CONTENTS
Legal Information | 3 |
Special Separate Merger Statement of Financial Position | 4 |
Notes to the Special Separate Merger Financial Statement |
|
Note 1. Purpose of this SpecialSeparate MergerFinancial Statement | 6 |
Note 2. SpecialSeparate MergerFinancial Statement presentation | 6 |
Note 3. The Company’s economic and financial situation | 6 |
Note 4. Basis of preparation | 8 |
Note 5. Accounting policies | 9 |
Note 6. Property, plant and equipment | 18 |
Note 7. Interest in subsidiaries and joint ventures | 18 |
Note 8. Other receivables | 19 |
Note 9. Inventories | 19 |
Note 10. Trade receivables | 20 |
Note 11. Financial assets at fair value through profit or loss | 20 |
Note 12. Cash and cash equivalents | 20 |
Note 13. Assets and liabilities of disposal group classified as held for sale | 20 |
Note 14. Trade payables | 21 |
Note 15.Other payables | 21 |
Note 16. Borrowings | 21 |
Note 17. Deferred revenue | 22 |
Note 18. Salaries and social security taxes payable | 22 |
Note 19. Benefit plans | 22 |
Note 20. Deferred tax liabilities | 22 |
Note 21. Tax liabilities | 23 |
Note 22. Provisions | 23 |
Note 23. Balances with related parties | 23 |
Note 24. Events after the reporting period | 24 |
Note 25. Special Financial Statements translation into English language | 24 |
Auditor’s Report |
|
Supervisory Committee’s Report |
|
Legal Information
Corporate name: Empresa Distribuidora y Comercializadora Norte S.A.
Legal address:6363 Del Libertador Ave., City of Buenos Aires
Main business:Distribution and sale of electricity in the area and under the terms of the concession agreement by which this public service is regulated.
Date of registration with the Public Registry of Commerce:
- of the Articles of Incorporation: August 3, 1992
- of the last amendment to the By-laws: May 28, 2007
Term of the Corporation:August 3, 2087
Registration number with the “Inspección General de Justicia” (the Argentine governmental regulatory agency of corporations):1,559,940
CAPITAL STRUCTURE
AS OF SEPTEMBER 30, 2013
(amounts stated in pesos)
Class of shares |
| Subscribed and paid-in |
|
|
|
Common, book-entry shares, face value 1 and 1 vote per share |
|
|
|
|
|
Class A |
| 416,062,900 |
Class B (1) |
| 397,989,346 |
Class C |
| 1,757,344 |
|
| 815,809,590 |
|
|
|
(1) Includes 8,471,300 treasury shares as of September 30, 2013.
3
Edenor S.A.
Special Separate Merger Statement of Financial Position
as of September 30, 2013
(Stated in thousands of pesos)
| Note |
| 09.30.13 |
ASSETS |
|
|
|
NON-CURRENT ASSETS |
|
|
|
Property, plant and equipment | 6 |
| 4,847,779 |
Interest in joint ventures | 7 |
| 426 |
Other receivables | 8 |
| 145,097 |
TOTAL NON-CURRENT ASSETS |
|
| 4,993,302 |
|
|
|
|
CURRENT ASSETS |
|
|
|
Inventories | 9 |
| 54,251 |
Other receivables | 8 |
| 1,290,858 |
Trade receivables | 10 |
| 719,872 |
Financial assets at fair value through profit or loss | 11 |
| 90,998 |
Cash and cash equivalents | 12 |
| 287,483 |
TOTAL CURRENT ASSETS |
|
| 2,443,462 |
Assets of disposal group classified as held for sale | 13 |
| 33,035 |
TOTAL ASSETS |
|
| 7,469,799 |
4
Edenor S.A.
Special Separate Merger Statement of Financial Position
as of September 30, 2013(continued)
(Stated in thousands of pesos)
| Note |
| 09.30.13 |
EQUITY |
|
|
|
Share capital |
|
| 807,339 |
Treasury stock |
|
| 8,471 |
Other comprehensive loss |
|
| (14,659) |
Retained earnings |
|
| 408,050 |
TOTAL EQUITY |
|
| 1,209,201 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
Interest in subsidiaries | 7 |
| 1,480 |
Trade payables | 14 |
| 176,049 |
Other payables | 15 |
| 1,072,827 |
Borrowings | 16 |
| 1,258,298 |
Deferred revenue | 17 |
| 34,366 |
Salaries and social security taxes payable | 18 |
| 19,894 |
Benefit plans | 19 |
| 76,715 |
Deferred tax liability | 20 |
| 64,546 |
Tax liabilities | 21 |
| 15,006 |
Provisions | 22 |
| 66,403 |
TOTAL NON-CURRENT LIABILITIES |
| 2,785,584 | |
|
|
| |
CURRENT LIABILITIES |
|
| |
Trade payables | 14 |
| 2,705,586 |
Other payables | 15 |
| 119,780 |
Borrowings | 16 |
| 52,186 |
Salaries and social security taxes payable | 18 |
| 344,156 |
Tax liabilities | 21 |
| 233,271 |
Provisions | 22 |
| 20,035 |
TOTAL CURRENT LIABILITIES |
|
| 3,475,014 |
TOTAL LIABILITIES |
|
| 6,260,598 |
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
| 7,469,799 |
The accompanying notes are an integral part of the Special Separate Merger Financial Statement
5
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
1. Purpose of this Special Separate Merger Financial Statement
This Special Separate Merger Financial Statement as of September 30, 2013 is presented by virtue of the preliminary merger agreement entered into by and between EDENOR S.A. (“the Company”) and Emdersa Holding S.A., and in compliance with the provisions of Section 83 of Argentine Business Organizations Law No. 19,550, Section 165 of General Resolution 7/05 of theInspección General de Justicia (Argentine governmental regulatory agency of corporations), and other applicable legal regulations.
On October 7, 2013, the Company Board of Directors resolved to initiate the proceedings pursuant to which the Company will absorb Emdersa Holding S.A., concluding that the merger into one single company, given the tax neutrality of the transaction, is beneficial in order to optimize their resources, simplifying the corporate administrative and operating structure.
This Special Separate Merger Financial Statementas of September 30, 2013 has been prepared for the consideration of the Company Extraordinary Shareholders’ Meeting.
2. Special Separate Merger Financial Statement presentation
This Special SeparateMerger Financial Statementhas been prepared based on the Company’s Condensed Interim Separate Financial Statements as of September 30, 2013.
Due to its specific purpose, thisSpecial SeparateMerger Financial Statement does not include the statement of comprehensive income, the statement of changes in equity, the statement of cash flows or the presentation of comparatives figures and certain complementary information required by the accounting standards generally accepted in the City of Buenos Aires.
Consequently, thisSpecial SeparateMerger Financial Statement and its notes are to be read in conjunction with both theCompany’s Condensed Interim Separate Financial Statements as of September 30, 2013 and theCompany’s Separate Financial Statements as of December 31, 2012.
3. The Company’s economic and financial situation
In the last two fiscal years ended December 31, 2012 and 2011, the Company recorded negative operating and net results, with its liquidity level and working capital having been affected as well. This situation is due mainly to both the continuous increase of its operating costs that are necessary to maintain the level of the service, and the delay in obtaining rate increases and/or recognition of its real higher costs (“CMM”), as stipulated in Section 4 of the Adjustment Agreement, including the review procedure in the event of deviations exceeding 5%, which have led the Company to report negative equity as of March 31, 2013. As a consequence of the partial recognition of higher costs (in accordance with the provisions of Section 4.2 of the Adjustment Agreement) for the period May 2007 through February 2013 that occurred in the second quarter of the current fiscal year, the Company turned its accumulated deficit at March 31, 2013 into positive retained earnings, thereby rectifying the situation of corporate dissolution to which it had been exposed.
Nevertheless, the constant increase in the operating costs that are necessary to maintain the level of the service, and the delay in obtaining genuine rate increases will continue to deteriorate the Company’s operating results, demonstrating that this recognition is insufficient to restore the balance that the economic and financial equation of the public service, object of the concession, requires.
It is worth mentioning that, in general terms, the quality of the distribution service has been maintained and the constant year-on-year increase in the demand for electricity that has accompanied the economic growth and the standard of living of the last years has also been satisfied. Due to both the continuous increase recorded in the costs associated with the provision of the service and the need for additional investments to meet the increased demand, the Company has adopted a series of measures aimed at mitigating the negative effects of this situation on its financial structure, such as: (i) reducing certain specified costs, including the reduction of top management personnel’s fees; (ii) selling or disposing of all its shareholdings in subsidiaries and collecting the loans granted to such companies; (iii) making all reasonable efforts to obtain from the authorities the funds necessary to face the salary increases demanded by unions; (iv) seeking new financing options; (v) refinancing the financial debt with extended maturity terms and/or; (vi) deferring the timing for certain estimated capital expenditures; provided that these measures do not affect the sources of employment, the execution of the investment plan or the carrying out of the essential operation and maintenance works that are necessary to maintain the provision of the public service.
6
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
Additionally, the Company has made a series of presentations before control agencies, regulatory authorities and courts in order to jointly instrument the necessary mechanisms to contribute to an efficient provision of the distribution service, the maintenance of the level of investments and the compliance with the increased demand. In this context, the ENRE has issued Resolution 347/12, which established the application of fixed and variable charges that allowed the Company to obtain additional revenue as from November 2012. However, such additional revenue is insufficient to make up the aforementioned deficit.
In view of the aforementioned, and given the inefficacy of the administrative and judicial actions pursued and presentations made by the Company, on December 28, 2012, an action for the protection of the Company’s rights (“acción de amparo”) was brought against the ENRE so that the Regulatory Authority, in the performance of its duties, could adopt those measures which, in the Company’s opinion, are not only urgently needed but also essential for the provision of the public service of electricity distribution that the Company is required to provide under the concession agreement on a continuous, regular and safe basis.
Furthermore, with the aim of maintaining and guaranteeing the provision of the public service, and in order to alleviate the financial situation, as from October 2012 the Company found itself forced to partially cancel, on a temporary basis, the obligations with the Wholesale Electricity Market with surplus cash balances after having complied with the commitments necessary to guarantee the provision of the public service that EDENOR is required to provide, including the investment plans underway and operation and maintenance works, as well as with the payment of the salary increases established by Resolution No. 1906/12 of the Secretariat of Labor dated November 27, 2012 and the Salary Agreement dated February 26, 2013. In this regard, the ENRE and CAMMESA sent notices to the Company demanding payment of such debt, which have been duly replied by the Company.
In this context, and considering both the above-described situation and the negative equity reported in the Company’s Financial Statements for the interim period ended March 31, 2013, the Energy Secretariat issued Resolution 250/13, published in theOfficial Gazette on May 15, 2013, which, among other issues, determined and approved the values of the adjustments resulting from the CMM, to which the Company is entitled, for the period May 2007 through February 2013, although in today’s terms they are insufficient to cover the current operating deficit. Additionally, it established mechanisms to offset this recognition against the PUREE-related liability, and, partially, against the debt held with CAMMESA as detailed in Note 2.b) to the condensed interim separate financial statements as of September 30, 2013.
In this manner, the Energy Secretariat, in its capacity as grantor of the Concession Agreement, has provided a solution which, although transient and partial in nature, temporarily modified the situation that the Company tried to rectify with the filing of the action for the protection of its rights (“acción de amparo”). This solution, in addition to the requirement imposed by the Energy Secretariat through Resolution 250/13, led the Company to abandon, on May 29, 2013, the action filed, requesting that both parties be charged with the legal costs thereof, and to continue to claim on the fundamental issue by way of another action (Note 7 b) to the condensed interim separate financial statements as of September 30, 2013).
Consequently, as described in Note 2.b) to the condensed interim separate financial statements as of September 30, 2013, these financial statements include the effects of such resolution, which resulted mainly in the Company recording a positive balance in the retained earnings account rather than accumulated deficit, in accordance with that mentioned in the preceding paragraphs.
Although the effects of this resolution are a significant step towards the recovery of the Company’s situation, inasmuch as it allows for the regularization of the equity imbalance generated by the lack of a timely recognition of the CMM adjustment requests made in the last years, such resolution does not provide a definitive solution to the Company’s economic and financial equation due to the fact that the level of revenue generated by the electricity rate schedules in effect, even after applying Resolution SE 250/13, does not allow for the absorption of neither operating costs nor investment requirements or the payment of financial services. Therefore, this cash flow deficit will translate once again into a working capital deficit, which, taking into account that the Company is not in condition to have access to other sources of financing, will result in the need to continue to cancel only partially the obligations with CAMMESA for energy purchases. The application of an offsetting mechanism similar to that implemented by Resolution 250/13 is to be authorized by the Energy Secretariat by way of a new administrative act.
7
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
In spite of the above-mentioned, the Company Board of Directors continues analyzing different scenarios and possibilities to mitigate or reduce the negative impact of the Company’s situation on its operating cash flows and thereby present the shareholders with diverse courses of action. Nevertheless, the improvement of revenues so as to balance the economic and financial equation of the concession continues to be the most relevant aspect.
The outcome of the overall electricity rate review is uncertain as to both its timing and final form. Therefore, the uncertainties of the previous year in this regard continued during the period being reported, thus if in fiscal year 2013: (i) the new electricity rate schedules are not issued by the ENRE; (ii) the Company is not granted other recognition or any other mechanism to compensate for cost increases, in addition to the revenue obtained from the application of Resolution 347/12, the funds derived from the PUREE, or the recognition of CMM values and the offsetting mechanism established by Resolution 250/13, and/or; (iii) the Company does not obtain from the Federal Government other mechanism that provides it with financing for cost increases, it is likely that the Company will have insufficient liquidity and will therefore be obliged to continue implementing, and even deepening, measures similar to those applied until now in order to preserve cash and enhance its liquidity. As stated in previous periods, the Company may not ensure that it will be able to obtain additional financing on acceptable terms. Therefore, should any of these measures, individually or in the aggregate, not be achieved, there is significant risk that such situation will have a material adverse impact on the Company’s operations. Edenor may need to enter into a renegotiation process with its suppliers and creditors in order to obtain changes in the terms of its obligations to ease the aforementioned financial situation.
Given the fact that the realization of the projected measures to revert the manifested negative trend depends, among other factors, on the occurrence of certain events that are not under the Company’s control, such as the requested electricity rate increases or the implementation of another source of financing or offsetting mechanism, the Board of Directors has raised substantial doubt about the ability of the Company to continue as a going concern in the term of the next fiscal year, being obliged to defer once again certain payment obligations, as previously mentioned, or unable to comply with the agreed-upon salary increases or the increases recorded in third-party costs.
Nevertheless, the condensed interim separate financial statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the adjustments or reclassifications that might result from the outcome of this uncertainty.
4. Basis of preparation
ThisSpecial SeparateMerger Financial Statementhas been prepared in accordance with TR 26 of the FACPCE, incorporated by the CNV.
Those standards differ from the International Accounting Standard concerning the accounting criteria for investments in subsidiary companies, jointly controlled entities and associates, which are to be accounted for using the equity method (proportional equity value) described in IAS 28. This criterion differs from that established in paragraph 38 of IAS 27, pursuant to which the aforementioned investments are to be recorded either at cost or fair value.
The Company management estimates that thisSpecial SeparateMerger Financial Statementincludes all the necessary adjustments to fairly present the results of operations for the period. The results of operations for the nine-month period ended September 30, 2013 do not necessarily reflectthe Company’s results in proportion to the full fiscal year.
The Special SeparateMerger Financial Statement is stated in thousands of Argentine pesos, unless specifically indicated otherwise.
ThisSpecial Separate Merger Financial Statement was approved for issue by the Company Board of Directors on November 20, 2013.
8
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
5. Accounting policies
The accounting policies used in the preparation of this Special SeparateMerger Financial Statement are consistent with those used in the preparation of the Company’s Condensed Interim Separate Financial Statements as of September 30, 2013.
5.1 Property, plant and equipment
The total value of property, plant and equipment transferred by SEGBA on September 1, 1992 was allocated to individual assets accounts on the basis of engineering studies conducted by the Company.
The value of property, plant and equipment was determined based on the price effectively paid by EASA for the acquisition of 51% of the Company’s capital stock.
SEGBA neither prepared separate financial statements nor maintained financial information or records with respect to its distribution operations or the operations in which the assets transferred to EDENOR were used. Accordingly, it was not possible to determine the historical cost of transferred assets.
Additions subsequent to such date have been valued at acquisition cost, net of the related accumulated depreciation. Depreciation has been calculated by applying the straight-line method over the remaining useful life of the assets, which was determined on the basis of the above-mentioned engineering studies. Furthermore, in order to improve the disclosure of the account, the Company has made certain changes in the classification of property, plant and equipment based on each technical process.
In accordance with the provisions of IAS 23, borrowing costs in relation to any given asset are to be capitalized when such asset is in the process of production, construction, assembly or completion, and such processes, due to their nature, take long periods of time; those processes are not interrupted; the period of production, construction, assembly or completion does not exceed the technically required period; the necessary activities to put the asset in condition to be used or sold are not substantially complete; and the asset is not in condition so as to be used in the production or start up of other assets, depending on the purpose pursued with its production, construction, assembly or completion.
Subsequent costs (major maintenance and reconstruction costs) are either included in the value of the assets or recognized as a separate asset, only if it is probable that the future benefits associated with the assets will flow to the Company, being it possible as well that the costs of the asset may be measured reliably and the investment will improve the condition of the asset beyond its original state. The other maintenance and repair expenses are recognized in profit or loss in the year in which they are incurred.
Impairment test
The Company analyzes the recoverability of its non-current assets on a periodical basis or when events or changes in circumstances indicate that the recoverable amount of assets, which is measured as the value in use at the end of the year, may be impaired. When the carrying amount of an asset is greater than its estimated recoverable amount, the asset’s carrying amount is immediately reduced up to its recoverable amount.
The value in use is determined based on projected and discounted cash flows, using discount rates that reflect the time value of money and the specific risks of the assets considered.
Cash flows are prepared on the basis of estimates concerning the future performance of certain variables that are sensitive to the determination of the recoverable amount, among which the following can be noted: (i) nature, opportunity and modality of electricity rate increases and cost adjustment recognition; (ii) demand for electricity projections; (iii) evolution of the costs to be incurred, and; (iv) macroeconomic variables, such as growth rates, inflation rates and foreign currency exchange rates.
9
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
The future increase in electricity rates used by the Company to assess the recoverability of its long-lived assets at December 31, 2012 is based on the rights to which the Company is entitled, as stipulated in the Concession Agreement and the agreements described in Note 2 to the separate financial statements as of December 31, 2012. Furthermore, the actions taken to maintain and guarantee the provision of the public service, the presentations made before regulatory authorities, the status quo of the discussions that are being held with government representatives, the announcements made by government officials concerning possible changes in the sector’s revenues to restore the economic and financial equation, and certain measures recently adopted, such as the new charge described in Note 2.c.V to the separate financial statements as of December 31, 2012, have also been considered. In light of the aforementioned, the Company Management estimates that it is reasonable to expect that new increases in revenues will be obtained as from 2013.
In spite of the current economic and financial situation described in Note 1 to the separate financial statements as of December 31, 2012, the Company has made its projections under the assumption that the electricity rates will be improved according to the circumstances. However, the Company may not ensure that the future performance of the variables used to make its projections will be in line with what it has estimated. Therefore, significant differences may arise in relation to the estimates used and assessments made at the date of preparation of these separate financial statements.
In order to contemplate the estimation risk contained in the projections of the aforementioned variables, the Company has considered three different probability-weighted scenarios. Although in all of them an acceptable agreement with the Government resulting in gradual tariff increases is assumed, the Company has considered different timing and magnitude of an increase in the DAV. The three scenarios can be classified into pessimistic, optimistic and intermediate depending on the opportunity of the application and magnitude of the expected CMM adjustment or revenue increase by another mechanism. The Company has assigned for these three scenarios the following percentages of probability of occurrence based mainly on the experience with past delays in the tariff renegotiation process, the current economic and financial situation and the need to maintain the public service in operation: pessimistic scenario: 20%, optimistic scenario: 30%, and intermediate scenario: 50%.
Based on the conclusions previously mentioned, the valuation of property, plant and equipment, taken as a whole, does not exceed its recoverable value, which is measured as the value in use at December 31, 2012.
As of September 30, 2013, the main assumptions and variables used by Management to make projections in order to assess the recoverability of property, plant and equipment as of December 31, 2012 remain unchanged. Management believes that a reasonable change in the main assumptions would not generate an impairment loss,
Finally, and in accordance with the concession agreement, the Company may not pledge the assets used in the provision of the public service nor grant any other security interest thereon in favor of third parties, without prejudice to the Company’s right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted over an asset at the time of its acquisition and/or construction as collateral for payment of the purchase and/or installation price.
The residual value and the remaining useful lives of the assets are reviewed and adjusted, if appropriate, at the end of each fiscal year (reporting period).
Land is not depreciated.
These depreciation methods are used to allocate the difference between cost and residual value during the estimated useful lives of the assets.
Facilities in service: between 30 and 50 years
Furniture, tools and equipment: between 5 and 20 years
10
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
Construction in process is valued based on the degree of completion and is recorded at cost less any impairment loss, if applicable. Cost includes expenses attributable to the construction, including capitalized borrowing costs in accordance with IFRS and the Company’s accounting policies, when they are part of the cost incurred for the purposes of acquisition, construction or production of property, plant and equipment which require considerable time until they are in condition to be used. Borrowing costs are no longer capitalized when the asset has been substantially finished or its development has been suspended. These assets begin to be depreciated when they are in economic condition to be used.
Gains and losses from the sale of property, plant and equipment are calculated by comparing the price collected with the carrying amount of the asset, and are recognized within Other operating expense or Other operating income in the separate statement of comprehensive (loss).
5.2 Interest in subsidiaries and joint ventures
(a) Interests in Subsidiaries
Interests in subsidiaries are accounted for in accordance with the equity method. Under this method, the investment made in these companies is initially recorded at cost and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss of the subsidiary after the date of acquisition.
Unrealized gains resulting from transactions between the Company and its subsidiaries, if significant, are eliminated to the extent of the interest in the subsidiaries. Unrealized losses are also eliminated, unless the transaction provides evidence of an impairment of the assets transferred.
If the Company’s share of losses of these companies equals or exceeds its interest in them, the Company does not recognize further losses, unless it has incurred obligations or made payments on behalf of these companies. If the interest in these companies is reduced but control or significant influence is retained, only a proportionate share of the amounts previously recognized in Other Comprehensive Income (Loss) is reclassified to profit or loss where appropriate.
The accounting policies of the subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by the group.
(b) Interests in joint ventures
The Company has early adopted the application of IFRS 11 as from January 1, 2011, the main concepts of which are as follow:
i. A joint arrangement takes place among two or more parties when they have joint control: joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
ii. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Such parties are called joint venturers.
iii. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. These parties are called joint operators.
11
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
The Company accounts for its investment in jointly controlled entities in accordance with the equity method. Under this method, the interest is initially recognized at cost and subsequently adjusted by recognizing the Company’s share in the profit or loss obtained by the joint venture, after the acquisition date. The Company recognizes in profit or loss its share of the joint venture’s profit or loss and in other comprehensive income its share of the joint venture’s other comprehensive income.
5.3 Trade and other receivables
a. Trade receivables
The receivables arising from services billed to customers but not collected as well as those arising from services rendered but unbilled at the closing date of each year are recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. Services rendered but unbilled at January 1, 2011, arising from the retroactive increase deriving from the application of the electricity rate schedule resulting from the Temporary Tariff Regime (RTT) have been valued on the basis of the best estimate of the amount to be collected, discounted at a representative annual nominal rate, which reasonably reflected market assessments of the time value of money and the risks specific to the receivable at the time of initial recognition.
The amounts thus determined:
i. are net of an allowance for the impairment of receivables.
ii. consider the effects of that which is described in Note 2 to the separate financial statements as of December 31, 2012.
CMM receivables are recognized, as the related revenue, to the extent that they have been approved by the ENRE; receivables from electricity supplied to low-income areas and shantytowns are recognized, also in line with revenue, when the Framework Agreement has been renewed for the period in which the service was provided.
At the date of this financial statement, CMM balances are the best estimate of the amounts receivable.
The Company has recorded an allowance for the impairment of trade receivables to adjust the valuation of doubtful accounts. Depending on the receivables portfolio, the allowance is recorded based on an individual recoverability analysis (accounts receivable in litigation) or on the historical series of collections for services billed through the end of the period and collections subsequent thereto.
b. Other receivables
Other receivables are initially recognized at fair value (generally the original billing/settlement amount) and subsequently measured at amortized cost, using the effective interest rate method, and when significant, adjusted by the time value of money. The Company records impairment allowances when there is objective evidence that the Company will not be able to collect all the amounts owed to it in accordance with the original terms of the receivables.
5.4 Inventories
Inventories are valued at the lower of acquisition cost and net realizable value.
Given the fact that the Company’s inventories are not assets intended for sale, they are valued based on the purchase price, import duties (if applicable), and other taxes (that are not subsequently recovered by tax authorities), transport, warehouse and other costs directly attributable to the acquisition of those assets.
Cost is determined by applying the first in first out (FIFO) valuation method.
12
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
The Company has classified inventories into current and non-current depending on whether they will be used for maintenance or capital expenditures and on the period in which they are expected to be used. The non-current portion of inventories has been disclosed in the “Property, plant and equipment” account.
The valuation of inventories, taken as a whole, does not exceed their recoverable value at the end of each year.
5.5 Financial assets
The Company has adopted IFRS 9 from the date of transition.
5.5.1 Classification
The Company classifies financial assets into the following categories: those measured at amortized cost and those subsequently measured at fair value. This classification depends on whether the financial asset is an investment in a debt or an equity instrument. In order for a financial asset to be measured at amortized cost, the two conditions described below must be met. All other financial assets are measured at fair value. IFRS 9 requires that all investments in equity instruments be measured at fair value.
a. Financial assets at amortized cost
Financial assets are measured at amortized cost if the following conditions are met:
i. the objective of the Company’s business model is to hold the assets to collect the contractual cash flows; and
ii. the contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on principal.
b. Financial assets at fair value
If any of the above-detailed conditions is not met, financial assets are measured at fair value through profit or loss.
All investments in equity instruments are measured at fair value. For those investments that are not held for trading, the Company may irrevocably elect at the time of their initial recognition to present the changes in the fair value in other comprehensive income. The Company’s decision was to recognize the changes in fair value in profit or loss.
5.5.2 Recognition and measurement
The regular way purchase or sale of financial assets is recognized on the trade date, i.e. the date on which the Company agrees to acquire or sell the asset. Financial assets are derecognized when the rights to receive the cash flows from the investments have expired or been transferred and the Company has transferred substantially all the risks and rewards of the ownership of the assets.
Financial assets are initially recognized at fair value plus, in the case of financial assets not measured at fair value through profit or loss, transaction costs that are directly attributable to the acquisition thereof.
The gains or losses generated by investments in debt instruments that are subsequently measured at fair value and are not part of a hedging transaction are recognized in profit or loss. Those generated by investments in debt instruments that are subsequently measured at amortized cost and are not part of a hedging transaction are recognized in profit or loss when the financial asset is derecognized or impaired and by means of the amortization process using the effective interest rate method.
The Company subsequently measures all the investments in equity instruments at fair value. When it elects to present the changes in fair value in other comprehensive income, such changes cannot be reclassified to profit or loss. Dividends arising from these investments are recognized in profit or loss to the extent that they represent a return on the investment.
13
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
The Company reclassifies financial assets if and only if its business model to manage financial assets is changed.
5.5.3 Impairment of financial assets
At the end of each reporting period, the Company assesses whether there is objective evidence that the value of a financial asset or group of financial assets measured at amortized cost is impaired. The value of a financial asset or group of financial assets is impaired, and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably measured.
Impairment tests may include evidence that the debtors or group of debtors are undergoing significant financial difficulties, have defaulted on interest or principal payments or made them after they had come due, the probability that they will enter bankruptcy or other financial reorganization, and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in payment terms or in the economic conditions that correlate with defaults.
The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the impairment loss is recognized in the separate statement of income.
5.5.4 Offsetting of financial instruments
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable right to offset the recognized amounts, and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
5.6 Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less from their acquisition date.
· Cash and banks in local currency:at nominal value.
· Cash and banks in foreign currency: at the exchange rate in effect at the end of the period.
· Time deposits, which include the portion of interest income accrued through the end of the period.
· Money market funds, which have been valued at the prevailing market price at the end of the period.
5.7 Equity
Changes in this account have been accounted for in accordance with the corresponding legal or statutory regulations and the decisions adopted by the shareholders’ meetings.
a. Share capital
Share capital represents issued capital, which is comprised of the contributions committed and/or made by the shareholders, represented by shares, including outstanding shares at nominal value.
b. Treasury stock
The Treasury stock account represents the nominal value of the Company’s own shares acquired by the Company.
14
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
c. Other comprehensive income (loss)
Represents recognition, at the end of the period, of actuarial gains (losses).
d. Retained earnings
Retained earnings are comprised of profits or accumulated losses with no specific appropriation. When positive, they may be distributed, if so decided by the Shareholders’ Meeting, to the extent that they are not subject to legal restrictions. Retained earnings are comprised of prior year results that have not been distributed, amounts transferred from other comprehensive income and prior year adjustments due to the application of accounting standards.
5.8 Trade and other payables
a. Trade payables
Trade payables are payment obligations with suppliers for the purchase of goods and services in the ordinary course of business. Trade payables are classified as current liabilities if payments fall due within one year or in a shorter period of time. Otherwise, they are classified as non-current liabilities.
Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
b. Customer deposits
Customer deposits are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
In accordance with the Concession Agreement, the Company is allowed to receive customer deposits in the following cases:
i.When the power supply is requested and the user is unable to provide evidence of his legal ownership of the premises;
ii.When service has been suspended more than once in one-year period;
iii.When the power supply is reconnected and the Company is able to verify the illegal use of the service (fraud).
iv.When the customer is undergoing liquidated bankruptcy or reorganization proceedings.
The Company has decided not to request customer deposits from residential tariff customers.
Customer deposits may be either paid in cash or through the customer’s bill and accrue monthly interest at a specific rate of Banco de la Nación Argentina for each customer category.
When the conditions for which the Company is allowed to receive customer deposits no longer exist, the principal amount plus any interest accrued thereon are credited to the customer’s account after deducting, if appropriate, any amounts receivable which the Company has with the customer.
c. Customer contributions
Refundable:
The Company receives assets or facilities (or the cash necessary to acquire or built them) from certain customers for services to be provided, based on individual agreements and the provisions of ENRE Resolution No. 215/2012. These contributions are initially recognized as trade payables at fair value with a contra-account in Property, plant and equipment, and subsequently measured at amortized cost using the effective interest rate method.
15
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
d. Other payables
Other payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
The recorded liabilities represent, mainly, PUREE-related obligations and penalties imposed by the ENRE, which the Company Management estimates will be paid in the future.
The balances of ENRE Penalties and Discounts are adjusted in accordance with the regulatory framework applicable thereto.
The balances of the Program for the Rational Use of Electric Power (PUREE) are the best estimate, at the date of this financial statement, of the settlement value of the present obligation.
5.9 Borrowings
Borrowings are initially recognized at fair value, net of direct costs incurred in the transaction. Subsequently, they are measured at amortized cost; any difference between the proceeds (net of direct transaction costs) and the amount to be paid at maturity is recognized in profit or loss over the period of the borrowings using the effective interest rate method.
The commissions paid to obtain lines of credit are recognized as direct costs incurred in the transaction provided that it is probable that either part or all of the line of credit will be used. In this case, the recognition of commissions in profit or loss is deferred until such funds are used.
5.10 Deferred revenue
Non-refundable customer contributions:
The Company receives assets or facilities (or the cash necessary to acquire or built them) from certain customers for services to be provided, based on individual agreements. In accordance with IFRS, the assets received are recognized by the Company as Property, plant and equipment with a contra-account in deferred revenue, the accrual of which depends on the nature of the identifiable services, in accordance with the following:
· Customer connection to the network: revenue is accrued until such connection is completed;
· Continuous provision of the electric power supply service: throughout the shorter of the useful life of the asset and the term for the provision of the service.
5.11 Employee benefits
Benefit plans
The Company operates various benefit plans. Usually, benefit plans establish the amount of the benefit the employee will receive at the time of retirement, generally based on one or more factors such as age, years of service and salary.
The liability recognized in the separate statement of financial position in respect of benefit plans is the present value of the benefit plan obligation at the closing date of the period, together with the adjustments for past service costs and actuarial losses. The benefit plan obligation is calculated annually by independent actuaries in accordance with the projected unit credit method. The present value of the benefit plan obligation is determined by discounting the estimated future cash outflows using the interest rate of high quality corporate bonds denominated in the same currency in which the benefits will be paid and whose maturity terms are similar to those of the corresponding obligations.
16
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
The group’s accounting policy for benefit plans is as follow:
a. Past service costs are recognized immediately in profit or loss, unless the changes to the benefit plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, past-service costs are amortized on a straight-line basis over the vesting period.
b. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in other comprehensive income in the period in which they arise.
5.12 Income tax and tax on minimum presumed income
a. Deferred income tax
Deferred tax is recognized, in accordance with the liability method, on the temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the statement of financial position. However, no deferred tax liability is recognized if such difference arises from the initial recognition of goodwill, or from the initial recognition of an asset or liability in a transaction other than a business combination, which at the time of the transaction affected neither the accounting nor the taxable profit.
Deferred taxes are determined using the tax rates that are in effect at the date of the financial statements and are expected to apply when the deferred tax assets are realized or the deferred tax liabilities are settled.
Deferred taxes are recognized on the temporary differences arising from investments in subsidiaries and associates, except for those deferred tax liabilities where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset if the Company has a legally enforceable right to offset recognized amounts and when deferred tax assets and liabilities relate to income tax levied by the same tax authority on the same taxable entity or different taxable entities that intend to settle tax assets and liabilities on a net basis. Deferred tax assets and liabilities are stated at their undiscounted value.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.
b. Tax on minimum presumed income
The Company determines the tax on minimum presumed income by applying the current rate of 1% on the Company’s taxable assets at the end of the period. The tax on minimum presumed income and the income tax complement each other. The Company’s tax obligation for each period will be equal to the higher of these taxes. However, should the tax on minimum presumed income exceed income tax in any given fiscal year, such excess may be computed as a payment on account of any excess of income tax over the tax on minimum presumed income that may arise in any of the ten subsequent fiscal years.
Minimum presumed income tax assets and liabilities have not been discounted.
The Company has recognized the minimum presumed income tax accrued in the period and paid in prior years as a receivable, as it estimates that in future fiscal years it may be computed as a payment on account of the income tax.
17
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
5.13 Provisions and contingencies
Provisions have been recognized in those cases in which the Company is faced with a present obligation, whether legal or constructive, that has arisen as a result of a past event, whose settlement is expected to result in an outflow of resources, and the amount thereof can be estimated reliably.
The amount recognized as provisions was the best estimate of the expenditure required to settle the present obligation, at the end of the reporting period, taking into account the corresponding risks and uncertainties. When a provision is measured using the estimated cash flow to settle the present obligation, the carrying amount represents the present value of such cash flow. This present value is obtained by applying a pre-tax discount rate that reflects market conditions, the time value of money and the specific risks of the obligation.
The provisions included in liabilities have been recorded to face contingent situations that could result in future payment obligations. To estimate the amount of provisions and the likelihood of an outflow of resources, the opinion of each Company legal advisors has been taken into account.
5.14 Balances with related parties
Receivables and liabilities with related parties are initially recognized at fair value and subsequently measured at amortized cost in accordance with the terms agreed upon by the parties involved.
6. Property, plant and equipment
09.30.13 | ||
Net residual values at beginning of year | 4,310,343 | |
Additions | 694,848 | |
Disposals | (440) | |
Depreciation | (156,972) | |
Net residual values at end of period | 4,847,779 |
· During the period ended September 30, 2013, direct costs capitalized amounted to $ 114.2 million.
· Financial costs capitalized for the period ended September 30, 2013 amounted to $ 23.9 million.
7. Interest in subsidiaries and joint ventures
Company and | Value on equity method | ||
09.30.13 | |||
SACME | 50% | 426 | |
EMDERSA HOLDING (1) (2) | 100% | (1,480) | |
(1,054) |
(1) Does not include the assets available for sale, mentioned in Note 36 to the separate Financial Statements for the year ended December 31, 2012.
(2) On September 20, 2013, Electricidad Argentina S.A. (EASA) transferred to the Company 1,567 common, registered, non-endorsable shares, representing 0.002% of EMDERSA Holding’s capital stock and votes. As consideration for the aforementioned acquisition, EDENOR will pay EASA the amount of $ 0.8 million.
18
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
8. Other receivables
09.30.13 | ||
Non-Current: | ||
Prepaid expenses | 1,080 | |
Receivable from minimum presumed income | 128,070 | |
Tax credits | 1,252 | |
Financial receivable | 13,327 | |
Other | 1,368 | |
Total Non-current | 145,097 | |
Current: | ||
Prepaid expenses | 2,211 | |
Receivable from CMM (1) | 1,035,454 | |
Value added tax | 36,809 | |
Advances to suppliers | 17,453 | |
Advances to personnel | 4,521 | |
Security deposits | 1,770 | |
Financial receivable | 3,156 | |
Receivable with FOCEDE (Res. 347/12) | 87,677 | |
Receivables from activities other than the main activity | 27,779 | |
Related parties | 111,235 | |
Allowance for the impairment of related-party other receivables | (32,948) | |
Allowance for the impairment of other receivables | (20,520) | |
Judicial deposits | 1,874 | |
Other | 14,387 | |
Total Current | 1,290,858 |
(1) Includes estimated interest for $ 707.8 million (gain) and $ 536.2 million (loss) relating to the CMM and the PUREE, respectively.
The carrying amount of the Company’s other receivables approximates their fair value.
9. Inventories
09.30.13 | ||
Current: | ||
Supplies and spare-parts | 54,251 | |
Total Current | 54,251 |
19
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
10. Trade receivables
09.30.13 | ||
Current: | ||
Sales of electricity - Billed (1) | 478,363 | |
Sales of electricity – Unbilled | 222,205 | |
Framework Agreement | 50,362 | |
National Fund of Electricity | 4,720 | |
Bonds for the cancellation of debts of the Province of Bs. As. | 2,725 | |
Specific fee payable for the expansion of the network, transportation and others | 10,757 | |
Receivables in litigation | 22,510 | |
Allowance for the impairment of trade receivables | (71,770) | |
Total Current | 719,872 |
(1) Net of stabilization factor.
The carrying amount of the Company’s trade receivables approximates their fair value.
11. Financial assets at fair value through profit or loss
09.30.13 | ||
Current: | ||
Government bonds | 20,215 | |
Trust rights | 70,783 | |
Total Current | 90,998 |
12. Cash and cash equivalents
09.30.13 | ||
Cash and banks | 31,517 | |
Time deposits | 1,062 | |
Money market funds | 254,904 | |
Total cash and cash equivalent | 287,483 |
13. Assets and liabilities of disposal group classified as held for sale
09.30.13 | |
Emdersa Holding's equity | 31,555 |
Percentage interest | 100% |
Value on Equity Method: | 31,555 |
Assets and liabilities of disposal group classified as held for sale at Net Realizable Value - EMDERSA: | 33,035 |
20
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
14. Trade payables
09.30.13 | ||
Non-Current: | ||
Customer deposits | 59,419 | |
Suppliers | 1,134 | |
Customer contributions | 115,496 | |
Total Non-Current | 176,049 | |
Current: | ||
Payables for purchase of electricity - CAMMESA (1) | 2,009,054 | |
Provision for unbilled electricity purchases - CAMMESA | 237,784 | |
Suppliers | 296,419 | |
Customer contributions | 68,642 | |
Funding contributions - substations | 60,923 | |
Other | 32,764 | |
Total Current | 2,705,586 |
(1) As of September 30, 2013, includes $ 678.1 million subject to compensation in accordance with the provisions of Resolution SE 250/13.
The carrying amount of the Company’s trade payables approximates their fair value.
15. Other payables
09.30.13 | ||
Non-Current: | ||
Program for the rational use of electric power | 301,866 | |
ENRE penalties and discounts | 770,961 | |
Total Non-Current | 1,072,827 | |
Current: | ||
ENRE penalties and discounts | 34,948 | |
Advance payments received for sale agreements of subsidiaries | 8,690 | |
Liability with FOCEDE (Res. 347/12) | 20,791 | |
Liability with FOTAE | 48,960 | |
Related parties | 2,932 | |
Other | 3,459 | |
Total Current | 119,780 |
16. Borrowings
09.30.13 | ||
Non-Current: | ||
Corporate notes (1) | 1,258,298 | |
Total Non-Current | 1,258,298 | |
Current: | ||
Financial loans | 613 | |
Interest | 51,573 | |
Total Current | 52,186 |
a. Net of issuance expenses and debt repurchase.
21
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
The carrying amounts of the Company’s current borrowings and non-current financial loans approximate their fair values.
At September 30, 2013, the fair value of the Company’s non-current borrowings (Corporate Notes) amounts to $ 672.5 million. Such value was calculated on the basis of the market price of the Company’s corporate notes at the end of the period.
17. Deferred revenue
30.06.13 | ||
Non-Current: | ||
Nonrefundable customer contribution | 34,366 | |
Total Non-Current | 34,366 |
18. Salaries and social security taxes payable
09.30.13 | ||
Non-Current: | ||
Early retirements payable | 1,520 | |
Seniority-based bonus | 18,374 | |
Total Non-Current | 19,894 | |
Current: | ||
Salaries payable and provisions | 316,363 | |
Social security taxes payable | 25,301 | |
Early retirements payable | 2,492 | |
Total Current | 344,156 | |
19. Benefit plans
09.30.13 | ||
Non-Current: | ||
Benefit plans | 76,715 | |
Total Non-Current | 76,715 |
20. Deferred tax liabilities
09.30.13 | ||
Deferred tax assets: | ||
Deferred tax assets to be recovered in more than 12 months | 343,663 | |
343,663 | ||
Deferred tax liabilities: | ||
Deferred tax liabilities to be realized in more than 12 months | (408,209) | |
(408,209) | ||
(64,546) |
22
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
21. Tax liabilities
09.30.13 | ||
Non-Current: | ||
Tax regularization plan | 15,006 | |
Total Non-current | 15,006 | |
Current: | ||
Minimum presumed income tax payable | 34,229 | |
Provincial, municipal and federal contributions and taxes | 33,826 | |
ABL (Public lighting, sweeping and cleaning tax) withholdings | 67,387 | |
Tax withholdings | 23,379 | |
SUSS (Social Security System) withholdings | 1,018 | |
Municipal taxes | 33,750 | |
Tax regularization plan | 38,905 | |
Tax-related interest payable | 777 | |
Total Current | 233,271 |
22. Provisions
Non-current | Current | |||
Contingencies | Contingencies | |||
Balance at end of year 12.31.12 | 76,723 | 6,331 | ||
Increases | - | 22,492 | ||
Decreases | (10,320) | (8,788) | ||
Balance at end of period 09.30.13 | 66,403 | 20,035 |
23. Balances with related parties
| 09.30.13 | |
Other receivables | ||
SACME | 9,260 | |
PESA | 52,519 | |
EMDERSA Holding |
| 1,449 |
EMDERSA | 7,071 | |
EDELAR | 37,470 | |
CYCSA | 3,466 | |
Subtotal other receivables | 111,235 | |
Allowance for the impairment of other receivables with EDELAR | (32,948) | |
78,287 | ||
| 09.30.13 | |
Other payables | ||
SACME | (2,931) | |
EASA | (1) | |
(2,932) |
23
EDENOR S.A.
Notes to the Special Separate Merger Financial Statement as of September 30, 2013
(continued)
24. Events after the reporting period
Assets of disposal group classified as held for sale
On October 4, 2013, Pampa Energía S.A. (PESA) paid the balance of principal and interest relating to EGSSA’s sale for a total of $ 53.3 million.
The aforementioned payment was made in cash for $ 0.5 million and through the delivery of the Company’s Class 9 Corporate Notes due in 2022 for a nominal value of USD 10,000,000.
Repurchase of Corporate Notes
On October 11, 2013, the Company repurchased at market prices Class 9 Corporate Notes due in 2022 for a nominal value of USD 1,590,000.
25. Special Financial Statements translation into English language
These special financial statements are the English translation of those originally prepared by the Company in Spanish and presented in accordance with accounting principles generally accepted in Argentina. The effects of the differences between the accounting principles generally accepted in Argentina and the accounting principles generally accepted in the countries in which the financial statements are to be used have not been quantified. Accordingly, the accompanying financial statements are not intended to present the financial position, statements of comprehensive income, changes in equity or cash flows in accordance with accounting principles generally accepted in the countries of users of the financial statements, other than Argentina.
RICARDO TORRES |
Chairman |
24
“Free translation from the original in Spanish for publication in Argentina”
AUDITORS’ REPORT
To the Shareholders, President and Directors of
Empresa Distribuidora y Comercializadora Norte
Sociedad Anónima (Edenor S.A.)
Legal address: Avenida del Libertador 6363
City of Buenos Aires
Tax Code No. 30-65511620-2
1. We have audited the attached special separate merger financial statement of Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (Edenor S.A.) (hereinafter, Edenor S.A.), which comprises the separate statement of financial position at September 30, 2013, as well as a summary of the most significant accounting policies and other explanatory information.
2. The Board of Directors of the Company is responsible for the preparation and reasonable presentation of this special separate merger financial statement under the professional accounting standards of Technical Pronouncement No. 26 issued by the Argentine Federation of Professional Councils in Economic Sciences (FACPCE), incorporated into the regulations of the National Securities Commission (CNV). These standards differ from International Financial Reporting Standards (IFRS) approved by the International Accounting Standards Board (IASB) and used in the preparation of the consolidated financial information of Edenor S.A. with its subsidiaries, in the respects mentioned in Note 4 to the accompanying special separate merger financial statement. Further, the Board of Directors is responsible for the existence of adequate internal control to prepare financial statements free of any significant distortions due to misstatements or irregularities. Our responsibility is to issue an opinion on the special separate merger financial statement, based on our audit, performed with the scope described in paragraph 3. and considering the situation mentioned in paragraph 4.
3. We conducted our audit in accordance with auditing standards in effect in Argentina. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the special separate merger financial statement is free of material misstatement and to form an opinion about the reasonableness of the relevant information contained in the special separate merger financial statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial statements. An audit also includes assessing the accounting standards used and significant estimates made by the Company, as well as evaluating the overall presentation of the special separate merger financial statement. We believe that our audit provides a reasonable basis for our opinion.
4. Due to the special purpose of this special separate merger financial statement, as explained in Note 1, it does not include all the information required by current accounting standards of Technical Pronouncement No. 26 for complete separate financial statements, as regards presentation of the statement of comprehensive income, of changes in equity and of cash flows for the nine-month period ended September 30, 2013, comparative information and other supplementary information.
5. In Note 3 to the special separate merger financial statement, the Company informs that the steady increase in its operating costs to maintain the level of services and the delays in obtaining the pertinent rate increases and/or recognition of its actual higher costs (Cost Monitoring Mechanisms or “MMC”) under the terms of the Memorandum of Understanding, have significantly affected and will continue affecting its economic and financial position, even taking into account the positive effects derived from application of Resolutions ENRE 347/12 and SE 250/13.
In addition, it informs that the level of income generated through the current tariff charts, even with the effects of applying the Resolutions mentioned, does not enable it to absorb the operating costs, investment requirements and payment of financial services; therefore, the Company's Management estimates that this deficit in cash flow will result, again, in a situation of deficit in the working capital.
6. Based on the situation described in Note 3 and in its accounting policies, the Company has prepared its projections to determine the recoverable value of its non-current assets, on the understanding that it will obtain better rates according to the circumstances. The cash flows and actual future results may differ from the estimates and assessments made by Management at the date of preparation of this special separate merger financial statement. In this regard, we are not in a position to estimate whether the assumptions used by Management to prepare its projections will materialize in the future and, therefore, if the recoverable values of the non-current assets will exceed their respective net book values.
7. The situations detailed in paragraphs 5. and 6. generate uncertainty as to the Company's ability to continue operating as a going concern. The Company has prepared the attached special separate merger financial statement using accounting principles applicable to a going concern. Therefore, this statement does not include the possible effects of any future adjustments or reclassifications, if any, that could be required if the situation described above cannot be solved in favor of the continuity of operations and the Company were obliged to realize its assets and/or to settle its liabilities, including the contingent ones, in conditions other than those for the normal course of business.
8. In our opinion, subject to the effects on the financial statements of possible adjustments and/or reclassifications that might be required, if any, as a result of the resolution of the situations described in paragraphs 5. to 7. above, and except for what is mentioned in paragraph 4., the special separate merger financial statement mentioned in paragraph 1. presents fairly, in all material respects, the financial position of Edenor S.A. as of September 30, 2013, in conformity with the standards of Technical Pronouncement No. 26 issued by the Argentine Federation of Professional Councils in Economic Sciences (FACPCE) on separate financial statements.
9. In accordance with current regulations, we report that:
a) the special separate merger financial statement of Edenor S.A. is transcribed into the “Inventory and Balance Sheet” book and as regards those matters that are within our competence, it complies with the provisions of the Commercial Companies Law and pertinent resolutions of the National Securities Commission;
b) the special separate merger financial statement of Edenor S.A. arises from accounting records carried in all formal respects in conformity with legal requirements which maintain the security and integrity conditions based on which they were authorized by the National Securities Commission;
c) at September 30, 2013 the debt accrued in favor of the Argentine Integrated Social Security System, according to Edenor S.A.'s accounting records, amounted to $ 20,885,371, none of which was claimable at that date;
d) we have applied for Edenor S.A. the money laundering abatement and anti-terrorist financing procedures foreseen in the professional standards issued by the Professional Council in Economic Sciences of the City of Buenos Aires.
City of Buenos Aires, November 20, 2013
PRICE WATERHOUSE & CO. S.R.L.
by (Partner) |
|
Andrés Suarez Public Accountant (UBA)
|
Empresa Distribuidora y Comercializadora Norte S.A. | ||
By: | /s/ Leandro Montero | |
Leandro Montero | ||
Chief Financial Officer |