o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
OR | ||||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the Fiscal Year Ended: December 31, 2004 | ||||
OR | ||||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of Each Class | Name of Each Exchange on Which Registered | |
American Depositary Shares Ordinary shares with a par value of€1 each | New York Stock Exchange New York Stock Exchange(*) |
i
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• | References to “dollars,” “$” and “U.S. dollars” are to United States dollars; | |
• | References to “lire,” “lira” or “Lit.” are to Italian lire; and | |
• | References to “€” or “euro” are to the euro, the single currency established for participants in the third stage of the European Economic and Monetary Union, or EMU, commencing January 1, 1999. |
Market share information and statistics |
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Adjustments |
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Antitrust Authority | The Italian Antitrust Authority. | |
Average thermal efficiency | A measure of the efficiency of a thermal generating plant in converting sources of energy such as fuel oil into electricity. Average thermal efficiency is expressed as the amount of electricity actually produced in kWh as a percentage of the kWh equivalent of the energy source consumed. | |
Bersani Decree | Legislative Decree No. 79 of March 16, 1999, aimed at liberalizing the Italian electricity market. | |
CIP 6 | Regulation 6/32 issued byComitato Interministeriale Prezzi, an Italian governmental committee, which established incentives for new generation plants using renewable resources and for the sale of electricity produced from renewable resources. | |
CO2 | Carbon dioxide. | |
Combined Cycle Gas Turbine (or “CCGT”) | A type of generating plant that produces electricity through both gas turbines and steam turbines. Conventional boilers or other generators recover and use the exhaust heat exiting from gas turbines. | |
Co-generation | The simultaneous generation of steam and electricity, typically where the need arises for industrial purposes. | |
Communications Authority | The Italian Authority for the Guarantee of Communications. | |
Decommissioning | The phase of declassification, decontamination and dismantling of nuclear power installations and clean up of the plant site with the aim of achieving: (i) the complete demolition of the nuclear power plant; (ii) the removal of any limitation due to the presence of radioactive material; and (iii) the restoration of the site for other activities. | |
Eligible Customer | Electricity customers in Italy who meet consumption thresholds that permit them to participate in the free market for electricity. | |
Emission trading rights | Tradable emission permits that give the right to produce the equivalent of one metric ton of carbon dioxide. These permits can either be assigned through a national allowance plan, purchased on the market, or earned through investments in projects in developing countries (Certified Emission Reductions) or in transition economies countries (Emission Reduction Units). | |
Energy Authority | The Italian Authority for Electric Energy and Gas. | |
Environment Ministry | The Italian Ministry of the Environment. | |
Gencos | The three generating companies we disposed of in order to comply with the Bersani Decree, Elettrogen S.p.A. (now Endesa Italia |
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S.p.A.), Eurogen S.p.A. (now Edipower S.p.A.) and Interpower S.p.A. (now Tirreno Power S.p.A.). | ||
Generating unit | An electric generator together with the turbine or other device which drives it. | |
Gestore della Rete | The Gestore della Rete di Trasmissione Nazionale S.p.A., a company owned by the MEF that currently manages Italy’s national electricity transmission grid, and also owns the Single Buyer and the Market Operator (both as defined below). | |
Gigawatt (GW) | 1,000,000,000 watts (1,000 megawatts). | |
Gigawatt hour (GWh) | One gigawatt of power supplied or demanded for one hour. | |
GHG | “Greenhouse gases,” which are gases that contribute to the greenhouse effect, such as carbon dioxide, methane, nitrous oxide, chlorofluorocarbons and ozone. | |
Gross installed capacity | The maximum power that can be produced continuously throughout a prolonged period of operation with all equipment assumed to be fully operational. | |
Independent power producers | Industrial companies that produce electricity for their own use and for sale to third parties. | |
Italian power exchange (Borsa dell’Energia Elettrica) | A virtual marketplace in which producers, importers, wholesalers, the Gestore della Rete, other Eligible Customers and the Single Buyer buy and sell electricity at prices determined through a competitive bidding process. | |
Kilovolt (kV) | 1,000 volts. | |
Kilovolt ampere (kVA) | 1,000 volts ampere. | |
Kilowatt (kW) | 1,000 watts. | |
Kilowatt hour (kWh) | One kilowatt of power supplied or demanded for one hour. | |
Market Operator | The entity, wholly owned by the Gestore della Rete, that manages the Italian power exchange. | |
Marzano Law | Law No. 239 of August 23, 2004, aimed at reorganizing existing energy market regulation and further liberalizing the energy market. | |
MEF | The Italian Ministry of the Economy and Finance and its predecessor, the Ministry of the Treasury, Budget and Economic Planning. | |
Megawatt (MW) | 1,000,000 watts (1,000 kilowatts). | |
Megawatt hour (MWh) | One megawatt of power supplied or demanded for one hour. | |
Megavolt ampere (MVA) | 1,000,000 volts ampere. | |
Ministry of Productive Activities | The Italian Ministry of Productive Activities and its predecessor, the Ministry of Industry, Commerce and Handcrafts. | |
Net Installed Capacity | The maximum power that can be produced continuously throughout a prolonged period of operation with all equipment assumed to be fully operational, as measured at the point of entry to the transmission network (or minus the power absorbed by plant use and the power lost in the transformers required to raise the voltage to the network level). |
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Non-Eligible Customers | Electricity customers in Italy who do not meet consumption thresholds entitling them to participate in the free market. | |
NH3 | Ammonia. | |
NOx | Nitrogen oxides. | |
Orimulsion | Abbreviation of “Orinoco emulsion,” which is a fossil fuel from the Orinoco river basin in Venezuela consisting of very fine bitumen dispersed in water. Orimulsion emits the same amount of CO2 as fuel oil of equivalent energy value. | |
Resellers | Other distribution companies to whom we transport electricity because their networks are attached to our network rather than directly to the national transmission grid. | |
Single Buyer (Acquirente Unico) | A company wholly owned by the Gestore della Rete, responsible for ensuring the supply of electricity to regulated customers who do not yet have access to the liberalized electricity market. | |
SO2 | Sulfur dioxide. | |
Substation | Equipment which switches and/or changes or regulates the voltage of electricity in a transmission and/or distribution network. | |
Terawatt (TW) | 1,000,000,000,000 watts (1,000 gigawatts). | |
Terawatthour (TWh) | One terawatt of power supplied or demanded for one hour. | |
Thermal unit | A generating unit which uses combustible fuel as the source of energy to drive an electric generator. | |
Volt | The basic unit of electric force. | |
Voltampere | The basic unit of apparent electrical power. | |
Watt | The basic unit of active electrical power. |
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ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. | KEY INFORMATION |
1
As of December 31, | |||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004(2) | ||||||||||||||||||||
(Dollars in | |||||||||||||||||||||||||
(Euro in millions, except per share amounts)(1) | millions, except | ||||||||||||||||||||||||
per share amounts) | |||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF INCOME DATA | |||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | |||||||||||||||||||||||||
Operating revenues | €25,109 | €28,781 | €29,977 | €31,317 | €36,489 | $49,399 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||
Depreciation and amortization | 3,459 | 4,459 | 4,477 | 4,516 | 4,173 | 5,649 | |||||||||||||||||||
Other | 16,897 | 20,844 | 22,620 | 22,069 | 25,991 | 35,187 | |||||||||||||||||||
Total operating expenses | 20,356 | 25,303 | 27,097 | 26,585 | 30,164 | 40,836 | |||||||||||||||||||
Operating income | 4,753 | 3,478 | 2,880 | 4,732 | 6,325 | 8,563 | |||||||||||||||||||
Financial income (expense) | (648 | ) | (1,110 | ) | (1,178 | ) | (1,130 | ) | (1,103 | ) | (1,493 | ) | |||||||||||||
Equity losses(3) | (458 | ) | (85 | ) | (59 | ) | (73 | ) | (39 | ) | (53 | ) | |||||||||||||
Extraordinary income (expense)(4) | 192 | 2,318 | 736 | (136 | ) | (818 | ) | (1,107 | ) | ||||||||||||||||
Income before taxes | 3,839 | 4,601 | 2,379 | 3,393 | 4,365 | 5,910 | |||||||||||||||||||
Income taxes | 1,649 | 649 | 608 | 966 | 1,533 | 2,075 | |||||||||||||||||||
Net income (after minority interest) | €2,188 | €4,226 | €2,008 | €2,509 | €2,706 | $3,663 | |||||||||||||||||||
Earnings per share(5) | 0.18 | 0.70 | 0.33 | 0.41 | 0.44 | 0.60 | |||||||||||||||||||
Number of shares outstanding (in millions) | 12.126 | 6.063 | 6.063 | 6.063 | 6.125 | — | |||||||||||||||||||
Amounts in accordance with U.S. GAAP(6): | |||||||||||||||||||||||||
Operating revenues | €26,432 | €28,781 | €30,604 | €31,237 | €35,092 | $47,508 | |||||||||||||||||||
Depreciation and amortization | 3,485 | 4,478 | 4,069 | 4,506 | 3,857 | 5,222 | |||||||||||||||||||
Operating income(7) | 4,065 | 5,337 | (8) | 2,617 | (9) | 4,966 | 3,706 | 5,017 | |||||||||||||||||
Income before taxes(7) | 3,125 | 3,965 | 1,373 | 3,798 | 2,614 | 3,538 | |||||||||||||||||||
Net income | 1,841 | 3,688 | 1,399 | 2,376 | 1,031 | 1,395 | |||||||||||||||||||
Earnings per share(5) | 0.15 | 0.61 | 0.23 | 0.39 | 0.17 | 0.23 |
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As of December 31, | ||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004(2) | |||||||||||||||||||
(Dollars in | ||||||||||||||||||||||||
(Euro in millions)(1) | millions) | |||||||||||||||||||||||
CONSOLIDATED BALANCE SHEET DATA | ||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | ||||||||||||||||||||||||
Fixed assets, net | € | 35,744 | € | 35,004 | € | 37,533 | € | 37,155 | € | 36,459 | $ | 49,358 | ||||||||||||
Current assets | 9,456 | 11,902 | 14,464 | 14,520 | 16,902 | 22,882 | ||||||||||||||||||
Total assets | 49,633 | 63,190 | 67,019 | 68,930 | 68,330 | 92,505 | ||||||||||||||||||
Current liabilities | 15,621 | 19,164 | 21,916 | 22,908 | 20,587 | 27,871 | ||||||||||||||||||
Short-term debt(10) | 6,406 | 7,107 | 8,371 | 8,643 | 6,419 | 8,690 | ||||||||||||||||||
Long-term debt(11) | 7,984 | 16,072 | 17,172 | 18,005 | 20,241 | 27,402 | ||||||||||||||||||
Shareholders’ equity | 18,312 | 20,966 | 20,772 | 21,124 | 19,847 | 26,870 | ||||||||||||||||||
Amounts in accordance with U.S. GAAP(6): | ||||||||||||||||||||||||
Fixed assets, net | € | 37,403 | € | 36,035 | € | 38,304 | € | 37,407 | € | 37,589 | $ | 50,889 | ||||||||||||
Total assets | 54,535 | 63,799 | 66,423 | 68,505 | 67,152 | 90,910 | ||||||||||||||||||
Short-term debt(10) | 6,406 | 7,107 | 8,371 | 8,643 | 6,419 | 8,690 | ||||||||||||||||||
Long-term debt(11) | 10,301 | 16,072 | 17,172 | 18,005 | 20,242 | 27,404 | ||||||||||||||||||
Shareholders’ equity | 17,438 | 19,467 | 18,526 | 18,651 | 15,697 | 21,250 |
As of December 31, | ||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004(2) | |||||||||||||||||||
(Dollars in | ||||||||||||||||||||||||
(Euro in millions)(1) | millions) | |||||||||||||||||||||||
CONSOLIDATED CASH FLOW DATA | ||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | ||||||||||||||||||||||||
Net cash provided by operating activities | € | 4,900 | € | 6,164 | € | 4,793 | € | 7,173 | € | 5,392 | $ | 7,300 | ||||||||||||
Net cash used in investing activities | (3,429 | ) | (8,666 | ) | (4,206 | ) | (4,695 | ) | (1,898 | ) | (2,570 | ) | ||||||||||||
Net cash (used in) provided by financing activities | (1,510 | ) | 2,598 | (774 | ) | (2,426 | ) | (3,582 | ) | 4,849 | ||||||||||||||
Amounts in accordance with U.S. GAAP(6): | ||||||||||||||||||||||||
Net cash provided by operating activities | € | 4,937 | € | 5,554 | € | 3,815 | € | 6,843 | € | 4,855 | $ | 6,573 | ||||||||||||
Net cash used in investing activities | (3,468 | ) | (8,707 | ) | (4,241 | ) | (4,730 | ) | (1,940 | ) | (2,627 | ) | ||||||||||||
Net cash (used in) provided by financing activities | (1,509 | ) | 3,249 | 239 | (2,061 | ) | (3,003 | ) | (4,065 | ) |
2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||
Operating Data (unaudited) | ||||||||||||||||||||
Net installed capacity (GW) in Italy | 56.3 | 50.0 | 43.8 | (12) | 41.8 | 42.0 | ||||||||||||||
Net electricity production in Italy (TWh) | 182.5 | 169.1 | (13) | 145.1 | (14) | 137.8 | 125.9 | |||||||||||||
Electricity sales to end users in Italy (TWh)(15) | 213.3 | 194.9 | 181.3 | 152.2 | 157.8 | |||||||||||||||
Total electricity distributed in Italy (TWh)(16) | 244.5 | 256.3 | 258.0 | 265.0 | 261.2 | |||||||||||||||
Natural gas sold to end users (billions of cubic meters) | 0.3 | 1.1 | 4.0 | 4.4 | 5.2 | |||||||||||||||
Natural gas sales customers at year end (millions) | 0.1 | 0.6 | 1.7 | 1.8 | 2.0 | |||||||||||||||
Employees | 72,647 | 72,661 | 71,204 | 64,770 | 61,898 |
(1) | Lira amounts relating to the fiscal years 2000 and 2001 have been translated into euro amounts at the fixed rate of Lit. 1,936.27 =€1.00. |
(2) | We have translated euro amounts into dollar amounts at the noon buying rate for euro on December 31, 2004, of€1.00 = $1.3538. |
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(3) | Under Italian GAAP, for the year ended December 31, 2000, we accounted for our investment in Wind, the lead company of our Telecommunications Division, under the equity method of accounting. We have consolidated Wind on a line-by-line basis since January 1, 2001. You should read note 2 to our consolidated financial statements for a discussion of our consolidation principles. For purposes of U.S. GAAP, we have consolidated Wind since January 1, 2000. | |
(4) | You should read notes 24-26 to our consolidated financial statements for a discussion of the different criteria used under Italian GAAP and U.S. GAAP for determining what constitutes an extraordinary item. | |
(5) | We calculate earnings per share by dividing our consolidated net income by the number of ordinary shares outstanding during each period. Prior to our initial public offering in November 1999, all of our ordinary shares were owned by the MEF. Following the offering, and at December 31, 2004, the MEF owned 31.45% and its subsidiary Cassa Depositi e Prestiti owned 10.28% of our ordinary shares. You should consider that our share capital was Lit. 12,126,150,379,000 (corresponding to€6,262,634,023) divided into 12,126,150,379 shares with a par value of each share of Lit. 1,000 (corresponding to€0.52) until July 9, 2001, the date on which both the re-denomination of our share capital in euros and a one-for-two reverse stock split became effective. As a result of the re-denomination and the reverse stock split, our share capital amounted to€6,063,075,189, divided into 6,063,075,189 shares, each with a par value of€1. Currently, our share capital amounts to€6,124,838,588 divided into 6,124,838,588 shares with a par value of€1. | |
(6) | For information concerning differences between Italian GAAP and U.S. GAAP that are relevant to our consolidated financial statements, you should read notes 24 through 26 to our consolidated financial statements. | |
(7) | You should read notes 24-26 to our consolidated financial statements for a discussion of the different criteria used under Italian GAAP and U.S. GAAP in calculating operating income. | |
(8) | Includes gain on sale of Elettrogen, previously classified as other non-operating income (expense). | |
(9) | Includes gain on sale of Eurogen, previously classified as other non-operating income (expense). |
(10) | Includes current portion of long-term debt. |
(11) | Excludes current portion of long-term debt. |
(12) | Including 2.6 GW of capacity of Interpower, which was divested in January 2003. |
(13) | Including 12.2 TWh generated by Elettrogen and Valgen before they were divested during 2001, and 20.9 TWh generated by Eurogen, which was divested in May 2002. |
(14) | Including 8.0 TWh generated by Eurogen before it was divested, and 5.7 TWh generated by Interpower. |
(15) | Excluding sales to resellers. |
(16) | Including electricity distributed to resellers. |
4
End of | ||||||||||||||||
Period | Average | High | Low | |||||||||||||
U.S. dollars per euro(1) | ||||||||||||||||
Year: | ||||||||||||||||
2000 | 0.9388 | 0.9207 | 1.0335 | 0.8270 | ||||||||||||
2001 | 0.8901 | 0.8909 | 0.9535 | 0.8370 | ||||||||||||
2002 | 1.0485 | 0.9495 | 1.0485 | 0.8594 | ||||||||||||
2003 | 1.2597 | 1.1411 | 1.2597 | 1.0361 | ||||||||||||
2004 | 1.2478 | 1.3538 | 1.3625 | 1.1801 | ||||||||||||
Month ended: | ||||||||||||||||
December 31, 2004 | 1.3538 | 1.3406 | 1.3625 | 1.3224 | ||||||||||||
January 31, 2005 | 1.3049 | 1.3122 | 1.3476 | 1.2954 | ||||||||||||
February 28, 2005 | 1.3274 | 1.3013 | 1.3274 | 1.2773 | ||||||||||||
March 31, 2005 | 1.2969 | 1.3185 | 1.3465 | 1.2877 | ||||||||||||
April 30, 2005 | 1.2919 | 1.2943 | 1.3093 | 1.2819 | ||||||||||||
May 31, 2005 | 1.2349 | 1.2696 | 1.2936 | 1.2517 |
(1) | Based on the noon buying rate for the euro for the periods indicated. |
Future regulation could have a significant adverse effect on our energy businesses and their profitability |
5
• | an increase in bilateral contracts between our competitors and final customers; | |
• | regulations limiting each operator’s access to international electricity sources to a maximum percentage of available interconnection capacity; and | |
• | the construction of new generation facilities by our competitors and the development of new interconnection lines that will increase the volume of electricity that may be imported in Italy. |
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10
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• | the power to oppose the acquisition by persons or entities of an interest in the Company equal to or in excess of 3% of the shares with voting rights at the ordinary shareholders’ meetings; | |
• | the power to oppose certain types of shareholders’ agreements entered into by holders of at least one-twentieth of the voting capital stock at ordinary shareholders’ meetings; | |
• | the power to veto any resolution to dissolve, merge or demerge Enel, transfer a significant part of Enel’s business or Enel’s registered headquarters outside of Italy, change Enel’s corporate purpose or eliminate or modify any of the MEF’s special powers; and | |
• | the MEF may directly appoint one non-voting member of Enel’s board of directors, in addition to the voting members elected by Enel’s shareholders. |
15
• | Anticipated trends in our businesses, including trends in demand for electricity; | |
• | Changes in the regulatory environment and expectations on how and when new regulations will be implemented; | |
• | The remuneration of our generation activities based on competitive electricity prices rather than tariffs following the introduction of trading on the Italian power exchange; | |
• | The impact of changes in electricity and gas tariffs; | |
• | Our ability to implement successfully our cost reduction program; | |
• | The possibility that significant volumes of lower-cost electricity will become available as a result of increased imports and the construction of new plants in Italy; | |
• | Enel’s intention to reduce its stake in Terna from 36.14% to approximately 5%, following its agreement in May 2005 to sell to Cassa Depositi e Prestiti a 29.99% stake in Terna; | |
• | Our intention to divest Wind, having entered into an agreement in May 2005 for the sale of Wind in a series of transactions that we expect ultimately to lead our exit from the telecommunications business, as well as our intention to divest certain other non-core businesses; | |
• | Our intentions with respect to future dividend payments; | |
• | Our intention to expand our core businesses, including by increasing our presence in renewable energy and developing our gas distribution and sales business; | |
• | Our intention to expand our operations outside Italy; and | |
• | Future capital expenditures and investments. |
ITEM 4. | INFORMATION ON THE COMPANY |
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2002 | 2003 | 2004 | |||||||||||
Net installed capacity (GW) in Italy at year end | 43.8 | (1) | 41.8 | 42.0 | |||||||||
Net electricity production in Italy (TWh) | 145.1 | (2) | 137.8 | 125.9 | |||||||||
Electricity sales to end users in Italy (TWh)(3) | 181.3 | 152.2 | 157.8 | ||||||||||
Electricity sales on the regulated market in Italy (TWh) | 150.9 | 141.5 | 137.0 | ||||||||||
Electricity sales on the free market in Italy (TWh) | 30.4 | 10.7 | 20.8 | ||||||||||
Total electricity distributed in Italy (TWh)(4) | 258.0 | 265.0 | 261.2 | ||||||||||
Natural gas sales to end users in Italy (billions of cubic meters) | 4.0 | 4.4 | 5.2 | ||||||||||
Natural gas sales customers in Italy at year end (millions) | 1.7 | 1.8 | 2.0 |
(1) | Including 2.6 GW of capacity of Interpower, which was divested in January 2003. |
(2) | Including 8.0 TWh generated by Eurogen before it was divested in May 2002, and 5.7 TWh generated by Interpower. |
(3) | Excluding sales to resellers. |
(4) | Including electricity distributed to resellers. |
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![(ORGANIZATION CHART)](https://capedge.com/proxy/20-F/0001156973-05-000923/u48898u4889800.gif)
• | Reducing our Italian power generation costs to levels lower than those of our competitors, in particular through the conversion of certain generation plants to run on less expensive fuels, and the alignment of |
22
our other operating costs with international best practice through an integrated approach to quality and standards; | ||
• | Increasing our presence in the market for electricity generated from renewable resources; | |
• | Growing our natural gas distribution and sales businesses in Italy, where we are the second-largest distributor; | |
• | Extracting value from the integrated management of our electricity and gas services in Italy; | |
• | Meeting our operating efficiency targets in the distribution and sale of electricity and gas; | |
• | Expanding our operations outside Italy, particularly in countries where we are already present or where market liberalization and privatization efforts are in progress, in which we can capitalize on the experience and technical know-how we have acquired in the Italian market; | |
• | Reducing Enel’s current 36.14% stake in Terna to approximately 5%, in order to match legally permitted voting rights in the appointing of directors, through its sale of a 29.99% stake in Terna to Cassa Depositi e Prestiti; and | |
• | Divesting Wind and, subject to our disposal of the minority interest we expect to acquire in Weather, exiting the telecommunications business. |
Generation and Energy Management |
• | Continue its program to convert approximately 10,000 MW of thermal generation plants to combined gas turbine technology, much of which has already been completed, as well as our program to upgrade additional plants to run on lower-cost fuels, such as coal, while still respecting environmental norms; | |
• | Consolidate its position in the field of renewable energy, including through an investment program expected to total approximately€1.1 billion from 2005 through 2009, which includes plans for the construction of wind, hydroelectric and geothermal generation plants in Italy with a net installed capacity of approximately 250 MW; | |
• | Continually seek to achieve operating excellence while increasing the efficiency and availability of its plants and respecting the environment and the health and safety of its employees; |
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• | Continue its efforts to reduce its operating and maintenance expenses until it attains best international practice levels; and | |
• | Optimize its fuel procurement activities, through a diversification of suppliers and supply channels. |
Sales, Infrastructure and Networks |
• | Continue our program to reduce operating costs and optimize our investment expenditures, by seeking constantly to improve our administrative processes, increasing our use of technology to support our activities and evaluating our investments more strictly from a financial perspective; | |
• | Continue to improve our performance with respect to Energy Authority targets for quality and continuity of service in those geographic areas where these targets have not yet been achieved, and maintaining the quality and continuity of service where they have been achieved or exceeded; overall, in 2004 we received bonuses for continuity of services of€205 million with respect to our performance in 2003; and | |
• | Complete the roll-out of our “Telemanagement” digital metering program in Italy by the end of 2005, in order to (i) reduce costs associated with physical measurement of consumption and on-site maintenance of meters by our personnel, as these tasks would be accomplished remotely; (ii) measure more accurately the electricity consumption of our customers; (iii) improve our response times in providing technical assistance to our customers and provide higher quality service; and (iv) offer our customers tailored tariff plans that promote the use of electricity in off-peak periods and provide customers with opportunities to save money. We entered into an agreement with IBM in March 2004 to commercialize our digital metering know-how for use by other utilities in Italy and abroad in an effort to further benefit from this program. At March 31, 2005, we had installed 22.4 million digital meters, of which approximately 19.9 million were remotely connected to our system. |
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Italian Electricity Demand |
Average Annual | ||||||||||||||||||||||||
Growth Rate | ||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2000-2004 | |||||||||||||||||||
Growth in real GDP(1) | 3.0% | 1.8% | 0.4% | 0.3% | 1.2% | 1.3% | ||||||||||||||||||
Growth in electricity demand(2) | 4.4% | 2.1% | 1.9% | 3.2% | 0.4% | 2.4% |
(1) | National Institute of Statistics(Istituto Nazionale di Statistica). |
(2) | Gestore della Rete. Data for 2004 are provisional. |
Per Capita | ||||||||||||
Residential | Residential | |||||||||||
Inhabitants | Consumption | Consumption | ||||||||||
(In millions) | (TWh) | (Kwh/inhabitant) | ||||||||||
France | 59.8 | 141.0 | 2,358 | |||||||||
United Kingdom | 59.4 | 117.2 | 1,973 | |||||||||
European Union | 380.2 | 685.3 | 1,803 | |||||||||
Germany | 82.6 | 135.7 | 1,643 | |||||||||
Spain | 41.1 | 53.70 | 1,307 | |||||||||
Italy | 57.7 | 63.7 | 1,104 |
Generation and Energy Management |
26
Domestic Generation |
Generating Facilities |
2002 | 2003 | 2004* | |||||||||||
(GWh) | |||||||||||||
Gross production: | |||||||||||||
Thermal | 231,068 | 242,784 | 244,375 | ||||||||||
Hydroelectric | 47,262 | 44,277 | 48,730 | ||||||||||
Geothermal and other renewable | 6,071 | 6,804 | 7,265 | ||||||||||
Total gross production in Italy | 284,401 | 293,865 | 300,370 | ||||||||||
Power used by auxiliary installations | (13,619 | ) | (13,682 | ) | (13,723 | ) | |||||||
Total net production in Italy | 270,783 | 280,183 | 286,647 | ||||||||||
Net electricity imports | 50,597 | 50,968 | 45,635 | ||||||||||
Total pumped storage consumption | (10,654 | ) | (10,492 | ) | (10,308 | ) | |||||||
Total electricity demand in Italy | 310,726 | 320,659 | 321,974 | ||||||||||
* | Data for 2004 are provisional. |
27
At December 31, 2004 | 2004 | ||||||||||||||||||||
Net | Weighted | Percentage | Forced | ||||||||||||||||||
Installed | Average Age | Net | of Our Net | Outage | |||||||||||||||||
Capacity | of Plant | Production | Production | Factor | |||||||||||||||||
(GW) | (Years) | (GWh) | (Percent) | ||||||||||||||||||
Thermal | 26.8 | 19 | 91,854 | 73.0 | % | 2.0 | % | ||||||||||||||
Hydroelectric | 14.3 | 42 | 28,659 | 22.7 | % | 1.5 | % | ||||||||||||||
Geothermal and other renewable | 0.9 | 8 | 5,355 | 4.3 | % | 2.0 | % | ||||||||||||||
Total | 42.0 | 125,868 | 100.0 | % | |||||||||||||||||
Thermal Production |
28
• | upgrading the coal-burning technology of a unit at an existing coal plant, Sulcis, which we expect to be operational by the end of 2005 (approximately 300 MW); | |
• | converting three units at our fuel-oil plant at Torrevaldaliga Nord to clean coal technology, on which construction has already started and which we expect to be operational by 2008 (approximately 1,900 MW); and | |
• | subject to receipt of required permits, for which we are in the process of applying, converting another four units to clean coal technology (accounting for approximately 2,500 MW). Depending on whether and when we obtain the required permits, we estimate that the converted facilities would be operational by 2010 or 2011. |
Hydroelectric Production |
29
Production from Geothermal and Other Renewable Resources |
30
International Generation |
31
Total at | Total at | ||||||||||||||||||||||||||||
Enel North | Enel Latin | Maritza | December 31, | December 31, | |||||||||||||||||||||||||
America | America | Viesgo | East III | EUFR | 2004 | 2003 | |||||||||||||||||||||||
(MW) | |||||||||||||||||||||||||||||
Thermal | — | — | 1,592 | 732 | — | 2,324 | 2,324 | ||||||||||||||||||||||
Hydroelectric | 286 | 171 | 672 | — | — | 1,129 | 1,077 | ||||||||||||||||||||||
Wind | 67 | 24 | — | — | 259 | 350 | 341 | ||||||||||||||||||||||
Biomass and Biogas | 21 | — | — | — | — | 21 | 25 | ||||||||||||||||||||||
Cogeneration | — | — | — | — | 52 | 52 | 62 | ||||||||||||||||||||||
Total | 374 | 195 | 2,264 | 732 | * | 311 | 3,876 | 3,829 | |||||||||||||||||||||
32
* | At December 31, 2004, 183 MW of this capacity was undergoing refurbishing and environmental upgrades, and 549 MW was operational. |
Fuel |
33
Year Ended December 31, | |||||||||||||||||||||||||
2002 | 2003 | 2004 | |||||||||||||||||||||||
Net | Net | Net | |||||||||||||||||||||||
Electricity | Percentage | Electricity | Percentage | Electricity | Percentage | ||||||||||||||||||||
Produced | of Total | Produced | of Total | Produced | of Total | ||||||||||||||||||||
(GWh) | (GWh) | (GWh) | |||||||||||||||||||||||
Natural gas | 36,082 | 27.5 | % | 48,802 | 35.4 | % | 40,602 | 32.3 | % | ||||||||||||||||
Coal and orimulsion | 29,234 | 22.2 | 30,030 | 21.8 | 30,700 | 24.4 | |||||||||||||||||||
Oil | 33,949 | 25.8 | 27,838 | 20.2 | 20,552 | 16.3 | |||||||||||||||||||
Total thermal | 99,265 | 75.5 | 106,669 | 77.4 | 91,854 | 73.0 | |||||||||||||||||||
Hydroelectric | 27,745 | 21.1 | 26,012 | 18.9 | 28,677 | 22.8 | |||||||||||||||||||
Geothermal | 4,382 | 3.3 | 5,036 | 3.6 | 5,120 | 4.1 | |||||||||||||||||||
Wind and photovoltaic | 53 | 0 | 77 | 0.06 | 235 | 0.2 | |||||||||||||||||||
Total | 131,445 | 100.0 | % | 137,794 | 100.0 | % | 125,886 | 100.0 | % | ||||||||||||||||
• | 44% natural gas; | |
• | 33% coal; and | |
• | 23% fuel oil. |
• | 70% coal and other fuels; | |
• | 30% natural gas; and | |
• | less than 1% fuel oil. |
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Fuel Oil |
Year Ended | |||||||||||||
December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
(In millions of tons) | |||||||||||||
Domestic suppliers | 2.4 | 1.2 | 1.0 | ||||||||||
Foreign suppliers | 6.9 | 5.3 | 3.8 | ||||||||||
Total fuel oil purchased | 9.3 | 6.5 | 4.8 | ||||||||||
Year Ended | |||||||||||||
December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
(In millions of tons) | |||||||||||||
Fuel oil purchased | |||||||||||||
Low sulfur | 3.8 | 4.0 | 3.0 | ||||||||||
Mid sulfur | 5.2 | 2.5 | 1.6 | ||||||||||
High sulfur | 0.3 | 0.0 | 0.2 | ||||||||||
Total | 9.3 | 6.5 | 4.8 | ||||||||||
Natural Gas |
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Coal and Orimulsion |
Purchased power |
2002 | 2003 | 2004 | |||||||||||
(TWh) | |||||||||||||
Long-term contracts | 21.7 | 15.5 | 14.4 | ||||||||||
Annual contracts | 0.4 | 0.6 | 1.1 | ||||||||||
Spot purchases | 0.4 | 0.0 | 0.1 | ||||||||||
Total imports | 22.5 | 16.0 | 15.7 | ||||||||||
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Sales, Infrastructure and Networks |
Domestic operations |
Electricity Companies |
• | Enel Distribuzione, which owns the electricity distribution network serving the free and regulated markets and sells electricity on the regulated market; | |
• | Deval, a subsidiary in which we own a 51% interest, which engages in similar activities in the Valle d’Aosta Region; | |
• | Enel Energia, which sells electricity on the free market to customers with annual consumption of up to 100 GWh (while sales to customers with higher consumption levels are made through Enel Trade of our Generation and Energy Management Division); | |
• | Enel Sole, which provides public and art lighting services; and | |
• | Enel.si, which provides electricity systems-related services. |
Distribution of Electricity |
Year Ended December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
(In GWh) | |||||||||||||
Distributed to free market | 92,516 | 102,973 | 113,691 | ||||||||||
Distributed (and sold) to regulated market | 150,919 | 141,453 | 136,961 | ||||||||||
Total | 243,435 | 244,426 | 250,652 | ||||||||||
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At December 31, | ||||||
2002 | 2003 | 2004 | ||||
Employees | 36,103 | 33,106 | 32,595 |
Electricity Distribution Network |
Under- | Insulated | Bare | Number of | Transformer | ||||||||||||||||||||
Type | ground Lines | Aerial Lines | Aerial Lines | Total Lines | Substations | Capacity | ||||||||||||||||||
(km) | (km) | (km) | (km) | (MVA) | ||||||||||||||||||||
Primary: | ||||||||||||||||||||||||
High voltage lines (40-150 kV) | 392 | — | 18,699 | 19,114 | ||||||||||||||||||||
Primary substations | 2,013 | 89,848 | ||||||||||||||||||||||
Secondary: | ||||||||||||||||||||||||
Medium voltage lines (1-30 kV) | 123,386 | 7,538 | 204,919 | 335,841 | ||||||||||||||||||||
Low voltage lines | 225,141 | 383,010 | 126,739 | 734,890 | ||||||||||||||||||||
Secondary substations | 410,657 | 67,459 |
Consolidation of Electricity Distribution Networks |
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Other Divestitures |
Sales to Regulated Electricity Market |
• | All Non-Eligible Customers, or customers who do not meet the consumption threshold for participation in the free market; and | |
• | Those Eligible Customers, or customers who meet the consumption threshold for participation in the free market, that choose not to participate in it. |
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2003 | 2004 | ||||||||||||||||||||||||||||||||||||||||
Distributed | Distributed | ||||||||||||||||||||||||||||||||||||||||
and Sold | Euro | and Sold | Euro | ||||||||||||||||||||||||||||||||||||||
Distributed | on the | Cents | Distributed | on the | Cents | ||||||||||||||||||||||||||||||||||||
to the Free | Regulated | per | to the Free | Regulated | per | ||||||||||||||||||||||||||||||||||||
Market | Market | Total | Revenues | Kwh | Market | Market | Total | Revenues | Kwh | ||||||||||||||||||||||||||||||||
(Millions | (Millions | ||||||||||||||||||||||||||||||||||||||||
(In GWh) | of euro) | (In GWh) | of euro) | ||||||||||||||||||||||||||||||||||||||
High voltage(1) | 45,100 | 4,865 | 49,965 | €549 | 1.10 | 45,083 | 4,827 | 49,910 | €529 | 1.06 | |||||||||||||||||||||||||||||||
Medium voltage | 55,532 | 31,263 | 86,795 | 3,312 | 3.82 | 63,372 | 23,966 | 87,338 | 2,782 | 3.19 | |||||||||||||||||||||||||||||||
Low voltage | 2,341 | 105,325 | 107,666 | 11,980 | 11.13 | 5,236 | 108,168 | 113,404 | 11,791 | 10.40 | |||||||||||||||||||||||||||||||
Total | 102,973 | 141,453 | 244,426 | €15,841 | 6.48 | 113,691 | 136,961 | 250,652 | €15,102 | 6.03 | |||||||||||||||||||||||||||||||
(1) | High-voltage sales on the regulated market are sales to the Ferrovie dello Stato, the Italian railway system. All high-voltage customers are Eligible Customers. |
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Telemanagement System |
Customer Service |
Continuity and Quality of Network Service |
41
Sales of Electricity to the Free Market |
• | specially tailored contract terms for different types of customers; and | |
• | value-added services such as energy monitoring and management. |
International Operations |
2002 | 2003 | 2004 | ||||||||||
Electricity sales on the regulated market (TWh) | 3.594 | 3.734 | 3.709 | |||||||||
Electricity sales on the free market (TWh) | N/A | 0.209 | 0.749 | |||||||||
Electricity transported on our distribution network (TWh) | 4.939 | 5.102 | 5.308 |
42
Public and Art Lighting |
Electricity Systems-related Services |
Gas Distribution and Sales |
• | Enel Rete Gas, into which our subsidiaries Enel Distribuzione Gas, GE.AD and Sicilmetano S.p.A. (“Sicilmetano”) were merged as of December 31, 2004, as well as through Ottogas Rete S.r.l. (“Ottogas Rete”) and Italgestioni S.r.l. (“Italgestioni”), both of which were acquired in the second half of 2004, and other minor companies; these companies all own local distribution networks in specific parts of Italy and hold the related concessions for their use; and | |
• | Enel Gas, into which Sicilmetano Energy S.r.l. (“Sicilmetano Energy,” and together with Sicilmetano, the “Sicilmetano Group”) was merged as of December 31, 2004, as well as Ottogas Vendita S.r.l. (“Ottogas Vendita”) and Italgestioni Gas S.r.l. (“Italgestioni Gas”), both of which were acquired in the second half of 2004; these companies all sell natural gas to end users. |
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2003 | 2004 | ||||||||
Retail (millions of m3) | 2,665 | 2,783 | |||||||
Business | 1,780 | 2,403 | |||||||
Natural gas sold | 4,445 | 5,186 | |||||||
Retail | 1,794,019 | 1,963,577 | |||||||
Business | 1,634 | 2,038 | |||||||
Number of customers | 1,795,653 | 1,965,615 |
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Competition in the Electricity and Gas Markets |
• | An increase in bilateral contracts between our competitors and final customers; | |
• | Regulations limiting each operator’s access to international electricity sources to a maximum percentage of available interconnection capacity; and | |
• | The construction of new generation facilities by our competitors and the development of new interconnection lines that will increase the volume of electricity that may be imported in Italy. Through 2004, other producers were authorized to build approximately 19 GW of new generating capacity in Italy, of which approximately 2.5 GW is already operational, and another 8.7 GW is expected to be operational by 2009. For imports, we expect an additional 2.1 GW of capacity to become available between 2005 and 2009, of which 1.3 GW of import capacity has already become available. |
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Percentage of Total | Percentage of | ||||||||||||
Producer | 2004 Production | Italian Output | Demand | ||||||||||
(GWh) | |||||||||||||
Enel | 125,868 | 44 | % | 36 | % | ||||||||
Former Gencos | 52,186 | 18 | % | 16 | % | ||||||||
Edison* | 35,552 | 12 | % | 11 | % | ||||||||
Eni | 13,900 | 5 | % | 4 | % | ||||||||
Main municipal electricity companies* | 9,450 | 3 | % | 3 | % | ||||||||
Other independent power producers | 49,691 | 17 | % | 15 | % | ||||||||
Total production in Italy | 286,647 | 100 | % | — | |||||||||
Pumped storage consumption | (10,308 | ) | — | — | |||||||||
Net imports | 45,635 | — | 14 | % | |||||||||
Total demand in Italy | 321,974 | — | 100 | % | |||||||||
Source: | Enel elaboration based on provisional data for Italy from the Gestore della Rete, and publicly available information of other producers. |
* | Excluding stakes in former Gencos. |
Net Installed Capacity (MW) by Producer | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||
Enel | 56,348 | 49,971 | 43,752 | 41,846 | 42,047 | ||||||||||||||||
Former Gencos | — | 6,218 | 13,226 | 15,837 | 15,837 | ||||||||||||||||
Enipower | 985 | 1,025 | 1,025 | 1,930 | 3,330 | ||||||||||||||||
Edison | 7,000 | 7,000 | 7,000 | 7,000 | 7,000 | ||||||||||||||||
Main municipal electricity companies* | 2,500 | 2,500 | 2,610 | 2,690 | 2,795 | ||||||||||||||||
Other independent power producers | 8,671 | 9,496 | 8,963 | 8,947 | 8,991 | ||||||||||||||||
Total net installed capacity in Italy | 75,504 | 76,210 | 76,576 | 78,250 | 80,000 | ||||||||||||||||
* | Excluding stakes in former Gencos. |
46
Seasonality of Electricity and Gas Consumption |
Transmission |
• | approximately 10,172 km of 380kV or 400kV interconnections, including those connecting Italy and Greece; | |
• | approximately 9,982 km of 200kV or 220kV interconnections, including those connecting Sardinia, Corsica and the Italian mainland; | |
• | approximately 18,542 km of interconnections of 150kV, 132kV or less; | |
• | 300 substations; and | |
• | certain other fixed assets. |
Type of Facility | Number | Length | |||||||
(km)(1) | |||||||||
Primary transformer stations | 300 | — | |||||||
Transformers | 569 | — | |||||||
Busbar connections | 3,902 | — | |||||||
380kV lines | — | 10,172 | |||||||
220kV lines | — | 9,982 | |||||||
150kV and 132kV lines | — | 18,542 | |||||||
Total lines | — | 38,696 |
(1) | Length in kilometers refers to circuit line length. |
47
Year Ended December 31, | ||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||
Grid availability | 98.7 | % | 98.8 | % | 99.0 | % | 99.1 | % | 99.2 | % |
Source: | Enel. |
Telecommunications |
Overview |
48
The Italian Communications Market |
49
Mobile Services |
Fixed Telephony Services |
Internet Services |
Products and Services |
50
• | Direct access: Wind offers direct access to its network for its largest corporate customers through microwave links, direct fiber optic connections or dedicated lines leased from Telecom Italia. Wind also offers direct access to its fixed-line customers following the unbundling of the local loop, a process whereby Telecom Italia is required to give alternative carriers access to Telecom Italia’s “last-mile” connections that include the wires leading to a customer’s home or office. As of December 31, 2004, the unbundling of the local loop was operational through 488 unbundling sites, covering approximately 28% of the Italian population. As of the same date, a total of 426,000 customers had been connected directly to the Wind network. Where the unbundling of the local loop is fully operational, Wind’s customers are no longer required to pay fixed-line access fees to Telecom Italia and Wind is also able to collect interconnection fees for calls originating on another operator’s network and terminating on Wind’s network. Please see “— Regulatory Matters — Telecommunications Regulation” for additional information on the unbundling of the local loop. | |
• | Indirect access: Wind also offers indirect access to its fixed voice and Internet services through either carrier selection or carrier pre-selection. |
Network Infrastructure and Licenses |
• | a GSM/ GPRS mobile network covering approximately 98.9% of the Italian population and a UMTS mobile network covering the capital cities of each of Italy’s 21 regions; | |
• | an 18,300 km fiber optic transmission backbone using Synchronous Digital Hierarchy, or SDH, and Wavelength Division Multiplexing, or WDM technology, the European standard for high-speed digital transmission; | |
• | metropolitan area networks in the main Italian cities, including Rome, Milan, Turin, Naples, Palermo, Florence, Genoa and Bologna, comprising 2,374 km of underground cables; | |
• | a national voice switched network comprising 67 fixed switches and 51 mobile switches; and | |
• | a packet switched data network comprising 167 Internet Protocol and data transmission points of presence for data transmission. |
51
Customer Care and Marketing |
Environmental and Other Regulatory Matters |
52
Services and Other Activities |
Engineering and Contracting |
Information Technology |
• | supporting Enel Distribuzione in completing the roll-out of the Telemanagement system for remote metering; and | |
• | the “GIOVE” project, aimed at implementing a software and hardware platform to support the gas and electricity invoicing activities of our Sales, Infrastructure and Networks Division, which we expect to roll out over the course of 2005. |
53
Real Estate and Other Services |
Personnel Administration |
Professional Training Services |
Factoring |
Water |
54
Research and Development |
Capital Investment Program |
2002 | 2003 | 2004 | |||||||||||
(In millions of euro) | |||||||||||||
Generation and Energy Management | € | 1,042 | €853 | €857 | |||||||||
Sales, Infrastructure and Networks | 2,014 | 1,764 | 1,711 | ||||||||||
Transmission | 423 | 371 | 277 | ||||||||||
Telecommunications | 1,899 | 854 | 867 | ||||||||||
Others | 339 | 127 | 122 | ||||||||||
Total | € | 5,717 | € | 3,969 | € | 3,834 | |||||||
55
2002 | 2003 | 2004 | |||||||||||
(In millions of euro) | |||||||||||||
Generation and Energy Management | €986 | €829 | €842 | ||||||||||
Sales, Infrastructure and Networks | 1,900 | 1,665 | 1,632 | ||||||||||
Transmission | 423 | 371 | 277 | ||||||||||
Telecommunications | 1,550 | 685 | 680 | ||||||||||
Others | 250 | 73 | 87 | ||||||||||
Total | € | 5,109 | € | 3,623 | € | 3,518 | |||||||
Generation and Energy Management |
• | In Italy, the start of conversion of our approximately 1,900 MW oil-fired plant at Torrevaldaliga Nord to clean coal technology, on which we spent approximately€106 million during the year, and of construction of fluidized bed combustion facilities at a section of our power plant at Sulcis with approximately 300 MW of net installed capacity (€55 million), as well as the implementation of our conversion program for certain thermal generation facilities to combined cycle technology at a further section of our plant at Termini Imerese, with approximately 360 MW of net installed capacity (€61 million) that has now been converted, and the start of this program at our Santa Barbara plant, which will have a net installed capacity of 380 MW (€41 million). We also continued implementing our strategic plan to increase investment in renewable generation facilities (wind, hydroelectric, geothermal) to allow us to comply with the regulations requiring us to provide a specified amount of “green certificates” each year, on which we spent approximately€333 million in 2004. | |
• | In our international operations, expenditures on Maritza East III’s ongoing plant refurbishment project (approximately€96 million), as well as on developing EUFR’s generation facilities (approximately€52 million), as well as other regular maintenance and other minor expenditures to improve the capacity, efficiency and productivity of plants in Spain, North America and Latin America. |
• | For CCGT conversions, we have completed the conversion of approximately 4,300 MW and we plan to continue the CCGT conversion program, with the most significant projects at our Santa Barbara and Termini Imerese power plants (for approximately 750 MW); | |
• | For coal conversions, continuing the conversions of our thermal generation plants at Torrevaldaliga Nord and Sulcis, and beginning similar conversions of certain other power generation units, expected to affect in the aggregate approximately 4,700 MW of net installed capacity. The conversion plans for approximately 2,500 MW of this amount are still subject to regulatory approval. |
56
Sales, Infrastructure and Networks |
Transmission |
57
Telecommunications |
Services and Other Activities |
• | setting and adjusting tariffs on the basis of general criteria established by law; | |
• | advising the Ministry of Productive Activities on the structuring and administration of licensing and authorization regimes for the energy sector; | |
• | ensuring the quality of services provided to customers; | |
• | overseeing the separation of utility companies into distinct units for accounting and management purposes; | |
• | promoting competition; and | |
• | otherwise protecting the interests of consumers, including the authority to mediate disputes between utilities and consumers, and to impose sanctions for violations of regulations. |
• | liberalized, as of April 1, 1999, the generation, import and export of electricity; | |
• | provided that consumers, or Eligible Customers, meeting certain consumption thresholds, which have been progressively reduced, may negotiate supply agreements directly with any domestic or foreign producer, wholesaler or distributor of electricity, while other, “Non-Eligible Customers” must continue to purchase electricity from the distributor serving the area in which they are located and pay regulated prices determined by the Energy Authority; |
58
• | provided that after January 1, 2003, no electricity company may produce or import more than 50% of the total of imported and domestically produced electricity in Italy, which limit resulted in our sale of the Gencos; | |
• | provided for the establishment of the Single Buyer, a central purchaser of electricity from producers on behalf of all Non-Eligible Customers; | |
• | provided for the creation of the Italian power exchange, a virtual marketplace in which producers, importers, wholesalers, the Gestore della Rete, other Eligible Customers and the Single Buyer buy and sell electricity at prices determined through a competitive bidding process; | |
• | provided for the creation of a Market Operator to manage the Italian power exchange; | |
• | provided for the separation of management and operation of the national electricity transmission grid, which was to be licensed to an independent transmission system operator, the Gestore della Rete, from ownership of the grid assets, which were retained by existing owners, primarily Terna; and | |
• | established a new licensing regime for electricity distribution and provided incentives for the consolidation of electricity distribution networks within each municipality. |
59
Eligible and Non-Eligible Customers |
The Single Buyer |
60
The Italian Power Exchange |
61
62
Imports |
Incentives to Provide Generation Capacity |
New Generation Plants |
63
Transmission |
Distribution of Electricity |
The Tariff Structure |
• | Operating costs of generation (for electricity prices on the regulated market), transmission and distribution activities, including procurement costs, and amortization and depreciation. In order for |
64
operators to be able to recover particular costs, the costs must be both actually incurred by them and recognized by the Energy Authority; | ||
• | An appropriate return on invested capital, including both equity and debt financing; and | |
• | The costs associated with system charges. |
• | low-voltage domestic consumers (residential customers); | |
• | low-voltage public lighting; | |
• | other low-voltage end users; | |
• | medium-voltage public lighting; | |
• | other medium-voltage end users; and | |
• | high-voltage end users. |
Generation Component of Electricity Tariffs |
65
• | Hydroelectric or geothermal generation, since these plants do not incur fuel costs; and | |
• | The resale of electricity imported under long-term contracts in effect as of the date of the entry into force of the first Electricity Directive on February 19, 1997, which was frequently cheaper than electricity generated in Italy. |
Transmission and Distribution Components |
66
System Charges and Other Charges |
• | Charges concerning the electricity system, established by the Ministry of Productive Activities, that consist of: |
• | a nuclear surcharge, covering part of the costs incurred by So.g.i.n., the company to which we transferred our discontinued nuclear operations, in connection with the dismantling of nuclear plants and decommissioning of nuclear fuels; this surcharge is designed to cover substantially all of such costs when added to the funds that we transferred to So.g.i.n.; | |
• | a surcharge that benefits producers from renewable resources; | |
• | special surcharges covering the cost of supplying electricity at mandated discounts to certain customers (primarily the Italian state-owned railway company and Acciai Speciali Terni S.p.A., both of which transferred electricity assets to us as part of the nationalization of the Italian electricity industry in 1962); | |
• | research and development surcharges, covering related costs; and | |
• | certain stranded costs that have not yet been recovered. Please see “— Stranded Costs” for a discussion of these costs. |
• | Other general interest charges established by the Energy Authority to adjust or refine the operation of the tariff mechanism, which include adjustments to cover potential differences between distributors��� costs as recognized under the current tariff structure and actual tariff revenues. | |
• | Incentives for the enhancement of the quality of service. |
67
• | Charges recovered through upward adjustments to the price caps, as established by the Energy Authority, which cover: |
• | costs deriving from unforeseeable events, changes in the regulatory framework or new obligations for universal service; | |
• | costs deriving from demand-side management initiatives intended to promote a more efficient use of resources by electricity customers, including information campaigns; and | |
• | additional recognized costs incurred in connection with the offer of value-added services on top of basic options. |
Stranded Costs |
• | undertook for reasons of public policy; | |
• | undertook at a time when the electricity markets were not yet open to competition; and | |
• | could have been recovered in a monopoly regime but cannot be recovered under a regime of competitive electricity pricing. |
• | they minimize the impact of those costs (and, hence, the amount of the refund) on their future operations; and | |
• | they submit an industrial plan demonstrating the long-term profitability of the activity related to the stranded costs. |
Continuity and Quality of Service Regulation |
68
Promotion of Renewable Resources |
69
Hydroelectric Power |
Taxes |
• | A state tax for residential uses (of€0.0047/kWh) and for other uses (of€0.0031/kWh excluding users with consumption over 1.2 GWh per month); | |
• | Additional local taxes that vary from€0.0093/kWh up to a maximum of€0.0204/kWh; and | |
• | Value-added tax of 20% for all users with the exception of residential and industrial customers (who are taxed at a rate of 10%). |
70
Gas Eligible and Non-Eligible Customers |
Transport and storage |
Distribution and Sale of Gas |
Restrictions on Sale and Imports of Gas |
Rules Governing Distribution of Gas |
71
Distribution Tariffs and Sales Tariffs for Gas Non-Eligible Customers |
72
Electromagnetic Fields |
CO2Emissions |
73
74
• | Conversion of existing oil-fired thermal power plants into gas-fired or high-efficiency coal-fired plants; | |
• | Increased renewable energy capacity; and | |
• | Purchases of emission rights from third parties. |
SO2, NOxand Other Emissions |
Percentage | ||||||||
Year | Metric Tons | Change | ||||||
(In thousands) | ||||||||
2001 | 213 | (11 | ) | |||||
2002 | 187 | (21 | ) | |||||
2003 | 101 | (58 | ) | |||||
2004 | 94 | (61 | ) |
Percentage | ||||||||
Year | Metric Tons | Change | ||||||
(In thousands) | ||||||||
2001 | 71 | (8 | ) | |||||
2002 | 71 | (9 | ) | |||||
2003 | 62 | (20 | ) | |||||
2004 | 56 | (28 | ) |
75
PCBs and Asbestos |
Water Pollution Prevention |
Solid Waste Management |
Site Clearance |
76
Landscape Safeguards |
• | Re-using routes of previous power lines wherever possible; | |
• | Soliciting proposals internationally for the design of new towers for our transmission lines aimed at reducing the environmental and aesthetic impact of towers in non-urban areas of particular landscape value; | |
• | Acting to reduce the impact of lines in environmentally sensitive or protected areas; | |
• | For medium-voltage lines, placing underground cables in urban areas and aerial cables with low environmental impact in other areas with specific environmental value; and | |
• | Using aerial insulated cables or underground cables in low voltage networks (at present, we have built approximately two-thirds of our network in this way). |
• | In 2003, our medium voltage aerial insulated cables and underground cables totaled 127,987 km, which represented 38.3% of our medium voltage lines, compared to 35.9% in 2000; and | |
• | In 2003, our low voltage aerial insulated cables and underground cables totaled 600,675 km, which represented 82.5% of our low voltage lines, compared to 80.6% in 2000. |
Environmental Registrations, Certifications and Authorizations |
Cost of Compliance |
77
Discontinued Nuclear Operations |
Nuclear Liability |
78
• | to promote convergence among mobile telephony, fixed-line telephony, television and Internet services as well as the development of third-generation wireless and mobile systems; | |
• | to introduce further competition into the Italian telecommunications market; | |
• | to promote liberalization in the broadcasting and media industry; | |
• | easing barriers to entry; | |
• | fostering the growth of new markets; and | |
• | protecting consumers. |
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Interconnection |
Universal Service |
Fixed-line Voice Telephony |
• | carrier selection, which allows customers to select carriers on a call-by-call basis for both long-distance and local calls by dialing a set prefix before making a call; | |
• | carrier pre-selection, which allows customers to use alternative carriers’ networks for all of their local, long-distance, fixed- to-mobile and international calls without dialing a carrier selection code; | |
• | number portability, which allows customers to keep the same telephone number when they change carrier; and | |
• | unbundling of the local loop of Telecom Italia, which allows competing carriers access to the so-called “last mile,” or the wires leading directly into customers’ homes or offices. |
Mobile Telephony |
80
Internet and Electronic Commerce |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
81
Overview |
82
Tariffs and Prices |
• | a “generation cost component,” reflecting fuel costs; and | |
• | the application of global price-cap reductions to transmission and distribution transport charges. |
Macroeconomic Factors |
83
Critical Accounting Policies |
84
Comparability of Information |
Regulatory and Other Developments |
• | Start of operation of the Italian power exchange and the Single Buyer. On April 1, 2004, the Italian power exchange for the spot trading of electricity started operations and the Single Buyer became responsible for purchasing all of the electricity to be supplied to the regulated market. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation” for a detailed discussion of the Italian power exchange, the Single Buyer and related developments in the Italian electricity market. As a result of this development, since April 1, 2004, our Generation and Energy Management segment sells the electricity we produce that is destined for the regulated market to the Single Buyer, and our Sales, Infrastructure and Networks segment purchases the electricity that it distributes on the regulated market from the Single Buyer. We now record these sales and purchases as operating revenues and operating expenses, respectively. Before April 1, 2004, our Generation and Energy Management segment sold electricity for distribution on the regulated market directly to our Sales, Infrastructure and Networks segment, and the revenues and costs arising from these sales were eliminated from, and therefore not recorded in, our consolidated financial statements. As a result, both our operating revenues and operating expenses have increased substantially on a consolidated basis since April 1, 2004. However, while this change has affected the comparability of our revenues and expenses for the periods presented, it did not have a material impact on our consolidated operating income in 2004. Sales to the Single Buyer are now included in the line item “Sales to regulatory entities, sales on the free market and sales on foreign markets” in the results presented below (please see “— 2004 Compared with 2003 — Operating Revenues” for a description of this line item). For prior periods, this line item was referred to as “Sales to Eligible Customers, sales to the Gestore della Rete and sales on foreign markets,” as the Single Buyer was not fully operational. Purchases from the Single Buyer are recorded in the operating expense line item “Purchased Power.” | |
• | Equalization mechanism to compensate time lag in tariff setting. The prices distributors pay to the Single Buyer for electricity to be distributed on the regulated market are set monthly by the Energy Authority based on the average unit costs incurred by the Single Buyer in connection with its purchases of electricity. However, the prices that distributors may charge to end users on the regulated market are fixed by the Energy Authority on a quarterly basis. In order to minimize the effects of this discrepancy, these rules have established a price equalizing mechanism applicable for the first time in 2004. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation” for more information on the tariff system and this equalizing mechanism. We recorded€231 million in revenues in 2004 in connection with this equalizing mechanism. As this mechanism was not operational in 2003, its introduction has affected the comparability of our revenues for the periods presented, particularly with respect to our Sales, Infrastructure and Network segment. | |
• | Capacity payments. In order to address a current deficit in Italian generation capacity relative to rising electricity demand, the regulatory framework provides incentives to power generators both to build new capacity as well as to maintain their existing plants in good working order and available to cover sudden variations in electricity demand. In 2004, the Energy Authority established a provisional system of payments to remunerate producers that make generation capacity available to the electricity |
85
system at times of peak demand, known as “capacity payments.” Capacity payments to a given producer comprise both an amount due for capacity available on “critical” days (set by the Gestore della Rete) and a further amount payable when pool market prices fall below specified thresholds, as an extra incentive. The provisional system is expected to remain in place until the end of 2005. The Energy Authority is currently developing the definitive mechanism, which by law must be market-based and also provide incentives for new generation capacity. | ||
• | August 2004 decree on stranded costs. Stranded costs are current costs deriving from contractual commitments or investment decisions that electricity companies undertook for reasons of public policy, at a time when the electricity markets were not yet open to competition, and could have been recovered in a monopoly regime but cannot be recovered under a regime of competitive electricity pricing. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation” for more information on stranded costs. In August 2004, the MEF and the Ministry of Productive Activities issued a joint decree that determined the overall amount of stranded costs we are entitled to recover. On December 1, 2004, following the European Commission’s approval of the decree, we became entitled to recover approximately€513 million on account of stranded costs related to our generation plants for the period 2000-2003, as well as our stranded costs related to the Nigerian LNG contract, which were determined to be€555 million in respect of the 2000-2003 period and approximately€910 million in respect of the 2004-2009 period (€151 million of which related to 2004). As a result, in 2004 we recorded as “other revenues” a total of€1,219 million arising in connection with stranded costs, the amount we became entitled to receive in respect of 2004 and prior years under the August 2004 decree. Of this total, the€513 million related to our generation plants and the€151 million related to the Nigerian LNG contract for 2004 were recorded by our Generation and Energy Management segment, and the€555 million related to the Nigerian LNG contract in respect of the 2000-2003 period were recorded by our Corporate segment. We have not actually received these funds, as the manner and timing in which these amounts are to be paid will be established in a future decree, which is currently under consideration by the Italian government. | |
• | Increased estimates of the useful lives of certain distribution assets. Effective January 1, 2004, on the basis of technical tests conducted by external advisors, we increased our estimates of the useful lives of certain assets related to the distribution network of our Sales, Infrastructure and Networks segment. As a consequence, the amount of depreciation expense we recorded in 2004 with respect to these assets was lower than the amount recorded for the same assets in 2003 by€518 million. |
Changes in Scope of Consolidation |
• | the consolidation for balance sheet purposes, effective December 31, 2004, of Italgestioni and Italgestioni Gas (together, the “Italgestioni Group”), which are companies active in the distribution and sale of natural gas to end users in the provinces of Calabria and Naples, following our acquisition of these companies in December 2004; | |
• | the consolidation, effective October 1, 2004, of Ottogas Rete and Ottogas Vendita (together, the “Ottogas Group”), which are companies active in the distribution and sale of natural gas to end users in the area of Naples and Salerno, following our acquisition of these companies in September, 2004; | |
• | the deconsolidation of NewReal, a company to which we contributed certain of our real estate assets, effective as of July 1, 2004, following its disposal on July 14, 2004; | |
• | the consolidation, effective January 1, 2004, of Sicilmetano and Sicilmetano Energy, which are companies active in the distribution and sale of natural gas to end users in Sicily, following our acquisition of these companies in January 2004; | |
• | the deconsolidation, effective January 1, 2004, of our recycling and waste management companies, the Aimeri Group, which we sold in February 2004; |
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• | the consolidation for balance sheet purposes, as of December 31, 2003, of the assets and liabilities of Unión Fenosa, a Spanish company that generates electricity from renewable resources, which we acquired in December 2003, and, effective January 1, 2004, its consolidation on a line-by-line basis for income statement purposes; | |
• | the elimination of the minority interest relating to Wind following our acquisition in July 2003 from France Télécom of the 26.6% of Wind’s share capital that we did not already own; | |
• | the consolidation on a line-by-line basis, effective April 1, 2003, of Maritza East III Power Holding B.V. (“Maritza”), which in turn controls Maritza East III., a Bulgarian electricity generation company that we acquired in March 2003; | |
• | the deconsolidation of Interpower S.p.A., the third and last Genco we sold, effective as of January 1, 2003; | |
• | the deconsolidation of CESI S.p.A. (“CESI”) effective as of January 1, 2003, reflecting the decline of our holding to 40.9%, following the disposal of Interpower, through which we held part of our interest in CESI. CESI provided research and development services; | |
• | the consolidation on a line-by-line basis of Camuzzi Gazometri (“Camuzzi”, now called Enel Rete Gas), effective July 1, 2002, following our acquisition of this company. Enel Rete Gas operates natural gas distribution activities in Italy; and | |
• | the deconsolidation of Eurogen S.p.A., the second Genco we sold, effective as of the date of its disposal, May 31, 2002. |
Business Segments |
Generation and Energy Management. This segment corresponds to the division that is responsible for our operations related to the production of electricity and the procurement and trading of fuel for electricity generation, and includes power generation activities in Italy and abroad. This division generates operating revenues mainly from the sale of electricity to the Single Buyer (or, prior to April 1, 2004, to our Sales, Infrastructure and Networks Division), to the Gestore della Rete and other resellers in the domestic electricity market, as well as through fuel trading. The division, which procures fuel for all of the companies of the Group, also sells natural gas to our Sales, Infrastructure and Networks Division and to third parties. Since January 1, 2003, this division has also sold electricity to large electricity users, or Eligible Customers with annual electricity consumption higher than 100 GWh, which were previously served by our Sales, Infrastructure and Network division. The main companies in this division include the following: in Italy, Enel Produzione (thermal and hydroelectric generation), Enel Green Power (geothermal, hydroelectric and wind power generation), and Enel Trade (fuel procurement and trading, risk management, sales to large electricity users). We merged Enel Green Power into Enel Produzione as of June 1, 2005. Outside of Italy, this division in 2004 included Viesgo Generaciòn and EUFR in Spain, Maritza East III in Bulgaria; Enel North America in the U.S.; and Enel Latin America in Central and South America. | |
Sales, Infrastructure and Networks. This segment corresponds to the division that includes our electricity and gas network operations and carries out distribution and sales of electricity on the regulated |
87
market and to free market customers with an annual electricity consumption of 100 GWh or lower in Italy. It also distributes and sells natural gas to end users and provides public and art lighting services and electricity systems-related services. This division also include our electricity distribution and sales activities outside of Italy. Operating revenues at this division derive primarily from fees for transport of electricity and gas on our distribution networks, the sale of electricity on the regulated and free markets and of natural gas to end users. Starting from January 1, 2003, electricity sales to large electricity users, which were previously carried out by this division, are carried out by our Generation and Energy Management Division. The division’s electricity-related activities are carried out in Italy primarily through Enel Distribuzione (sale of electricity on the regulated market and transport of electricity on our distribution network), Deval (distribution and sales of electricity in the Valle d’Aosta area), Enel Energia (sale of electricity on the free market), Enel Sole (public lighting services) and Enel.si (electricity systems-related services). Outside of Italy this division primarily includes Electra de Viesgo Distribuciòn SL and Viesgo Energia SL in Spain. The division’s natural gas operations are carried out primarily through Enel Rete Gas, Ottogas Rete and Italgestioni, which distribute natural gas in Italy, and Enel Gas, Ottogas Vendita and Italgestioni Gas, which sell natural gas to end users in Italy. We merged Enel Distribuzione Gas, GE.AD and Sicilmetano into Enel Rete Gas, and Sicilmetano Energy in Enel Gas as of December 31, 2004 (except that for accounting purposes we considered these mergers retroactively effective as of January 1, 2004). We expect to merge Ottogas Rete and Italgestioni into Enel Rete Gas and Ottogas Vendita and Italgestioni Gas into Enel Gas by June 30, 2005. | |
Transmission. Our transmission segment consists of Terna, which owns more than 90% of the transmission assets of Italy’s national electricity grid, and its consolidated subsidiaries, Transmissora Sudeste Nordeste and Novatrans Energia, two Brazilian electricity transmission companies. Terna derives its operating revenues from the transportation of electricity on the portion of the national transmission grid that is owned by Terna, but operated by the Gestore della Rete. We owned 50% of Terna as of December 31, 2004, and currently have a 36.14% stake, although in May 2005, we agreed to sell an additional 29.99% stake in Terna in light of regulations that will prevent any electricity operator, including us, from controlling more than 5% of the voting rights with respect to the appointment of Terna’s directors. We expect to close this transaction and reduce our stake in Terna to approximately 5% by the end of the third period of 2005, and to deconsolidate Terna upon closing of this transaction. Please see “Item 4. Information on the Company — Business — Overview — Transmission” for a detailed description of recent transactions involving Terna. | |
Telecommunications. Our Telecommunications segment includes the operations of Wind and its consolidated subsidiaries. Our telecommunications activities include the offer of mobile telecommunications services, fixed-line telephony services, Internet and other telecommunication-related services. We formed Wind in 1997 as a joint venture with France Télécom and Deutsche Telekom. After Deutsche Telekom’s exit from the venture in 2000, in July 2003 we became Wind’s sole shareholder after having acquired France Télécom’s 26.6% stake. In May 2005, we entered into an agreement for the sale of Wind to Weather in a series of transactions that will result in our owning 26.1% of Weather (which will then control both Wind and Orascom) by mid-2006 and which we currently expect ultimately to lead to our exit from the telecommunications business. See “Item 4. Information on the Company — Business — The Enel Group — Telecommunications.” | |
Corporate. Enel, as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of these divisions. In addition, Enel manages finance operations and insurance risk coverage for all Group companies and provides assistance and guidelines on organizational, industrial relations, accounting, administrative, tax and legal issues. We consider Enel as a separate reportable segment because it holds long-term contracts to purchase imported electricity and because it engaged, until 2002, in limited fuel procurement activities. In the second half of 2002, Enel completed the transfer of its fuel purchase contracts to Enel Trade, of our Generation and Energy Management Division. Until March 31, 2004, Enel sold the imported electricity it purchases to Enel Distribuzione at prices established by the Energy Authority. Since that date, Enel has been required to sell this electricity to the Single Buyer. |
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Services and Other Activities. This segment in 2004 included non-core business operations, including Enelpower, which provides power-related engineering and contracting services; Enel.it, which operated our group-wide information technology unit and other minor businesses, Enel Facility Management, which provided commercial real estate management services, APE Gruppo Enel, now Enel Ape, which provides personnel administration services, and, until its disposal in July 2004, NewReal, a company with real estate activities. Effective as of January 1, 2005, we merged Enel.it and Enel Facility Management into Enel Ape. |
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Acquisition of Infostrada and Sole Ownership of Wind |
90
Year Ended | |||||||||||||
December 31, | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
Operating revenues | 100.0 | % | 100.0 | % | 100.0 | % | |||||||
Operating expenses | |||||||||||||
Personnel | (12.0 | ) | (11.0 | ) | (9.1 | ) | |||||||
Fuel for thermal generation | (14.2 | ) | (13.1 | ) | (9.8 | ) | |||||||
Purchased power | (16.0 | ) | (14.8 | ) | (28.7 | ) | |||||||
Depreciation and amortization | (14.9 | ) | (14.4 | ) | (11.5 | ) | |||||||
Other operating expenses | (33.3 | ) | (31.6 | ) | (23.6 | ) | |||||||
Total operating expenses | (90.4 | ) | (84.9 | ) | (82.7 | ) | |||||||
Operating income | 9.6 | 15.1 | 17.3 | ||||||||||
Financial expense | (3.9 | ) | (3.6 | ) | (3.0 | ) | |||||||
Equity losses | (0.2 | ) | (0.2 | ) | (0.1 | ) | |||||||
Extraordinary income (expense) | 2.4 | (0.5 | ) | (2.2 | ) | ||||||||
Income before taxes | 7.9 | 10.8 | 12.0 | ||||||||||
Income taxes | (2.0 | ) | (3.1 | ) | (4.2 | ) | |||||||
Income (before minority interests) | 5.9 | 7.7 | 7.8 | ||||||||||
Net Income | 6.7 | % | 8.0 | % | 7.4 | % |
91
Operating Revenues |
Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
(In millions of euro) | |||||||||
Electricity sales: | |||||||||
Tariff revenues from sales on the regulated market and transport of electricity on our distribution network | 16,740 | 15,444 | |||||||
Sales to regulatory entities, sales on the free market and sales on foreign markets(1) | 3,094 | 9,720 | |||||||
Equalization Fund contributions | 179 | 17 | |||||||
Total revenues from electricity sales | 20,013 | 25,181 | |||||||
Telecommunications services | 3,959 | 4,168 | |||||||
Gas sales to end users | 1,254 | 1,374 | |||||||
Fees for customer connections, inspections and repositioning services | 684 | 675 | |||||||
Other revenues(2) | 5,407 | 5,091 | |||||||
Total operating revenues | 31,317 | 36,489 |
(1) | “Sales to regulatory entities” includes sales to the Gestore della Rete, the Single Buyer (since April 1, 2004) and the Gestore del Mercato (or Market Operator). While sales to third-party resellers of electricity on the free market are included in “Sales on the free market”, this line item does not include revenues from sales to resellers purchasing electricity for distribution on the regulated market. Since April 1, 2004, these resellers have been required to purchase electricity directly from the Single Buyer. Revenues received prior to that date from resellers purchasing electricity for distribution on the regulated market were recorded in the line item “Tariff revenues from sales on the regulated market and transport of electricity on our distribution network.” |
(2) | “Other revenues” mainly includes our revenues from sales of fuel (including natural gas) to third parties, revenues of our Transmission division, engineering and contracting activities, and non-recurring items such as reversals of provisions, bonus payments and reimbursements. |
Electricity sales |
92
Telecommunications services |
Gas sales to end users |
Fees for customer connections, inspections and repositioning services |
Other revenues |
93
Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
(In millions of euro) | |||||||||
Generation and Energy Management | € | 12,607 | € | 12,982 | |||||
Sales, Infrastructure and Networks | 20,433 | 19,466 | |||||||
Transmission | 927 | 1,023 | |||||||
Telecommunications | 4,383 | 4,714 | |||||||
Corporate | 1,139 | 1,617 | |||||||
Services and Other Activities | 2,742 | 1,799 | |||||||
Eliminations | (10,914 | ) | (5,112 | ) | |||||
Total | € | 31,317 | € | 36,489 |
Generation and Energy Management |
94
Sales, Infrastructure and Networks |
Transmission |
95
Telecommunications |
Corporate |
Services and Other Activities |
96
Eliminations |
Operating Expenses |
Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Operating expenses: | |||||||||
Personnel | € | 3,440 | € | 3,315 | |||||
Fuel for thermal generation | 4,101 | 3,598 | |||||||
Purchased power | 4,620 | 10,465 | |||||||
Other operating expenses: | |||||||||
Services and rentals | 5,224 | 5,336 | |||||||
Materials and supplies | 4,111 | 3,072 | |||||||
Provisions | 593 | 512 | |||||||
Other | 924 | 716 | |||||||
Capitalized expense | (944 | ) | (1,023 | ) | |||||
Total | € | 22,069 | € | 25,991 |
Personnel |
Fuel for thermal generation |
Purchased power |
97
Services and rentals |
Materials and supplies |
Provisions |
Other costs |
98
Capitalized expenses |
Year Ended | ||||||||
December 31, | ||||||||
2003 | 2004 | |||||||
(In millions of euro) | ||||||||
Generation and Energy Management | € | 8,948 | € | 9,054 | ||||
Sales, Infrastructure and Networks | 16,870 | 15,744 | ||||||
Transmission | 343 | 350 | ||||||
Telecommunications | 3,507 | 3,360 | ||||||
Corporate | 912 | 959 | ||||||
Services and Other Activities | 2,323 | 1,542 | ||||||
Eliminations | (10,834 | ) | (5,018 | ) | ||||
Total | € | 22,069 | € | 25,991 |
Generation and Energy Management |
Sales, Infrastructure and Networks |
99
Transmission |
Telecommunications |
Corporate |
Services and Other Activities |
100
Eliminations |
Depreciation and Amortization |
Year Ended | ||||||||
December 31, | ||||||||
2003 | 2004 | |||||||
(In millions of euro) | ||||||||
Generation and Energy Management | € | 1,202 | 1,230 | |||||
Sales, Infrastructure and Networks | 1,234 | 837 | ||||||
Transmission | 154 | 164 | ||||||
Telecommunications | 1,716 | 1,810 | ||||||
Corporate | 4 | 5 | ||||||
Services and Other Activities | 206 | 127 | ||||||
Total | € | 4,516 | 4,173 |
Operating Income |
Year Ended | ||||||||
December 31, | ||||||||
2003 | 2004 | |||||||
(In millions of euro) | ||||||||
Generation and Energy Management | € | 2,457 | € | 2,698 | ||||
Sales, Infrastructure and Networks | 2,329 | 2,885 | ||||||
Transmission | 430 | 509 | ||||||
Telecommunications | (840 | ) | (456 | ) | ||||
Corporate | 223 | 653 | ||||||
Services and Other Activities | 213 | 130 | ||||||
Eliminations | (80 | ) | (94 | ) | ||||
Total | € | 4,732 | € | 6,325 |
101
Generation and Energy Management |
Sales, Infrastructure and Networks |
Transmission |
Telecommunications |
102
Corporate |
Services and Other Activities |
Eliminations |
Financial Expense |
Equity Losses |
Extraordinary Income (expense) |
• | A write-down of€1,116 million to the carrying value of the goodwill attributable to our Telecommunications segment reflecting the value attributed to our 100% holding in Wind implied by the binding offer for Wind we received from Weather in April 2005. In May 2005, we entered into an agreement for the sale of Wind to Weather in a series of transactions (please see “Item 4. Information on the Company — Business — The Enel Group — Telecommunications”); | |
• | Charges relating to early retirement incentives totaling€435 million; | |
• | Write-downs of fixed assets connected with the maintenance and updating of our telecommunications network for€57 million; |
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• | Expenses totaling€52 million arising from Terna IPO (including the distribution of “bonus” shares promised to Italian retail investors who hold their shares for a specified period); | |
• | Adjustments to the value of certain items on a consolidated basis totaling€41 million as a result of the application of new corporate and tax regulations that took effect in 2004; | |
• | Charges connected with various tax amnesties totaling€31 million; | |
• | Adjustments, accruals and other items related to our Telecommunications segment totaling€26 million; | |
• | Charges connected to the combined cycle conversion of our plant in Santa Barbara totaling€21 million; | |
• | Adjustments totaling€20 million connected to electricity activities in Spain in prior years; | |
• | Charges connected to the settlement of certain contractual issues with the purchaser of Elettrogen totaling€20 million; | |
• | Charges related to certain financing obligations undertaken in connection with the disposal of NewReal totaling€20 million; | |
• | Adjustments totaling€19 million connected to certain penalties connected to our Nigerian LNG contract; | |
• | Capital losses recorded in connection with the disposal of certain of our water activities totaling€12 million; and | |
• | Payment of taxes relating to previous years totaling€9 million. |
• | €860 million from the sale of 50% of the share capital of Terna in its June 2004 IPO, consisting of the capital gain on the shares sold (gross of the net income attributable to minority interest for the first semester 2004); | |
• | Capital gains on the disposal of NewReal of€113 million; | |
• | Adjustments and other items relating to our Telecommunications segment totaling€29 million; | |
• | Adjustments in income taxes with respect to previous years amounting to€26 million, which resulted from the definition of the tax treatment of certain items following clarifications on the application of certain tax rules that were not available at the time our 2003 financial statements were prepared; | |
• | The release of€22 million in excess provisions accounted for in 2003 and related to our real estate operations; and | |
• | Capital gains on sales of other assets (mainly distribution networks in minor urban areas) totaling€11 million. |
Income Taxes |
Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
(In millions of euro) | |||||||||
Income taxes: | |||||||||
Current and deferred taxes | 1,388 | 2,007 | |||||||
Reversal of deferred tax provision | (375 | ) | (474 | ) | |||||
Resizing of deferred taxes and deferred tax assets to change in tax rates | (47 | ) | — | ||||||
Total | 966 | 1,533 |
104
105
Operating Revenues |
Year Ended | |||||||||
December 31, | |||||||||
2002 | 2003 | ||||||||
(In millions of euro) | |||||||||
Electricity sales: | |||||||||
Tariff revenues from sales on the regulated market and transport of electricity on our distribution network | 16,244 | 16,740 | |||||||
Sales to regulatory entities, sales on the free market and sales on foreign markets | 3,964 | 3,094 | |||||||
Equalization Fund contributions | 187 | 179 | |||||||
Total revenues from electricity sales | 20,395 | 20,013 | |||||||
Telecommunications services | 3,642 | 3,959 | |||||||
Gas sales to end users | 780 | 1,254 | |||||||
Fees for customer connections, inspections and repositioning services | 645 | 684 | |||||||
Other revenues(1) | 4,515 | 5,407 | |||||||
Total operating revenues | 29,977 | 31,317 |
(1) | “Other revenues” mainly includes our revenues from sales of fuel (including natural gas) to third parties, revenues of our Transmission division, engineering and contracting activities, and non-recurring items such as reversals of provisions, bonus payments and reimbursements. |
Electricity sales |
Telecommunications services |
106
Gas sales to end users |
Fees for customer connections, inspections and repositioning services |
Other revenues |
Year Ended | ||||||||
December 31, | ||||||||
2002 | 2003 | |||||||
(In millions of euro) | ||||||||
Generation and Energy Management | € | 11,388 | € | 12,607 | ||||
Sales, Infrastructure and Networks | 20,966 | 20,433 | ||||||
Transmission | 828 | 927 | ||||||
Telecommunications | 3,921 | 4,383 | ||||||
Corporate | 1,973 | 1,139 | ||||||
Services and Other Activities | 2,883 | 2,742 | ||||||
Eliminations | (11,982 | ) | (10,914 | ) | ||||
Total | € | 29,977 | € | 31,317 |
Generation and Energy Management |
107
Sales, Infrastructure and Networks |
Transmission |
Telecommunications |
108
Corporate |
Services and Other Activities |
Eliminations |
109
Operating Expenses |
Year Ended | |||||||||
December 31, | |||||||||
2002 | 2003 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Operating expenses: | |||||||||
Personnel | € | 3,589 | € | 3,440 | |||||
Fuel for thermal generation | 4,255 | 4,101 | |||||||
Purchased power | 4,802 | 4,620 | |||||||
Other operating expenses: | |||||||||
Services and rentals | 5,710 | 5,224 | |||||||
Materials and supplies | 4,212 | 4,111 | |||||||
Provisions | 504 | 593 | |||||||
Other | 721 | 924 | |||||||
Capitalized expense | (1,173 | ) | (944 | ) | |||||
Total | € | 22,620 | € | 22,069 |
Personnel |
Fuel for thermal generation |
Purchased power |
110
Services and rentals |
Materials and supplies |
Provisions |
Other costs |
Capitalized expenses |
Year Ended | |||||||||
December 31, | |||||||||
2002 | 2003 | ||||||||
(In millions of euro) | |||||||||
Generation and Energy Management | € | 8,665 | € | 8,948 | |||||
Sales, Infrastructure and Networks | 17,589 | 16,870 | |||||||
Transmission | 314 | 343 | |||||||
Telecommunications | 3,444 | 3,507 | |||||||
Corporate | 1,805 | 912 | |||||||
Services and Other Activities | 2,731 | 2,323 | |||||||
Eliminations | (11,928 | ) | (10,834 | ) | |||||
Total | € | 22,620 | € | 22,069 |
111
Generation and Energy Management |
Sales, Infrastructure and Networks |
Transmission |
112
Telecommunications |
Corporate |
Services and Other Activities |
Eliminations |
Depreciation and Amortization |
Year Ended | |||||||||
December 31, | |||||||||
2002 | 2003 | ||||||||
(In millions of euro) | |||||||||
Generation and Energy Management | € | 1,283 | € | 1,202 | |||||
Sales, Infrastructure and Networks | 1,249 | 1,234 | |||||||
Transmission | 247 | 154 | |||||||
Telecommunications | 1,496 | 1,716 | |||||||
Corporate | 4 | 4 | |||||||
Services and Other Activities | 198 | 206 | |||||||
Total | € | 4,477 | € | 4,516 |
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Operating Income |
Year Ended | |||||||||
December 31, | |||||||||
2002 | 2003 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Generation and Energy Management | € | 1,440 | € | 2,457 | |||||
Sales, Infrastructure and Networks | 2,128 | 2,329 | |||||||
Transmission | 267 | 430 | |||||||
Telecommunications | (1,019 | ) | (840 | ) | |||||
Corporate | 164 | 223 | |||||||
Services and Other Activities | (46 | ) | 213 | ||||||
Eliminations | (54 | ) | (80 | ) | |||||
Total | € | 2,880 | € | 4,732 |
Generation and Energy Management |
114
Sales, Infrastructure and Networks |
Transmission |
Telecommunications |
Corporate |
115
Services and Other Activities |
Eliminations |
Financial Expense |
Equity Losses |
Extraordinary Income (expense) |
• | Charges connected with early retirement incentives totaling€256 million; | |
• | A write-down of€133 million and accruals for€58 million made in connection with the conversion to coal of a plant in Torrevaldaliga Nord; | |
• | Charges for restructuring and reorganization totaling€92 million, of which€69 million related to our Telecommunications segment and included losses from the early disposal of certain computer hardware and software, costs for training of personnel, and penalties for early termination of certain supply agreements, with the remaining€23 million pertaining to our real estate operations; | |
• | Several charges connected with the tax amnesty totaling€83 million; | |
• | Adjustments relating to previous years’ capital grants amounting to€60 million; | |
• | Adjustments and other items relating to our Telecommunications segment, totaling€44 million; | |
• | Adjustments amounting to€30 million due to the settlement of transactions due to extraordinary events; | |
• | Write-downs of assets totaling€23 million (of which€19 million related to our Generation and Energy Management segment); | |
• | Adjustments amounting to€20 million on the value of stocks of fuel; | |
• | Write-downs of assets connected with our combined cycle conversion plan totaling€8 million; | |
• | Payment of taxes relating to previous years totaling€6 million; |
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• | Extraordinary reimbursements made to customers totaling€4 million. |
• | A capital gain on the disposal of Interpower of€356 million; | |
• | Capital gains on the disposal of electricity distribution networks in several municipalities of aggregate€165 million, of which€120 million related to the disposal of the distribution network in Brescia; | |
• | Adjustments in income taxes with respect to previous years for a total of€58 million, resulting from the definition of the tax treatment of certain items following clarifications on the application of certain rules provided in 2003; | |
• | Indemnities amounting to€44 million; | |
• | Write-offs of extraordinary provisions and other items relating primarily to our Generation and Energy Management segment totaling€37 million; | |
• | Adjustments and other items relating to our Telecommunications segment, totaling€31 million. |
Income Taxes |
Year Ended | ||||||||
December 31, | ||||||||
2002 | 2003 | |||||||
(In millions of | ||||||||
euro) | ||||||||
Income taxes: | ||||||||
Current and deferred taxes | € | 919 | € | 1,388 | ||||
Release of deferred tax provision following freeing-up of accelerated depreciation reserves | (60 | ) | — | |||||
Tax incentives on capital expenditure (Tremonti-bis Law) | (213 | ) | — | |||||
Reversal of deferred tax provision as a result of revaluation of assets carried out in statutory accounts by Group companies | — | (375 | ) | |||||
Resizing of deferred taxes and deferred tax assets to change in tax rates | (38 | ) | (47 | ) | ||||
Total | € | 608 | € | 966 |
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Net Income |
• | Fixed assets and related depreciation; | |
• | Capitalized interest and related depreciation; | |
• | Customers’ connection fees; | |
• | Pension and employee termination accounting; | |
• | Other post-retirement benefits accounting; | |
• | Derivatives; | |
• | Advertising and start-up costs; | |
• | Software; | |
• | Goodwill, write-down and related amortization; | |
• | Restructuring reserve and conversion costs; | |
• | Italian pension system obligations; | |
• | Asset retirement obligations; | |
• | Early retirement program; | |
• | Gain on sale of real estate businesses; | |
• | Stock option compensation expense; | |
• | Additional share qualification for Terna shareholders; | |
• | Consolidation; | |
• | Accounting for income taxes; | |
• | Investment in equity securities; | |
• | Extraordinary income and expenses; and. |
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• | Electricity Industry Pension Fund. |
Critical Accounting Policies under U.S. GAAP |
119
New U.S. GAAP Accounting Standards |
120
121
122
• | A “modified prospective“method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. | |
• | A “modified retrospective” method that includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures of either (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
123
Cash Flow Analysis |
124
Capital Resources |
125
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At December 31, | |||||||||
2003 | 2004 | ||||||||
(In millions of euro) | |||||||||
Cash at banks and marketable securities (note 2) | (452 | ) | (364 | ) | |||||
Factoring receivables (note 4) | (487 | ) | (391 | ) | |||||
Other finance receivables | (7 | ) | (11 | ) | |||||
Total | (946 | ) | (766 | ) | |||||
Short-term debt (note 10): | |||||||||
Bank loans | |||||||||
— Use of revolving credit lines | 1,172 | 400 | |||||||
— Other short-term bank debt | 1,999 | 2,162 | |||||||
Total bank loans | 3,171 | 2,562 | |||||||
Commercial paper | 1,457 | 2,487 | |||||||
Other short-term financial loans | 4 | 5 | |||||||
Total short-term debt | 4,632 | 5,054 | |||||||
Net short-term debt | 3,686 | 4,288 | |||||||
Long-term debt (including current maturities) (note 10): | |||||||||
Bank loans | 11,951 | 11,672 | |||||||
Bonds | 9,899 | 9,776 | |||||||
Other loans | 166 | 158 | |||||||
Total Long-Term Debt (including current maturities) | 22,016 | 21,606 | |||||||
Long-term guarantee deposits | (1,528 | ) | (1,598 | ) | |||||
Net Long-Term Debt (including current maturities) | 20,488 | 20,008 | |||||||
Net Financial Indebtedness | 24,174 | 24,296 |
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128
Long-Term | Short-Term | |||||||||||
Rating Agency | Debt | Debt | Outlook | |||||||||
Standard & Poor’s | A+ | A-1 | Stable | |||||||||
Moody’s Investors Service | A1 | P-1 | Stable |
Future Liquidity and Capital Resources |
• | divesting Wind and, subject to the disposition of the minority interest we expect to acquire in Weather, ultimately exiting the telecommunications business, having entered into an agreement for the sale of Wind in May 2005 (please see “Item 4. Information on the Company — Business — The Enel Group — Telecommunication”); | |
• | the sale of a 29.99% stake in Terna to Cassa Depositi e Prestiti, pursuant to a contract Enel entered into in May 2005 (please see “Item 4. Information on the Company — Business — Overview — Transmission”); | |
• | the sale, on April 5, 2005, of 13.9% of Terna’s share capital for gross proceeds of€568 million in a private placement to institutional investors not registered under the Securities Act; | |
• | the acquisition of a 66% interest in SE for€840 million (of which we have already paid€168 million as a deposit). Closing of this transaction is expected by the end of 2005; | |
• | the distribution, expected by June 23, 2005, of an ordinary dividend equal to€0.36 per share, amounting in the aggregate to approximately€2,195 million; and | |
• | an additional dividend at approximately€0.17 to€0.20 per share, that we expect to pay in the second half of 2005 as a result of the expected disposal of the 29.99% stake in Terna noted above. |
129
Contractual Obligations |
Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
(In millions of euro) | ||||||||||||||||||||
Long-term debt (including current maturities) | 21,606 | 1,365 | 3,772 | 4,677 | 11,792 | |||||||||||||||
Capital (Finance) Lease Obligations(*) | — | — | — | — | — | |||||||||||||||
Operating leases | 2,198 | 331 | 652 | 683 | 532 | |||||||||||||||
Purchase obligations | 32,634 | 4,742 | 5,250 | 4,421 | 18,221 | |||||||||||||||
Other long-term obligations | 7 | 7 | ||||||||||||||||||
Total | 56,445 | 6,445 | 9,674 | 9,781 | 30,545 |
(*) | We do not have capital (finance) lease obligations. In accordance with Italian GAAP, if we had any capital (finance) lease obligations, we would not account separately for them, but rather would report such obligations as part of our operating leases. |
130
• | Commitments to suppliers of fuel. We have entered into various fuel supply contracts, primarily for the purchase of fuel oil and natural gas, in respect of which we will be required to pay a total€28,542 million. Our aggregate expenditures related to these commitments are expected to total€11,045 million for the period from January 1, 2005 through December 31, 2009. Please see “Item 4. Information on the Company — The Enel Group — Generation and Energy Management — Fuel” for information about our purchases of fuel. | |
• | Commitments to suppliers of electricity. We also have unconditional purchase obligations for electric power in respect of which we will be required to pay a total of€3,642 million. Our aggregate expenditures related to these commitments are expected to total€3,002 million for the period from January 1, 2005 through December 31, 2009. Please see “Item 4. Information on the Company — The Enel Group — Generation and Energy Management — Purchased power” for information about our purchases of electricity. |
• | Payable to Ferrovie dello Stato for the lease of Telecommunications Network rights of way. Wind is required to make payments to Ferrovie dello Stato (the Italian state railway company) of€233 million under an agreement that was entered into by Infostrada in 1998 (before it was merged in Wind), for the use of the fiber optic network owned by Ferrovie dello Stato. Wind’s aggregate expenditures related to these commitments in 2005 are expected to total€31 million (€154 million for the period from January 1, 2006 through December 31, 2009). | |
• | Payable to MEF for UMTS license. Wind is required to pay to the MEF an additional€217 million over the next seven years in connection with the purchase of its UMTS license (for which€2,230 million has already been paid). Wind’s aggregate expenditures related to these commitments in 2005 are expected to total€36 million (€145 million for the period from January 1, 2006 through December 31, 2009). For additional information on Wind’s UMTS license, please see “Item 4. Information on the Company — Business — The Enel Group — Telecommunications — Network infrastructure and licenses.” |
Commitments |
• | Approximately€7,750 million (€7,850 million including intangible assets) relating to our generation businesses, of which€5,770 million (€5,860 million including intangible assets) in Italy and€1,980 million abroad; |
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• | Approximately€5,790 million relating to our electricity distribution and sale business, including approximately€600 million for our Telemanagement project; | |
• | Approximately€350 million relating to our gas distribution business; and | |
• | Approximately€182 million in our other businesses. |
• | we did not apply retrospectively “IFRS 3 Business Combinations” to business combinations that occurred prior to the opening balance sheet date of January 1, 2004; | |
• | we restated the value of property, plant and equipment as of a date prior to the date of our transition to IFRS, based on an Italian GAAP revaluation, as an alternative to using historical cost; and | |
• | we fully applied IAS 32 — Financial Instruments: Disclosure and Presentation (“IAS 32”) and IAS 39 — Financial Instruments: Recognition and Measurement (“IAS 39”) starting from our opening IFRS balance sheet at January 1, 2004. |
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• | The reversal of depreciation recorded under Italian GAAP in connection with land ancillary to buildings, which is not permitted under IFRS, which is expected to increase stockholders’ equity at December 31, 2004, as calculated in accordance with IFRS, by approximately€72 million. | |
• | The recalculation, made in accordance with IFRS, of the depreciation of certain assets or parts of plants which are being shut down, to reflect the change in their useful lives, and the related elimination of write-downs recorded under Italian GAAP, which is expected to increase stockholders’ equity at December 31, 2004, as calculated in accordance with IFRS, by approximately€56 million. | |
• | The application of IFRS criteria requiring that each component of any property, plant and equipment the cost of which is material with respect to the cost of the relevant asset as a whole be separately accounted for and amortized, which is expected to reduce stockholders’ equity at December 31, 2004, as calculated in accordance with IFRS, by approximately€32 million, reflecting the resulting increase in amortization. | |
• | The application of IFRS criteria requiring the capitalization and depreciation of certain expenses related to estimated costs for the future dismantling and clean-up of productive sites and the recording of related accruals in a manner not contemplated by Italian GAAP; related adjustments are expected to reduce stockholders’ equity at December 31, 2004, as calculated in accordance with IFRS, by approximately€19 million. |
133
Income Before | ||||||||||||
Consolidated | Consolidated | Minority Interest | ||||||||||
Stockholders’ Equity | Stockholders’ Equity | for the year ended | ||||||||||
as of January 1, 2004 | as of December 31, 2004 | December 31, 2004 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
ITALIAN GAAP | 21,315 | 20,978 | 2,832 | |||||||||
Adjustments | ||||||||||||
— Tangible fixed assets and related depreciation | 330 | 79 | (246 | ) | ||||||||
— Start-up, development and, advertising costs and other intangible assets | (1,501 | ) | (1,372 | ) | 138 | |||||||
— Goodwill and consolidation differences | — | 94 | 103 | |||||||||
— Derivative financial instruments | (391 | ) | (480 | ) | (29 | ) | ||||||
— Employee benefits | (1,257 | ) | (1,336 | ) | (87 | ) | ||||||
— Provisions for risks and charges | 241 | 168 | (73 | ) | ||||||||
— Other adjustments | (54 | ) | (71 | ) | 95 | |||||||
Tax impact of the adjustments | 938 | 1,006 | 14 | |||||||||
Total adjustments net of tax effect | (1,694 | ) | (1,912 | ) | (85 | ) | ||||||
IFRS | 19,621 | 19,066 | 2,747 |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
134
Year Initially | ||||||
Name | Position | Appointed | ||||
Piero Gnudi | Chairman | 2002 | ||||
Fulvio Conti | Director, general manager (direttore generale), chief executive officer* | 2005 | ||||
Fernando Napolitano | Director | 2002 | ||||
Gianfranco Tosi | Director | 2002 | ||||
Alessandro Luciano | Director | 2005 | ||||
Francesco Valsecchi | Director | 2005 | ||||
Francesco Taranto | Director | 2000 | ||||
Augusto Fantozzi | Director | 2005 | ||||
Giulio Ballio | Director | 2005 |
* | Mr. Conti has been Enel’s chief financial officer since 1999 (and continues to perform that function) |
135
136
137
Year Appointed | ||||||||||||||
Year Joined | to Current | |||||||||||||
Name | Age | Management Position | the Group | Position | ||||||||||
Andrea Brentan | 56 | International Affairs | 2002 | 2004 | ||||||||||
Alessandro Bufacchi | 58 | Information and Communication Technology | 2000 | 2000 | ||||||||||
Vincenzo Cannatelli | 52 | Head of Sales, Infrastructure and Networks Division | 1999 | 2002 | ||||||||||
Antonio Cardani | 55 | Audit | 2000 | 2000 | ||||||||||
Salvatore Cardillo | 55 | Legal Affairs | 2000 | 2000 | ||||||||||
Gianluca Comin | 42 | Communication | 2002 | 2002 | ||||||||||
Sandro Fontecedro | 60 | Head of Generation and Energy Management Division | 1970 | 2003 | ||||||||||
Sergio Mobili | 64 | Head of Transmission Division | 1967 | 2002 | ||||||||||
Tommaso Pompei | 62 | Head of Telecommunications Division | 1996 | 2002 | ||||||||||
Massimo Romano | 45 | Regulatory and Institutional Affairs | 1997 | 1999 | ||||||||||
Paolo Ruzzini | 53 | Human Resources | 2003 | 2003 | ||||||||||
Salvatore Sardo | 52 | Purchasing | 2003 | 2003 | ||||||||||
Claudio Sartorelli | 59 | Corporate Affairs | 1970 | 1996 | ||||||||||
Luciana Tarozzi | 60 | Accounting | 1965 | 1997 |
138
139
Year Initially | ||||||
Name | Position | Appointed | ||||
Eugenio Pinto | Chairman | 2005 | ||||
Carlo Conte | Auditor | 2004 | ||||
Franco Fontana | Auditor | 2001 | ||||
Giancarlo Giordano | Alternate Auditor | 2004 | ||||
Paolo Sbordoni | Alternate Auditor | 2004 |
140
Base | Bonuses and | Non-Monetary | Other | ||||||||||||||||||
Name | Positions(s) Held | Compensation | Other Incentives | Benefits | Compensation | ||||||||||||||||
(In euros) | |||||||||||||||||||||
Current and former directors | |||||||||||||||||||||
Piero Gnudi | Chairman | 659,513.36 | 386,000.00 | (1) | 10,378.38 | (2) | |||||||||||||||
Paolo Scaroni | Chief executive officer, general manager, director(5) | 705,164.60 | 1,702,000.00 | (3) | 64,869.62 | (2) | 909,032.87 | (4) | |||||||||||||
Mauro Miccio | Director(5) | 109,829.12 | |||||||||||||||||||
Franco Morganti | Director(5) | 107,763.28 | 73,500.00 | (6) | |||||||||||||||||
Fernando Napolitano | Director | 109,829.12 | |||||||||||||||||||
Francesco Taranto | Director | 118,837.35 | 28,500.00 | (7) | |||||||||||||||||
Gianfranco Tosi | Director | 107,763.28 | |||||||||||||||||||
Total compensation of Directors | 1,918,700.11 | 2,088,000.00 | 75,248.00 | 1,011,032.87 | |||||||||||||||||
Current and former statutory auditors | |||||||||||||||||||||
Bruno De Leo | Chairman(8) | 30,470.99 | |||||||||||||||||||
Angelo Provasoli | Chairman(9) | 51,041.67 | (10) | ||||||||||||||||||
Gustavo Minervini | Statutory Auditor(8) | 24,617.80 | |||||||||||||||||||
Franco Fontana | Statutory Auditor | 69,834.36 | |||||||||||||||||||
Carlo Conte | Statutory Auditor(11) | 44,958.33 | (12) | ||||||||||||||||||
Total compensation of Statutory Auditors | 220,923.15 | ||||||||||||||||||||
Total compensation paid | 2,139,623.26 | 2,088,000.00 | 75,248.00 | 1,011,032.87 |
(1) | This amount is composed of: (i) €186,000.00 as a variable part of the base compensation relating to fiscal year 2003, resolved upon and paid in 2004, and (ii) €200,000.00 as a bonus granted for the achievement of targets in the MEF’s sale of Enel’s shares in October 2004. On March 30, 2005, Enel’s board of directors granted the chairman€186,000.00 as variable part of the base compensation for fiscal year 2004 for the achievement of Enel’s Group objectives in 2004. | |
(2) | Insurance policies. |
141
(3) | This amount is composed of: (i) €490,000.00 as a variable part of the base compensation relating to fiscal year 2003, resolved upon and paid in 2004, (ii) €512,000.00 as abonus entrycompensation, (iii) €50,000.00 as extraordinary compensation for services rendered in 2003 as chief operating officerad interimin the Generation and Energy Management Division, resolved upon and paid in 2004, and (iv) €650,000.00 as bonus granted for the achievement of targets in the MEF’s sale of Enel’s shares in October 2004. On March 30, 2005, Enel’s board of directors granted Mr. Scaroni€700,000 as variable part of the base compensation for fiscal year 2004 for the achievement of Enel’s Group objectives in 2004. | |
(4) | This amount is composed of: (i) €601,032.87 as base compensation for services rendered as general manager in 2004, and (ii) €308,000.00 as a variable part of the base compensation relating to fiscal year 2003, paid in 2004. |
On March 30, 2005, Enel’s board of directors granted Mr. Scaroni, in his capacity as general manager at that time,€600,000.00 as a variable part of the base compensation for fiscal year 2004 for the achievement of Enel’s Group objectives in 2004. |
(5) | Former member of Enel’s board of directors. | |
(6) | Compensation paid for services rendered to Wind, as director (for the amount of€28,500.00) and for certain non-managerial tasks delegated to him by the board of directors in his capacity as director (for the amount of€45,000.00). Mr. Morganti ceased to perform these tasks, effective as of March 24, 2005. | |
(7) | Compensation paid as a director of Wind. | |
(8) | Former member of Enel’s board of statutory auditors. | |
(9) | Former member of Enel’s board of statutory auditors |
(10) | This compensation was paid for the services rendered by Mr. Provasoli from May 2004 through December 2004. |
(11) | For services rendered starting from May 2004. |
(12) | Compensation paid to the MEF (for the amount of€33,458.33) pursuant to the directive of Council of Ministers — Public Office department (Dipartimento della Funzione Pubblica) of March 1, 2000. |
• | in April 2001, 621,280 options to purchase the same number of Enel’s ordinary shares, under the 2001 stock option plan. Of these options, 56% vested and, consequently, 347,917 options were exercisable starting in 2004. These options expire on December 31, 2005. The exercise price for these options is€7.272. As of May 13, 2005, Mr. Conti has not exercised any of these options; | |
• | in March 2002, a further 902,500 options to purchase the same number of Enel’s ordinary shares, under the 2002 stock option plan. All these options vested and, consequently, 30% of the options were exercisable starting in 2003, an additional 30% starting in 2004 and the remaining 40% starting in 2005. These options expire on December 31, 2007. The exercise price for these options is€6.426. During the period between May 24, 2004, and June 11, 2004, Mr. Conti exercised 250,000 of these options and sold the resulting shares on the market. Subsequently, during the period between November 12, 2004, and December 2, 2004, Mr. Conti exercised a further 175,000 of these options, and between February 3, 2005, and February 23, 2005, a further 141,500 of these options and sold all of the resulting |
142
shares on the market. As of May 13, 2005, Mr. Conti has not exercised any of the remaining 336,000 options; | ||
• | in April 2003, a further 992,800 options to purchase the same number of Enel’s ordinary shares, under the 2003 stock option plan. All these options vested and, consequently, 30% of the options are exercisable starting from 2004, an additional 30% starting from 2005 and the remaining 40% starting from 2006. These options expire on December 31, 2008. The exercise price for these options is€5.240. During the period between May 24, 2004, and June 11, 2004, Mr. Conti exercised 297,840 of these options and sold the resulting shares on the market. Subsequently, during the period between February 3, 2005, and February 23, 2005, Mr. Conti exercised a further 200,000 of these options and sold the resulting shares on the market. As of May 13, 2005, Mr. Conti has not exercised any of the remaining 494,960 options; | |
• | in March 2004, a further 600,000 options to purchase the same number of Enel’s ordinary shares, under the 2004 stock option plan. All these options vested and, consequently, 15% of the options may be exercised starting from 2005, another 15% starting from 2006, an additional 30% starting from 2007 and the remaining 40% starting from 2008. These options expire on December 31, 2009. The exercise price for these options is€6.242. As of May 13, 2005, Mr. Conti has not exercised any of these options; | |
• | in March 2005, a further 600,000 options to purchase the same number of Enel’s ordinary shares, under the 2005 stock option plan. Subject to the satisfaction of the conditions precedent provided for in the 2005 stock option plan, 15% of the options may be exercised starting from 2006, another 15% starting from 2007, an additional 30% starting from 2008, and the remaining 40% starting from 2009. These options expire on December 31, 2010. The exercise price for these options is€7.273. |
• | in September 2002, 2,503,500 options to purchase the same number of Enel’s ordinary shares, under the 2002 stock option plan. All these options vested and, consequently, 30% of the options were exercisable starting in 2003, an additional 30% starting in 2004 and the remaining 40% starting in 2005. These options expire on December 31, 2007. The exercise price for these options is€6.480. During the period between May 24, 2004, and June 11, 2004, Mr. Scaroni exercised 1,502,100 of these options and sold the resulting shares on the market. Subsequently, during the period between February 3, 2005, and February 23, 2005, Mr. Scaroni exercised the remaining 1,001,400 of these options and sold the resulting shares on the market; | |
• | in April 2003, a further 4,200,000 options to purchase the same number of Enel’s ordinary shares, under the 2003 stock option plan. All these options vested and, consequently, 30% of the options are exercisable starting from 2004, an additional 30% starting from 2005 and the remaining 40% starting from 2006. These options expire on December 31, 2008. The exercise price for these options is€5.240. During the period between May 24, 2004, and June 11, 2004, Mr. Scaroni exercised 1,260,000 of these options and sold the resulting shares on the market. Subsequently, during the period between February 3, 2005, and February 23, 2005, Mr. Scaroni exercised a further 1,260,000 of these options and sold the resulting shares on the market. As of May 13, 2005, Mr. Scaroni has not exercised any of the remaining 1,680,000 options; | |
• | in March 2004, a further 2,500,000 options to purchase the same number of Enel’s ordinary shares, under the 2004 stock option plan. All these options vested and, consequently, 15% of the options may be exercised starting from 2005, another 15% starting from 2006, an additional 30% starting from 2007 and the remaining 40% starting from 2008. These options expire on December 31, 2009. The exercise price for these options is€6.242. During the period between April 20, 2005, and May 13, 2005, Mr. Scaroni exercised 375,000 of these options and sold the resulting shares on the market. | |
• | in March 2005, a further 2,500,000 options to purchase the same number of Enel’s ordinary shares, under the 2005 stock option plan. Subject to the satisfaction of the conditions precedent provided for in the 2005 stock option plan, 15% of the options may be exercised starting from 2006, another 15% |
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starting from 2007, an additional 30% starting from 2008, and the remaining 40% starting from 2009. These options expire on December 31, 2010. The exercise price for these options is€7.273. |
Number of | |||||
Ordinary Shares | |||||
Held as of | |||||
Name of Director or Statutory Auditor | May 31, 2005 | ||||
Piero Gnudi | 70,524 | (1) | |||
Fulvio Conti | 23,844 | (2) | |||
Francesco Taranto | 10,000 | ||||
Giulio Ballio | 1,200 | (3) | |||
All other directors and statutory auditors | 0 | ||||
Total | 105,568 |
(1) | 46,000 of which are held by a company controlled by Mr. Gnudi and 24,262 by Mr. Gnudi’s wife. |
(2) | 262 of which are held by Mr. Conti’s wife. |
(3) | All of these shares are held by Mr. Ballio’s wife. |
Number of | |||||||||
Employees | Division | ||||||||
Generation and Energy Management | 10,828 | 18% | |||||||
Sales, Infrastructure and Networks | 35,537 | 57% | |||||||
Transmission | 2,929 | 5% | |||||||
Telecommunications | 8,188 | 13% | |||||||
Services and Other Activities | 3,826 | 6% | |||||||
Holding Company | 590 | 1% | |||||||
Total Enel Group | 61,898 | 100% |
Estimated Number of | ||||
Potential Retirees | ||||
2005 | 2,200 | |||
2006 | 1,800 | |||
2007 | 1,300 | |||
2008 | 1,000 | |||
2009 | 1,100 |
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As of December 31, | ||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||
Employees (other than managers) | 71,958 | 71,802 | 70,313 | 63,985 | 61,193 | |||||||||||||||
Managers | 689 | 859 | 891 | 785 | 705 | |||||||||||||||
Total | 72,647 | 72,661 | 71,204 | 64,770 | 61,898 | |||||||||||||||
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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
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• | The material acquisition of Enel’s shares by third parties; | |
• | Material shareholders’ agreements; | |
• | Major corporate changes; and | |
• | The appointment of one non-voting director. |
• | Special rules concerning appointments of directors and statutory auditors in order to ensure that minority shareholders are represented; and | |
• | Limitations on the maximum number of shares that a shareholder, or group of shareholders, other than the MEF (or other entities controlled by the Italian state), may hold. |
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ITEM 8. | FINANCIAL INFORMATION |
148
149
150
151
Year Ended December 31, | ||||||||||||||||||||
2000(1) | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||
Dividends per ordinary share (in euros)(2) | €0.13 | €0.36 | €0.36 | €0.36 | €0.69 | |||||||||||||||
Dividends per ordinary share (in U.S. dollars)(3) | $ | 0.12 | $ | 0.32 | $ | 0.38 | $ | 0.45 | $ | 0.86 |
(1) | Following the one-for-two reverse stock split effective as of July 9, 2001, this dividend, paid in 2001, amounted to€0.26 and $0.24. |
(2) | The amount of the aggregate dividend for each of 2000, 2001, 2002, 2003 and 2004 was equal to approximately 72%, 52%, 109%, 87% and 156% of our consolidated net income for the relevant year, respectively. |
(3) | We have translated the historical dividend amounts into U.S. dollars using the noon buying rate for euro in effect on the respective payment dates, except for the dividend amount for 2004, part of which has not yet been paid. For the 2004 dividend, we have used the noon buying rate on May 26, 2005, of€1.00 = 1.2517. The noon buying rate for euro may differ from the rate that may be used by the Depositary for the ADSs in order to convert euro into U.S. dollars for purposes of making payments to holders of ADSs. |
152
• | our financial performance; | |
• | cash and capital requirements; | |
• | any restrictions in financing agreements; and | |
• | prevailing business conditions. |
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ITEM 9. | THE OFFER AND LISTING |
ADSs | ||||||||
High | Low | |||||||
(In dollars) | ||||||||
2000 | 46.00 | 35.05 | ||||||
2001 | 38.85 | 25.00 | ||||||
2002 | 30.31 | 22.60 | ||||||
2003 | ||||||||
First Quarter | 29.64 | 26.58 | ||||||
Second Quarter | 35.85 | 28.58 | ||||||
Third Quarter | 33.05 | 29.99 | ||||||
Fourth Quarter | 34.15 | 30.50 | ||||||
2004 | ||||||||
First Quarter | 40.89 | 34.35 | ||||||
Second Quarter | 41.98 | 38.47 | ||||||
Third Quarter | 41.19 | 37.48 | ||||||
Fourth Quarter | 49.44 | 40.00 | ||||||
December 2004-May 2005 | ||||||||
December 2004 | 49.44 | 45.23 | ||||||
January 2005 | 48.88 | 46.23 | ||||||
February 2005 | 49.95 | 47.25 | ||||||
March 2005 | 49.20 | 46.80 | ||||||
April 2005 | 48.80 | 46.73 | ||||||
May 2005 | 48.29 | 45.20 |
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Ordinary Shares | ||||||||
High | Low | |||||||
(In euros) | ||||||||
2000 | 9.357 | 7.348 | ||||||
2001 | 8.051 | 5.650 | ||||||
2002 | 6.765 | 4.490 | ||||||
2003 | ||||||||
First Quarter | 5.471 | 5.015 | ||||||
Second Quarter | 6.022 | 5.227 | ||||||
Third Quarter | 5.740 | 5.340 | ||||||
Fourth Quarter | 5.479 | 5.218 | ||||||
2004 | ||||||||
First Quarter | 6.581 | 5.464 | ||||||
Second Quarter | 6.920 | 6.454 | ||||||
Third Quarter | 6.651 | 6.143 | ||||||
Fourth Quarter | 7.245 | 6.570 | ||||||
December 2004-May 2005 | ||||||||
December 2004 | 7.245 | 6.731 | ||||||
January 2005 | 7.240 | 7.085 | ||||||
February 2005 | 7.698 | 7.142 | ||||||
March 2005 | 7.450 | 7.112 | ||||||
April 2005 | 7.522 | 7.285 | ||||||
May 2005 | 7.430 | 7.141 |
ITEM 10. | ADDITIONAL INFORMATION |
• | if vested, the options are normally exercisable starting one year after they are granted and for a period of five years thereafter, except under the 2001 plan where the options are exercisable for a period of four years; however, during the first three or four years (depending on the plan) during which exercise is permitted, exercise is limited to annual tranches (varying from 15% to 40%), although under the |
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2001 plan, 20% of the options granted in any given year are exercisable after one year and the remaining 80% after three years; | ||
• | under the 2001 plan, the options may be exercised only within the fifteen trading days following the shareholders’ approval of the financial statements for the preceding fiscal year; under the 2002 plan, and 2003 plan, each year, options may be exercised only within the fifteen trading days following each of (i) the board of directors’ approval of preliminary financial data for the preceding fiscal year on a consolidated basis, (ii) the shareholders’ approval of the financial statements for the preceding fiscal year, and (iii) the board of directors’ approval of the report relating to the quarter ending September 30; under the 2004 and 2005 plans the options are exercisable at any time other than during the period (i) beginning on the date that is one month prior to the day scheduled for the approval of Enel’s annual financial statements by its board of directors and ending on the date of such approval and (ii) beginning on the date that is one month prior to the day scheduled for the approval of Enel’s six-month report by its board of directors and ending on the date of such approval; | |
• | under the 2001 plan, options vest if the average reference price of Enel’s shares on Telematico over the last three months of the year of the grant is higher than a target price determined by the board of directors at the time of the grant. The board sets the target price with reference to securities analysts’ estimates of the future price of Enel’s shares. If the target price is not met in a given year, all of the one-year options and 30% of the three-year options granted in that year do not vest and expire. However, the remaining 70% of the three-year options granted in the year (56% of the options allotted as a whole) may still vest if (i) the price of Enel’s shares on Telematico during the year of the grant outperforms a specified reference index over the same period and (ii) the actual growth in value of our business during the year of the grant (as determined using a proprietary formula) exceeds the expected growth for that year, as determined by the board of directors at the time of the grant. If these conditions are not met, the remaining 70% of three-year options may also vest if the average reference price of Enel’s shares on Telematico over the last three months of the second year following the grant is higher than the target price for the year of the grant, as adjusted for the expected variation of the price of Enel’s shares in the following two years, as determined by the board of directors each year. Under the other plans currently in place, options vest if both the Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA, of the Group for the relevant fiscal year exceeds the estimated EBITDA as indicated in the budget approved by the board of directors for the relevant year, and the price of Enel’s shares on Telematico outperforms a specified reference index over the same period. If any of these conditions is not met, all the options expire; | |
• | The strike price of the options is set by the board of directors on the date of the grant and cannot be lower than the average reference price of Enel’s shares on Telematico during the month preceding the grant; | |
• | The number of options granted under the 2001, 2002 and 2003 plans to participating managers was determined pursuant to a formula based on the participant’s gross salary for the year in question and the value of an option exercisable in the third year following its grant, calculated according to market value indications supplied by primary financial institutions. Under the 2004 and 2005 plans, options are granted using a new method based on proportional criteria; and | |
• | Options are not transferableinter vivos. |
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No. of | Total Options | Strike Price | ||||||||||||||||||
Year of Grant | Grantees | Granted | Options Exercised | € | Expiration | |||||||||||||||
2001 | 381 | (1) | 34,274,050 | (2) | — | (3) | €7.272 | (4) | December 31, 2005 | |||||||||||
2002 | 383 | (5) | 41,748,500 | 33,756,350 | 6.426 | (6) | December 31, 2007 | |||||||||||||
2003 | 549 | (7) | 47,624,005 | 27,152,567 | 5.240 | December 31, 2008 | ||||||||||||||
2004 | 640 | (7) | 38,527,550 | 854,482 | 6.242 | December 31, 2009 | ||||||||||||||
2005 | 448 | (7) | 28,757,000 | (8) | — | 7.273 | December 31, 2010 |
(1) | Including Enel’s former chief executive officer, Mr. Tatò, in his capacity as general manager (direttore generale), as well as Enel’s current chief executive officer, Mr. Conti, in his capacity as chief financial officer. |
(2) | The number of options and the corresponding number of ordinary shares, which originally amounted to an aggregate of 68,548,100, decreased to 34,274,050 as a result of the one-for-two reverse stock split effective as of July 9, 2001. |
(3) | After June 16, 2005, the options granted under the 2001 plan will no longer be exercisable. |
(4) | The strike price of options granted in 2001, originally fixed at€3.636 per share, was set at€7.272 as a result of the one-for-two reverse stock split. |
(5) | Including Enel’s former chief executive officers, Mr. Tatò and Mr. Scaroni, each in his capacity as general managers (direttori generali), as well as Enel’s current chief executive officer, Mr. Conti, in his capacity as chief financial officer. |
(6) | The strike price for the options granted to Enel’s former chief executive officer, Mr. Scaroni, was determined with regard to the reference price of Enel’s shares on Telematico on the date of his appointment as general manager (direttore generale), and was therefore set at€6.480. |
(7) | Including Enel’s former chief executive officer, Mr. Scaroni, in his capacity as general manager (direttore generale) as well as Enel’s current chief executive officer, Mr. Conti, in his capacity as chief financial officer. |
(8) | The conditions for the vesting of options under the 2005 plan have not yet been formally satisfied. |
(i) under the December 1999 authorization (having already taken into account the one-for-two reverse stock split effective July 9, 2001), on April 9, 2001, Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€34,274,050 through the issuance (in one or more tranches over a five-year period) of a maximum of 34,274,050 new ordinary shares reserved for issuance upon the exercise of options granted under the 2001 plan, to be subscribed by December 31, 2005; as of May 13, 2005, no ordinary shares had been issued in connection with the exercise of 2001 options; | |
(ii) under the May 2001 authorization, on April 10, 2003, Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€41,748,500 through the issuance (in one or more tranches over a five-year period) of a maximum of 41,748,500 new ordinary shares reserved for issuance upon the exercise of options granted under the 2002 plan to be subscribed by December 31, 2007; as of May 13, 2005, 33,756,350 ordinary shares had been issued in connection with the exercise of an equivalent number of options; | |
(iii) under the May 2003 authorization, on April 7, 2004 Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€47,624,005 through the issuance (in one or more tranches over a five-year period) of a maximum of 47,624,005 new ordinary shares, reserved for issuance upon the exercise of options granted under the 2003 plan to be subscribed by December 31, |
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2008; as of May 13, 2005, 27,152,567 ordinary shares had been issued in connection with the exercise of an equivalent number of options; | |
(iv) under the May 2004 authorization, on March 30, 2005 Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€38,527,550 through the issuance (in one or more tranches over a five-year period) of a maximum of 38,527,550 new ordinary shares, reserved for issuance upon the exercise of options granted under the 2004 plan to be subscribed by December 31, 2009; as of May 13, 2005, 854,482 ordinary shares had been issued in connection with the exercise of an equivalent number of options. |
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General |
Authorization of Shares |
Form and Transfer of Shares |
159
• | an Italian or EU bank; | |
• | a non-EU bank authorized by the Bank of Italy to operate in the Italian market; | |
• | Società di Intermediazione Mobiliare, or SIM; | |
• | an EU investment company; | |
• | a non-EU investment company authorized by CONSOB to provide investment services in Italy; | |
• | an Italian asset management company; | |
• | a stock broker; | |
• | the company which has issued the shares; | |
• | the controlling shareholder of the company which has issued the shares; | |
• | the Bank of Italy; | |
• | an EU or non-EU entity operating a centralized clearing system; | |
• | a financial intermediary operating a clearing system governed by art. 69 (2) and 70 of the TUF; | |
• | a financial intermediary registered on the list kept by the Bank of Italy under art. 107 of Legislative Decree No. 385 of September 1, 1993; | |
• | Poste Italiane S.p.A. (the Italian Post Office company); | |
• | Cassa Depositi e Prestiti; | |
• | the MEF; and | |
• | the managers of foreign clearing, settlement and guarantee systems for financial instruments, provided that they are subject to supervision equivalent to that provided by Italian law. |
160
Limitations on shareholdings |
• | Controlling entities and directly or indirectly controlled entities of the holder, as well as entities controlled by the same controlling entity; and | |
• | Affiliated personal entities of the holder, including spouses and other closely related personal relatives. |
Special powers of the MEF |
Opposition to material acquisitions of shares |
Opposition to material shareholders’ agreements |
161
Members of Enel’s Board of Directors |
Veto power over material changes |
Dividend Rights |
Voting Rights |
162
Board of Directors |
• | mergers and demergers as permitted by law; | |
• | the establishment or elimination of secondary headquarters; | |
• | which directors shall have power to represent the Company; | |
• | the reduction of share capital in the event of the withdrawal of one or more shareholder; | |
• | the harmonization of the by-laws with provisions of the law; and | |
• | the transfer of the Company’s registered office within Italy. |
163
Statutory Auditors |
• | specify the number of statutory auditors (not fewer than three) and alternate members (not fewer than two); | |
• | regulate the appointment of the chairman of the board of statutory auditors; | |
• | limit the number of mandates that the statutory auditors may have in other companies; and | |
• | include clauses ensuring that minority shareholders may elect one statutory auditor (or at least two if the board is composed of more than three members). |
164
External Auditors |
Meetings of Shareholders |
165
Preemptive Rights |
166
Reports to Shareholders |
Liquidation Rights |
Purchase by the Company of its Own Shares |
Notification of the Acquisition of Shares and Voting Rights |
167
(i) concern (including prior consultation for) the exercise of voting rights in a listed company or its controlling company; | |
(ii) contain limitations on the transfer of shares or securities which grant the right to purchase or subscribe shares of the companies mentioned in (i) above; | |
(iii) provide for the purchase of shares or securities mentioned in (ii) above; or |
168
(iv) have as their object or effect the exercise (including joint exercise) of a dominant influence over a listed company or its controlling company. |
Minority Shareholders’ Rights |
169
• | seven-tenths of the members to be elected will be drawn from the candidate list that receives the majority of votes expressed by the shareholders in the numerical order in which they appear on the list, rounded off in the event of a fractional number to the next lower number; and | |
• | The remaining board members will be drawn from the other candidate lists; for this purpose, the votes obtained by each such list will be divided by one, two, three and so forth up to the number of directors to be elected. The numbers obtained through this process are attributed to the candidates of each list in the order in which such candidates rank in the list. The candidates of the various lists are ranked in a single ranking and in decreasing order on the basis of the numbers attributed to each of them. The candidates with the highest numbers are elected. |
Tender Offer Rules |
170
Liability for Mismanagement of Subsidiaries |
Overview |
171
Independent Directors |
172
Executive Sessions |
Audit Committee and Internal Audit Function |
173
Compensation Committee |
Nominating Committee |
Corporate Governance Guidelines/ Code of Business Conduct and Ethics |
174
Certifications as to Violations of NYSE Standards |
Shareholder Approval of Adoption and Modification of Equity Compensation Plans |
175
176
Withholding Tax on Dividends |
177
178
Tax on capital gains |
179
Taxation of Distributions from Capital Reserves |
Transfer tax |
Estate and gift tax |
Information reporting and backup withholding |
180
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
181
Foreign exchange risk |
• | contracts with a notional amount of€855 million used to hedge the foreign exchange risk related to fuel purchases, electricity imports and expected cash flows in currencies other than the euro (€1,681 million as of December 31, 2003); and | |
• | contracts with a notional amount of€715 million used to hedge the foreign exchange risk related to the repayment of the commercial paper we issued in foreign currency (€440 million as of December 31, 2003). |
182
Interest rate risk |
Commodity price risk |
183
• | futures:€36.6 million or 1,437 contracts; | |
• | swaps on petroleum indexes:€36.7 million or 335,852 metric tons; and | |
• | swaps on gas transmission fee:€16.9 million or 1 billion cubic meters per year. |
• | futures:€0 million or 0 contracts; | |
• | swaps on petroleum indexes:€537.56 million or 4,133,000 metric tons; and | |
• | swaps on gas transmission fee:€17.9 million or 1 billion cubic meters per year. |
As of December, 31 | |||||||||
2003 | 2004 | ||||||||
Fair Value | |||||||||
(In millions of euro) | |||||||||
Futures | 0.5 | 0 | |||||||
assets | 0.6 | 0 | |||||||
liabilities | (0.1 | ) | 0 | ||||||
Swaps on Petroleum indexes | 1.6 | 12.2 | |||||||
assets | 2.3 | 22.3 | |||||||
liabilities | (0.7 | ) | (10.1 | ) | |||||
Gas Transmission fee | (9.6 | ) | (11.7 | ) | |||||
assets | 0.0 | 0.0 | |||||||
liabilities | (9.6 | ) | (11.7 | ) | |||||
Total | (7.5 | ) | 0.5 | ||||||
assets | 2.9 | 22.3 | |||||||
liabilities | (10.4 | ) | 21.8 |
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ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
ITEM 13. | DEFAULTS, DIVIDENDS AVERAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND PROCEEDS |
ITEM 15. | CONTROLS AND PROCEDURES |
ITEM 16. | [RESERVED] |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
185
ITEM 16B. | CODE OF ETHICS |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit and Non-Audit Fees |
Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
(In millions | |||||||||
of euro) | |||||||||
Audit fees | 1.9 | 2.0 | |||||||
Audit-related fees | 0.2 | 1.3 | |||||||
Tax fees | 0.0 | 0.0 | |||||||
Other fees | 0.0 | 0.0 | |||||||
Total fees | 2.1 | 3.3 |
Audit Committee Pre-Approval Policies and Procedures |
186
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 17. | FINANCIAL STATEMENTS |
187
ITEM 18. | FINANCIAL STATEMENTS |
Report of Independent Registered Public Accounting Firm | F-1 | |||
Consolidated Balance Sheet as of December 31, 2004 and 2003 | F-2 | |||
Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 | F-3 | |||
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002 | F-4 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 | F-5 | |||
Notes to Consolidated Financial Statements | F-6 | |||
Report of Independent Registered Public Accounting Firm | F-93 |
188
ITEM 19. | EXHIBITS |
189
F-1
2004 | 2003 | 2004 | |||||||||||||
(millions of | |||||||||||||||
(millions of euro) | U.S. dollars) | ||||||||||||||
ASSETS | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents (Note 2) | 364 | 452 | 493 | ||||||||||||
Receivables, net: (Note 4) | |||||||||||||||
Customers | 7,697 | 6,884 | 10,420 | ||||||||||||
Other | 3,119 | 2,053 | 4,222 | ||||||||||||
Inventories (Notes 2 and 5) | 4,214 | 4,211 | 5,705 | ||||||||||||
Deferred tax assets (Note 12) | 1,082 | 506 | 1,465 | ||||||||||||
Accrued income and prepayments | 426 | 414 | 577 | ||||||||||||
16,902 | 14,520 | 22,882 | |||||||||||||
Utility plant, including construction in progress (Notes 2 and 6) | 86,616 | 85,731 | 117,261 | ||||||||||||
Accumulated depreciation (Notes 2 and 6) | (50,157 | ) | (48,576 | ) | (67,903 | ) | |||||||||
36,459 | 37,155 | 49,358 | |||||||||||||
Other non-current assets: | |||||||||||||||
Intangible assets (Notes 2 and 7) | 11,534 | 13,576 | 15,615 | ||||||||||||
Investments (Notes 2 and 8) | 302 | 335 | 409 | ||||||||||||
Deferred tax assets (Note 12) | 1,257 | 1,532 | 1,702 | ||||||||||||
Other (Note 9) | 1,876 | 1,812 | 2,539 | ||||||||||||
14,969 | 17,255 | 20,265 | |||||||||||||
Total Assets | 68,330 | 68,930 | 92,505 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||
Current liabilities: | |||||||||||||||
Current maturities of long-term debt (Note 10) | 1,365 | 4,011 | 1,848 | ||||||||||||
Short term debt (Note 10) | 5,054 | 4,632 | 6,842 | ||||||||||||
Trade accounts payable | 6,554 | 5,602 | 8,873 | ||||||||||||
Taxes payable | 339 | 1,511 | 459 | ||||||||||||
Advances from customers | 2,955 | 3,075 | 4,000 | ||||||||||||
Accrued expenses and other current liabilities | 4,320 | 4,077 | 5,849 | ||||||||||||
20,587 | 22,908 | 27,871 | |||||||||||||
Long-term debt (Note 10) | 20,241 | 18,005 | 27,402 | ||||||||||||
Other non-current liabilities: | |||||||||||||||
Reserves for pensions and similar obligations (Note 11) | 471 | 462 | 637 | ||||||||||||
Reserves for employee termination indemnities | 1,095 | 1,298 | 1,482 | ||||||||||||
Deferred income taxes (Note 12) | 2,883 | 2,515 | 3,903 | ||||||||||||
Other (Notes 13 and 22) | 3,206 | 2,618 | 4,340 | ||||||||||||
7,655 | 6,893 | 10,362 | |||||||||||||
Shareholders’ equity (Note 14): | |||||||||||||||
Share capital, euro 1 par value per share (6,103,521,864 and 6,063,075,189 shares authorized, issued and outstanding as of December 31, 2004 and 2003, respectively) | 6,104 | 6,063 | 8,264 | ||||||||||||
Additional paid in capital | 200 | — | 271 | ||||||||||||
Legal reserve | 1,453 | 1,453 | 1,967 | ||||||||||||
Law 292/93 reserve | 2,215 | 2,215 | 2,999 | ||||||||||||
Retained earnings | 9,183 | 8,884 | 12,432 | ||||||||||||
Net income, net of interim dividends paid in 2004 of euro 2,014 million | 692 | 2,509 | 937 | ||||||||||||
19,847 | 21,124 | 26,870 | |||||||||||||
Total Liabilities and Shareholders’ Equity | 68,330 | 68,930 | 92,505 | ||||||||||||
F-2
2004 | 2003 | 2002 | 2004 | ||||||||||||||
(millions of | |||||||||||||||||
(millions of euro) | U.S. dollars) | ||||||||||||||||
Operating revenues (Notes 2 and 15): | |||||||||||||||||
Sales and services: | |||||||||||||||||
Energy sales and transport | 25,164 | 19,834 | 20,208 | 34,067 | |||||||||||||
Electricity equalization fund contribution | 17 | 179 | 187 | 23 | |||||||||||||
Telecommunications services | 4,168 | 3,959 | 3,642 | 5,643 | |||||||||||||
Gas sales to end users | 1,374 | 1,254 | 780 | 1,860 | |||||||||||||
Other revenues | 5,766 | 6,091 | 5,160 | 7,806 | |||||||||||||
36,489 | 31,317 | 29,977 | 49,399 | ||||||||||||||
Operating expenses: | |||||||||||||||||
Personnel (Note 16) | 3,315 | 3,440 | 3,589 | 4,488 | |||||||||||||
Purchased power (Note 17) | 10,465 | 4,620 | 4,802 | 14,168 | |||||||||||||
Fuel for thermal generation (Note 17) | 3,598 | 4,101 | 4,255 | 4,871 | |||||||||||||
Depreciation and amortization (Notes 2 and 6) | 4,173 | 4,516 | 4,477 | 5,649 | |||||||||||||
Services and rentals (Note 18) | 5,336 | 5,224 | 5,710 | 7,224 | |||||||||||||
Materials and supplies (Note 17) | 3,072 | 4,111 | 4,212 | 4,159 | |||||||||||||
Provision | 512 | 593 | 504 | 693 | |||||||||||||
Other | 716 | 924 | 721 | 969 | |||||||||||||
Capitalized expenses (Note 2) | (1,023 | ) | (944 | ) | (1,173 | ) | (1,385 | ) | |||||||||
30,164 | 26,585 | 27,097 | 40,836 | ||||||||||||||
Operating income | 6,325 | 4,732 | 2,880 | 8,563 | |||||||||||||
Financial income (expense) (Note 19): | |||||||||||||||||
Financial income | 370 | 425 | 286 | 501 | |||||||||||||
Financial expense | (1,473 | ) | (1,555 | ) | (1,464 | ) | (1,994 | ) | |||||||||
(1,103 | ) | (1,130 | ) | (1,178 | ) | (1,493 | ) | ||||||||||
Losses on equity investments (Note 8) | (39 | ) | (73 | ) | (59 | ) | (53 | ) | |||||||||
Extraordinary income (expenses) (Notes 2 and 20) | (818 | ) | (136 | ) | 736 | (1,107 | ) | ||||||||||
Income before income taxes | 4,365 | 3,393 | 2,379 | 5,910 | |||||||||||||
Income taxes (Notes 2 and 21) | 1,533 | 966 | 608 | 2,075 | |||||||||||||
Income before minority interests | 2,832 | 2,427 | 1,771 | 3,835 | |||||||||||||
Minority interests | (126 | ) | 82 | 237 | (172 | ) | |||||||||||
Net income | 2,706 | 2,509 | 2,008 | 3,663 | |||||||||||||
F-3
Additional | Law | |||||||||||||||||||||||||||
Share | paid in | Legal | 292/93 | Retained | Net | |||||||||||||||||||||||
Capital | capital | Reserve | Reserve | Earnings | Income | Total | ||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||
Balance at January 1, 2002 | 6,063 | — | 1,453 | 2,215 | 7,009 | 4,226 | 20,966 | |||||||||||||||||||||
Allocation of 2001 net income to reserves | — | — | — | — | 2,043 | (2,043 | ) | — | ||||||||||||||||||||
Dividends paid | — | — | — | — | — | (2,183 | ) | (2,183 | ) | |||||||||||||||||||
Translation of foreign companies’ financial statements and other changes | — | — | — | — | (19 | ) | — | (19 | ) | |||||||||||||||||||
Net income for 2002 | — | — | — | — | — | 2,008 | 2,008 | |||||||||||||||||||||
Balance at December 31, 2002 | 6,063 | — | 1,453 | 2,215 | 9,033 | 2,008 | 20,772 | |||||||||||||||||||||
Dividends paid | — | — | — | — | (175 | ) | (2,008 | ) | (2,183 | ) | ||||||||||||||||||
Asset revaluation | — | — | — | — | 33 | — | 33 | |||||||||||||||||||||
Translation of foreign companies’ financial statements and other changes | — | — | — | — | (7 | ) | — | (7 | ) | |||||||||||||||||||
Net income for 2003 | — | — | — | — | — | 2,509 | 2,509 | |||||||||||||||||||||
Balance at December 31, 2003 | 6,063 | — | 1,453 | 2,215 | 8,884 | 2,509 | 21,124 | |||||||||||||||||||||
Allocation of 2003 net income to reserves | — | — | — | — | 314 | (314 | ) | — | ||||||||||||||||||||
Dividends paid | — | — | — | — | — | (2,195 | ) | (2,195 | ) | |||||||||||||||||||
Exercise of stock options | 41 | 200 | — | — | — | — | 241 | |||||||||||||||||||||
Translation of foreign companies’ financial statements and other changes | — | — | — | — | (15 | ) | — | (15 | ) | |||||||||||||||||||
Net income for 2004 | — | — | — | — | — | 2,706 | 2,706 | |||||||||||||||||||||
Interim dividends paid | — | — | — | — | — | (2,014 | ) | (2,014 | ) | |||||||||||||||||||
Balance at December 31, 2004 | 6,104 | 200 | 1,453 | 2,215 | 9,183 | 692 | 19,847 | |||||||||||||||||||||
(millions of U.S. dollars) | ||||||||||||||||||||||||||||
Balance at December 31, 2004 | 8,264 | 271 | 1,967 | 2,999 | 12,432 | 937 | 26,869 | |||||||||||||||||||||
F-4
2004 | 2003 | 2002 | 2004 | ||||||||||||||
(millions of | |||||||||||||||||
(millions of euro) | U.S. dollars) | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||
Income before minority interests | 2,832 | 2,427 | 1,771 | 3,834 | |||||||||||||
Depreciation and amortization | 4,173 | 4,516 | 4,477 | 5,649 | |||||||||||||
Writedowns (revaluations), net | 1,242 | 308 | 1,832 | 1,681 | |||||||||||||
Net changes in reserves for employee termination indemnities | (194 | ) | (69 | ) | 117 | (262 | ) | ||||||||||
Net changes in other reserves | 91 | 236 | 19 | 123 | |||||||||||||
Gain on disposal of assets, net | (873 | ) | (528 | ) | (2,772 | ) | (1,182 | ) | |||||||||
Interest income | (370 | ) | (425 | ) | (286 | ) | (501 | ) | |||||||||
Interest expense | 1,473 | 1,555 | 1,465 | 1,994 | |||||||||||||
Income taxes | 1,533 | 966 | 608 | 2,075 | |||||||||||||
(Increase) Decrease: | |||||||||||||||||
Inventories | (39 | ) | (1,028 | ) | (1,320 | ) | (52 | ) | |||||||||
Accounts receivable | (1,091 | ) | 378 | 134 | (1,477 | ) | |||||||||||
Accrued income, prepayments and other | (20 | ) | (34 | ) | (53 | ) | (27 | ) | |||||||||
Equalization fund receivables | (1,241 | ) | 24 | 44 | (1,680 | ) | |||||||||||
Trade accounts payable | 541 | 275 | 1,434 | 733 | |||||||||||||
Accrued expenses and other current liabilities | 116 | 15 | 204 | 157 | |||||||||||||
Interest received | 359 | 425 | 286 | 486 | |||||||||||||
Interest paid | (1,445 | ) | (1,511 | ) | (1,436 | ) | (1,956 | ) | |||||||||
Income taxes paid | (1,695 | ) | (357 | ) | (1,731 | ) | (2,295 | ) | |||||||||
Net cash provided by operating activities | 5,392 | 7,173 | 4,793 | 7,300 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||
Investment: | |||||||||||||||||
Capital expenditure (tangibles and intangibles | (3,834 | ) | (3,969 | ) | (5,717 | ) | (5,191 | ) | |||||||||
Unconsolidated subsidiaries | (57 | ) | (37 | ) | (39 | ) | (77 | ) | |||||||||
Investments in consolidated subsidiaries, net of cash acquired | (135 | ) | (1,601 | ) | (2,339 | ) | (183 | ) | |||||||||
Other changes in fixed assets | 70 | 28 | 111 | 95 | |||||||||||||
(3,956 | ) | (5,579 | ) | (7,984 | ) | (5,356 | ) | ||||||||||
Disposals: | |||||||||||||||||
Businesses | 1,950 | 654 | 3,665 | 2,640 | |||||||||||||
Fixed assets | 108 | 230 | 113 | 146 | |||||||||||||
2,058 | 884 | 3,778 | 2,786 | ||||||||||||||
Net cash used in investing activities | (1,898 | ) | (4,695 | ) | (4,206 | ) | (2,570 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||
Increase in net long-term debt | 3,910 | 3,419 | 2,411 | 5,293 | |||||||||||||
Repayment of net long-term debt | (4,431 | ) | (1,350 | ) | (1,029 | ) | (5,999 | ) | |||||||||
Change in net short-term debt | 1,523 | (2,056 | ) | 924 | 2,062 | ||||||||||||
1,002 | 13 | 2,306 | 1,356 | ||||||||||||||
Dividends paid | (4,256 | ) | (2,183 | ) | (2,183 | ) | (5,761 | ) | |||||||||
Electricity Industry Pension Fund contribution and other pension obligations | — | — | (611 | ) | — | ||||||||||||
Exercise of stock options | 241 | — | — | 326 | |||||||||||||
Payment of substitute tax on freeing-up of reserves, assets revaluation and tax amnesty charges | (579 | ) | (365 | ) | (402 | ) | (784 | ) | |||||||||
Minority capital contribution and other minor items | 10 | 109 | 116 | 14 | |||||||||||||
Net cash used in financing activities | (3,582 | ) | (2,426 | ) | (774 | ) | (4,849 | ) | |||||||||
NET CASH FLOW FOR THE YEAR | (88 | ) | 52 | (187 | ) | (119 | ) | ||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR | 452 | 400 | 587 | 612 | |||||||||||||
CASH AND CASH EQUIVALENTS AT END OF THE YEAR | 364 | 452 | 400 | 493 | |||||||||||||
F-5
(1) | GENERAL |
F-6
F-7
(2) | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES |
F-8
F-9
F-10
Average years | ||||
of estimated | ||||
economic | ||||
Plant categories | useful life | |||
Buildings and associated land | 40 | |||
Generating plant: | ||||
Hydroelectric | 40 | |||
Thermal | 20 | |||
Geothermal | 12 | |||
Other renewable sources | 20 | |||
Transmission lines | 40 | (1) | ||
Transformer stations | 32-42 | (2) | ||
Medium and low voltage distribution lines | 30-40 | (3) | ||
Telecommunications: | ||||
Mobile equipments | 5-6 | |||
Fixed lines appliances | 8 | |||
Cables | 20 |
(1) | Average years estimated from January 1, 2003; previously equal to 35 (Note 6). |
(2) | Average years estimated from January 1, 2003; previously equal to 20 (Note 6). |
(3) | Average years estimated from January 1, 2004; previously equal to 18-20 (Note 6). |
F-11
F-12
F-13
• | IRES (corporate income tax, formerly IRPEG), payable at 33%, 34% and 36% for the years ended December 31, 2004, 2003 and 2002, respectively. | |
• | IRAP (regional income tax), payable at a tax rate of 4.25% for the years ended December 31, 2004, 2003 and 2002. From January 1, 2003, each Italian region may determine its own tax rate leading to an aggregate rate which must fall between 3.259% and 5.259%. |
F-14
(3) | REGULATION AND RATES |
F-15
• | Liberalized, as of April 1, 1999, the generation, import and export of electricity, as well as the sale of electricity to Eligible Customers; | |
• | Provided that, after January 1, 2003, no electricity company will be allowed to produce or import more than 50% of the total of imported and domestically-produced electricity in Italy, and, in connection with this limit, mandated the Company’s sale of not less than 15,000 MW of its generating capacity by January 1, 2003; | |
• | Provided that consumers, or Eligible Customers, meeting certain consumption thresholds, which have been progressively reduced, may negotiate supply agreements directly with any domestic or foreign producer, wholesaler or distributor of electricity, while other, “Non-Eligible Customers” must continue to purchase electricity from the distributor serving the area in which they are located and pay regulated prices determined by the Energy Authority; | |
• | Provided for the establishment of the Single Buyer, a central purchaser of electricity from producers on behalf of all Non-eligible Customers; | |
• | Provided for the creation of the Borsa dell’Energia Elettrica, (“Italian power exchange”) for electricity, in which producers, importers, wholesalers, distributors, the Gestore della Rete, other Eligible Customers and the Single Buyer buy and sell electricity, with prices being determined through a competitive bidding process; | |
• | Provided for the creation of the Gestore del Mercato, (“Market Operator”), charged with managing the Italian power exchange; | |
• | Provided for the separation of the management and operation of the national electricity transmission grid, which was to be licensed to an independent transmission system operator, the Gestore della Rete, from the ownership of the grid assets, which were retained by existing owners, primarily Terna; and | |
• | Established a new licensing regime for electricity distribution and provided incentives for the consolidation of electricity distribution networks within each municipality. |
F-16
(4) | RECEIVABLES |
2004 | 2003 | |||||||
(millions of euro) | ||||||||
Electricity, gas and services | 7,005 | 5,995 | ||||||
Telecommunication services | 1,054 | 1,335 | ||||||
Allowance for doubtful accounts | (362 | ) | (446 | ) | ||||
7,697 | 6,884 | |||||||
Tax receivables | 851 | 948 | ||||||
Equalization Fund receivables (payables) | 1,170 | (71 | ) | |||||
Other | 1,098 | 1,176 | ||||||
3,119 | 2,053 | |||||||
10,816 | 8,937 | |||||||
F-17
(5) | INVENTORIES |
2004 | 2003 | |||||||
(millions of euro) | ||||||||
Fuel | 590 | 534 | ||||||
Materials, supplies and other inventories | 554 | 527 | ||||||
Residential buildings available for sale | 196 | 263 | ||||||
Contract work in progress | 2,870 | 2,880 | ||||||
Advances | 4 | 7 | ||||||
4,214 | 4,211 | |||||||
F-18
(6) | UTILITY PLANT |
2004 | 2003 | |||||||
(millions of euro) | ||||||||
Utility plant, gross: | ||||||||
Generating Plant: | ||||||||
Hydroelectric | 8,220 | 8,178 | ||||||
Thermal | 17,646 | 17,432 | ||||||
Geothermal and renewable sources | 2,245 | 2,068 | ||||||
Transmission Line | 7,472 | 7,160 | ||||||
Distribution Electricity Network | 36,256 | 34,961 | ||||||
Distribution Gas Network | 2,767 | 2,573 | ||||||
Telecommunication networks | 5,608 | 5,124 | ||||||
Land and Buildings | 2,129 | 3,767 | ||||||
Other | 2,204 | 2,328 | ||||||
Construction in progress | 2,069 | 2,140 | ||||||
Total | 86,616 | 85,731 | ||||||
Accumulated Depreciation: | ||||||||
Generating Plant: | ||||||||
Hydroelectric | 3,820 | 3,599 | ||||||
Thermal | 10,767 | 10,025 | ||||||
Geothermal and renewable sources | 1,159 | 1,036 | ||||||
Transmission Line | 3,524 | 3,389 | ||||||
Distribution Electricity Network | 24,905 | 24,886 | ||||||
Distribution Gas Network | 1,036 | 944 | ||||||
Telecommunication networks | 2,551 | 1,868 | ||||||
Land and Buildings | 902 | 1,319 | ||||||
Other | 1,493 | 1,510 | ||||||
Total | 50,157 | 48,576 | ||||||
Utility plant, net: | ||||||||
Generating Plant: | ||||||||
Hydroelectric | 4,400 | 4,579 | ||||||
Thermal | 6,879 | 7,407 | ||||||
Geothermal and renewable sources | 1,086 | 1,032 | ||||||
Transmission Line | 3,948 | 3,771 | ||||||
Distribution Electricity Network | 11,351 | 10,075 | ||||||
Distribution Gas Network | 1,731 | 1,629 | ||||||
Telecommunication networks | 3,057 | 3,256 | ||||||
Land and Buildings | 1,227 | 2,448 | ||||||
Other | 711 | 818 | ||||||
Construction in progress | 2,069 | 2,140 | ||||||
Total | 36,459 | 37,155 | ||||||
F-19
December 31, 2003 | December 31, 2004 | |||||||||||||||||||||||||||||||||||
Reclass. | Reclass. | |||||||||||||||||||||||||||||||||||
retirem. | Net | retirem. | Net | |||||||||||||||||||||||||||||||||
January 1, 2003 | Depre- | and other | book | Depre- | and other | book | ||||||||||||||||||||||||||||||
Net book value | Addition | ciation | mov. | value | Addition | ciation | mov. | value | ||||||||||||||||||||||||||||
Generating Plant: | ||||||||||||||||||||||||||||||||||||
Hydroelectric | 4,809 | 35 | (249 | ) | (16 | ) | 4,579 | 56 | (249 | ) | (14 | ) | 4,400 | |||||||||||||||||||||||
Thermal | 7,739 | 293 | (741 | ) | 116 | 7,407 | 196 | (756 | ) | 32 | 6,879 | |||||||||||||||||||||||||
Geothermal and other renewable sources | 900 | 35 | (116 | ) | 213 | 1,032 | 23 | (119 | ) | 150 | 1,086 | |||||||||||||||||||||||||
Transmission line | 3,326 | 54 | (139 | ) | 530 | 3,771 | 78 | (152 | ) | 251 | 3,948 | |||||||||||||||||||||||||
Distribution electricity network | 11,720 | 1,119 | (1,018 | ) | (117 | ) | 11,704 | 1,242 | (609 | ) | 745 | 13,082 | ||||||||||||||||||||||||
Telecommunication networks | 3,248 | 515 | (690 | ) | 183 | 3,256 | 492 | (742 | ) | 51 | 3,057 | |||||||||||||||||||||||||
Land and buildings | 2,445 | 9 | (95 | ) | 89 | 2,448 | 32 | (63 | ) | (1,190 | ) | 1,227 | ||||||||||||||||||||||||
Other | 904 | 116 | (209 | ) | 7 | 818 | 114 | (198 | ) | (23 | ) | 711 | ||||||||||||||||||||||||
Construction in progress | 2,442 | 1,447 | — | (1,749 | ) | 2,140 | 1,285 | — | (1,356 | ) | 2,069 | |||||||||||||||||||||||||
Total | 37,533 | 3,623 | (3,257 | ) | (744 | ) | 37,155 | 3,518 | (2,888 | ) | (1,326 | ) | 36,459 | |||||||||||||||||||||||
F-20
• | the acquisition of the companies operating in the gas market (Sicilmetano, Ottogas and Italgestioni) and disposal of Aimeri (waste management), contributing to an increase in tangible assets of euro 78 million; | |
• | consolidation of Wisco, resulting in an increase in tangible assets of euro 12 million; | |
• | the acquisition by EUFR of some generation companies, resulting in an increase in tangible assets of euro 31 million; | |
• | the acquisition of certain North American generation companies, determining an increase in Enel North America’s tangible assets of euro 27 million. |
• | the disposal of Interpower, which resulted in the deconsolidation of fixed assets amounting to euro 450 million; | |
• | the deconsolidation of CESI resulting in a decrease in net book value of euro 55 million; | |
• | the acquisition of the EUFR resulting in an increase in net book value of euro 169 million; | |
• | the acquisition of Maritza resulting in an increase in net book value of euro 55 million. |
• | write-downs in the net book value of assets of euro 133 million in 2003; | |
• | accruals for expected dismantling and restoration costs of euro 4 million and 58 million accrued during the years ended December 31, 2004 and 2003, respectively (euro 6.6 million of the December 31, 2003 accrual was used in 2004); |
F-21
• | capitalized costs of euro 28 million as of December 31, 2004 and 2003. |
• | write-downs in the net book value of assets of euro 8 million; | |
• | accruals for expected dismantling and restoration costs of euro 9 million; |
(7) | INTANGIBLE ASSETS |
2004 | 2003 | |||||||
(millions of euro) | ||||||||
Goodwill | 6,586 | 8,313 | ||||||
Concessions, licenses, trademarks and similar rights | 2,563 | 2,707 | ||||||
Extraordinary contribution for Electricity Industry Pension Fund | 1,333 | 1,422 | ||||||
Patents and intellectual property rights | 423 | 489 | ||||||
Other | 629 | 645 | ||||||
11,534 | 13,576 | |||||||
December 31, 2004 | December 31, 2003 | |||||||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||||||
amortization | Net | amortization | Net | Amorti- | ||||||||||||||||||||||||
Historical | and write- | book | Historical | and write- | book | zation | ||||||||||||||||||||||
cost | downs | value | cost | downs | value | period | ||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||
Telecommunications | 9,771 | 4,682 | 5,089 | 9,771 | 3,011 | 6,760 | 15 years | |||||||||||||||||||||
Viesgo | 757 | 114 | 643 | 757 | 76 | 681 | 20 years | |||||||||||||||||||||
Gas sector | 735 | 160 | 575 | 701 | 111 | 590 | 15 years | |||||||||||||||||||||
ENA and ELA | 168 | 33 | 135 | 168 | 24 | 144 | 20 years | |||||||||||||||||||||
Maritza | 16 | 2 | 14 | 16 | 1 | 15 | 20 years | |||||||||||||||||||||
Enel Union Fenosa Ren | 130 | 6 | 124 | 123 | — | 123 | 20 years | |||||||||||||||||||||
Wisco | 7 | 1 | 6 | — | — | — | 5 years | |||||||||||||||||||||
11,584 | 4,998 | 6,586 | 11,536 | 3,223 | 8,313 | |||||||||||||||||||||||
F-22
F-23
(8) | INVESTMENTS |
2004 | 2003 | |||||||
(millions of | ||||||||
euro) | ||||||||
Investments in unconsolidated subsidiaries | 54 | — | ||||||
Investments in affiliates | 179 | 244 | ||||||
Investments in other companies | 69 | 91 | ||||||
302 | 335 | |||||||
F-24
(9) | OTHER NON-CURRENT ASSETS |
(10) | DEBT |
Balance at | Balance at | Current | Long-term maturity | |||||||||||||||||||||||||||||||||||||
Maturity | Dec. 31, | Dec. 31, | maturity | |||||||||||||||||||||||||||||||||||||
Summary by type of debt instrument | range | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | After | Total | ||||||||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||||||||||
Fixed — rate listed bonds | 2005-2033 | 7,178 | 7,208 | 745 | 225 | — | 1,000 | — | 5,238 | 6,463 | ||||||||||||||||||||||||||||||
Floating — rate listed bonds | 2006-2010 | 602 | 402 | — | 166 | — | 50 | 86 | 100 | 402 | ||||||||||||||||||||||||||||||
Fixed — rate bonds not listed | 2005-2008 | 181 | 188 | 70 | 45 | — | 73 | — | — | 118 | ||||||||||||||||||||||||||||||
Floating — rate bonds not listed | 2005-2032 | 1,774 | 1,853 | 21 | 21 | 22 | 21 | 330 | 1,438 | 1,832 | ||||||||||||||||||||||||||||||
Fixed — rate bond EU | 2005-2010 | 153 | 116 | 38 | 36 | 31 | 9 | 1 | 1 | 78 | ||||||||||||||||||||||||||||||
Floating — rate bonds EU | 2005-2009 | 11 | 9 | 3 | 3 | 1 | 1 | 1 | — | 6 | ||||||||||||||||||||||||||||||
Fixed — rate bank loans | 2005-2014 | 103 | 89 | 18 | 10 | 8 | 6 | 5 | 42 | 71 | ||||||||||||||||||||||||||||||
Floating — rate bank loans | 2005-2024 | 8,319 | 8,155 | 314 | 1,869 | 688 | 997 | 1,248 | 3,039 | 7,841 | ||||||||||||||||||||||||||||||
Fixed — rate EU Loans | 2005-2009 | 166 | 121 | 36 | 30 | 30 | 12 | 13 | — | 85 | ||||||||||||||||||||||||||||||
Floating — rate EU Loans | 2005-2018 | 3,363 | 3,307 | 106 | 267 | 295 | 394 | 408 | 1,837 | 3,201 | ||||||||||||||||||||||||||||||
Other financings | 2005-2026 | 166 | 158 | 14 | 13 | 12 | 10 | 12 | 97 | 144 | ||||||||||||||||||||||||||||||
Total | 22,016 | 21,606 | 1,365 | 2,685 | 1,087 | 2,573 | 2,104 | 11,792 | 20,241 | |||||||||||||||||||||||||||||||
F-25
7-year bonds | 20-year bonds | |||
Amount | euro 750 million | euro 750 million | ||
Repayment | In full on May 20, 2011 | In full on May 20, 2024 | ||
Coupon | 4.125% | 5.25% | ||
Issuance price | 99.553 | 98.586 | ||
Early repayment | Not permitted | Not permitted | ||
Listed in | Luxembourg | Luxembourg |
10-year bonds | 20-year bonds | |||
Amount | euro 600 million | euro 800 million | ||
Repayment | In full on October 28, 2014 | In full on October 28, 2024 | ||
Coupon | 4.25% | 4.90% | ||
Issuance price | 99.968 | 99.624 | ||
Early repayment | Not permitted | Not permitted | ||
Listed in | Luxembourg | Luxembourg |
F-26
At December 31, 2004 | At December 31, 2003 | |||||||||||||||||||
Average | (millions of | Average | (millions of | |||||||||||||||||
Currency | Maturity | Interest Rate | euro) | Interest Rate | euro) | |||||||||||||||
Euro | 2005-2033 | 3.62 | % | 20,769 | 4.03 | % | 21,348 | |||||||||||||
U.S. Dollar | 2005-2026 | 7.60 | % | 213 | 7.59 | % | 188 | |||||||||||||
British Pound | 2007-2033 | 5.98 | % | 64 | 6.16 | % | 67 | |||||||||||||
Swiss Franc | 2007-2009 | 6.78 | % | 30 | 6.87 | % | 40 | |||||||||||||
Japanese Yen | 2005-2010 | 1.60 | % | 141 | 1.80 | % | 149 | |||||||||||||
Brasilian Real | 2016 | 12.51 | % | 332 | 14.50 | % | 163 | |||||||||||||
Other currencies | 2012-2024 | 9.35 | % | 57 | 8.12 | % | 61 | |||||||||||||
Non-Euro Currency | 837 | 668 | ||||||||||||||||||
Total Long-Term Debt | 21,606 | 22,016 | ||||||||||||||||||
(11) | RESERVE FOR PENSIONS AND SIMILAR OBLIGATIONS |
F-27
(12) | DEFERRED TAX ASSETS AND LIABILITIES |
Consolidated | ||||||||||||||||
At December 31, | Statement | Other | At December 31, | |||||||||||||
In millions of euro | 2003 | of Income | movements | 2004 | ||||||||||||
Write downs of intangible and tangible assets | 76 | 6 | (1 | ) | 81 | |||||||||||
Provisions for risks and charges and write-downs with deferred tax deductibility | 678 | 169 | (148 | ) | 699 | |||||||||||
Tax losses carry forwarded | 941 | (55 | ) | 19 | 905 | |||||||||||
Investments write-downs | 113 | 164 | 19 | 296 | ||||||||||||
Consolidation adjustments and other movements | 230 | 33 | 95 | 358 | ||||||||||||
2,038 | 317 | (16 | ) | 2,339 | ||||||||||||
Less non current portion | (1,532 | ) | (1,257 | ) | ||||||||||||
Deferred tax assets, current portion | 506 | 1,082 | ||||||||||||||
F-28
Consolidated | ||||||||||||||||
Statement | ||||||||||||||||
At December 31, | of Income | Other | At December 31, | |||||||||||||
In millions of euro | 2003 | 2004 | movements | 2004 | ||||||||||||
Additional depreciation | 1,060 | 213 | 19 | 1,292 | ||||||||||||
Extraordinary contribution to FPE recognized over 20 year basis | 467 | (29 | ) | — | 438 | |||||||||||
Accelerated depreciation recognized by subsidiaries in the tax filing only | 603 | 191 | 1 | 795 | ||||||||||||
Gains on disposal | 131 | (25 | ) | (8 | ) | 98 | ||||||||||
Tax effect on allocation of consolidation differences to the net assets | 50 | (1 | ) | 12 | 61 | |||||||||||
Other movements | 204 | 16 | (21 | ) | 199 | |||||||||||
Total | 2,515 | 365 | 3 | 2,883 | ||||||||||||
(13) | OTHER NON-CURRENT LIABILITIES |
2004 | 2003 | |||||||
(millions of euro) | ||||||||
Litigation and contingent liabilities reserves | 1,283 | 1,443 | ||||||
Minority Interest | 1,131 | 191 | ||||||
Reserve for early retirement | 295 | 40 | ||||||
Payable to Ferrovie dello Stato for telecommunication network | 202 | 233 | ||||||
Payable to Treasury for UMTS license | 181 | 217 | ||||||
Substitute tax on revaluations (Law 350/2003) | — | 228 | ||||||
Other | 114 | 266 | ||||||
3,206 | 2,618 | |||||||
F-29
(14) | SHAREHOLDERS’ EQUITY |
F-30
F-31
Net Income | Shareholders’ Equity | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||
Per Parents’ statutory financial statements | 7,272 | 607 | 2,045 | 15,301 | 11,997 | 13,573 | ||||||||||||||||||
Effects of consolidating the financial statements of the Subsidiary Companies | (151 | ) | 2,192 | (370 | ) | 9,111 | 9,576 | 7,358 | ||||||||||||||||
Elimination of intra-group gains and other | (4,415 | ) | (290 | ) | (27 | ) | (4,565 | ) | (449 | ) | (159 | ) | ||||||||||||
Per consolidated financial statements | 2,706 | 2,509 | 2,008 | 19,847 | 21,124 | 20,772 | ||||||||||||||||||
(15) | OPERATING REVENUES |
2004 | 2003 | 2002 | ||||||||||
(millions of euro) | ||||||||||||
Energy sales and transport | 25,164 | 19,834 | 20,208 | |||||||||
Electricity Equalization Fund contributions | 17 | 179 | 187 | |||||||||
Telecommunications services | 4,168 | 3,959 | 3,642 | |||||||||
Gas sales to end users | 1,374 | 1,254 | 780 | |||||||||
Other: | ||||||||||||
— Connections, inspections and repositioning services | 675 | 684 | 645 | |||||||||
— Other operating revenues | 5,091 | 5,407 | 4,515 | |||||||||
Total other | 5,766 | 6,091 | 5,160 | |||||||||
36,489 | 31,317 | 29,977 | ||||||||||
F-32
(16) | PERSONNEL EXPENSES |
2004 | 2003 | 202 | ||||||||||
(millions of euro) | ||||||||||||
Wages and salaries | 2,372 | 2,440 | 2,554 | |||||||||
Social security contributions | 653 | 675 | 700 | |||||||||
Employee termination indemnities | 181 | 197 | 208 | |||||||||
Employee pension and similar obligations | 15 | 26 | 22 | |||||||||
Other costs | 94 | 102 | 105 | |||||||||
3,315 | 3,440 | 3,589 | ||||||||||
F-33
(17) | PURCHASED POWER, FUEL FOR THERMAL GENERATION AND MATERIALS AND SUPPLIES |
2004 | 2003 | 2002 | ||||||||||
(millions of euro) | ||||||||||||
Purchased power | 10,465 | 4,620 | 4,802 | |||||||||
Fuel for thermal generation | 3,598 | 4,101 | 4,255 | |||||||||
Total fuel and power | 14,063 | 8,721 | 9,057 | |||||||||
Materials consumption | 1,255 | 1,733 | 1,975 | |||||||||
Gas for distribution and fuel for trading | 1,817 | 2,378 | 2,237 | |||||||||
Total materials and supplies | 3,072 | 4,111 | 4,212 | |||||||||
17,135 | 12,832 | 13,269 | ||||||||||
(18) | SERVICES AND RENTALS EXPENSES |
2004 | 2003 | 2002 | ||||||||||
(millions of euro) | ||||||||||||
Electricity transmission fees | 1,069 | 912 | 1,399 | |||||||||
Interconnections and roaming | 1,346 | 1,381 | 1,426 | |||||||||
Other services | 2,155 | 2,197 | 2,164 | |||||||||
Total services | 4,570 | 4,490 | 4,989 | |||||||||
Rentals and leases | 766 | 734 | 721 | |||||||||
5,336 | 5,224 | 5,710 | ||||||||||
F-34
(19) | FINANCIAL INCOME AND EXPENSES |
2004 | 2003 | 2002 | ||||||||||
(millions of euro) | ||||||||||||
Interest income | 107 | 98 | 100 | |||||||||
Foreign exchange differences | 203 | 270 | 152 | |||||||||
Other | 60 | 57 | 34 | |||||||||
370 | 425 | 286 | ||||||||||
2004 | 2003 | 2002 | ||||||||||
(millions of euro) | ||||||||||||
Interest and other charges on bonds | 505 | 464 | 418 | |||||||||
Interest and other charges on loans from banks and other financial institutions | 453 | 547 | 510 | |||||||||
Interest on short-term debt from banks and other financial institutions | 99 | 148 | 200 | |||||||||
Foreign exchange differences | 198 | 268 | 159 | |||||||||
Other | 218 | 128 | 177 | |||||||||
1,473 | 1,555 | 1,464 | ||||||||||
(20) | EXTRAORDINARY INCOME AND EXPENSES |
• | gain on the sale of a 50% share in Terna, placed on the market in June 2004, amounting to euro 860 million (inclusive of the share in net income for the 1st Half of 2004); | |
• | gain of euro 113 million related to the sale of NewReal; | |
• | adjustments of various nature relating to WIND, equal to euro 29 million; | |
• | reversal of euro 22 million from the Provision for restructuring costs, accrued in the previous year in the Real estate sector; | |
• | euro 26 million of adjustments on income taxes for the previous year resulting from the definition of the tax treatment of some items, following clarifications not issued at the time at which the 2003 financial statements were prepared; | |
• | capital gains of euro 11 million realized on the disposal of minor distribution networks; | |
• | other items amounting to euro 90 million. |
F-35
• | write-down of euro 1,116 million for consolidation differences related to the Telecommunication sector to align its carrying value with the market value implied in the bid considered by Enel’s Board of Directors in the meeting held on April 9; | |
• | charges on early retirement incentives of euro 435 million; | |
• | write-downs of euro 57 million for fixed assets no longer in use related to WIND; | |
• | costs incurred by Enel SpA related to the stock market placement of a 50% share in the capital of Terna, amounting to euro 52 million. The amount includes the provision of euro 16 million to recognize one additional share to be given for every 20 shares (one additional share for every 10 shares for Enel Group’s employees) purchased in the Italian public offer and owned for 18 months from such purchase and deposited with one of the Italian managers or any other member of Monte Titoli (“bonus share”); | |
• | adjustments to balance sheet items, amounting to euro 41 million, due to differences emerging upon the application of new corporate law and tax regulations; | |
• | adjustments of euro 39 million related to energy and gas transactions completed in the previous years; | |
• | charges on participation in the tax pardon law, amounting to euro 31 million; | |
• | adjustments, write-downs and other items of various nature relating to WIND, amounting to euro 26 million; | |
• | write-downs and related accruals of euro 21 million mainly related to the conversion of the plant in Santa Barbara; | |
• | charges of approximately euro 20 million relating to contractual obligations regarding the transfer of ENEL’s interest in Elettrogen to Endesa; | |
• | charges for guarantees given in connection with the sale of NewReal of approximately euro 20 million; | |
• | losses related to the sale of a branch of an entity in the water sector of approximately euro 12 million; | |
• | previous years’ taxes amounting to euro 9 million; | |
• | extraordinary charges of various nature, amounting to euro 90 million. |
• | euro 356 million capital gain on the disposal of Interpower (Note 1); | |
• | euro 165 million capital gain on the disposal of local electricity distribution networks, of which euro 120 million related to the disposal of the Brescia distribution network (Note 1); | |
• | adjustments of euro 58 million on income taxes for the previous year, resulting from the definition of the tax treatment of a number of items for which there existed uncertainty when the 2002 Consolidated Financial Statements were prepared; | |
• | indemnities recognized by third parties of euro 44 million; | |
• | write-backs of euro 37 million as a result of adjustments made in previous years; | |
• | adjustments and other items relating to WIND of euro 31 million; | |
• | capital gains and non-recurring income of various nature of euro 69 million. |
F-36
• | early retirement incentives of euro 256 million; | |
• | write-downs of euro 133 million and other expenses of euro 58 million related to the conversion of the Torrevaldaliga Nord power plant; | |
• | restructuring and reorganization charges of euro 92 million, of which euro 69 million relates to WIND; | |
• | charges relating to the tax amnesty of euro 83 million; | |
• | adjustments relating to capital grants recorded in previous years’ of euro 60 million; | |
• | write-downs, settlements of transactions due to extraordinary events, extraordinary reimbursements made to customers and taxes relating to previous years of euro 48 million; | |
• | adjustments and other items of various nature relating to WIND of euro 44 million; | |
• | write-downs relating primarily to foreign coal trading activities of euro 23 million; | |
• | adjustments of euro 20 million on previous year fuel stocks; | |
• | expenses of various types of euro 79 million. |
• | gains on the disposal of Eurogen of euro 2,313 million (see Note 1); | |
• | gains on the disposal of the distribution networks in the municipalities of Milan and Verona of euro 459 million (see Note 1); | |
• | euro 64 million adjustment on previous years’ income taxes resulting primarily from the definition of the appropriate tax rules applicable to certain capital gains; | |
• | interconnection fee adjustments and other items relating to WIND of euro 46 million; | |
• | adjustments and extraordinary gains of euro 34 million recorded by the Viesgo Group; and | |
• | other extraordinary gains of euro 88 million. |
• | a write-down of euro 1,511 million to reflect the impairment in the value of the goodwill relating to WIND, based on the outlook for the telecommunications sector and the downwards revision of growth expectations (see Note 7); | |
• | early retirement incentives to personnel of euro 291 million; | |
• | a write-down of euro 94 million in the value of a discontinued geothermal plant; | |
• | adjustments, write-downs and items of various nature relating to WIND of euro 92 million; | |
• | a write-down of euro 58 million in the value of generation plants to be decommissioned in view of their conversion to combined-cycle technology; | |
• | a write-down of euro 49 million in the value of parts of plants destined to international projects in the engineering and contracting sector which, in view of the adverse economic situation in the area in which such projects were based (South America), are no longer expected to be carried on; | |
• | adjustments and accruals recorded by Viesgo of euro 39 million; | |
• | an adjustment of euro 41 million in the unamortized cost paid upon the suppression of the electricity industry pension fund following a reduction in personnel; and | |
• | other extraordinary losses of euro 93 million. |
F-37
(21) | INCOME TAXES |
2004 | 2003 | 2002 | ||||||||||
(millions of euro) | ||||||||||||
Italian Current income taxes | 1,463 | 1,396 | 562 | |||||||||
Foreign Income taxes | 22 | — | — | |||||||||
Deferred | 48 | (8 | ) | 357 | ||||||||
Resizing of deferred taxes and deferred tax assets to changes in tax rates | — | (47 | ) | (38 | ) | |||||||
Tax incentives on capital expenditure | — | — | (213 | ) | ||||||||
Release of deferred tax provision following release of accelerated depreciation reserves and reversal of deferred provision as a result of revaluation of assets carried out in the statutory accounts by ENEL companies | — | (375 | ) | (60 | ) | |||||||
1,533 | 966 | 608 | ||||||||||
2004 | 2003 | 2002 | ||||||||||
Normal tax rate on income before taxes(a) | 44.0 | % | 45.0 | % | 47.0 | % | ||||||
Resizing of deferred taxes and deferred tax assets to changes in tax rates | — | (1.4 | ) | (1.6 | ) | |||||||
Release of deferred tax provision following release of accelerated depreciation reserves and reversal of deferred provision as a result of revaluation of assets carried out in the statutory accounts by ENEL companies | — | (11.1 | ) | (2.5 | ) | |||||||
Capital gains subject to 19% substitute tax and release of excess deferred taxes of companies sold | — | (4.8 | ) | (37.1 | ) | |||||||
Adjustments of deferred tax assets and other impacts relating to WIND | (10.9 | ) | — | 23.2 | ||||||||
Tax incentives on capital expenditure | — | — | (9.0 | ) | ||||||||
Impact due to corporate operations in the gas sector | — | — | 5.0 | |||||||||
Foreign income taxes and other taxes | (1.8 | ) | — | — | ||||||||
Permanent differences: | ||||||||||||
— on capital gains | (9.2 | ) | — | — | ||||||||
— other | 13.0 | 0.8 | 0.6 | |||||||||
Effective tax rate | 35.1 | % | 28.5 | % | 25.6 | % | ||||||
(a) | The normal tax rate is estimated considering Italian Corporate income tax rate (IRES, which was replaced by IRPEG starting from 2004) of 33%, 34% and 36% for the years ended December 31, 2004, 2003 and 2002, respectively, and regional income tax rate (IRAP) of 4.25% for all years presented. In order to estimate the impact of IRAP (for which employee related costs, interest expense and certain other costs are not deductible) an estimate of the different tax base has been made based on historical trends. The impact of different tax rates used in foreign countries is reflected among other differences. |
F-38
(22) | COMMITMENTS AND CONTINGENCIES |
F-39
Notional Amounts and Credit Exposures of Derivatives |
Interest Rate Risk Management |
Notional amount | ||||||||
2004 | 2003 | |||||||
(millions of euro) | ||||||||
Interest rate swaps | 9,632 | 8,580 | ||||||
Interest rate collars | 687 | 873 | ||||||
Swaptions | 60 | 26 | ||||||
Total | 10,379 | 9,479 | ||||||
F-40
Foreign Exchange Rate Risk Management |
Notional amount | ||||||||
2004 | 2003 | |||||||
(millions of | ||||||||
euro) | ||||||||
Forward exchange contracts relating to Commodity hedging | 536 | 294 | ||||||
Forward exchange contracts relating to hedges of commercial paper | 715 | 440 | ||||||
Forward exchange contracts relating to hedges of future cash flows | 319 | 1,387 | ||||||
Other forward exchange contracts | 215 | 153 | ||||||
Options | 85 | 110 | ||||||
Total | 1,870 | 2,384 | ||||||
• | contracts with a notional amount of euro 855 million used to hedge the foreign exchange risk related to fuel purchases, electricity imports and expected cash flows in currencies other than the euro (euro 1,681 million as of December 31, 2003); and | |
• | contracts with a notional amount of euro 715 million used to hedge the foreign exchange risk related to the repayment of the commercial paper the Company issued in foreign currency (euro 440 million as of December 31, 2003). |
Commodity Risk Management |
F-41
• | Futures: no contracts existing at the balance sheet date; | |
• | Swaps on petroleum indexes: euro 537.56 million or 4,133,000 tons; | |
• | Swaps on gas transmission fee: euro 17,9 million, 6 years and 1 billion cubic meters per year; | |
• | Contracts for differences: euro 5,133 million or 11,4 TW; and | |
• | National and International congestion contracts: euro 118 million. |
• | Futures: euro 36.6 million or 1,437 contracts; | |
• | Swaps on petroleum indexes: euro 36.7 million or 335,852 tons; and | |
• | Swaps on gas transmission fee: euro 16,9 million, 7 years and 1 billion cubic meters per year. |
F-42
As of | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
Fair Value | ||||||||
(millions of euro) | ||||||||
Futures | — | 0.5 | ||||||
— assets | — | 0.6 | ||||||
— liabilities | — | (0.1 | ) | |||||
Swaps on Petroleum indexes | 12.2 | 1.6 | ||||||
— assets | 22.3 | 2.3 | ||||||
— liabilities | (10.1 | ) | (0.7 | ) | ||||
Gas Transmission fee | (11.7 | ) | (9.6 | ) | ||||
— assets | 0.0 | 0.0 | ||||||
— liabilities | (11.7 | ) | (9.6 | ) | ||||
Contracts for differences | — | — | ||||||
— assets | — | — | ||||||
— liabilities | — | — | ||||||
National and international concession contracts differences | — | — | ||||||
— assets | — | — | ||||||
— liabilities | — | — | ||||||
Total | 0.5 | (7.5 | ) | |||||
— assets | 22.3 | 2.9 | ||||||
— liabilities | (21.8 | ) | (10.4 | ) | ||||
F-43
F-44
F-45
F-46
(23) | RELATED PARTY TRANSACTIONS |
F-47
(24) | DIFFERENCES BETWEEN ITALIAN GAAP AND U.S. GAAP |
F-48
F-49
F-50
F-51
Sales, | ||||||||||||||||||||||||
Generation | infrastruc- | |||||||||||||||||||||||
Telecommu- | and energy | International | tures and | |||||||||||||||||||||
nications | management | operations | networks | Other | Total | |||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||
Balance as of January 1, 2004, as previously reported | 6,213 | — | 1,064 | — | — | 7,277 | ||||||||||||||||||
Reclassifications due to change in reorganized segments | — | 1,064 | (1,064 | ) | — | — | — | |||||||||||||||||
Goodwill acquired during year | — | 7 | — | 8 | 7 | 22 | ||||||||||||||||||
Impairment | (3,393 | ) | — | — | — | — | (3,393 | ) | ||||||||||||||||
Balance as of December 31, 2004 | 2,820 | 1,071 | — | 8 | 7 | 3,906 | ||||||||||||||||||
F-52
F-53
F-54
Extraordinary Income and Expenses |
Cash Flow Statements |
2004 | 2003 | 2002 | 2004 | |||||||||||||
(millions of | ||||||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||||||
Net cash provided by operating activities | 4,855 | 6,843 | 3,815 | 6,573 | ||||||||||||
Net cash used in investing activities | (1,940 | ) | (4,730 | ) | (4,241 | ) | (2,627 | ) | ||||||||
Net cash (used in) provided by financing activities | (3,003 | ) | (2,061 | ) | 239 | (4,065 | ) | |||||||||
F-55
F-56
F-57
F-58
• | A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted or modified after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. | |
• | A “modified retrospective” method that includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures of either (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
F-59
(25) | RECONCILIATION BETWEEN NET INCOME AND SHAREHOLDERS’ EQUITY DETERMINED UNDER ITALIAN GAAP AND U.S. GAAP |
2004 | 2003 | 2002 | 2004 | |||||||||||||
(millions of | ||||||||||||||||
(millions of euro)(a) | U.S. dollars)(a) | |||||||||||||||
Net income as reported in the Consolidated Statements of Income | 2,706 | 2,509 | 2,008 | 3,663 | ||||||||||||
Items increasing (decreasing) reported net income: | ||||||||||||||||
Fixed assets and related depreciation | 907 | 110 | 391 | 1,228 | ||||||||||||
Capitalized interest and related depreciation(b) | (33 | ) | (67 | ) | (37 | ) | (44 | ) | ||||||||
Customers’ connection fees | (490 | ) | (497 | ) | (491 | ) | (663 | ) | ||||||||
Pension and employee termination accounting | (108 | ) | (7 | ) | (71 | ) | (146 | ) | ||||||||
Other post-retirement benefits accounting | (14 | ) | (24 | ) | (22 | ) | (19 | ) | ||||||||
Derivatives | 1 | (3 | ) | (42 | ) | 1 | ||||||||||
Stock compensation costs | (89 | ) | — | — | (120 | ) | ||||||||||
Early retirement program | 197 | — | — | 267 | ||||||||||||
Additional share qualification for Terna’s shareholders | (35 | ) | — | — | (47 | ) | ||||||||||
Gain on sale of real estate business | (590 | ) | — | — | (799 | ) | ||||||||||
Advertising costs | 18 | 30 | 25 | 24 | ||||||||||||
Start-up costs | 10 | 10 | (13 | ) | 13 | |||||||||||
Internal use of software | 16 | (4 | ) | 1 | 22 | |||||||||||
Reorganization of companies under common control | 2 | 2 | 2 | 3 | ||||||||||||
FS (Italian State Railways) Right of Way | (4 | ) | (4 | ) | (4 | ) | (6 | ) | ||||||||
Sundry differences regarding telecommunications activity | — | (2 | ) | 3 | — | |||||||||||
Goodwill amortization and other intangibles | 583 | 535 | 594 | 789 | ||||||||||||
Goodwill impairment | (2,277 | ) | — | (825 | ) | (3,083 | ) | |||||||||
Camuzzi purchase price allocation | (4 | ) | (4 | ) | (4 | ) | (5 | ) | ||||||||
Restructuring reserve, conversion costs and other reserves | 48 | 121 | (2 | ) | 65 | |||||||||||
Italian pension system obligation | 89 | 124 | (446 | ) | 120 | |||||||||||
Investment in equity securities | 4 | — | — | 5 | ||||||||||||
Deferred taxes on equity reserves, including revaluations | (3 | ) | (371 | ) | (3 | ) | (4 | ) | ||||||||
Asset retirement obligations | (23 | ) | 2 | — | (31 | ) | ||||||||||
Tax effects of reconciling items | 92 | (77 | ) | 340 | 124 | |||||||||||
Impact of reconciling items on minority interest | 28 | (7 | ) | (5 | ) | 38 | ||||||||||
Net income in accordance with U.S. GAAP | 1,031 | 2,376 | 1,399 | 1,395 | ||||||||||||
Basic earnings per share in accordance with U.S. GAAP(c) | 0.17 | 0.39 | 0.23 | 0.26 | ||||||||||||
Diluted earnings per share in accordance with U.S. GAAP(d) | 0.17 | 0.39 | 0.23 | 0.26 | ||||||||||||
F-60
(a) | Except per-share data which is in Euro and U.S. dollars. |
(b) | Includes related depreciation of euro 75 million, euro 70 million, euro 72 million and U.S. $102 million, respectively. |
(c) | The per share amount has been calculated in accordance with SFAS No. 128, “Earnings Per Share”. See Note 26 for additional information on earnings per share. For purposes of these calculations the weighted average number of shares, taking into account the reverse stock split, was 6,063,075,189 shares as of December 31, 2002 and 2003, and was 6,086,831,617 shares as of December 31, 2004. |
(d) | Diluted per share amounts have been calculated in accordance with SFAS No. 128, “Earnings Per Share” and take into account the options outstanding with a potentially dilutive effect as of December 31, 2004. |
2004 | 2003 | 2004 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Shareholders’ equity as reported in the Consolidated Balance Sheet | 19,847 | 21,124 | 26,869 | |||||||||
Items increasing (decreasing) reported shareholders’ equity: | ||||||||||||
Fixed assets and related depreciation(a) | 595 | (313 | ) | 805 | ||||||||
Capitalized interest and related depreciation(b) | 1,248 | 1,281 | 1,690 | |||||||||
Customers’ connection fees | (1,478 | ) | (988 | ) | (2,001 | ) | ||||||
Pension and employee termination accounting | (90 | ) | (46 | ) | (122 | ) | ||||||
Other post-retirement benefits accounting | (1,138 | ) | (1,124 | ) | (1,540 | ) | ||||||
Derivatives | (431 | ) | (358 | ) | (584 | ) | ||||||
Stock compensation costs | (89 | ) | — | (120 | ) | |||||||
Early retirement program | 197 | — | 267 | |||||||||
Additional share qualification for Terna’s shareholders | (35 | ) | — | (47 | ) | |||||||
Gain on sale of real estate business | (590 | ) | — | (799 | ) | |||||||
Advertising costs | (7 | ) | (25 | ) | (10 | ) | ||||||
Start-up costs | (47 | ) | (56 | ) | (62 | ) | ||||||
Internal use of software | (21 | ) | (37 | ) | (27 | ) | ||||||
Reorganization under common control | (6 | ) | (8 | ) | (9 | ) | ||||||
FS (Italian State Railways) Right of Way | (27 | ) | (22 | ) | (36 | ) | ||||||
Sundry differences regarding telecommunications activity | — | — | — | |||||||||
Camuzzi purchase price allocation | 23 | 27 | 31 | |||||||||
Goodwill impairment, related amortization and other intangibles | (1,469 | ) | 225 | (1,989 | ) | |||||||
Restructuring reserve, conversion costs and other reserves | 169 | 121 | 228 | |||||||||
Italian pension system obligation | (1,333 | ) | (1,422 | ) | (1,805 | ) | ||||||
Investments in equity securities | 9 | (3 | ) | 12 | ||||||||
Deferred taxes on equity reserves, including revaluations | (630 | ) | (627 | ) | (853 | ) | ||||||
Asset retirement obligations | (21 | ) | 2 | (29 | ) | |||||||
Tax effects of reconciling items | 977 | 885 | 1,323 | |||||||||
Impact of reconciling items on minority interest | 43 | 15 | 58 | |||||||||
Shareholders’ equity in accordance with U.S. GAAP | 15,697 | 18,651 | 21,250 | |||||||||
F-61
(a) | Includes related accumulated depreciation of euro 10,824 million, euro 10,374. million, and U.S. $14,653 million, respectively. |
(b) | Includes related accumulated depreciation of euro 667-million, euro 604. million and U.S.$903 million, respectively. |
As of December 31, | ||||||||||||
2004 | 2003 | 2004 | ||||||||||
(millions of euro) | (millions of | |||||||||||
U.S. dollars) | ||||||||||||
Assets | ||||||||||||
Current Assets | 16,761 | 14,299 | 22,690 | |||||||||
Fixed Assets, net | 37,589 | 37,407 | 50,889 | |||||||||
Other non-current assets | 12,802 | 16,799 | 17,331 | |||||||||
67,152 | 68,505 | 90,910 | ||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||
Current liabilities | 21,107 | 23,268 | 28,575 | |||||||||
Long-term debt | 20,242 | 18,005 | 27,404 | |||||||||
Other non-current liabilities | 9,008 | 8,405 | 12,195 | |||||||||
Total liabilities | 50,357 | 49,678 | 68,174 | |||||||||
Minority interest | 1,098 | 176 | 1,486 | |||||||||
Shareholders’ equity | 15,697 | 18,651 | 21,250 | |||||||||
67,152 | 68,505 | 90,910 | ||||||||||
2004 | 2003 | 2002 | 2004 | |||||||||||||
(millions of euro) | (millions of | |||||||||||||||
U.S. dollars) | ||||||||||||||||
Total operating revenues | 35,092 | 31,237 | 30,604 | 47,508 | ||||||||||||
Total operating expenses | 32,316 | 26,620 | 30,600 | 43,749 | ||||||||||||
Gains on sales of businesses | 930 | 349 | 2,613 | 1,258 | ||||||||||||
Operating income | 3,706 | 4,966 | 2,617 | 5,017 | ||||||||||||
Financial income | (1,056 | ) | (1,098 | ) | (1,185 | ) | (1,430 | ) | ||||||||
Losses on equity method investments | (36 | ) | (70 | ) | (59 | ) | (49 | ) | ||||||||
Income before income taxes and minority interest | 2,614 | 3,798 | 1,373 | 3,538 | ||||||||||||
Income tax expense | 1,485 | 1,497 | 207 | 2,010 | ||||||||||||
Income before minority interest | 1,129 | 2,301 | 1,166 | 1,528 | ||||||||||||
Minority interest (losses) | 98 | (75 | ) | (233 | ) | 133 | ||||||||||
Net Income | 1,031 | 2,376 | 1,399 | 1,395 | ||||||||||||
F-62
Other | ||||||||||||||||
Retained | comprehensive | |||||||||||||||
Share capital | earnings | income | Total | |||||||||||||
(millions of euro) | ||||||||||||||||
Balance as of December 31, 2001 | 6,063 | 13,817 | (413 | ) | 19,467 | |||||||||||
Net income | — | 1,399 | — | 1,399 | ||||||||||||
Derivatives | — | — | (135 | ) | (135 | ) | ||||||||||
Minimum pension liabilities | — | — | (3 | ) | (3 | ) | ||||||||||
Other changes | — | — | (19 | ) | (19 | ) | ||||||||||
Dividends | — | (2,183 | ) | — | (2,183 | ) | ||||||||||
Balance as of December 31, 2002 | 6,063 | 13,033 | (570 | ) | 18,526 | |||||||||||
Net income | — | 2,376 | — | 2,376 | ||||||||||||
Derivatives | — | — | (12 | ) | (12 | ) | ||||||||||
Minimum pension liabilities | — | — | 38 | 38 | ||||||||||||
Investments in equity securities | — | — | (2 | ) | (2 | ) | ||||||||||
Other changes | — | (85 | ) | (7 | ) | (92 | ) | |||||||||
Dividends | — | (2,183 | ) | — | (2,183 | ) | ||||||||||
Balance as of December 31, 2003 | 6,063 | 13,141 | (553 | ) | 18,651 | |||||||||||
Net income | — | 1,031 | — | 1,031 | ||||||||||||
Derivatives | — | — | (50 | ) | (50 | ) | ||||||||||
Minimum pension liabilities | — | — | 43 | 43 | ||||||||||||
Investments in equity securities | — | — | 5 | 5 | ||||||||||||
Other changes | — | — | (16 | ) | (15 | ) | ||||||||||
Exercise of stock options | 41 | 200 | — | 241 | ||||||||||||
Dividends, including interim dividends | — | (4,209 | ) | — | (4,209 | ) | ||||||||||
Balance as of December 31, 2004 | 6,104 | 10,163 | (571 | ) | 15,697 | |||||||||||
(millions of U.S. dollars) | ||||||||||||||||
Balance as of December 31, 2004 | 8,264 | 13,759 | (773 | ) | 21,250 | |||||||||||
2004 | 2003 | 2002 | 2004 | |||||||||||||
(millions of euro) | (millions of | |||||||||||||||
U.S. dollars) | ||||||||||||||||
Net income in accordance with U.S. GAAP | 1,031 | 2,376 | 1,399 | 1,395 | ||||||||||||
Minimum pension liabilities | 43 | 38 | (3 | ) | 58 | |||||||||||
Investments in equity securities | 5 | (2 | ) | — | 7 | |||||||||||
Derivatives | (50 | ) | (12 | ) | (135 | ) | (66 | ) | ||||||||
Other changes | (15 | ) | (7 | ) | (19 | ) | (20 | ) | ||||||||
Total comprehensive income | 1,014 | 2,393 | 1,242 | 1,374 | ||||||||||||
F-63
(26) | ADDITIONAL U.S. GAAP DISCLOSURES |
(a) | Concentrations of Risk and Certain Significant Estimates |
Tariff Structure |
F-64
Increased Competition |
• | An increase in bilateral contracts between its competitors and final customers; | |
• | Regulations limiting each operator’s access to international electricity sources to a maximum percentage of available interconnection capacity; and | |
• | The construction of new generation facilities by its competitors and the development of new interconnection lines that would increase the volume of electricity that may be imported in Italy. |
Basis of Presentation |
(b) | EUFR Acquisition |
F-65
Millions of euro | ||||
Current assets | 46 | |||
Fixed assets, net | 168 | |||
Goodwill | 123 | |||
Other non-current assets | 39 | |||
Total assets acquired | 376 | |||
Current liabilities | (47 | ) | ||
Long-term debt | (135 | ) | ||
Minority interest | (14 | ) | ||
Other non-current liabilities | (2 | ) | ||
Total liabilities assumed | (198 | ) | ||
Net assets acquired | 178 | |||
(c) | WIND Acquisition |
Millions of euro | ||||
Current assets | 395 | |||
Fixed assets, net | 922 | |||
Goodwill | 855 | |||
Intangible assets | 595 | |||
Other non-current assets | 1,284 | |||
Total assets acquired | 4,051 | |||
Current liabilities | (622 | ) | ||
Long-term debt | (1,855 | ) | ||
Minority interest | (7 | ) | ||
Other non-current liabilities | (178 | ) | ||
Total liabilities assumed | (2,662 | ) | ||
Net assets acquired | 1,389 | |||
F-66
(d) | Maritza Acquisition |
Millions of euro | ||||
Current assets | 95 | |||
Fixed assets, net | 57 | |||
Goodwill | 28 | |||
Other non-current assets | 9 | |||
Total assets acquired | 189 | |||
Current liabilities | (53 | ) | ||
Long-term debt | — | |||
Minority interest | (61 | ) | ||
Other non-current liabilities | — | |||
Total liabilities assumed | (114 | ) | ||
Net assets acquired | 75 | |||
(e) | Viesgo Acquisition |
F-67
Millions of euro | ||||
Current assets | 252 | |||
Fixed assets, net | 1,421 | |||
Goodwill | 757 | |||
Other non-current assets | 123 | |||
Total assets acquired | 2,553 | |||
Current liabilities | (457 | ) | ||
Long-term debt | (12 | ) | ||
Minority interest | (19 | ) | ||
Other non-current liabilities | (145 | ) | ||
Total liabilities assumed | (633 | ) | ||
Net assets acquired | 1,920 | |||
(f) | Camuzzi Acquisition |
Millions of euro | ||||
Current assets | 479 | |||
Fixed assets, net | 866 | |||
Intangible assets | 632 | |||
Other non-current assets | 98 | |||
Total assets acquired | 2,075 | |||
Current liabilities | (658 | ) | ||
Long-term debt | (228 | ) | ||
Minority interest | (2 | ) | ||
Other non-current liabilities | (142 | ) | ||
Total liabilities assumed | (1,030 | ) | ||
Net assets acquired | 1,045 | |||
F-68
(g) | 2004 acquisitions |
-Gas sector |
• | Sicilmetano and Sicilmetano Energy, based in Catania, Italy, operating in the distribution and sale of natural gas to end customers, merged into Enel Rete Gas S.p.A. and Enel Gas S.p.A., respectively, effective January 1, 2004 (100% share interest acquired); | |
• | Ottogas Rete S.r.l. and Ottogas Vendita S.r.l., based in Milan, Italy, operating in the distribution and sale of natural gas to end customers (100% share interest acquired); | |
• | Italgestioni Gas S.r.l. and Italgestioni S.r.l., based in Bologna, Italy, operating in the distribution and sale of natural gas to end customers (100% share interest acquired); |
-Generation and Energy Management sector |
• | Sistemas Energeticos Manon Ortigueira SA, based in Ortigueira, Spain, operating in the renewable resource electricity generation sector (86% share acquired); | |
• | certain generation companies, based in North America, operating in the renewable resource electricity generation sector; |
-Other activities |
• | Water & Industrial Services Company S.p.A., based in Monza, Italy, a provider of refluent water softening services (51% share interest acquired); |
(h) | Accounting for Income Taxes |
2004 | 2003 | 2002 | 2004 | |||||||||||||
(millions of | ||||||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||||||
Current | 1,525 | 1,479 | 285 | 2,065 | ||||||||||||
Deferred | (40 | ) | 18 | (78 | ) | (55) | ||||||||||
Total | 1,485 | 1,497 | 207 | 2,010 | ||||||||||||
F-69
2004 | 2003 | 2002 | ||||||||||
Normal tax rate(a) | 44 | % | 45 | % | 47.0 | % | ||||||
Change in tax rates | — | (0.5 | ) | (1.7 | ) | |||||||
Reversal of net deferred tax provision | (28.4 | ) | — | (2.7 | ) | |||||||
Capital gains (not taxable in 2004 or subject to a 19% substitute tax in 2003 and 2004) | (15.3 | ) | (4.3 | ) | (65.4 | ) | ||||||
Increase in valuation allowance | — | — | 40.1 | |||||||||
Non-deductible goodwill impairment | 60.1 | — | — | |||||||||
Other differences | (3.6 | ) | (0.8 | ) | (2.2 | ) | ||||||
Effective tax rate | 56.8 | % | 39.4 | % | 15.1 | % | ||||||
(a) | See note 22 for the definition of normal tax rate. |
2004 | 2003 | 2004 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Deferred tax assets: | ||||||||||||
Other post retirement benefits accounting | 376 | 371 | 508 | |||||||||
Assets write-downs | 377 | 189 | 510 | |||||||||
Provision for litigation and contingent liabilities | 658 | 646 | 891 | |||||||||
Tax loss carryforwards | 1,500 | 1,513 | 2,031 | |||||||||
Customers’ connection fees | 550 | 368 | 745 | |||||||||
Revaluation of utility plant | — | 117 | — | |||||||||
Deferred Income | 220 | — | 298 | |||||||||
Other | 479 | 375 | 648 | |||||||||
Total deferred tax assets | 4,160 | 3,579 | 5,631 | |||||||||
Valuation allowances | (595 | ) | (572 | ) | (805 | ) | ||||||
Total deferred tax assets, net | 3,565 | 3,007 | 4,826 | |||||||||
Deferred tax liabilities: | ||||||||||||
Revaluation of utility plant | (222 | ) | — | (300 | ) | |||||||
Accelerated depreciation of utility plant | (2,087 | ) | (1,663 | ) | (2,825 | ) | ||||||
Capitalization of interest on utility plant | (465 | ) | (477 | ) | (629 | ) | ||||||
Equity reserves | (581 | ) | (572 | ) | (787 | ) | ||||||
Goodwill impairment and amortization | — | (76 | ) | — | ||||||||
Other | (356 | ) | (383 | ) | (483 | ) | ||||||
Total deferred tax liabilities | (3,711 | ) | (3,171 | ) | (5,024 | ) | ||||||
Net deferred tax liabilities | (146 | ) | (164 | ) | (198 | ) | ||||||
F-70
• | 2006: euro 377 million; | |
• | 2007: euro 143 million; | |
• | 2008: euro 637 million; | |
• | 2009: euro 379 million; | |
• | no limits: euro 545 million. |
2004 | 2003 | |||||||
(millions of | ||||||||
euro) | ||||||||
Minimum Pension Liabilities | (21 | ) | (17 | ) | ||||
Derivatives | 25 | 5 | ||||||
Investments in equity securities | (3 | ) | 1 | |||||
(i) | Segment Information |
F-71
F-72
Services | ||||||||||||||||||||||||||||||||
Generation | Sales, | and | ||||||||||||||||||||||||||||||
and energy | infrastructures | other | ||||||||||||||||||||||||||||||
management | and networks | Transmission | Telecom. | Corporate | activities | Eliminations | Consolidated | |||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||
Revenues | 11,388 | 20,966 | 828 | 3,921 | 1,973 | 2,883 | (11,982 | ) | 29,977 | |||||||||||||||||||||||
Operating Income | 1,440 | 2,128 | 267 | (1,019 | ) | 164 | (46 | ) | (54 | ) | 2,880 | |||||||||||||||||||||
Depreciation and Amortization | 1,283 | 1,249 | 247 | 1,496 | 4 | 198 | — | 4,477 | ||||||||||||||||||||||||
Capital Expenditures(1) | 986 | 1,900 | 423 | 1,550 | — | 250 | — | 5,109 | ||||||||||||||||||||||||
Identifiable Assets | 22,391 | 22,190 | 4,635 | 15,678 | 7,505 | 8,870 | (14,250 | ) | 67,019 | |||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||
Revenues | 12,607 | 20,433 | 927 | 4,383 | 1,139 | 2,742 | (10,914 | ) | 31,317 | |||||||||||||||||||||||
Operating Income | 2,457 | 2,329 | 430 | (840 | ) | 223 | 213 | (80 | ) | 4,732 | ||||||||||||||||||||||
Depreciation and Amortization | 1,202 | 1,234 | 154 | 1,716 | 4 | 206 | — | 4,516 | ||||||||||||||||||||||||
Capital Expenditures(1) | 829 | 1,665 | 371 | 685 | — | 73 | — | 3,623 | ||||||||||||||||||||||||
Identifiable Assets | 19,985 | 23,094 | 5,681 | 16,366 | 7,113 | 9,271 | (12,580 | ) | 68,930 | |||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||
Revenues | 12,982 | 19,466 | 1,023 | 4,714 | 1,617 | 1,799 | (5,112 | ) | 36,489 | |||||||||||||||||||||||
Operating Income | 2,698 | 2,885 | 509 | (456 | ) | 653 | 130 | (94 | ) | 6,325 | ||||||||||||||||||||||
Depreciation and Amortization | 1,230 | 837 | 164 | 1,810 | 5 | 127 | — | 4,173 | ||||||||||||||||||||||||
Capital Expenditures(1) | 842 | 1,632 | 277 | 680 | — | 87 | — | 3,518 | ||||||||||||||||||||||||
Identifiable Assets | 20,485 | 22,916 | 4,956 | 14,009 | 12,538 | 7,521 | (14,095 | ) | 68,330 | |||||||||||||||||||||||
2004 | (millions of U.S. Dollars) | |||||||||||||||||||||||||||||||
Revenues | 17,575 | 26,353 | 1,385 | 6,382 | 2,189 | 2,435 | (6,921 | ) | 49,399 | |||||||||||||||||||||||
Operating Income | 3,653 | 3,906 | 689 | (617 | ) | 884 | 176 | (127 | ) | 8,563 | ||||||||||||||||||||||
Depreciation and Amortization | 1,665 | 1,133 | 222 | 245 | 7 | 172 | — | 5,649 | ||||||||||||||||||||||||
Capital Expenditures(1) | 1,140 | 2,209 | 375 | 921 | — | 118 | — | 4,763 | ||||||||||||||||||||||||
Identifiable Assets | 27,733 | 31,024 | 6,709 | 18,965 | 16,974 | 10,182 | (19,082 | ) | 92,505 | |||||||||||||||||||||||
(1) | Tangible assets. |
F-73
Services | ||||||||||||||||||||||||||||||||
Generation | Sales, | and | ||||||||||||||||||||||||||||||
and energy | infrastructures | other | ||||||||||||||||||||||||||||||
management | and networks | Transmission | Telecom. | Corporate | activities | Eliminations | Consolidated | |||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||
Revenues | 12,395 | 828 | 21,425 | 3,967 | 1,973 | 2,971 | (12,955 | ) | 30,604 | |||||||||||||||||||||||
Operating Income | 1,176 | 1,440 | 230 | (2,839 | ) | 158 | (107 | ) | (54 | ) | 4 | |||||||||||||||||||||
Depreciation and Amortization | 1,222 | 1,548 | 230 | 930 | 1 | 138 | — | 4,069 | ||||||||||||||||||||||||
Capital Expenditures(1) | 1,021 | 1,900 | 423 | 1,550 | — | 250 | — | 5,144 | ||||||||||||||||||||||||
Identifiable Assets | 23,167 | 21,993 | 4,567 | 15,286 | 7,616 | 8,044 | (14,250 | ) | 66,423 | |||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||
Revenues | 12,194 | 927 | 20,596 | 4,401 | 1,186 | 2,847 | (10,914 | ) | 31,237 | |||||||||||||||||||||||
Operating Income | 2,333 | 1,805 | 426 | (377 | ) | 245 | 260 | (80 | ) | 4,612 | ||||||||||||||||||||||
Depreciation and Amortization | 1,303 | 1,626 | 147 | 1,199 | 7 | 224 | — | 4,506 | ||||||||||||||||||||||||
Capital Expenditures(1) | 864 | 1,665 | 371 | 685 | — | 73 | — | 3,658 | ||||||||||||||||||||||||
Identifiable Assets | 22,958 | 23,060 | 4,779 | 10,035 | 29,612 | 16,899 | (38,814 | ) | 68,530 | |||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||
Revenues | 12,318 | 19,466 | 1,023 | 4,494 | 1,062 | 1,841 | (5,112 | ) | 35,092 | |||||||||||||||||||||||
Operating Income | 2,485 | 2,531 | 475 | (3,404 | ) | 1,351 | 361 | (94 | ) | 3,706 | ||||||||||||||||||||||
Depreciation and Amortization | 1,286 | 1,043 | 168 | 1,242 | 4 | 114 | — | 3,857 | ||||||||||||||||||||||||
Capital Expenditures(1) | 871 | 1,632 | 277 | 680 | — | 87 | — | 3,547 | ||||||||||||||||||||||||
Identifiable Assets | 21,332 | 22,257 | 4,893 | 12,340 | 12,699 | 7,726 | (14,095 | ) | 67,152 | |||||||||||||||||||||||
(millions of U.S. Dollars) | ||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||
Revenues | 16,676 | 26,353 | 1,385 | 6,084 | 1,438 | 2,492 | (6,921 | ) | 47,508 | |||||||||||||||||||||||
Operating Income | 3,365 | 3,426 | 643 | (4,608 | ) | 1,829 | 489 | (127 | ) | 5,017 | ||||||||||||||||||||||
Depreciation and Amortization | 1,741 | 1,413 | 227 | 1,681 | 5 | 154 | — | 5,222 | ||||||||||||||||||||||||
Capital Expenditures(1) | 1,179 | 2,209 | 375 | 921 | — | 118 | — | 4,802 | ||||||||||||||||||||||||
Identifiable Assets | 28,880 | 30,132 | 6,624 | 16,705 | 17,192 | 10,460 | (19,082 | ) | 90,910 | |||||||||||||||||||||||
(1) | Tangible assets. |
(j) | Earnings per Share |
F-74
Basic and Diluted EPS | 2004 | 2003 | 2002 | 2004 | ||||||||||||
(millions of | ||||||||||||||||
(millions of Euro)(*) | U.S. dollars)(*) | |||||||||||||||
Income available to common shareholders | 1,031 | 2,376 | 1,399 | 1,395 | ||||||||||||
Weighted average shares — basic (in millions) | 6,087 | 6,063 | 6,063 | 6,087 | ||||||||||||
Weighted average shares — diluted (in millions) | 6,215 | 6,063 | 6,063 | 6,215 | ||||||||||||
Earnings per share-basic: | 0.17 | 0.39 | 0.23 | 0.23 | ||||||||||||
Earnings per share-diluted: | 0.17 | 0.39 | 0.23 | 0.23 | ||||||||||||
(*) | Except per-share data which is in euro and U.S. dollars. |
• | Cash and cash equivalents: the carrying values of cash and cash equivalents approximate their fair values because of their short maturities. | |
• | Investments in equity securities classified as available for sale: the carrying value of such investments reflects their fair value as of the balance sheet date. | |
• | Short-term debt: the carrying value of short-term debt approximates fair value because of the short period of time between the origination and maturity of the borrowings. | |
• | Other noncurrent assets: the carrying value of such assets reflects their fair value as of the balance sheet date. | |
• | Bonds payable-listed: the fair value of bonds payable-listed is based upon period-end market prices. | |
• | Other bonds and long-term debt (including current maturities): the fair values of other bonds and long-term debt (including current maturities) are based on discounted cash flow analyses. |
As of December 31, | ||||||||||||||||
2004 | 2004 | 2003 | 2003 | |||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(millions of euro) | ||||||||||||||||
Bonds payable-listed | 7,610 | 7,989 | 7,780 | 7,873 | ||||||||||||
Other bonds and long-term debt, including current maturities | 13,996 | 13,987 | 14,236 | 14,085 | ||||||||||||
F-75
As of December, 31 | ||||||||
2004 | 2003 | |||||||
Fair Value | ||||||||
(millions of euro) | ||||||||
Interest rate swaps | (407 | ) | (354 | ) | ||||
— assets | 46 | 10 | ||||||
— liabilities | (453 | ) | (364 | ) | ||||
Interest rate collars | (13 | ) | (12 | ) | ||||
— assets | 0 | — | ||||||
— liabilities | (13 | ) | (12 | ) | ||||
Swaptions | — | 1 | ||||||
— assets | — | 1 | ||||||
— liabilities | — | — | ||||||
Total interest rate derivatives | (420 | ) | (365 | ) | ||||
— assets | 46 | 11 | ||||||
— liabilities | (466 | ) | (376 | ) | ||||
Forward exchange contracts relating to commodity hedging | (34 | ) | (18 | ) | ||||
— assets | — | — | ||||||
— liabilities | (34 | ) | (18 | ) | ||||
Forward exchange contracts relating to hedge of commercial papers | (28 | ) | (24 | ) | ||||
— assets | — | — | ||||||
— liabilities | (28 | ) | (24 | ) | ||||
Forward exchange contracts relating to hedge of future cash flows | 3 | (9 | ) | |||||
— assets | 7 | 32 | ||||||
— liabilities | (4 | ) | (41 | ) | ||||
Other Forward exchange contracts | — | — | ||||||
— assets | 3 | 2 | ||||||
— liabilities | (3 | ) | (2 | ) | ||||
Options | — | — | ||||||
— assets | — | 2 | ||||||
— liabilities | — | (2 | ) | |||||
Contracts for differences | — | — | ||||||
— assets | — | — | ||||||
— liabilities | — | — | ||||||
National and international congestion contracts differences | — | — | ||||||
— assets | — | — | ||||||
— liabilities | — | — | ||||||
Total | (479 | ) | (416 | ) | ||||
— assets | 56 | 47 | ||||||
— liabilities | (535 | ) | (463 | ) | ||||
F-76
• | contracts with a notional amount of euro 855 million used to hedge the foreign exchange risk related to fuel purchases, electricity imports and expected cash flows in currencies other than the euro (euro 1,681 million as of December 31, 2003); and | |
• | contracts with a notional amount of euro 715 million used to hedge the foreign exchange risk related to the repayment of the commercial paper issued in foreign currency (euro 440 as of December 31, 2003). |
(l) | Effects of Regulation |
F-77
(m) | Utility Plant |
2004 | 2003 | 2004 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Utility plant, gross: | ||||||||||||
Generating Plant: | ||||||||||||
Hydroelectric | 6,506 | 6,447 | 8,808 | |||||||||
Thermal | 17,205 | 16,966 | 23,292 | |||||||||
Geothermal and other renewable resources | 2,127 | 1,944 | 2,880 | |||||||||
Transmission line | 6,565 | 6,245 | 8,888 | |||||||||
Distribution Network | 32,551 | 31,189 | 44,068 | |||||||||
Distribution Gas Network | 2,767 | 2,559 | 3,746 | |||||||||
Telecommunication | 5,604 | 5,124 | 7,587 | |||||||||
Land and Buildings | 2,449 | 2,339 | 3,315 | |||||||||
Other | 2,179 | 2,272 | 2,950 | |||||||||
Construction in progress | 2,069 | 2,140 | 2,801 | |||||||||
Total | 80,022 | 77,225 | 109,421 | |||||||||
Accumulated depreciation: | ||||||||||||
Generating Plant: | ||||||||||||
Hydroelectric | 2,484 | 2,309 | 3,363 | |||||||||
Thermal | 9,176 | 8,209 | 12,422 | |||||||||
Geothermal and other renewable resources | 1,019 | 893 | 1,380 | |||||||||
Transmission Line | 2,600 | 2,409 | 3,520 | |||||||||
Distribution Network | 21,102 | 20,875 | 28,568 | |||||||||
Distribution Gas Network | 1,080 | 973 | 1,462 | |||||||||
Telecommunication | 2,548 | 1,868 | 3,449 | |||||||||
Land and Buildings | 947 | 799 | 1,282 | |||||||||
Other | 1,477 | 1,483 | 2,000 | |||||||||
Construction in progress | — | — | — | |||||||||
Total | 42,433 | 39,818 | 57,446 | |||||||||
Utility plant, net: | ||||||||||||
Generating Plant: | ||||||||||||
Hydroelectric | 4,022 | 4,138 | 5,445 | |||||||||
Thermal | 8,029 | 8,757 | 10,870 | |||||||||
Geothermal and other renewable resources | 1,108 | 1,051 | 1,500 | |||||||||
Transmission Line | 3,965 | 3,836 | 5,368 | |||||||||
Distribution Network | 11,449 | 10,314 | 15,500 | |||||||||
Distribution Gas Network | 1,687 | 1,586 | 2,284 | |||||||||
Telecommunication | 3,056 | 3,256 | 4,137 | |||||||||
Land and Buildings | 1,502 | 1,540 | 2,033 | |||||||||
Other | 702 | 789 | 950 | |||||||||
Construction in progress | 2,069 | 2,140 | 2,801 | |||||||||
Total | 37,589 | 37,407 | 50,889 | |||||||||
F-78
(n) | Stock-Based Compensation |
Number of | Average | |||||||
Options | Grant Price | |||||||
(euro) | ||||||||
Outstanding at January 1, 2001 | 5,513,200 | 8.60 | ||||||
Granted | 34,274,050 | 7.27 | ||||||
Exercised | — | — | ||||||
Forfeited | (15,080,582 | ) | 7.27 | |||||
Outstanding at December 31, 2001 | 24,706,668 | 7.57 | ||||||
Tranche 2001 | ||||
Future dividends per share | euro 0.36 | |||
Risk-free interest rate | 4.05% | |||
Expected life | 2.5 years | |||
Expected volatility | 27% | |||
F-79
Number of | Average | |||||||
Options | Grant Price | |||||||
(euro) | ||||||||
Outstanding at January 1, 2002 | 24,706,668 | 7.57 | ||||||
Granted(*) | 41,748,500 | 6.43 | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Outstanding at December 31, 2002 | 66,455,168 | 6.85 | ||||||
(*) | 2,503,500 granted to Enel’s Chief Executive Officer at euro 6.480. |
Future dividends per share | Euro 0.28 | |||
Risk-free interest rate | 2.82% | |||
Expected life | 2.0 years | |||
Expected volatility | 28% | |||
Number of | Average | |||||||
Options | Grant Price | |||||||
(euro) | ||||||||
Outstanding at January 1, 2003 | 66,455,168 | 6.85 | ||||||
Granted(*) | 47,624,005 | 5.24 | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Outstanding at December 31, 2003 | 114,079,173 | 6.18 | ||||||
(*) | 4,200,000 granted to Enel’s Chief Executive Officer at euro 5.240. |
Future dividends per share | Euro 0.28 | |||
Weighted average risk-free interest rate | 2.82% | |||
Expected life | 2.0 years | |||
Expected volatility | 28% | |||
F-80
Future dividends per share | Euro 0.36 | |||
Weighted average risk-free interest rate | 2.72% | |||
Expected life | 3.5 years | |||
Expected volatility | 17% | |||
Number of | Average | |||||||
Options | Grant Price | |||||||
(euro) | ||||||||
Outstanding at January 1, 2004 | 114,079,173 | 6.18 | ||||||
Granted(*) | 38,527,550 | 6.24 | ||||||
Exercised | (40,446,675 | ) | 5.95 | |||||
Forfeited | (17,309,226 | ) | 6.80 | |||||
Outstanding at December 31, 2004(**) | 94,850,822 | 6.15 | ||||||
(*) | 2,500,000 granted to Enel’s Chief Executive Officer at euro 6.242. |
(**) | Price has been reduced by euro 0.41, as discussed above. |
Options Outstanding | ||||||||||||||||||||||||||||
Options exercisable | ||||||||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||||||
average | Weighted | Weighted | Weighted | |||||||||||||||||||||||||
Range of | remaining | average | average | average | Fair | |||||||||||||||||||||||
Tranche | Grant Prices | options | grant life | grant price | grant options | Price | value | |||||||||||||||||||||
(euro) | (years) | (euro) | (euro) | (euro) | ||||||||||||||||||||||||
2001 | 6.86 | 16,690,142 | 0.5 | 6.86 | 16,690,142 | 7.27 | 0.48 | |||||||||||||||||||||
2002 | 6.02 | 12,819,944 | 1.5 | 6.02 | 2,707,944 | 6.43 | 0.17 | |||||||||||||||||||||
2003 | 4.83 | 28,044,186 | 2.5 | 4.83 | 1,384,539 | 5.24 | 0.67 | |||||||||||||||||||||
2004 | 5.83 | 37,296,550 | 3.5 | — | — | — | 0.183 | |||||||||||||||||||||
F-81
2004 | 2003 | 2002 | ||||||||||
Net income in accordance with U.S. GAAP, as reported | 1,031 | 2,376 | 1,399 | |||||||||
Stock-based employee compensation expense, as reported | 139 | — | — | |||||||||
Stock-based employee compensation expense under fair value | (122 | ) | (12 | ) | (6 | ) | ||||||
Pro forma net income | 1,048 | 2,364 | 1,393 | |||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
As Reported | Pro Forma | As Reported | Pro Forma | As Reported | Pro Forma | |||||||||||||||||||
Basic and diluted earnings per share | 0.17 | 0.17 | 0.39 | 0.39 | 0.23 | 0.23 | ||||||||||||||||||
(o) | Pension and Other Post-Retirement Benefit Costs |
F-82
Other Post- | ||||||||||||||||
Pension benefits | retirement benefits | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(millions of euro) | (millions of euro) | |||||||||||||||
Change in Benefit Obligation: | ||||||||||||||||
Benefit obligation at January 1 | 1,985 | 2,087 | 1,152 | 1,149 | ||||||||||||
Service cost | 102 | 84 | 12 | 10 | ||||||||||||
Interest cost | 98 | 101 | 56 | 56 | ||||||||||||
Actuarial (gain) loss | 5 | (52 | ) | 69 | (20 | ) | ||||||||||
Plan amendment | 1 | — | — | — | ||||||||||||
PBO of business acquired (disposed) | — | 47 | — | — | ||||||||||||
Benefits paid | (172 | ) | (291 | ) | (54 | ) | (43 | ) | ||||||||
Special withdrawal | (209 | ) | — | — | — | |||||||||||
Adjustment | 47 | 9 | — | — | ||||||||||||
Benefit obligation at December 31 | 1,857 | 1,985 | 1,241 | 1,152 | ||||||||||||
Change in plan assets:(a) | ||||||||||||||||
Fair value of plan assets at beginning of year | 129 | 111 | 18 | 15 | ||||||||||||
Actuarial return on plan assets | 6 | 6 | 1 | 1 | ||||||||||||
Employer contributions | 388 | 284 | 3 | 2 | ||||||||||||
Plan participants’ contribution | — | — | — | — | ||||||||||||
Benefits paid | (169 | ) | (290 | ) | (1 | ) | — | |||||||||
Special withdrawal | (209 | ) | — | — | — | |||||||||||
Intercompanies reallocation of plan assets | — | 4 | — | — | ||||||||||||
Adjustments | 24 | 4 | 2 | — | ||||||||||||
Gains (losses) | (2 | ) | 10 | (1 | ) | — | ||||||||||
Fair value of plan assets at end of year | 167 | 129 | 22 | 18 | ||||||||||||
Reconciliation of Funded Status of the Plans: | ||||||||||||||||
Funded (un-funded) status | (1,690 | ) | (1,856 | ) | (1,219 | ) | (1,134 | ) | ||||||||
Unrecognized net (gain) loss | 367 | 435 | 51 | (15 | ) | |||||||||||
Unrecognized net transition obligation | (16 | ) | (17 | ) | — | — | ||||||||||
Accrued benefit cost | (1,339 | ) | (1,438 | ) | (1,168 | ) | (1,149 | ) | ||||||||
Adjustment for minimum liability | (277 | ) | (344 | ) | — | — | ||||||||||
Amount recognized in the Consolidated Balance Sheet | (1,616 | ) | (1,782 | ) | (1,168 | ) | (1,149 | ) | ||||||||
Information for pension plans with an accumulated benefit obligation in excess of plan assets: | ||||||||||||||||
Projected benefit obligation | (1,701 | ) | (1,851 | ) | (1,189 | ) | (1,108 | ) | ||||||||
Accumulated benefit obligation | (1,588 | ) | (1,729 | ) | (1,189 | ) | (1,108 | ) | ||||||||
Fair value of plan assets | 21 | 3 | — | — | ||||||||||||
F-83
Other Post- | ||||||||||||||||
Pension benefits | retirement benefits | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(millions of euro) | (millions of euro) | |||||||||||||||
Prepaid benefit cost | — | — | — | — | ||||||||||||
Accrued benefit cost | (1,616 | ) | (1,782 | ) | (1,168 | ) | (1,149 | ) | ||||||||
Intangible assets | — | — | — | — | ||||||||||||
Accumulated other comprehensive income | 277 | 344 | — | — | ||||||||||||
Net amount recognized | (1,339 | ) | (1,438 | ) | (1,168 | ) | (1,149 | ) | ||||||||
Other Post- | ||||||||||||||||||||||||
Pensions benefits | retirement benefits | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||||||
Service cost | 102 | 84 | 89 | 12 | 10 | 13 | ||||||||||||||||||
Interest cost | 98 | 101 | 102 | 56 | 56 | 52 | ||||||||||||||||||
Expected return on plan assets | (7 | ) | (6 | ) | (5 | ) | (1 | ) | (1 | ) | — | |||||||||||||
Net amortization and deferral | 17 | 16 | 20 | — | — | — | ||||||||||||||||||
Net periodic benefit cost | 210 | 195 | 206 | 67 | 65 | 65 | ||||||||||||||||||
Curtailment gain/initial accrual | — | — | 75 | — | — | — | ||||||||||||||||||
Special withdrawal | 68 | — | — | — | — | — | ||||||||||||||||||
Adjustment | 15 | 13 | — | 2 | — | — | ||||||||||||||||||
Total cost accrual | 293 | 208 | 281 | 69 | 65 | 65 | ||||||||||||||||||
Other Post- | ||||||||||||||||
Pension benefits | retirement benefits | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(millions of euro) | (millions of euro) | |||||||||||||||
Increase in minimum liability included in other comprehensive income | 67 | 61 | — | — | ||||||||||||
Other Post- | ||||||||||||||||
Pensions benefits | retirement benefits | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Weighted Average Assumptions used to determine benefit obligations as of December 31: | ||||||||||||||||
Discount rate | 4.25% | 5.0% | 4.25% | 5.0% | ||||||||||||
Rate of compensation increase | 3.0% | 3.5% | N/A | N/A | ||||||||||||
F-84
Other Post- | ||||||||||||||||||||||||
Pensions benefits | retirement benefits | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||
Weighted Average Assumptions used to determine net periodic benefit cost for years ended December 31: | ||||||||||||||||||||||||
Discount rate | 5.0% | 5.0% | 5.0% | 5.0% | 5.0% | 5.0% | ||||||||||||||||||
Expected long term rate of return on plan assets | 5.0% | 5.0% | 5.0% | 5.0% | 5.0% | 2.5% | ||||||||||||||||||
Rate of compensation increase | 3.5% | 3.5% | 3.5% | N/A | N/A | N/A | ||||||||||||||||||
2004 | 2003 | |||||||
Assumed health care cost trend rates at December 31 | ||||||||
Health care cost trend rate assumed for next year | 3.0 | % | 3.5 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 3.0 | % | 3.5 | % | ||||
Year that the rate reaches the ultimate trend rate | 2005 | 2004 | ||||||
1- Percentage- | 1- Percentage- | |||||||
Point Increase | Point Decrease | |||||||
(millions of euro) | ||||||||
Effect on total cost | 1 | (1 | ) | |||||
Effect on accumulated post-retirement benefit obligation | 30 | (24 | ) | |||||
Pension | Other Post- | |||||||
benefits | retirement benefits | |||||||
(millions of euro) | ||||||||
2005 | 104 | 55 | ||||||
2006 | 118 | 57 | ||||||
2007 | 123 | 58 | ||||||
2008 | 150 | 60 | ||||||
2009 | 203 | 62 | ||||||
Years 2010-2014 | 1,335 | 323 | ||||||
(p) | Derivative Financial Instruments |
F-85
• | For “cash flow hedges”, the effective portion of the gain or loss from the derivative hedging instrument is accumulated in other comprehensive income (“OCI”) and recognized in earnings during the period that the hedged forecasted transaction impacts earnings. The ineffective portion of the gain or loss from the derivative hedging instrument is recognized in earnings immediately. | |
• | For “fair value hedges”, the gain or loss on the derivative instrument designated and qualifying as a fair value hedging instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized currently in earnings in the same accounting period. | |
• | For all other derivative contracts which do not qualify for the special hedge accounting treatment under SFAS 133, gains and losses are recorded in earnings each reporting period. |
a. | It has (1) one or more underlying and (2) one or more notional amounts or payment provisions or both. |
b. | No initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. |
c. | Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. |
Cash Flow Hedges |
F-86
Gains/ | Gains/ | Gains/ | |||||||||||||||||||||||||||||||||||||||
OCI at | losses | Reclassified | OCI at | losses | Reclassified | OCI at | losses | Reclassified | OCI at | ||||||||||||||||||||||||||||||||
December 31, | recorded | to earnings | December 31, | recorded | to earnings | December 31, | recorded | to earnings | December 31, | ||||||||||||||||||||||||||||||||
Type of operation | 2001 | in 2002 | in 2002 | 2002 | in 2003 | in 2003 | 2003 | in 2004 | in 2004 | 2004 | |||||||||||||||||||||||||||||||
Interest rate swaps | (72 | ) | (201 | ) | 3 | (270 | ) | (29 | ) | 14 | (285 | ) | 24 | (106 | ) | (367 | ) | ||||||||||||||||||||||||
Interest rate collars | — | (4 | ) | — | (4 | ) | (3 | ) | — | (7 | ) | 11 | (5 | ) | (1 | ) | |||||||||||||||||||||||||
Swaptions | — | (2 | ) | — | (2 | ) | 2 | — | — | — | — | — | |||||||||||||||||||||||||||||
Total | (72 | ) | (207 | ) | 3 | (276 | ) | (30 | ) | 14 | (292 | ) | 35 | (111 | ) | (368 | ) | ||||||||||||||||||||||||
Fair Value Hedges |
Other Derivative Contracts |
F-87
Gain/losses | ||||||||||||
included in earnings | ||||||||||||
Type of Operation | 2004 | 2003 | 2002 | |||||||||
Interest rate swaps | (2 | ) | (2 | ) | (6 | ) | ||||||
Interest rate collars | (8 | ) | 3 | (1 | ) | |||||||
Swaptions | — | 1 | 5 | |||||||||
Forward exchange agreements | 1 | 34 | (52 | ) | ||||||||
Options | — | — | — | |||||||||
Commodity swaps | 7 | (5 | ) | (13 | ) | |||||||
Commodity futures | 2 | (33 | ) | 25 | ||||||||
Contract for differences | — | — | — | |||||||||
National and International congestion contracts | — | — | — | |||||||||
Total | — | (2 | ) | (42 | ) | |||||||
(q) | Amortization of Intangible Assets |
Customer | Customer | |||||||||||
relationship | Licences | portfolio | ||||||||||
Balance as of January 1, 2003, net | 544 | 61 | 114 | |||||||||
Additions in 2003 | 103 | 84 | — | |||||||||
2003 amortization expense | (48 | ) | (10 | ) | (14 | ) | ||||||
Balance as of December 31, 2003, net | 599 | 135 | 100 | |||||||||
Additions in 2004 | 21 | — | — | |||||||||
2004 amortization expense | (59 | ) | (13 | ) | (14 | ) | ||||||
Balance as of December 31, 2004, net | 561 | 122 | 86 | |||||||||
(r) | Asset Retirement Obligations |
F-88
Euro | ||||
million | ||||
Balance as of January 1, 2004 | 26 | |||
Liability incurred during 2004 | 9 | |||
Liability settled in 2004 | — | |||
Accretion expense | 5 | |||
Revisions in estimated cash flows | 48 | |||
Balance as of December 31, 2004 | 88 | |||
(s) | Cost method investments |
(t) | Variable interest entities |
(27) | SUBSEQUENT EVENTS |
(a) | Acquisition of an Electricity Generation Company in Slovakia |
F-89
(b) | Sale of Distribution Network in Modena |
(c) | Transfer of certain activities from Gestore della Rete di Transmissione Nazionale SpA (GRTN) to Terna |
(d) | Terna borrowing |
(e) | Issue of Euro 1 Billion in Bonds to Italian Investors |
(f) | Sale of 29.99% of Terna |
(g) | Sale of 13.86% of Terna share capital |
F-90
(h) | Litigation |
(i) | Sale of Wind |
F-91
(j) | Acquisition of Distribution Companies in Romania |
F-92
F-93
ENEL S.P.A. | |
(Registrant) | |
/s/Fulvio Conti | |
Name: Fulvio Conti |
Title: | Chief Executive Officer |
Chief Financial Officer |