shares, the Residual shares and AESEBA’s shares. The opinion of the Company’s Audit Committee was also requested. Both Citigroup and the Company’s Audit Committee rendered their opinion, prior to the acquisition, stating that the informed values were adequate and within the market’s parameters.

In compliance with current regulations, the Company has formally consulted the National Securities Commission about the steps to be followed with regard to the public offering for the acquisition of Emdersa’s shares that the Company must make to Emdersa’s minority shareholders due to the change in that company’s control and in accordance with the provisions of Decree No. 677/01 and the National Securities Commission’s regulations. The aforementioned consultation was made due to the fact that the authorization and carrying out of the public acquisition offering that for the same reasons is to be carried out by AEIU at a price of USD 0.68 per Emdersa’s common share, is still pending. Therefore, the situation generated by the potential coexistence of two public offerings must, in the Company’s opinion, be clarified.

The Company has fully assumed its obligation to carry out the public acquisition offering it is required to make due to the new change in Emdersa’s control, which will be carried out at the same price per Emdersa’s common share that the Company paid to AEIU, i.e. USD 0.49 per Emdersa’s common share, in the manner and time period established by the control authority. The carrying out of said public acquisition offering was approved by the Company’s Board of Directors on March 4, 2011, and constitutes an irrevocable commitment with Emdersa’s shareholders.

Furthermore, the Company has initiated the proceedings aimed at obtaining authorization from the corresponding control authorities.

Finally, within the framework of the reported transaction for the acquisition of shares, the change in control of the acquired companies constitutes grounds for calling the loans taken out by their subsidiaries due. Therefore, on March 4, 2011, the Company granted to them a series of loans at an annual interest rate of 16% and final maturity on April 30, 2011 in order for them to be in a better position to negotiate the restructuring. The loans have been distributed in the following manner: i) EDEN 80,000; ii) EDELAR 31,178; iii) EDESA 131,320 and iv) EDESAL 37,503, which was repaid on October 25, 2011 (Note 27.b).

Additionally, in the June-December 2011 period, in successive market transactions, the Company acquired 2,951,000, 281,294 and 15,000 common shares of EMDERSA, representing 1.25%, 0.12% and 0.0064% of that company’s capital stock and votes, respectively.
 
 
 

 

The acquisitions have been recorded in the accounting in accordance with the purchase method on the basis of the preliminary initial measurements of the acquired assets and liabilities (Exhibit C).

b) Company sale agreements and Companies available for sale

On September 16 and October 11, 2011, the Company’s Board of Directors decided to approve the offer letters received for the carrying out of the following transactions:

 
1.
From Rovella Carranza S.A., for the acquisition of the Company’s direct and indirect stake in Edesal (EDESAL OFFER).
     
 
2.
From Andes Energía Argentina S.A., to buy a purchase option for the acquisition of the Company’s direct and indirect stake in Edelar (EDELAR OFFER).
     
 
3.
From Pampa Energía S.A. for the acquisition of the Company’s direct and indirect stake in EGSSA (EGSSA OFFER).

In order for these transactions to be carried out, the Company will cause Emdersa to be partially spun off, which will result in the creation of three new investment companies, EDESAL Holding (holder of 99.99% of EDESAL’s capital stock and votes), EDESA Holding (holder of 90% of EDESA’s capital stock and votes) and EGGSA Holding (holder of 99.99% of EGGSA’s capital stock and votes). The spun-off company, EMDERSA, will keep a percentage interest in EDELAR’s capital stock and votes. This process was initiated by the Board of Directors of EMDERSA on August 23, 2011. The Extraordinary Shareholders’ Meeting of EMDERSA held on December 16, 2011, which was resumed on January 13, 2012 after a recess, approved the aforementioned corporate reorganization process.

EDESAL OFFER

The total and final price of the offer amounted to USD 26,698,000 to be paid in two payments, the first of them, for USD 4,005,000 on account of the price, was paid within the three days of the acceptance of the offer, and the remaining balance, i.e. an amount of USD 22,694,000 was collected by the Company on October 26, 2011.

Furthermore, as stipulated in the Offer Letter, on that date EDESAL repaid the financial loan granted by the Company to EDESAL for an amount of 37,503, plus interest accrued through the settlement date (Note 27.a).
 
At that time the Company transferred 24.80% of EMDERSA’s shares and 0.01% of EDESAL’s shares to Rovella Carranza S.A. which set up a guarantee trust, comprised by the parties and Deutsche Bank S.A. to insure compliance with the parties’ obligations.

From the date of final payment and during the term of the trust, EDESAL’s management was in charge of a board of directors appointed by EMDERSA, in accordance with the buyer’s proposal, which was comprised of 5 directors, four (4) of whom were elected by the buyer and one (1) of whom was elected by the seller, and equal number of alternate directors, four (4) of whom were elected by the buyer and one (1) of whom was elected by the seller.

Upon completion of the spin-off process, EDESAL Holding will issue 78.44% of its shares in the name of the trustee, who, in turn, will transfer them to the buyer, together with 0.01% of EDESAL’s shares, and will simultaneously return the aforementioned EMDERSA’s shares to the Company.

In the event that at the end of the two-year term to commence from the date of acceptance of the offer, which took place on September 16, 2011, neither EMDERSA’s spin-off nor the creation of EDESAL Holding have been carried out, the trustee shall transfer to Rovella Carranza S.A., as an alternative way of the Company’s compliance with its obligation and for the price received by the Company, 24.80% of EMDERSA’s capital stock and votes, with the Company maintaining 53.64% of EMDERSA’s capital stock and votes.
 
 
 

 

As security for the compliance with the obligations undertaken, the Company has provided a performance bond in favor of Banco Itaú Argentina S.A. and Standard Bank Argentina S.A. for the total amount of 60,000 as principal plus compensatory interest at an annual nominal rate of up to 16% to secure EDESAL’s payment obligations with respect to these banks. The performance bond will be enforceable if any of the following conditions precedent (whichever takes place first) occur:

 
1.
That at September 16, 2013, EMDERSA’s spin-off has not been carried out; or
     
 
2.
That during the term of the trust the Company fails to comply with certain obligations concerning EDESAL’s joint management.

In the event that none of the above-mentioned conditions occurs, the performance bond will not be enforceable.

As of December 31, 2011, this transaction has taken place causing the recognition of a loss in the Company’s results of operations of 12,750, which has been disclosed in the Loss from valuation of other assets available for sale at net realizable value account of the Statement of operations.

EDELAR OFFER

The offer from Andes Energía Argentina S.A. received by the Company implies a proposal to buy a purchase option for a price of USD 1,500,000 to:

 
1.
In the case that the spin-off of EMDERSA is completed within the term of 2 years, to buy 78.44% of the Company’s direct and indirect stake in EDELAR for USD 20,290,000, to be paid in two payments: the first one for USD 5,290,000 90 calendar days after the acceptance of the Offer (not prior to 45 days and not later than December 15, 2011 (“Option Exercise Date”)) and the remaining balance, i.e. USD 15,000,000 will be paid two years from the acceptance of the offer, accruing interest at an annual rate of 12.5% payable semi-annually.
     
 
2.
In the case that the spin-off of EMDERSA is not completed within the term of 2 years, the option will grant Andes Energía Argentina S.A. the right to acquire 20.27% of EMDERSA’s capital stock and votes indirectly held by Edenor, paying for such purpose the same price and in the same way indicated in caption 1 above.

On the option exercise date Andes Energía Argentina S.A. may choose not to pay the remaining balance of the price (USD 15,000,000) and acquire 6.32% of EMDERSA’s capital stock and votes indirectly held by the Company (reduced option).

Additionally, the buyer may choose not to pay the balance of the price on the final payment date and change to the reduced option system, in spite of having exercised the option to do so in the full option exercise date, in the case that the buyer is notified by the Company not less than 15 days prior to the final payment date, that the Board of Directors of EDELAR will be removed without cause, and that the Buyer will not therefore continue with the management of EDELAR after such date.

In the event that the Company fails to notify the buyer as stated above, and the Buyer pays the remaining balance of the price, the members of EDELAR’s board of directors will continue to be appointed as stipulated in the offer.

The offer also implies the buyer’s commitment to settle or acquire, on the option exercise date, the total financial loan granted by the Company to EDELAR for an amount of 31,178 plus interest accrued through the settlement date.
 
 
 

 
 
In order to implement the reported transaction, the Company will contribute 53.64% of EMDERSA’s capital stock and votes to a new company to be organized (“EMDERSA Holding”). Therefore, the transfers of EMDERSA’s shares in favor of Andes Energía Argentina S.A. will be made through EMDERSA Holding.

On the option exercise date, and until the completion of the transaction described herein, the capital stock that is the object of this transaction - together with 80% of the shares of Hidroeléctrica del Sur S.A. (owned by the buyer), which in turn holds 59% of the capital stock of Hidroeléctrica Ameghino S.A - will be transferred to a guarantee trust that will be set up with the purpose of ensuring compliance with the parties’ obligations, with EDENOR maintaining EMDERSA’s control.
 
From the option exercise date, provided, however, that the payments due on such date have been made by the buyer, and during the term of the trust, the management of EDELAR will be in charge of a board of directors appointed by EMDERSA, in accordance with the buyer’s proposal. The board of directors will be comprised of 5 directors, four (4) of whom will be elected by the buyer and one (1) of whom will be elected by the seller, and equal number of alternate directors, four (4) of whom will be elected by the buyer and one (1) of whom will be elected by the seller.

On February 8, 2012, the Company’s Board of Directors approved a proposal from Andes Energía Argentina S.A. for the amendment of the Offer Letter. By virtue of this amendment, the term for Andes Energía Argentina S.A. to make payment and exercise the option was extended until March 31, 2012.

Until the time of payment and exercise of the option, the Company may freely sell or assign to any third party or cause the sale or assignment of some or all the shares that are the object of the transaction and/or the rights on such shares. In the event that a sale to a third party is made, Andes Energía Argentina S.A.’s option may not be exercised, there being no outstanding payment or any responsibility of any kind for the Company or Andes Energía Argentina S.A.

All the other terms and conditions of the Offer Letter will remain in full force and effect.

As of December 31, 2011, this investment has been classified as Other assets available for sale under current assets and has been valued at its estimated realizable value, which is lower than its book value. This resulted in a loss of 11,717 that has been disclosed in the Loss from valuation of other assets available for sale at net realizable value account of the Statement of operations.

EGGSA OFFER
 
The offer received by the Company from its controlling shareholder Pampa Energía S.A. (PESA), implies the acquisition through a conditioned purchase and sale transaction of 78.44% of the shares and votes of an investment company to be organized, which will be holder of 99.99% of the shares and votes of EMDERSA Generación Salta S.A. (“EGSSA”) together with 0.01% of EGSSA’s capital stock held by the Company.

The condition precedent of the purchase and sale transaction is the carrying out of EMDERSA’s spin-off in the maximum term of 24 months as from the date of acceptance of the offer.
 
The total and final agreed-upon price for this transaction amounts to USD 10,849,000, which will be paid in two payments, the first of them for an amount of USD 2,170,000 on October 31, 2011 as partial payment of the price, and the remaining balance, i.e. an amount of USD 8,679,000 will be paid 24 months from the date of acceptance of the offer by the Company. The latter amount will accrue interest at an annual rate of 9.75%, payable semi-annually.
 
 
 

 

Furthermore, the offer implied PESA’s commitment to settle on October 31, 2011, either by repaying, with no penalty whatsoever, or by acquiring through an assignment, the financial loan granted by the Company to EGSSA for an amount of USD 4,170,000, plus interest accrued through the settlement date.

On October 31, 2011, the Company received from PESA the amounts of USD 2,170,000 and 4,170,000 corresponding to the sale agreement of EGSSA and the settlement of the financial receivable which the Company had with EGSSA, respectively.

Five days after the spin-off has been effectively carried out, the Company will transfer the shares, in legal form and free from any liens, to PESA, which will pledge the shares in favor of the Company as security for the total payment of the balance of the price. From the initial payment date, provided, however, that the initial payment has been made, the management of EGSSA will be in charge of a board of directors, whose members the seller will cause to be appointed in accordance with the buyer’s proposal. The board of directors will be comprised of 5 directors, four (4) of whom will be elected by the buyer and one (1) of whom will be elected by the seller, and equal number of alternate directors, four (4) of whom will be elected by the buyer and one (1) of whom will be elected by the seller.

Should the condition precedent not be complied with, the amount corresponding to the initial payment of the price will be reimbursed to PESA in a term of 5 days, plus an annual interest of 6% calculated from the date on which the initial payment was made through the date of reimbursement.
 
As of December 31, 2011, this investment has been classified as Other assets available for sale under current assets and has been valued at its estimated realizable value, which is lower than its book value. This resulted in a loss of 19,040 that has been disclosed in the Loss from valuation of other assets available for sale at net realizable value account of the Statement of operations.

AVAILABILITY FOR SALE - EDESA
 
The investment in EDESA has been disclosed as Other current assets available for sale and has been valued at its estimated realizable value, which is lower than its equity value.

In order to determine the estimated realizable value, the Company used the acquisition value duly incurred.

As of December 31, 2011, this investment has been classified as Other assets available for sale under current assets and has been valued at its estimated realizable value, which is lower than its book value. This resulted in a loss of 31,522 that has been disclosed in the Loss from valuation of other assets available for sale at net realizable value account of the Statement of operations.

28. THE COMPANY’S ECONOMIC AND FINANCIAL SITUATION

In the year ended December 31, 2011, the Company recorded a significant fall in its operating and net results, with its liquidity level and working capital having been affected as well. This situation is due mainly to both the delay in obtaining rate increases and cost adjustments recognition (“MMC”), requested in the presentations made until now by the Company in accordance with the terms of the Adjustment Agreement described in Notes 8.c and 14, and the continuous increase of its operative costs that allow the Company to maintain the level of the service.

It is worth mentioning that in compliance with the terms of the Adjustment Agreement, the Company has maintained the quality of the distribution service, satisfying the constant year-on-year increase in the demand for electricity that has accompanied the economic growth of the last years. Due to both the increase recorded in the costs associated to the provision of the service and the need for additional investments to meet the increased demand, the Company has adopted a series of measures aimed at mitigating the negative effects of this situation on its financial structure, such as reducing certain specified costs, selling investments, as detailed in Note 27, reducing top management personnel’s fees, seeking new financing options, refinancing the financial debt with extended maturity terms, etc.; provided that these measures do not affect the sources of employment, the execution of the investments plan or the carrying out of the essential operation and maintenance works that are necessary to maintain the provision of the public service.

 
 

 

In this framework, the Company has started the corresponding presentations process before control and regulatory authorities in order to jointly instrument the necessary mechanisms to contribute to an efficient provision of the distribution service, the maintenance of the level of investments and the compliance with the increased demand.

Should the conditions existing as of the date of these consolidated financial statements continue, the Board of Directors believes that the Company’s situation will continue to deteriorate, with cash flows and operating results for the next year recording negative values and financial ratios being impaired.

Given the fact that the realization of the projected measures to revert the negative trend manifested in the current year depends, among other factors, on the occurrence of certain events that are not under the Company’s control, such as the requested electricity rate increases, the Board of Directors believes that there exists a material uncertainty concerning the Company’s financial ability to comply with obligations in the ordinary course of business.

These consolidated financial statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the effects of any adjustments or reclassifications, if there were any, which might result from the outcome of this uncertainty.

29. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
 
1.1 Application of IFRS 1

The National Securities Commmission (CNV), through Resolutions Nos. 562/09 and 576/10 has established the application of Technical Pronouncement No. 26 of the Argentine Federation of Professional Councils in Economic Sciences (subsequently amended by Technical Pronouncement No. 29 of the Argentine Federation of Professional Councils in Economic Sciences), which has adopted International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (herein referred to as “IFRS”) for those entities included in the public offering regime under Law No. 17811, either for their capital or corporate bonds, or which have requested authorization to be included in that regime.

IFRS will be of mandatory application for the Company as from the fiscal year commenced on January 1, 2012, with the first consolidated financial statements to be filed being those at March 31, 2012.

The Company will fully adopt IFRS as issued by the IASB as from fiscal year commenced on January 1, 2012. The presentation of the consolidated financial statements at December 31, 2011 will be adjusted for comparative purposes as a result of the adoption of IFRS. The impact of the adoption of IFRS is presented in section 1.2 which includes a reconciliation of shareholders’ equity at January 1, 2011 (date of transition to IFRS) and December 31, 2011 and a reconciliation of comprehensive income for the year ended December 31, 2011. In addition, sections 1.3 and 1.4 present:

(i)
the statements of financial position at January 1, 2011 and December 31, 2011,
(ii)
the statement of comprehensive income for the year ended December 31, 2011, and
(iii)
the main differences between Argentine GAAP and IFRS in the statement of cash flows for the year ended December 31, 2011.

 
 

 

The Company has applied the following mandatory exceptions to the retrospective application of IFRS in the preparation of the reconciliations of the shareholders’ equity and comprehensive income included below:

a.     Estimates

Estimates at January 1, 2011 and December 31, 2011 under IFRS are consistent with the estimates made in accordance with Argentine GAAP.

b.     Classification and measurement of financial assets
 
Financial assets are classified and measured according to IFRS 9, which was early adopted by the Company at January 1, 2011. That standard presents two measurement categories: amortized cost and fair value, and was applied by the Company according to the events and circumstances in place at the date of transition. The application of IFRS 9 did not lead to differences between Argentine GAAP and IFRS.

c.     Deemed cost

The cost of property, plant and equipment, adjusted in accordance with Argentine GAAP, has been adopted as deemed cost at the transition date to IFRS, considering that it results assimilable to its cost or depreciated cost in accordance with IFRS.

The following mandatory exceptions provided by IFRS 1 have not been applied since they are not relevant to the Company:

Derecognition of financial assets and liabilities
Hedge accounting
Non-controlling interest

IFRS 1 allows certain optional exemptions to the retrospective application of IFRS, with the Company having applied the following:

d.     Employee benefits

IFRS 1 exempts from the retrospective application of IAS 19 Revised, “Employee Benefits” as regards to the recognition of actuarial gains and losses. In line with this exemption, the Company has elected to recognize cumulative actuarial losses existing at the transition date for all employee benefit in the opening balance of retained earnings.

e.     Financial assets or intangible assets accounted for in accordance with IFRIC 12 Service Concession Arrangements

IFRS 1 permits the retrospective application of IFRIC 12 “Service Concession Arrangements”. This regulation does not apply to Edenor at the transition date because the Company has not fulfilled all the conditions of Paragraph 5 (b) of IFRIC 12.

The remaining optional exemptions that are not applicable for the Company are the following:

 
a)
Insurance contracts
 
b)
Business combination
 
c)
Share-based payments transactions
 
d)
Leases
 
e)
Fair value or revaluation as deemed cost
 
f)
Cumulative translation differences
 
g)
Decomissioning liabilities included in the cost of property, plant and equipment
 
h)
Investments in subsidiaries, jointly controlled entities and associates
 
 
 

 
 
 
i)
Assets and liabilities of subsidiaries, associates and joint ventures
 
j)
Compound financial instruments
 
k)
Designation of previously recognized financial instruments
 
l)
Fair value measurement of financial assets or financial liabilities at initial recognition
 
m)
Borrowing costs
 
n)
Transfers of assets from customers
 
o)
Extinguishing financial liabilities with equity instruments
 
p)
Financial assets or intangible assets accounted for in accordance with IFRIC 12 Service Concession Arrangements

Reconciliations between Argentine GAAP and IFRS

Section 1.2 presents a reconciliation between Argentine GAAP and IFRS of shareholders‘ equity at January 1, 2011 (transition date) and December 31, 2011. Also, detailed explanation of each reconciliation adjustment is disclosed in such note.
Section 1.3 presents a reconciliation between Argentine GAAP and IFRS of the statement of financial position at January 1, 2011, including a detailed explanation of each reconciliation adjustment and reclassifications.
Section 1.4 presents IFRS statements of financial position at December 31, including a detailed explanation of each reconciliation adjustment and reclassifications.
Section 1.5 presents IFRS statement of total comprehensive loss for the year ended December 31, 2011, including a detailed explanation of each reconciliation adjustment and reclassifications.
Section 1.6 presents the main differences between Argentine GAAP and IFRS as they relate to the statement of cash flows for the year ended December 31, 2011.

1.2 Reconciliation of the Shareholders’ Equity at January 1, 2011 and December 31, 2011

The following table present the reconciliation of the statement of changes in shareholders’ equity under Argentine GAAP and the Equity under IFRS:

      01.01.2011       12.31.2011  
                 
Shareholders’ equity under Argentine GAAP
    1,749,915       1,314,518  
                 
Employee benefits
    (10,136 )     (29,120 )
Bargain purchase in the acquisition of subsidiaries
    -       348,743  
Reversal of negative goodwill amortization
    -       (12,340 )
Acquisition of additional non-controlling interest
    -       3,452  
Customer contributions
    -       (12,165 )
Deferred income tax
    3,548       (113,229 )
Non-controlling interest
    -       6,793  
Equity under IFRS attributable to Edenor Shareholders’
    1,743,327       1,506,652  
Non-controlling interests under IFRS
    -       50,076  
Equity under IFRS
    1,743,327       1,556,728  
 
 
 

 
 
The following table present the reconciliation of the statement of operations under Argentine GAAP and the Comprehensive loss under IFRS:
 
      12.31.2011  
         
Statement of operations under Argentine GAAP
    (435,397 )
         
Bargain purchase in the acquisition of subsidiaries
    348,743  
Reversal of negative goodwill amortization
    (12,340 )
Customer contributions
    (12,165 )
Deferred income tax
    (123,421 )
Non-controlling interest
    18,240  
Comprehensive loss under IFRS attributable to Edenor shareholders
    (216,340 )
Non-controlling interests under IFRS
    (12,573 )
Comprehensive loss under IFRS
    (228,913 )
 
a)   Employee benefits
 
At January 1, 2011 and December 31, 2011, under Argentine GAAP the Company had not recognized in its financial statements the unrecognized actuarial losses, as Argentine GAAP requires only disclosure of such amounts.

Under IFRS, at January 1, 2011, the Company recognized in retained earnings, the cumulative unrecognized actuarial losses.

At December 31, 2011, according to IFRS, and considering that the Company has early adopted IAS 19 revised, the Company recognized the unrecognized actuarial losses in other comprehensive loss.
 
b)   Bargain purchase in the acquisition of subsidiaries
 
The following table summarizes the differences that this line item is made of:

Differences in basis relating to purchase accounting
    (70,164 )
Differences from application of IFRIC 12
    (54,003 )
Defined benefit plan liability
    (15,250 )
Derecognition of pre-operating costs
    (911 )
Transaction costs
    (4,269 )
Bargain purchase
    423,176  
Bargain purchase in the acquisition of subsidiaries
    348,743  
 
i) Differences in basis relating to purchase accounting

Under Argentine GAAP the excess of the fair value of assets acquired and liabilities assumed in a business combination over the purchase price, is recognized as negative goodwill and amortized under the straight-line method over the period equal to the weighted average of the remaining useful life of the assets identified in the acquired company which are subject to depreciation.

 
 

 
 
Under IFRS, the Company has reassessed the purchase price allocation. In that connection, the following differences between Argentine GAAP and IFRS were identified:
Fair value of net assets acquired – Argentine GAAP
    1,202,372  
Differences from application of IFRIC 12
    (54,003 )
Defined benefit plan liability
    (15,250 )
Derecognition of pre-operating costs
    (911 )
Deferred income tax effect
    24,557  
         
Fair value of net assets acquired – IFRS
    1,156,765  
 
a)   Differences from application of IFRIC 12

In accordance with Argentine GAAP, the assets used in the framework of service concession agreements of the subsidiary EDEN (indirectly controlled through AESEBA), whether received at the time of entering into concession contracts or acquired by the companies during their term of duration, are classified as property, plant and equipment and are depreciated based on the useful life assigned for each specific asset, irrespective of the term of the concession contracts.

Under IFRS, essential assets used in the framework of service concessions, whether received at time of entering into the concession contract or acquired by the companies during their term of duration, are classified as a single asset within intangible assets and are depreciated based on the remaining useful life of the concession contract. Non essential assets for rendering the distribution service are not included within the scope of IFRIC 12, as such those assets are carried at cost subsequently depreciated, and included within property, plant and equipment.

The effects of the recognition of IFRIC 12 in the Company’s consolidated financial statements are the following:

i) Reclassification of all the essential assets received by the Concession Agreement, and considered essential to the distribution service, into a separate intangible asset “IFRIC 12 Intangible Asset”;

ii) Recalculation of the amortization of such intangible assets in the remaining life of the Concession Agreement; however, the difference was immaterial.

iii) Recognition of a financial assets: according to IFRIC 12, the operator should recognize a financial asset to the extent it has an unconditional right to receive cash or another financial asset by the grantor or an entity under the supervision of the grantor in exchange for services rendered. The Concession Contract of EDEN provides for a payment upon the expiration date. As such, EDEN will receive, pursuant to the provisions of the Contract, the lower of i) the amount determined by the competent authority by the method of discounted cash flows; or ii) the tendering of the shares of the new operator. Based on the best estimate of the Company, the amount to be received at the end of the Concession Contract amounts to Ps. [], at February 28, 2011 (the acquisition date) and would be recognized as a financial asset carried at fair value with changes in profit and loss.

In order to determine the residual value of the IFRIC 12 intangible asset, the Company has determined the residual value of the essencial assets received by the Concession Contract and the financial asset to be received at the expiration date of the Contract, and by difference of these amounts determined such intangible asset.

iv) Construction contracts: under Argentine GAAP, construction of infrastructure funded with customer contributions are recognized as revenue by the time the funds are received. Under IFRS, in particular under the scope of IFRIC 12, such construction should be recognized as revenues from construction deferred on the remaining useful life of the Concession Contract, considering that the operator has an obligation with the customer for providing the distribution service. Such difference gave rise to a reconciliation adjustment at the acquisition date of Ps. 54,003, decreasing the property, plant and equipment and retained earnings, and increasing IFRIC 12 intangible asset and deferred revenues.

 
 

 
 
b)   Defined benefit plan liability

Under Argentine GAAP, unrecognized actuarial losses are not recognized, but disclosed in note to the consolidated financial statements.

Under IFRS, considering that the acquired subsidiaries will adopt IFRS on 2012, they had recognized at the transition date (January 1, 2011) in their respective retained earnings the cumulative unrecognized actuarial loss. As such, Edenor has assumed at the time of acquisition an aditional liabitlity for the subsidiaries defined benefit plans. Such additional liability amounted to Ps. 15,250.
 
c)   Derecognition of pre-operating costs
 
Under Argentine GAAP, capitalized pre-operating are recognized as an intangible asset and amortized over a 5-year period.

Under IFRS such pre-operating costs are recognized as an expense on an accrual basis.
 
The reconciling item corresponds to the derecognition of such pre-operating costs.
 
d)   Deferred income tax effect
 
It corresponds to the effect in deferred income tax of all the above adjustments.
 
ii) Transaction costs

Under Argentine GAAP, transaction costs are part of the consideration paid. The impact of such cost derived in a decrease of the negative goodwill.

Under IFRS, such costs are not part of the consideration paid and are expensed as incurred.

The following table summarizes the effect of the differences in the consideration paid:

Consideration paid – Argentine GAAP
    566,222  
Transaction cost
    (4,269 )
Consideration paid – IFRS
    561,953  
 
c)   Reversal of negative goodwill amortization

This reconciling item corresponds to the reversal of the amortization of negative goodwill recognized under Argentine GAAP.
 
d)   Bargain purchase
This reconciling item corresponds to the gain recognized under IFRS, after considering all the above adjustments, mainly by derecognizing the negative goodwill of acquired companies plus some differences arising from a lower amount of net assets acquired.


Negative goodwill – Argentine GAAP
    475,432  
         
Bargain purchase – IFRS
    423,176  
 
 
 

 
 
e)   Acquisition of additional non-controlling interest
 
This reconciling item corresponds to the acquisition of additional non-controlling interest in subsidiaries, that under Argentine GAAP was accounted for by deducting negative goodwill by the difference between the fair value of the non-controlling interest and the consideration paid. Under IFRS, such difference was reclassified into “Additional paid-in capital”.
 
f)   Additional loss on sale of subsidiaries

The reconciling item corresponds to the additional loss on sale of subsidiaries as a result of the decrease in the fair value of net assets acquired at the time of acquisition. As the fair value less cost to sale was similar under both Argentine GAAP and IFRS, the difference arises from its basis of valuation at acquisition.

Under Argentine GAAP, disposal groups-held-for-sale are classified as net assets, within current assets and are valued at the lower of its carrying amount and net realization value (NRV) (similar to fair value less cost to sell for IFRS). See further explanation on the disposal group held for sale in note 27.

Under IFRS, assets-held-for-sale are classified separately within current assets and current liabilities and are valued at the lower of its carrying amount and fair value less cost to sell.

Under both, Argentine GAAP and IFRS, the difference between the carrying amount of the assets and liabilities and their corresponding fair value less cost to sell (or NRV) gave rise to a loss.
 
g)   Remeasurement of IFRIC 12 financial asset

Following the explanation included in note 1.1.b, as a result of the application of IFRIC 12 in EDEN, the Company has recognized a financial asset which is valued at its fair value because of not complying with the requirements of IFRS 9 to be valued at its amortized cost. The changes in amortized cost of such financial asset is recognized in the statement of comprehensive income.
 
h)   Valuation at amortized cost

Under Argentine GAAP, financial liabilities are measured according to the sum of money received plus accrued interest at a representative market rate. In addition, financial asset are valued at the best estimate of the amount to collected at the expected time, discounted using an interest rate that best reflects the market assessment of the time value of money and specific risk for that assest.

Under IFRS 9, financial assets that meet the following conditions (i) the assets is held within a business model which aims to maintain the assets to obtain the contractual cash flows, (ii) the contractual terms of the financial asset gives rise, on specific dates, to cash flows that are solely payments of principal and interest on the outstanding principal and should be measured at amortized cost.

The amortized cost of a financial asset or a financial liability is that amount at which such asset or liability was initially measured, less any principal repayment, less or plus any accumulated amortization using the effective interest method of any existing difference between the initial amount and the value at its maturity date, less any allowance for doubtful account or impairment.

The effective interst method is a method of amortized cost of a financial asset or financial liability (or group of any of them) and of allocation of income or financial expense over the relevant period. The effect interest rate is the rate at which cash flows of the amounts to be collected or paid are discounted over the expected life of such financial instrument.
 
i)   Customer contributions

EDEN constructs part of their equipments (essentials for rendering the distribution service) based on customer contributions. Under Argentine GAAP such contributions are recorded as revenues upon the payment by the customers. Under IFRS the income must be recognized on deferred bases since contributions are made by customers.
 
 
 

 
 
j)   Deferred income tax

At January 1, 2011 and December 31, 2011, this reconciling item corresponds to the recognition, under IFRS, of a deferred tax effect of all the adjustments above described.
 
k)   Non-controlling interest

At December 31, 2011, this reconciling item corresponds to the effect of all the adjustments to conform with IFRS as above described.

The following tables summarizes the reconciling items in non-controlling interest between Argentine GAAP and IFRS, in Equity and Comprehensive loss, respectively:

Equity
Minority interest under Argentine GAAP
    56,869  
Bargain purchase
    (4,876 )
Customer contributions
    (791 )
Defined benefit plan
    (1,126 )
         
Non-controlling interest under IFRS
    50,076  

Loss for the year
Minority interest under Argentine GAAP
    (18,240 )
Bargain purchase
    (4,876 )
Customer contributions
    (791 )
         
Non-controlling interest under IFRS
    (12,573 )

1.3 Reconciliation of the statement of financial position at January 1, 2011
   
ARGENTINE GAAP (*)
   
TRANSITION ADJUSTMENT
   
IFRS
 
ASSETS
                 
NON CURRENT ASSETS
                 
Property, plant and equipment
    3,689,482       22,848       3,712,330  
Supplies
    23,249       (23,249 )     -  
Investments in other companies
    415       -       415  
Trade receivables
    45,531       -       45,531  
Other receivables
    14,803       -       14,803  
Deferred tax assets
    187,171       3,548       187,171  
TOTAL NON CURRENT ASSETS
    3,960,651       3,147       3,960,250  
                         
CURRENT ASSETS
                       
Supplies
    12,407       -       12,407  
Other receivables
    43,361       401       43,762  
Trade receivables
    421,193       -       421,193  
Investments
    668,232       (237,396 )     430,836  
Cash and cash equivalents
    8,611       237,396       246,007  
TOTAL CURRENT ASSETS
    1,153,804       401       1,154,205  
TOTAL ASSETS
    5,114,455       3,548       5,114,455  
 
 
 

 
 
                   
EQUITY
                 
Share capital
    897,043       -       897,043  
Inflation adjustment over share capital
    986,142       -       986,142  
Additional paid-in capital
    18,317       -       18,317  
Treasury stock - share capital value
    9,412       -       9,412  
Treasury stock - inflation adjustment over share capital
    10,347       -       10,347  
Legal reserve
    64,008       -       64,008  
Other comprehensive income
    -       -       -  
Accumulated loss
    (235,354 )     (6,588 )     (241,942 )
TOTAL EQUITY
    1,749,915       (6,588 )     1,743,327  

   
ARGENTINE GAAP (*)
   
TRANSITION ADJUSTMENT
   
IFRS
 
NON-CURRENT LIABILITIES
                 
Trade accounts payable
    50,984       -       50,984  
Loans
    1,035,113       -       1,035,113  
Salaries and social security payable
    50,633       10,136       60,769  
Accrued litigation
    6,816       -       6,816  
Taxes
    8,979       -       8,979  
Deferred tax liabilities
    440,998       -       437,450  
Other liabilities
    984,518       -       984,518  
TOTAL NON-CURRENT LIABILITIES
    2,578,041       10,136       2,584,629  
                         
CURRENT LIABILITIES
                       
Trade accounts payable
    378,505       -       378,505  
Loans
    54,108       -       54,108  
Salaries and social security taxes
    180,432       -       180,432  
Taxes
    111,080       -       111,080  
Other liabilities
    4,542       -       4,542  
Accrued litigation
    57,832       -       57,832  
TOTAL CURRENT LIABILITIES
    786,499       -       786,499  
TOTAL LIABILITIES
    3,364,540       10,136       3,371,128  
TOTAL LIABILITIES AND EQUITY
    5,114,455       -       5,114,455  

(*) It corresponds to the balances at December 31, 2010 included in the consolidated financial statements as of December 31, 2011, including a restatement due to the recognition of the permanent difference related to the inflation adjustment over property, plant & equipment, which under Argentine GAAP was required to be recognized in connection with the adoption of IFRS. See further explanation in note 3.m).

a)   Property, plant & equipment

The reconciliation relates to two separate effects:

i) Under Argentine GAAP advance to suppliers for the acquisition of property, plant and equipment are classified within the caption “Property, plant and equipment”.
 
 
 

 

Under IFRS, such advances have been reclassified into a separate account, within “Other receivables”.

ii) Under Argentine GAAP, non-current supplies (spare parts of major assets depreciated over their useful lives once they set in use) are classified separately from property, plant & equipment.

Under IFRS, such non-current supplies have been reclassified into “Property, plant & equipment”, and when used, are depreciated over the remaining useful life of such major asset.
 
b)   Supplies

See corresponding explanation above in 1.3.a).ii).
 
c)   Other receivables
 
See corresponding explanation above in 1.3.a).i).
 
d)   Salaries and social securities payable

This adjustment reflects the recognition of the cumulative unrecognized actuarial loss, as further explained in section 1.2.a).

e)   Deferred income tax

This adjustment reflects the recognition of the deferred tax effect on the cumulative unrecognized actuarial loss, as further explained in section 1.2.b).
 
f)   Accumulated loss

This corresponds to the effect of the adjustments explained above in section 1.3.d) and 1.3.e).

1.4 Reconciliation of the consolidated statement of financial position at December 31, 2011
 
   
ARGENTINE GAAP (*)
   
TRANSITION ADJUSTMENT
   
IFRS
 
ASSETS
                 
NON CURRENT ASSETS
                 
Property, plant and equipment
    4,738,259       (809,117 )     3,929,142  
Intangible assets
    -       792,093       792,093  
Negative goodwill
    (289,557 )     289,557       -  
Supplies
    26,862       (26,862 )     -  
Investments in other companies
    419       -       419  
Trade receivables
    45,725       -       45,725  
Other receivables
    70,704       -       70,704  
Deferred tax assets
    -       39,007       39,007  
TOTAL NON CURRENT ASSETS
    4,592,412       284,678       4,877,090  
 
 
 

 

 
CURRENT ASSETS
                 
Supplies
    22,863       22,462       45,325  
Other receivables
    244,903       -       244,903  
Trade receivables
    534,732       -       534,732  
Investments
    109,546       -       109,546  
Cash and cash equivalents
    23,445       -       23,445  
TOTAL CURRENT ASSETS
    935,489       22,462       957,951  
Group assets held for sale
    216,531       1,081,389       1,297,920  
TOTAL ASSETS
    5,744,432       1,388,529       7,132,961  

EQUITY
                 
Share capital
    897,043       -       897,043  
Inflation adjustment over share capital
    986,142       -       986,142  
Additional paid-in capital
    18,317       3,452       21,769  
Treasury stock - share capital value
    9,412       -       9,412  
Treasury stock - inflation adjustment over share capital
    10,347               10,347  
Legal reserve
    64,008       -       64,008  
Other comprehensive loss
    -       (17,802 )     (17,802 )
Accumulated loss
    (670,751 )     206,484       (464,267 )
Equity attributable to Edenor’ Shareholders’
    1,314,518       192,134       1,506,652  
Equity attributable to non-controlling interest
    56,869       (6,793 )     50,076  
TOTAL EQUITY
    1,371,387       185,341       1,556,728  
 
   
ARGENTINE GAAP (*)
   
TRANSITION ADJUSTMENT
   
IFRS
 
NON-CURRENT LIABILITIES
                 
Trade payables
    54,344       91,159       145,503  
Loans
    1,189,882       -       1,189,882  
Salaries and social security payables
    69,527       44,370       113,897  
Provisions for other liabilities
    66,144       -       66,144  
Taxes payable
    290,879       -       290,879  
Deferred tax liabilities
    -       152,236       152,236  
Other liabilities
    1,373,687       -       1,373,687  
TOTAL NON-CURRENT LIABILITIES
    3,044,463       287,765       3,332,228  
 
 
 

 

 
CURRENT LIABILITIES
                 
Trade payables
    658,328       -       658,328  
Loans
    59,025       -       59,025  
Salaries and social security payables
    287,115       -       287,115  
Taxes payable
    168,993       -       168,993  
Other liabilities
    144,777       -       144,777  
Provisions
    10,344       -       10,344  
TOTAL CURRENT LIABILITIES
    1,328,582       -       1,328,582  
TOTAL LIABILITIES
    4,373,045       287,765       4,660,810  
Group liabilities held for sale
    -       915,423       915,423  
TOTAL LIABILITIES AND EQUITY
    5,744,432       1,388,529       7,132,961  

(*) It corresponds to the balances included in the consolidated financial statements at December 31, 2011 approved by the Board of Directors.
 
a)   Property, plant and equipment
 
The reconciliation relates to the following effects:

i) Under Argentine GAAP advance to suppliers for the acquisition of property, plant and equipment are classified within the caption “Property, plant and equipment”.

Under IFRS, such advances have been reclassified into a separate account, within “Other receivables”.

ii) Under Argentine GAAP, non-current supplies (mainly related to spare parts of major assets, depreciated on theirs useful lives) under Argentine GAAP are classified separately from property, plant & equipment.

Under IFRS, such non-current supplies have been reclassified into “Property, plant & equipment”, and when used, are depreciated over the remaining useful life of such major asset.
 
b)   Infrastructure under construction

Under Argentine GAAP, assets under construction that have not been finalized and/or assets over which no authorization has been received for the application of funds derived from the Tariff Arrangement and/or from the PUREE, were classified within “Other receivables”. In addition, infrastructure under construction funded by EDEN has been classified within “Property, plant and equipment”.

Under IFRS, construction of infrastructure and major maintainance are assimilable to the rendering of a construction service under the concepts of IFRIC 12 (infrastructure that comprise expansion of the network capacity). EDEN has celebrated several construction contracts where the customer only has limited influence over the design of the infrastructure. EDEN has applied IAS 11 to measure such construction contracts. In accordance with IAS 11, income derive from the transference of infrastructure should be recognized at the moment of the exchange of such assets, whereby that infrastructure that is not finalized at December 31, 2011 are included within “Infrastructure under construction”.
 
In addition, under IFRS infrastructure under construction funded by EDEN has been reclassified to “Infrastructure under construction”.

 
 

 

c)   Supplies – non-current

See corresponding explanation above in 1.4.a).ii).
 
d)   Financial asset carried at fair value
As explained in section 1.2.b, this adjustments relates to the application of IFRIC 12. During the year ended December 31, 2011, changes in such financial asset has been included within “Financial results, net”.
 
e)   Other receivables

See corresponding explanation above in 1.4.a).i).
 
f)   Negative goodwill

It corresponds to the effect of the adjustment further explained in section 1.2.c).
 
g)   Salaries and social securities payable

This adjustment reflects the recognition of the cumulative unrecognized actuarial loss, as further explain in section 1.2.a).
 
h)   Deferred revenue associated with construction

This reconciling item corresponds to the adjustment described in 1.2.a) at February 28, 2011 (the acquisition date) and December 31, 2011.
 
i)   Deferred income tax

The reconciling item reflects the effect of the explained adjustments.

j)   Construction funded with costumer contributions

As further explained in 1.2.b).a) EDEN funds the construction of some of the essential infrastructure with costumer contributions. Under Argentine GAAP, EDEN recognizes an asset for the asset constructed or to be constructed and recognizes a liability in order to regularize such asset.

Under IFRS, EDEN recognizes an addition to the IFRIC 12 intangible asset when the construction has finished and or an addition of infrastructure under construction when the construction is in progress with the corresponding effect in deferred revenue in the first case with an effect in provision for services to be rendered in the second case. This particular adjustment relates to constructions whereby EDEN has received funds from their customers but the construction has not finalized yet.
 
k)   Application of IFRIC 12 to service concession agreements

See further explanation in section 1.2.b).i).a).
 
l)   Non-controlling interest

The reconciliation item corresponds to the following adjustments:

i) Classification of non-controlling interest

Under Argentine GAAP, the participation of third parties in controlled companies is included as a separate line item, between Total Liabilities and Shareholders’ Equity, and is denominated as “Minority interest”. As a result of the acquisition of EMDERSA and AESEBA, the Company recognized a minority interest in such companies, valued at their respective fair value.
 
 
 

 

Under IFRS, such minority interest was still valued at fair value at the acquisition date, and classified as “Non-controlling interest” within Equity.

ii) Acquisition of additional interest in controlled companies

Under Argentine GAAP the acquisition of additional interests in controlled companies was accounted for by deducting the minority interest and the difference with the purchase price gave rise to the recognition of an additional negative goodwill.

Under IFRS, the acquisition of addional interest in controlled companies was accounted for as an equity transaction. As such, the non-controlling interest was deducted by the percentages acquired, and the difference with the purchase price gave rise to a decrease in additional paid-in capital.

The reconciling item corresponds to the reversal of the additional negative goodwill and the decrease of the additional paid-in capital.
 
m)   Accumulated loss

These adjustments corresponds to the impact of IFRS’ conversion adjustments in Equity.

 
 

 

1.5 Reconciliation of the consolidated statement of total comprehensive loss for the year ended December 31, 2011
 
   
ARGENTINE GAAP (*)
   
TRANSITION ADJUSTMENT
   
IFRS
 
                   
Net sales
    3,565,048       5,046       3,570,094  
Construction income
    -       87,374       87,374  
Electric power purchases
    (1,593,937 )     3,968       (1,589,969 )
Cost for construction services
    -       (87,374 )     (87,374 )
Gross margin
    1,971,111       9,014       1,980,125  
                         
Transmission and distribution expenses
    (1,188,725 )     (74,753 )     (1,263,478 )
Selling expenses
    (429,930 )     22,305       (407,625 )
Administrative expenses
    (323,438 )     -       (323,438 )
Other operating income/expenses, net
    (25,256 )     (4,269 )     (29,525 )
Share profit/(loss) of joint ventures and associates
    928       -       928  
Goodwill amortization
    12,340       (12,340 )     -  
Gain on Bargain Purchase
    -       423,176       423,176  
Loss from sale of subsidiary
    -       (70,630 )     (70,630 )
Loss from valuation on disposal group held for sale
    (75,029 )     466       (74,563 )
Operating profit
    (57,999 )     292,969       234,970  
                         
Finance income
    9,887       31,269       41,156  
Finance cost
    (346,597 )     -       (346,597 )
Financial results, net
    (336,710 )     31,269       (305,441 )
                         
Loss before income tax
    (394,709 )     324,238       (70,471 )
                         
Income tax and tax on assets expense
    (22,448 )     (123,421 )     (145,869 )
Non - controlling interest
    (18,240 )     5,667       (12,573 )
Loss for the year
    (435,397 )     206,484       (228,913 )
                         
Other comprehensive loss
                       
Items that will not be reclassified to profit or loss:
                       
Actuarial loss on defined benefit plans
    -       (18,984 )     (18,984 )
Tax effect on defined benefit plans
    -       6,644       6,644  
Total Other comprehensive loss
    -       (12,340 )     (12,340 )
Total Comprehensive loss
    (435,397 )     194,144       (241,253 )
 
(*) It corresponds to the amounts included in the consolidated financial statements at December 31, 2011 approved by the Board of Directors with.
 
 
 

 
 
a)   Net sales – Classification differences

The reconciliation item comprise of the two reclassification effect as follows:
 
i) ENRE Penalties

Under Argentine GAAP, “ENRE Penalties” are classified within “Net sales”, based on that those penalties will be recovered by the Company’s customers through a credit note or a discounts in their invoices for the energy received.

Under IFRS, “ENRE Penalties” are classified within “Transimission and Distribuition expenses” (as relates to the portion of penalties attributable to operation matters) and “Selling expenses” (as relates to the portion of penalties attributable to commercial matters), considering that those penalties are operating expenses for the Company.

ii) Late payment charges
 
Under Argentine GAAP “Late payment charges” are also classified within “Net sales”, based on that those charges relates to a fix amount and is the customer election whether or not to pay their invoices at the first or second due date without or with that charge, respectively.

Under IFRS “Late payment charges” are classified within “Financial results, net” considering that eventhough such charge for late payment is fix, it relates to an income from financing the customers invoices.
 
b)   Construction activities

As described in section 1.2.b).a), under IFRS the Company accounts for as revenues, construction activities of infrastructure and maintainance funded with i) own resources; ii) customer constribution, and or iii) penalties reimbursement. EDEN considers that the risk and rewards of the infrastructure funded by the PUREE and or by the Tariff Arrangement upon authorization by the Regulator to compensate those infrastructures with funds collected in prior periods. The Company does not apply any profit margin to this infrastructures, funds with PUREE nor Tariff Arrangement.

In addition, in those constructions funded with costumer contributions the Company applies some profit margin. Under Argentine GAAP, the revenue is recognized upon the disbursement by the customer. Under IFRS, the revenue is recognized on a percentage of completion basis. As such, the reconciling item represents the reversal of the revenues recognized under Argentine GAAP and the recognition of revenues for constructions finalized.
 
c)   Transimission and Distribution expenses

It corresponds to the reclassification effect further explained in section 1.5.a).i).

d)   Selling expenses

It corresponds to the reclassification effect further explained in section 1.5.a).i).
 
e)   Amortization of negative goodwill

Under Argentine GAAP the excess of the fair value of assets acquired and liabilities assumed in a business combination over the purchase price, is recognized as negative goodwill and amortized under the straight-line method over the period equal to the weighted average of the remaining useful life of the assets identified in the acquired company which are subject to depreciation.

Under IFRS, negative goodwill is not recognized. If any excess of fair value of assets acquired and liabilities assumed exist, after reassess their valuation and the existence of any additional asset or liability, is recognized in income.
 
 
 

 
 
This reconciliation item corresponds to the effect of the reversal, for IFRS purpose, of the amortization of negative goodwill recognized under Argentine GAAP, in the acquisition of the Company’s subsidiaries. See further explained in section 1.2.c).
 
f)   Amortization of intangible asset

As described in note 1.2.b), this reconciling item corresponds to the effect of the amortization of the IFRIC 12 intangible asset, which in turn is the difference between the depreciation of fixed assets calculated under Argentine GAAP and the corresponding determination of the amortization under IFRS.
 
g)   Bargain purchase in the acquisition of subsidiaries

It corresponds to the effect of the adjustment further explained in section 1.2.c).
 
h)   Additional loss on sale of subsidiaries

It corresponds to the effect of the adjustment further explained in section 1.2.d).
 
i)   Financial results, net

It corresponds to the following effects:
 
i) The reclassification further explained in section 1.5.a).ii).

ii) The adjustment further explained in section 1.2.e).

iii) The remeasurement of the fair value of the financial asset further explained in section 1.2.b).

j)   Other comprehensive loss

It corresponds to the effect of the adjustments explained in 1.5.e).

1.6 Reconciliation of the statement of cash flows for the year ended December 31, 2011
 
   
ARGENTINE GAAP (*)
   
TRANSITION ADJUSTMENT
   
IFRS
 
                   
Net cash flows provided by operating activities
    550,380       -       550,380  
                         
Net cash flows used in investing activities
    (975,216 )     428,704       (546,512 )
                         
Net cash flows used in financing activities
    (119,016 )     -       (119,016 )
                         
Cash equivalents at the beginning of the year
    676,843       (430,836 )     246,007  
Cash equivalents at the end of the year
    132,991       (2,132 )     130,859  
Decrease in cash and cash equivalents
    (543,852 )     (432,968 )     (115,148 )

(*) It corresponds to the amounts included in the consolidated financial statements at December 31, 2011 approved by the Board of Directors with certain reclassifications according to conform to IFRS disclosures.

 
 

 

30. SUBSEQUENT EVENTS

Framework agreement

Subsequent to year-end and until the date of issuance of these consolidated financial statements, the Company received payments for a total of 12,634 from the Federal Government (Note 9).

Loans with subsidiary companies and related parties
 
On February 10, 2012, EDEN made a payment for 60,000 corresponding to the early repayment of loans granted by the Company.

Loans taken
 
On February 29, 2012, the Company took out a series of bank loans with local entities in order to meet its future capital needs for a total amount of 62,000, payable at maturity. The loans, whose average term is 159 days, accrue interest at an annual average rate of 19.4%.

31. CONSOLIDATED FINANCIAL STATEMENTS TRANSLATION INTO ENGLISH LANGUAGE

These consolidated financial statements are the English translation of those originally prepared by the Company in Spanish and presented in accordance with accounting principles generally accepted in Argentina. The effects of the differences between the accounting principles generally accepted in Argentina and the accounting principles generally accepted in the countries in which the financial statements are to be used have not been quantified. Accordingly, the accompanying consolidated financial statements are not intended to present the financial position, results of operation, shareholder’s equity or cash flows in accordance with accounting principles generally accepted in the countries of users of the financial statements, other than Argentina.
 
 
 

 

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 and 2010
EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT

   
Original values
 
Depreciation
         
 MAIN ACCOUNT
  At beginning of year   Incorporation balances from acq. of perm. invest.(1)  
Additions
 
Retirements
    Discontinued operations
(2)
   
Transfers
    At end of year   At beginning of year  
Retirements
    For the year   At end of year  
Net
book
value
 
2011
  Net
Book
value

2010
 
 FACILITIES IN SERVICE
                                                             
Substations
  1,139,156   183,899   5,950   (7,621 )   (138,313 )   37,439     1,220,509   392,709   (1,345 )   38,325   429,689   790,820   746,447  
High voltage networks
  482,015   83,637   6   0     (78,921 )   15,744     502,481   169,172   0     15,501   184,673   317,808   312,843  
Medium voltage networks
  947,378   487,436   8,856   (5,894 )   (325,635 )   93,268     1,205,409   374,014   (887 )   43,304   416,431   788,978   573,364  
Low voltage networks
  1,827,121   483,526   8,149   (3,983 )   (339,692 )   117,691     2,092,812   1,075,563   (1,867 )   57,894   1,131,590   961,222   751,558  
Transformation chambers and platforms
  660,269   95,923   0   (308 )   (10,939 )   44,596     789,541   243,690   (60 )   22,939   266,569   522,972   416,579  
Meters
  745,841   190,170   499   (1,553 )   (99,737 )   111,215     946,435   313,241   (677 )   39,468   352,032   594,403   432,600  
                                                               
Machinery and facilities
  0   56,073   0   0     (56,073 )   0     0   0   0     0   0   0   0  
Turbines - Boilers - Transformers
  0   4,342   0   0     (7 )   0     4,335   0   0     0   0   4,335   0  
Plants - Auxiliary equipment - Equipment and Fixtures
  0   19,775   33,935   (7,932 )   (18,627 )   (14,053 )   13,098   0   0     3,544   3,544   9,554   0  
Remote control systems - Automation - Generation plants
  0   7,158   113   0     (2,436 )   4,057     8,892   0   0     6,647   6,647   2,245   0  
 Maintenance
  0   26,625   0   0     (26,625 )   0     0   0   0     0   0   0   0  
Expansion project - Mandatory works and tasks
  0   31,116   0   0     0     0     31,116   0   0     0   0   31,116   0  
Buildings
  107,072   51,243   6,778   (853 )   (25,321 )   4,707     143,626   24,079   (409 )   5,815   29,485   114,141   82,993  
Communications network and facilities
  103,009   2,318   0   0     0     0     105,327   66,391   0     0   66,391   38,936   36,618  
 Total facilities in service
  6,011,861   1,723,241   64,286   (28,144 )   (1,122,326 )   414,663     7,063,581   2,658,859   (5,245 )   233,437   2,887,051   4,176,530   3,353,002  
 FURNITURE, TOOLS AND EQUIPMENT
                                                             
Furniture, equipment and software projects
  200,007   19,475   2,277   (2,318 )   (13,978 )   859     206,322   186,950   (2,591 )   11,109   195,469   10,853   13,057  
Tools and other
  48,291   7,041   742   (136 )   (3,378 )   1,581     54,141   44,288   (96 )   1,658   45,850   8,291   4,003  
Transportation equipment
  28,765   7,194   2,285   (995 )   (765 )   1,386     37,870   17,144   (874 )   6,029   22,299   15,571   11,621  
Total furniture, tools and equipment
  277,063   33,710   5,304   (3,449 )   (18,121 )   3,825     298,333   248,382   (3,560 )   18,796   263,618   34,715   28,681  
Total assets subject to depreciation
  6,288,924   1,756,951   69,590   (31,593 )   (1,140,447 )   418,489     7,361,914   2,907,241   (8,805 )   252,233   3,150,669   4,211,245   3,381,683  
CONSTRUCTION IN PROCESS
                                                             
Transmission
  138,526   51,803   261,325   399     (27,889 )   (188,341 )   235,823   0   0     0   0   235,823   138,526  
Distribution and other
  169,273   63,297   322,445   347     (34,023 )   (230,148 )   291,191   0   0     0   0   291,191   169,273  
Total construction in process
  307,799   115,100   583,770   746     (61,912 )   (418,489 )   527,014   0   0     0   0   527,014   307,799  
Total 2011
  6,596,723   1,872,051   653,360   (30,847 )   (1,202,359 )   0     7,888,928   2,907,241   (8,805 )   252,233   3,150,669   4,738,259   -  
Total 2010
  6,213,895   0   388,770   (5,942 )   0     0     6,596,723   2,731,509   (2,648 )   178,380   2,907,241   -   3,689,482  

(1) Note 27
(2) Notes 2 and 27
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
EXHIBIT C
INVESTMENTS IN OTHER COMPANIES

(stated in thousands of pesos)
                                           
                                                       
                           
Information on the Issuer
     
                        Net      
Last financial statement issued
 
 
     
 
 
 
 
 
 
 
 
 
 
Value on
 
book
 
 
 
 
 
Nominal
 
Income
 
 
 
% interest
 
Net
 
Name and features
     
Face
     
Adjusted
 
equity
 
value
 
 Main
     
Capital
 
for the
     
in capital
 
book value
 
of securities   Class   value  
Number
  cost  
method
 
2011
    activity  
 Date
 
Stock
 
 year
 
Equity
 
stock
 
2010
 
                                                       
OTHER ASSETS AVAILABLE
                                                     
FOR SALE
                                                     
(Note 27)
                                                     
                                                       
EMDERSA HOLDING
 
 common
  $ 1   126,911,946   252,838   389,050   389,050  
Electric power
 
12/31/2011
  126,912   6,232   262,119   99.99   -  
Goodwill:
                           
distribution
                         
- Original value
                        (125,554 )
services
                         
- Accumulated amortization
                        5,092                              
- Residual value
                        (120,462 )                            
                                                         
EMDERSA
 
 common
  $ 1   3,247,294   5,647   10,222   10,222  
Electric power
 
12/31/2011
  235,311   40,144   743,095   1.38   -  
Goodwill:
                           
distribution
                         
- Original value
                        0  
services
                         
- Accumulated amortization
                        0                              
- Residual value
                        0                              
                                                         
Adjustment for valuation at NRV
                        (62,279 )                            
                                                         
Subtotal Other assets available for sale
                        216,531                           -  
                                                         
 NON-CURRENT
                                                       
 INVESTMENTS
                                                       
                                                         
 Section 33 Law No. 19550 as amended -Companies-
                                                       
                                                         
 Related Company:
                                                       
 SACME S.A.
 
 common
  $ 1   6,000   15   419   419  
Electric
 
12/31/2011
  12   8   838   50.00   415  
   
 non-
                       
power
                         
   
 endorsable
                       
services
                         
 Total
                        419                           415  
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
 
EXHIBIT D
 
OTHER INVESTMENTS

(stated in thousands of pesos)
           
             
   
Net book value
 
 MAIN ACCOUNT
 
2011
   
2010
 
             
CURRENT INVESTMENTS
           
             
Time deposits
               
     . in foreign currency (Exhibit G)     48,511       17,523  
                 
Money market funds                 
     . in local currency
    58,903       117,458  
                 
Government Bonds, Corporate Notes and Shares (1)                 
     . in foreign currency (Exhibit G)
    2,132       533,251  
                 
 Total Current Investments
    109,546       668,232  
                 
 Total Investments
    109,546       668,232  
 
(1) Includes Corporate Notes of Transener S.A. for 17,527 as of December 31, 2010.
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
 
EXHIBIT E
 
ALLOWANCES AND ACCRUALS
 
 
  2011    
2010
 
MAIN
ACCOUNT
 
At
beginning
of year
     
Incorpor. of balances
acquis. of perm. invest. (1)
     
Increases
     
Decreases
     
Reclassifications
   
At
end of
year
   
At
end of
year
 
                                             
Deducted from current assets
                     
 
                   
For doubtful accounts (2)
    29,259       26,400       37,923       (7,354 )     0       86,228       29,259  
For other doubtful accounts
    12,799       4,358       1,495       (6,399 )     0       12,253       12,799  
                                                         
For doubtful recoverability of tax loss carryforward
    0       0       149,011       0       0       149,011       0  
                                                         
Deducted from non-current assets
                                                       
For supplies obsolescence
    0       3,449       516       (3,115 )             850       0  
                                                         
Included in current liabilities
                                                       
Accrued litigation
    57,832       17,169       3,604       (14,720 )     (53,541 )     10,344       57,832  
                                                         
Included in non-current liabilities
                                                       
Accrued litigation
    6,816       2,751       4,490       (1,454 )     53,541       66,144       6,816  
 
(1) See Note 27
(2) The Increases column includes 28,600 corresponding to the allowance for amounts receivable under the Framework Agreement (Note 9).
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
 
EXHIBIT G
 
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
 
    2011     2010  
   
 
         
Booked
         
Booked
 
 
 
Currency
         
amount in
   
Currency
   
amount in
 
 
 
and
   
Exchange
   
thousands
   
and
   
thousands
 
Account  
amount (2)
   
rate (1)
   
of pesos
   
amount (2)
   
of pesos
 
Current assets
                                           
Cash and banks
 
US$
      1,068,858       4.264       4,558    
US$
      382,816       1,507  
   
EUR
      50,679       5.534       280    
EUR
      45,911       240  
                                                     
Investments
 
US$
      11,884,495       4.264       50,643    
US$
      139,932,495       550,774  
                                                     
Other receivables
 
US$
      3,856,859       4.264       16,446    
US$
      1,032,065       4,063  
   
EUR
      176,470       5.534       977    
EUR
      111,954       584  
                                                     
Other assets available for sale (3)
 
EUR
      415       5.534       2    
EUR
      0       0  
    £       1,000       6.627       7     £       0       0  
    R$       1,000       2.302       2     R$       0       0  
Total Current assets
                            72,914                       557,168  
Non-current assets
                                                       
Property, plant and equipment
 
US$
      371,444       4.264       1,584    
US$
      0       0  
Total Non-current assets
                            1,584                       0  
Total Assets
                            74,498                       557,168  
Current liabilities
                                                       
Trade accounts payable
 
US$
      11,880,241       4.304       51,133    
US$
      4,476,084       17,797  
   
EUR
      237,695       5.586       1,328    
EUR
      304,112       1,603  
   
NOK
      969,782       0.723       701    
CHF
      153,989       653  
Related parties
 
US$
      638,434       4.304       2,735                          
                                                         
Loans
 
US$
      6,414,498       4.304       27,608    
US$
      5,582,495       22,196  
                                                         
Other liabilities
 
US$
      1,847,618       4.304       7,952    
US$
      338,302       1,345  
                                                         
Other assets available for sale  (3)
 
US$
      37,000       4.304       160    
US$
      0       0  
                                                         
Total Current liabilities
                            91,617                       43,594  
Non-current liabilities
                                                       
Financial debts
 
US$
      272,148,234       4.304       1,171,326    
US$
      255,969,567       1,017,735  
Total Non-current liabilities
                            1,171,326                       1,017,735  
Total Liabilities
                            1,262,943                       1,061,329  
 
(1) Selling and buying exchange rate of Banco de la Nación Argentina in effect at the end of the year
(2) US$ = US Dollar; EUR = Euro; CHF Swiss Franc; R$ = Brazilian Real; £ = Pound Sterling; NOK = Norwegian Krone
(3) Related to foreign currency denominated asset / liability balances, discounted from discontinued operations
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
 
INFORMATION REQUIRED BY SECTION 64 SUB-SECTION b) OF LAW No. 19,550
 
EXHIBIT H
 
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
 
(stated in thousands of pesos)
  2011    
2010
 
Description
 
Transmission and
Distribution
Expenses
   
Selling
Expenses
   
Administrative
Expenses
   
Total
   
Total
 
Salaries and social security taxes
    499,020       125,599       141,318       765,937       438,348  
Postage and telephone
    8,521       16,787        5,139       30,447       19,221  
Bank commissions
    0       15,067       2,530       17,597       10,667  
Allowance for doubtful accounts
    0       39,418       0       39,418       21,204  
Supplies consumption
    64,133       1,830       3,902       69,865       40,204  
Work by third parties
    333,713       158,597       41,621       533,931       180,458  
Rent and insurance
    4,612       980       17,429       23,021       18,841  
Security services
    8,159       2,301       15,140       25,600       9,585  
Fees
    13,078       50       11,542       24,670       6,322  
Computer services
    876       7,942       29,668       38,486       33,804  
Public relations and marketing
    0       0       11,522       11,522       13,525  
Advertising and sponsorship
    8       397       7,500       7,905       4,919  
Temporary personnel and Reimbursements to personnel
    2,261       473       3,383       6,117       3,849  
Depreciation of property, plant and equipment
    242,917       3,347       5,969       252,233       178,380  
Directors and Supervisory Committee members’ fees
    0       0       6,553       6,553       3,672  
Taxes and charges
    5,766       56,285       8,189       70,240       22,857  
Other
    5,661       857       12,033       18,551       3,566  
Total 2011
    1,188,724       429,930       323,439       1,942,093       -  
Total 2010
    636,289       194,236       178,897       -       1,009,422  
 
 
 

 
 
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

6363 Del Libertador Ave. – Federal Capital

INFORMATIVE SUMMARY

AS OF DECEMBER 31, 2011

1. General Comments

(Not covered by the Independent Auditors’ Report)

(Figures stated in thousands of pesos as indicated in Note 2)

In the consolidated year ended December 31, 2011, the Company recorded a net loss of 435,397. As of the end of the year, the Company’s shareholders’ equity amounts to 1,314,518.

The consolidated operating loss amounted to 33,667.

The investment in property, plant and equipment totaled 653,360 This amount was mainly allocated to increasing service quality levels and meeting current and new customer demand.

a.    Acquisition of EMDERSA and AESEBA

On March 4, 2011, the Company’s Board of Directors approved an offer from its indirect controlling company Pampa Energía S.A. (“Pampa”), pursuant to which the Company was offered the possibility of acquiring certain electricity distribution assets, which Pampa was entitled to acquire (either directly or through one or more subsidiaries), from Grupo AEI in accordance with an agreement entered into on January 19, 2011 by and between Pampa, party of the first part, and AEI Utilities, S.L., a limited company (sociedad limitada) organized under the laws of Spain (“AEIU”), AEI Servicios Argentina S.A., a corporation (sociedad anónima) organized under the laws of Argentina, and AEI, a company organized under the laws of the Cayman Islands, parties of the second part.

As a consequence of the acceptance by the Company of said offer, Edenor was appointed by Pampa as the acquiring party under the PESA-AEI Agreement. Therefore, on March 4, 2011, the Company acquired from AEIU (i) 182,224,095 common shares of EMDERSA S.A. (“Emdersa”), representing 77.19% of Emdersa’s capital stock and votes (“Emdersa Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”) representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% of EDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by the Company for the aforementioned assets amounted to USD 90,000 thousand for Emdersa’s Shares and the Residual Shares acquired from AEIU and to USD 49,998 thousand for AESEBA’s Shares acquired from AEIU.
 
 
 

 
 
Emdersa holds: (i) 99.99% of EDESAL’s capital stock and votes, (ii) 90% of the capital stock and votes of Empresa Distribuidora de Electricidad de Salta S.A. (“EDESA”), (iii) 99.98% of EGSSA’s capital stock and votes, and (iv) 99.99% of EDELAR’s capital stock and votes. EDESA holds 99.99% of ESED’s capital stock and votes. Furthermore, AESEBA in turn holds 90% of the capital stock and votes of Empresa Distribuidora de Energía Norte, S.A. (“EDEN”), which provides electricity distribution services in the northern and central parts of the Province of Buenos Aires.

Within the framework of the offer made by Pampa and accepted by the Company, the parties have additionally agreed that if within the 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, the Company sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).

In order to evaluate the above described transaction, the Company engaged the services of the investment bank Citigroup Global Markets Inc. (“Citigroup”) to render a fairness opinion to the Company’s Board of Directors, concerning the fairness of the price that would have to be paid for Emdersa’s shares, the Residual shares and AESEBA’s shares. The opinion of the Company’s Audit Committee was also requested. Both Citigroup and the Company’s Audit Committee rendered their opinion, prior to the acquisition, stating that the informed values were adequate and within the market’s parameters.

In compliance with current regulations, the Company has formally consulted the National Securities Commission about the steps to be followed with regard to the public offering for the acquisition of Emdersa’s shares that the Company must make to Emdersa’s minority shareholders due to the change in that company’s control and in accordance with the provisions of Decree No. 677/01 and the National Securities Commission’s regulations. The aforementioned consultation was made due to the fact that the authorization and carrying out of the public acquisition offering that for the same reasons is to be carried out by AEIU at a price of USD 0.68 per Emdersa’s common share, is still pending. Therefore, the situation generated by the potential coexistence of two public offerings must, in the Company’s opinion, be clarified.

The Company has fully assumed its obligation to carry out the public acquisition offering it is required to make due to the new change in Emdersa’s control, which will be carried out at the same price per Emdersa’s common share that the Company paid to AEIU, i.e. USD 0.49 per Emdersa’s common share, in the manner and time period established by the control authority. The carrying out of said public acquisition offering was approved by the Company’s Board of Directors on March 4, 2011, and constitutes an irrevocable commitment with Emdersa’s shareholders.

Furthermore, the Company has initiated the proceedings aimed at obtaining authorization from the corresponding control authorities.

Finally, within the framework of the reported transaction for the acquisition of shares, the change in control of the acquired companies constitutes grounds for calling the loans taken out by their subsidiaries due. Therefore, on March 4, 2011, the Company granted to them a series of loans at an annual interest rate of 16% and final maturity on April 30, 2011 in order for them to be in a better position to negotiate the restructuring. The loans have been distributed in the following manner: i) EDEN 80,000; ii) EDELAR 31,178; iii) EDESA 131,320 and iv) EDESAL 37,503, which was repaid on October 25, 2011.
 
 
 

 

Additionally, in the June-December, 2011 period, in successive market transactions, the Company acquired 2,951,000, 281,294 and 15,000 common shares of EMDERSA, representing 1.25%, 0.12% and 0.0064% of that company’s capital stock and votes, respectively.

The acquisitions have been recorded in the accounting in accordance with the purchase method on the basis of the preliminary initial measurements of the acquired assets and liabilities.

On April 29, 2011, the Company entered into an agreement with EDEN, EDESAL, EDELAR and EDESA for the refinancing of the loans granted to them at the time of acquisition with the purpose of allowing for the restructuring of their financial loans for 80,000 in the case of EDEN, 31,178 in the case of EDELAR, 131,320 in the case of EDESA and 37,503 in the case of EDESAL, at an annual nominal rate of 16% on each of them, with interest falling due semi-annually on October 31, 2011 and April 30, 2012. The one-year term loans fall due on April 30, 2012. The financial conditions are in accordance with those usually obtained in the market for this type of transactions.

Additionally, on November 3, 2011, the Company granted a loan to EDEN for USD 3,100,000.

Furthermore, on July 8, August 5 and December 29, 2011, EDEN made payments for USD 2,000,000, 2,500,000 and 1,500,000, respectively, as an early repayment of the loan granted by the Company. As of December 31, 2011, the balance amounts to 256,344.

Company sale agreements

Additionally, on September 16 and October 11, 2011, the Company’s Board of Directors decided to approve the offers made by Rovella Carranza S.A., Andes Energía Argentina S.A. and its controlling company, Pampa Energía S.A., for the acquisition of its subsidiaries Edesal, Edelar and EGGSA, respectively.

In order for these transactions to be carried out, the Company will cause Emdersa to be partially spun off, which will result in the creation of three new investment companies, EDESAL Holding (holder of 99.99% of EDESAL’s capital stock and votes), EDESA Holding (holder of 90% of EDESA’s capital stock and votes) and EGGSA Holding (holder of 99.99% of EGGSA’s capital stock and votes). The spun-off company, EMDERSA, will keep a percentage of EDELAR’s capital stock and votes. This process was initiated by the Board of Directors of EMDERSA on August 23, 2011. The Extraordinary Shareholders’ Meeting of EMDERSA held on December 16, 2011, which was resumed on January 13, 2012 after a recess, approved the aforementioned corporate reorganization process.

b.    Electricity rates

EMDERSA

On February 17, 2011, EDESA S.A. submitted to the ENRESP the February/April 2011 electricity rate schedule. In addition, EDESA S.A. is carrying out proceedings before the Ministry of Finance of the Province of Salta for the collection of the Pichanal emergency reserve and the Oran and Guachipas cold reserve. In May 2011, the five-yearly review of the tariff structure will be submitted to the ENRESP, for which purpose EDESA S.A. is currently conducting the corresponding tariff studies.

 
 

 

At present, EGSSA has the following authorizations and approvals: Authorization to become an Agent of the Wholesale Electricity Market granted by the National Energy Secretariat through Resolution No. 920/08 dated August 11, 2008, Authorization to have Access to the Transport Capacity granted by the National Regulatory Authority for the Distribution of Electricity through Resolution No. 705/07 dated October 24, 2007, Approval by the National Energy Secretariat and the Province of Salta of the Environmental Impact Study, and Classification as Critical Infrastructure Work by the National Energy Secretariat. In December 2010, the generation company signed agreements for power availability which not only allowed for the commencement of operations but also made it possible to cover generation variable costs and main fixed expenses. At the same time, actions aimed at obtaining contracts for the long-term supply of the energy produced, that would provide an adequate return on the investment, are currently being taken.

AESEBA

During the year ended December 31, 2010, as stipulated in caption 4.4 of Section 4 of the Protocol of Understanding, the information on the adjustments of the values of the Operative Costs Sample as well as on the valuation of the assets available for the provision of the service continued to be submitted. The last presentation was made in June 2010, which has been ratified by the Provincial Energy Administration.

EDENOR S.A.

As of the date of issuance of these consolidated financial statements, no resolution has been issued concerning the application of the electricity rate schedule resulting from the RTI which was expected to be in effect since February 1, 2009.

Additionally, as of December 31, 2011, the Company has submitted to the National Regulatory Authority for the Distribution of Electricity the MMC (Cost Monitoring Mechanism) adjustment requests, in accordance with the following detail:

Assessment Period
 
Application Date
 
MMC Adjustment
November 2007 - April 2008
 
May 2008
 
5.791%
May 2008 – October 2008
 
November 2008
 
5.684%
November 2008 - April 2009
 
May 2009
 
5.068%
May 2009 – October 2009
 
November 2009
 
5.041%
November 2009 - April 2010
 
May 2010
 
7.103%
May 2010 - October 2010
 
November 2010
 
7.240%
November 2010 - April 2011
 
May 2011
 
6.104%
May 2011 – October 2011
 
November 2011
 
7.721%
 
The aforementioned adjustments as well as the basis for their application are pending approval by the National Regulatory Authority for the Distribution of Electricity, for which reason the Company is unable to reasonably estimate the amount of the submitted requests. Therefore, no amount receivable for this concept has been recorded by the Company in these consolidated financial statements, until approval is granted by the control authority.

Furthermore, the necessary steps to regularize the situation are being taken in order to restore the economic and financial equation of the business in view of the increase recorded in operating costs.

 
 

 

2. Comparative balance sheet structure
(amounts stated in thousands of pesos as indicated in Note 2)

ACCOUNTS
    12.31.2011(1)       12.31.2010       12.31.2009       12.31.2008       12.31.2007  
                                         
Current Assets
    1,152,020       1,153,804       693,560       587,077       496,341  
Non-Current Assets
    4,592,412       3,773,480       3,677,181       3,547,553       3,351,265  
Total Assets
    5,744,432       4,927,284       4,370,741       4,134,630       3,847,606  
                                         
Current Liabilities
    1,328,582       786,499       760,273       635,584       539,565  
Non-Current Liabilities
    3,044,463       2,390,870       1,428,259       1,407,480       1,333,460  
Total Liabilities
    4,373,045       3,177,369       2,188,532       2,043,064       1,873,025  
Minority interest
    56,869       0       0       0       0  
                                         
Shareholders’ Equity
    1,314,518       1,749,915       2,182,209       2,091,566       1,974,581  
                                         
Total Liabilities,  Minority interest and Shareholders’ Equity
    5,744,432       4,927,284       4,370,741       4,134,630       3,847,606  

(1) Consolidated information as of December 31, 2011 (Notes 1 and 27)

3. Comparative income structure

(amounts stated in thousands of pesos as indicated in Note 2)

ACCOUNTS
    12.31.2011(1)       12.31.2010       12.31.2009       12.31.2008       12.31.2007  
                                         
Net operating (loss) income
    (33,667 )     94,475       222,925       302,915       429,201  
Other (expense) income, net
    (25,256 )     (9,810 )     23,290       (29,825 )     996  
Financial income  (expense) and holding gains (losses)
    (335,786 )     (159,832 )     (76,261 )     (88,801 )     (182,755 )
                                         
(Loss) Income before taxes
    (394,709 )     (75,167 )     169,954       184,289       247,442  
                                         
Income tax
    (22,448 )     26,114       (79,311 )     (61,174 )     (124,984 )
Minority interest
    (18,240 )     0       0       0       0  
                                         
Net (loss) income for the year
    (435,397 )     (49,053 )     90,643       123,115       122,458  
 
(1) Consolidated information as of December 31, 2011 (Notes 1 and 27)
 
 
 

 

4. Statistical data (in units of power)
(Not covered by the Independent Auditors’ Report)

CONCEPT
 
UNIT
    12.31.2011(2)       12.31.010       12.31.2009       12.31.2008       12.31.2007  
Sales of electricity (1)
 
GWh
    20,098       19,292       18,220       18,616       17,886  
Electric Power purchases (1)
 
GWh
    23,004       22,053       20,676       20,863       20,233  

(1) The related amounts include toll fees.
(2) Consolidated information as of December 31, 2011 (Notes 1 and 27)

5. Ratios

RATIOS
    12.31.2011(1)       12.31.2010       12.31.2009       12.31.2008       12.31.2007  
                                             
Liquidity
 
Current assets
    0.87       1.47       0.91       0.92       0.92  
   
Current liabilities
                                       
                                             
Solvency
 
Shareholders’ Equity
    0.30       0.55       1.00       1.02       1.05  
   
Total liabilities
                                       
                                             
Fixed assets
 
Non-current assets
    0.80       0.77       0.84       0.86       0.87  
   
Total assets
                                       
                                             
Income before taxes
 
(Loss) Income  before taxes and minority interest
    (22.56 )%     (4.18 )%     8.13 %     9.36 %     13.36 %
   
Shareholders’ equity excluding (loss) income for the year
                                       

(1) Consolidated information as of December 31, 2011 (Notes 1 and 27)

6. Progress toward compliance with the implementation plan of the international financial reporting standards (IFRS)
(Not covered by the Independent Auditors’ Report)

As of the date of these consolidated financial statements, and in accordance with the plan duly approved by the Board of Directors of the Controlling Company, the implementation process has been completed.

With regard to EMDERSA S.A., on April 29, 2010, its Board of Directors approved the specific implementation plan of the IFRS.

From the monitoring of the specific implementation plan of the IFRS, the Board of Directors has not become aware of any circumstance that may require the introduction of changes to the referred to plan or may indicate a possible deviation from the objectives and dates duly established by this Board.
 
 
 

 

Furthermore, and with regard to AESEBA S.A., the company has prepared the implementation and impact diagnosis and assessment plan.
 
As of the date of these consolidated financial statements, the Company has determined the major impacts of IFRS implementation, which have been disclosed in Note 29.

7. Outlook
(Not covered by the Independent Auditor’s Report)

During the year 2011 the Company’s activity continued to be developed in a difficult economic, social and financial context, as described in Note 28. Nevertheless, the Company was able to maintain its operative, commercial and administrative activities, complying with the required levels for the provision of services to its customers.

This situation has caused the Board of Directors to apply all the available resources to maintaining the investments, achieving a balanced agreement with its employees and maintaining the quality of the service, in spite of facing higher supply and maintenance costs with no improvement in revenue in return.

The Federal Government’s announcement by the end of the year concerning its decision to eliminate government grants on electricity rates to certain business activities and residential customers is a good sign and the beginning toward the energy sector’s regularization, although it will probably make the obtaining of an improvement in the Distribution Added Value (VAD) more difficult.

The evolution of the levels of demand for electricity, the economic and financial development of the market in which the Company operates, the evolution of costs and the level of revenue, among other factors, must be taken into account when assessing scenarios for the analysis of the corporate activity.

The Company and the National Regulatory Authority for the Distribution of Electricity (ENRE) will continue to carry out the overall electricity rate review (RTI) that will allow the Company to cover distribution costs (including amortization and taxes) and provide it with an adequate return on its assets.

Additionally, the Company has submitted to the ENRE the Cost Monitoring Mechanism (MMC) adjustment requests for the May 2008 – November 2011 periods, which are pending approval by the aforementioned Regulatory Authority (Note 14 and caption 1.b of this informative summary).

The Board of Directors estimates that the recognition of higher costs, the RTI and the improvement in the VAD will make it possible to restore the economic and financial equation agreed upon in the Concession Agreement and thereby achieve the normalization of the service provided.

Buenos Aires, March 8, 2012

 
RICARDO TORRES
 
Chairman
 
 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (Edenor S.A.)

We have audited the accompanying consolidated balance sheets of Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (Edenor S.A.) (hereinafter, Edenor S.A.) and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Edenor S.A. and its subsidiaries at December 31, 2011 and 2010 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Argentina approved by the Professional Council of Economic Sciences of the Autonomous City of Buenos Aires.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 8.c and 28 to the financial statements, the delay in obtaining tariff increases, the cost adjustments recognition (“MMC”), requested in the presentations made until now by the Company in accordance with the terms of the Adjustment Agreement (“Acta Acuerdo”) and the continuous increase in operating expenses significantly affected the economic and financial position of the Company and raise substantial doubt about its ability to continue as a going concern. Management‘s plans in regard to these matters are also described in Note 28. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Autonomous City of Buenos Aires, March 8, 2012.
 
PRICE WATERHOUSE & CO. S.R.L.
 
                                                  (Partner)
 
   
Dr. Andrés Suarez