Enel Americas
Annual Report 2002

Plain-text annual report

Table of Contents Letter From the Chairman of the Board Identification of the Company Ownership and Control Board of Directors Organizational Structure Management Activities Business Activities Corporate Structure Generation Endesa Chile Distribution Chilectra Río Maipo Edesur Edelnor Cerj Coelce Codensa Others Businesses Synapsis CAM Manso de Velasco Liability Statement Identification of other Subsidiaries and Related Companies Financial Statement Consolidated Financial Statements Unconsolidated Financial Statements Financial Statements of Subsidiaries 2 6 9 14 17 18 21 25 32 34 36 40 42 44 46 48 50 52 54 56 58 60 62 64 65 68 227 283 Letter from the Chairman of the Board their portfolios. For that purpose, they chose to sell shares of those companies that presented the best liquidity. In that context, a strong sales trend came upon the Enersis shares, which explained, in great measure, the deep fall in the stock-exchange valuation of our titles. The steady slow down of the United States of America, the low expectations for the recovery of the stock-exchange markets of some relevant Asian actors, and, moreover, the threats of war in the Middle East, which have strongly impacted the stability of the energy prices and the exchange rate stability of the region, were all added to the previous problems. Dear Shareholder: I am pleased to submit the 2002 Annual Report However, our company has calmly responded to on the management and operations of the Enersis this environment of difficult prediction, keeping Group for your consideration. its long and short term objectives unaltered. In fact, and despite the adverse circumstances, our Before starting the summary of the activity of the best effort has been focused on reinforcing the Group that I am honored to preside, I deem it management of our main businesses. essential to refer to the global context in which our activity was developed. In the first place, and as an essential element to compensate the previously mentioned effects, As each one of us could appreciate, the Enersis has designed and launched during the decrease in the economic activity in the region year 2002, an ambitious financial strengthening became worse during the year 2002. This could plan, intended to solve the liquidity problems in be confirmed by a decrease in the levels of the short term, to renegotiate the bank debt and investment, deterioration of the exchange terms to increase the equity of the Group, which was of our countries, fall of the employment rate and reduced in US$ 290 million due to the recognition exchange rate instability, with the addition of of the negative goodwill associated with the political instability in some important countries investments in Argentina and Brazil because of where we operate. the regional crisis. Due to these circumstances, during the first and In the operational area, the efforts to improve second quarters of the year 2002, the foreign efficiency, which had begun several years before, investors, mainly institutional ones based on continued, thus increasing the productivity from the United States of America, tried to reduce 1,379 customers per employee to 1,409 customers their shareholding positions in Latin American per employee between the years 2001 and 2002. companies, in an effort for reducing the risk on Furthermore, as a part of the efforts destined ENERSIS 20 02 ANNUAL REPORT 3 2 2 Pablo Yrarrázaval Chairman to serve the natural growth of our market, we increased our customer base by 275,000, which is equivalent to having incorporated a company of the size of our subsidiary Río Maipo, without having incurred in expansion investments. However, this has been carried out in an unfavorable environment that operated during the whole year 2002, and that has resulted in a reduction in the average consumption per customer of 5.5% compared to the year 2001. Regarding the generation business, it has been a good hydroelectric year which, together with the conclusion of the important interconnection of 2,000 MW between Argentina and Brazil carried out by our Group, has permitted to compensate A consequence of all the aforesaid has been the the lower levels of activity with an aggressive debt reduction achieved during the year, starting reduction of the energy costs. from a consolidated figure of US$ 9,326 million by the end of 2001 and ending with US$ 8,980 Another element of particular interest for millions, a decrease of 3.7%. our shareholders is that, due to the efforts to increase the rationalization of the organizational As you can appreciate, our main effort during the structure of the Group, selling and administrative year 2002 was focused on how to best confront a expenses were reduced by 20.2%. This strong year that appeared as an extraordinarily difficult reduction is related with the decrease in the and complex one, where the uncertainties were observed expenses due to the lower levels of generalized during the period. activity and devaluations, and is also due to the urgent measures applied by the management Therefore, and despite all those difficulties, we to contain the negative effects produced by the continue to work on the strengthening of the tariff reduction, especially the tariffs freezing in company, the only way to overcome the challenge Argentina. from the environment, without letting sadness stop us from perseverantly continuing to improve Precisely in this context of optimization of the efficiency. existing resources, another important measure was to reduce the recurrent investments in fixed We closed the year with losses, mainly accounting assets. This reduction, which reached a 6.9%, losses, due to the above mentioned goodwill was made with the purpose of contributing to adjustments. The net income of US$ 224,000 relieve the cash tensions, without compromising million losses was due to the accounting the service quality standards demanded by more adjustments made in order to better reflect the than ten million customers that form our business economic reality of our businesses in Argentina platform in the five countries where we operate. and Brazil, and also due to other minor ENERSIS 2002 ANNUA L REPORT 3 2 2 investments in Chile. In the first two countries, million, strengthening the equity base through and in agreement with the Chilean accounting a capital increase up to US$ 2,000 million, rules, the net balance of positive and negative divestments for about US$ 900 million including goodwill for investments made both in generation the debt associated with the divested assets, and and distribution was accelerated. In Argentina, finally continuing to improve the operations by there was a write off equivalent to US$ 49 million, increasing the generation of free cash flow by in Brazil, US$ 315 million, and finally in Chile, US$ 130 million, a goal which is achievable in a US$ 23 million, corresponding to our investments three-year term. in the real estate business. The consolidated effect of US$ 387 million, net of minorities, These objectives will allow the Company to was partially compensated by US$ 97 million reduce, during the year 2003, its consolidated in provisions made by Enersis during the year debt for about US$ 2,600 million, and, even 2002, with which the final effect on results was of though they generated skepticism at first and US$ 290 million. many questions later, they ended up by attracting the interest and support of the market. This is As stated above, these adjustments showed our because those who know our companies realize interest in reflecting, with total transparency, that, beyond the short term adverse circumstance, the real impact that the uncertain environment the foundations of our business remain unaltered in Argentina and Brazil was having on the and, when the region improves its activity levels, company. It was necessary to establish, with full Enersis should again be one of the best and most clarity and once and for all, the real scope of this trustworthy alternatives of investment. situation to this day, and thus put an end to many speculations about the magnitude of the impact The state of each of these ambitious goals is the of the crisis on our investments abroad. In this following: respect, and based on the opinions of investors With respect to the refinancing of liabilities, the and analysts, I can say that this write off was very company, after hard negotiations with banks, well received by the market. reached an unprecedented agreement in the Chilean private area, which consists in extending I am going to briefly mention now the scope the bank debt for US$ 2,330 million due in 2003 of the Financial Strengthening Plan to which I and 2004 to the year 2008, and removing the referred previously. We conceived a plan of steps acceleration clauses associated with the rating that would allow the Enersis Group to foster its grids, in function of which the credit cost increase capabilities, even in the midst of difficulties in depending on the rating risk classification. the region, with the object of being in the best conditions when the Group resumes its usual Since the new refinancing is not linked to the growth levels. rating and permits prepayment in advance at any time, without extra costs, the short term financing In this way, last October we launched our pressures have been solved, thus contributing, Strengthening Plan, based on four pillars which as the first pillar of the plan, to provide financial were totally interrelated: Refinancing liabilities stability to the Group. due in the short and middle term for US$ 2,300 ENERSIS 20 02 ANNUAL REPORT 5 4 4 With respect to the capital increase, a main pillar Finally, let me tell you that while some relevant in our process of strengthening the equity base of actors of this sector are leaving the region, the the company and reducing financial expenses, we Enersis Group is renewing its commitment to want to take advantage of the good disposition of continue being a regional energetic leader. To our controller shareholder regarding his express fulfill these expectations, we have the best work desire to capitalize the debt that Enersis still has team, to whom I dedicate my special appreciation with the company, amounting to an approximate for the great contribution and commitment with figure of US$ 1,400 million. We believe this their work during a very difficult 2002. strong demonstration of trust in the future of the company should encourage the rest of the Dear Shareholders, 2002 is already past, we have shareholders to show their support once more, learnt from it and we have been able to define despite the real “voyage through the desert” the best lessons to confront the future. Here is during these last two years, a circumstance that where we stand. This is our challenge and we will we hope to overcome in the shortest possible time. assume it with confidence, with determination, and with a strong commitment toward our With respect to the process of divestments, it shareholders. is important to comment on the real interest evidenced in the purchase of our companies Río Kind regards, Maipo and Central Canutillar. As will be publicly informed, to January 27th, we had received thirteen non binding offers for said companies, and we hope to conclude the process by the end of March 2003. Finally, with respect to the operating improvements planned for a period of three years, which will result in the generation of free cash flow, it is worth highlighting the new objectives in the matters of productivity, efficiency in collections, theft and investment per customer, which would allow us to rescue, after a period of three years, the US$ 130 million target of Pablo Yrarrázaval additional free cash flow over the baseline of the Chairman of the Board year 2002. Enersis S.A. In summary, the four levers of action will converge to achieve a sustained improvement of the Group’s free cash flow, and at the same time increase its solvency in order to be in the best disposition to confront the future more optimistically. ENERSIS 2002 ANNUA L REPORT 5 4 4 GENERAL IDENTIFICATION Corporate name ENERSIS S.A. Type of company Limited Liability StockCompany Tax register number 94.271.000 – 3 Address Santa Rosa No. 76, Santiago Telephone (56-2) 353 4400 (56-2) 378 4400 Fax (56-2) 378 4788 P.O. Box 1557, Santiago Identification of the company to August 1, 1988. The latest amendment is acknowledged in a public deed of July 24, 2002, executed before Patricio Zaldívar, Notary Public in Santiago. The abstract was recorded in the Official Commerce Register of Santiago on page 21,885, No 17.850 and published in the Official Gazette on August 19, 2002. ARTICLES OF INCORPORATION AND BY- HISTORICAL OVERVIEW LAWS The company was originally organized as Compañía Chilena Metropolitana de Distribución Eléctrica S.A., as recorded in a public deed of June 19, 1981, executed before Patricio Zaldívar, Notary Public in the city of Santiago and amended by notary deed of July 13 the same year. The existence of the Company was authorized and its by-laws were approved pursuant to resolution No 409-S of July 17, 1981, issued by the Superintendence of Securities and Insurance. The abstract of such authorization and its approval were recorded in the Official Commerce Register of Santiago, on page 13,099 No 7,629 of the year 1981, and published in the Official Gazette on July 23, 1981. On June 19, 1981, Compañía Chilena de Electricidad S.A. was restructured into a parent company and three subsidiaries, one of which was Compañía Chilena Metropolitana de Distribución Eléctrica S.A. In 1985, as a result of the privatization policy enacted by the Government of Chile, the transfer of the capital stock of Compañía Chilena Metropolitana de Distribución Eléctrica S.A. to the private sector began. This process was completed on August 10, 1987. Through this process, private pension funds (A.F.P.), the company’s workers, institutional investors and thousands of small investors became stockholders of the Company. To date, the by-laws have been subsequently amended. The existence of the company under the current name of Enersis S.A. dates back The organizational structure was based upon operating activities or functions in which attainments were evaluated on a functional basis and profitability was limited by a tariff ENERSIS 20 02 ANNUAL REPORT 7 6 6 Web Site www.enersis.com E-mail comunicacion@e.enersis.cl Securities register number No. 175 External Auditors Deloitte & Touche Subscribed and paid in capital (ThCh$) 751,208,197 mechanism originating from the exclusive and sales needs of the rural and semi-urban areas involvement of the Company in the business of of Chile’s Metropolitan Region. electricity distribution. In 1987, the Board of Directors proposed a division of the different The Extraordinary Shareholders’ Meeting held on activities of the parent company. Thus, four April 27, 1994 approved changing the corporate subsidiaries were formed, making it possible to name of subsidiary Distribuidora Chilectra manage them as business units with objectives Metropolitana S.A. to that of Chilectra S.A., of their own, thereby expanding the activities of effective as of June 1, 1994. the company to other non-regulated businesses, though still related to the core business. CORPORATE PURPOSE This proposal was approved by the Extraordinary The purpose of the company is to undertake Shareholders’ Meeting held on November 25, both in Chile and abroad, the exploitation, 1987, which established its new corporate development, operation, generation, distribution, purpose. transmission, transformation and/or sales of energy of whatever nature and in any form, As a result, Compañía Chilena Metropolitana de directly or through other companies, as well Distribución Eléctrica S.A. became an investment telecommunication activities and the provision company. On August 1, 1988, under a resolution of engineering advisory services, either in Chile adopted by the Shareholders’ Meeting held or abroad. Its purpose will further be to invest on April 12, 1988, the Company changed its and manage company investments in subsidiaries corporate name to Enersis S.A. or related companies that generate, transmit, distribute or commercialize electric energy, or that Furthermore, to the effects of providing enhanced are involved in the following lines of business: (i) customer service, as of June 1, 1989, it was energy in any of its forms or nature, (ii) the supply approved the division of subsidiary Distribuidora of public services or companies having energy as Chilectra Metropolitana S.A. into a successor their main input, (iii) telecommunications and company that retained the corporate name, and information systems, (iv) intermediation business a new company incorporated under the name through the Internet. In the fulfillment of its main of Compañía Eléctrica del Río Maipo S.A., that objective, the company will develop the following currently serves the electric energy distribution functions: ENERSIS 2002 ANNUA L REPORT 7 6 6 a) Promote, organize, set up, modify, dissolve services such as may appear necessary for a or liquidate companies of any nature, whose more adequate performance. corporate purpose is similar or related to those of the Company. In addition to its core business purpose and acting b) Propose to its subsidiary companies and Financing Policy approved at the ordinary investment, financing and commercial policies Shareholders’ General Meeting, the company may always within the bounds of the Investment as well as the accounting practices and invest in: principles which such companies shall abide by. 1.- The acquisition, exploitation, construction, rental, management, intermediation, marketing c) Supervise the management of its subsidiary and disposal of any kind of movable property and companies. real estate, either directly or through subsidiary or d) Provide its subsidiary or related companies related companies. with the needed financial resources to develop 2.- All types of financial assets, including their business activities, and in addition, shares, bonds, debentures, commerce paper, furnish management services as well as and in general all kinds of securities and equity financial, commercial, technical, legal and contributions to companies, either directly or auditing services and, in general, any other through subsidiary or related companies. ENERSIS 20 02 ANNUAL REPORT 9 8 8 Ownership and Control OWNERSHIP STRUCTURE The capital stock of the company is divided into 8,291,020,100 shares of the same and only one series with no par value. At December 31, 2002, a total of 8,291,020,100 shares of common stock were subscribed and paid in, with the following breakdown: Shareholders Number of Shareholders Endesa S.A. A.F.P Citibank N.A. Stockbrokers, Mutual Funds, Insurance Companies and Foreign Investment Funds Other Shareholders Total 3 28 1 86 10,076 10,194 Number of shares 5,389,163,065 1,035,179,340 328,916,750 922,979,777 614,781,168 8,291,020,100 % 65.00% 12.49% 3.97% 11.13% 7.41% 100.00 CONTROLLERS IDENTIFICATION Pursuant to Title XV of Law 18,045, the ownership interest of the controller, Endesa S.A., in Enersis of 65% derives from the controlling stake it has in the ownership of Compañía de Inversiones Chispa Uno S.A. (21.5%) and Endesa Internacional S.A. (8.4%) plus the 35.1% direct interest in the ownership through Elesur S.A. LIST OF THE TWELVE LARGEST SHAREHOLDERS OF THE COMPANY At December 31, 2002, Enersis was owned by 10,194 shareholders. The twelve largest were: Shareholders Tax Register Number Number of Shares Elesur S.A. 96.800.570-7 2,914,325,536 Compañía de Inversiones Chispa Uno S.A. 96.641.060-4 1,780,246,340 Endesa Internacional S.A. 59.072.610-9 Citibank N.A. (according to Circ. 1,375 SVS) 97.008.000-7 98.000.100-8 98.000.400-7 98.001.000-7 96.571.220-8 98.000.000-1 96.894.180-1 98.000.600-K 80.537.000-9 AFP Habitat S.A. AFP Provida S.A. AFP Cuprum S.A. Banchile Corredores de Bolsa S.A. AFP Santa María S.A. Bancard S.A. AFP Summa Bansander S.A. Larraín Vial S.A. Corredores de Bolsa Subtotal: 12 shareholders Others: 10,182 shareholders Total: 10,194 shareholders 9 8 8 694,591,189 328,916,750 323,304,197 255,812,109 178,611,688 178,368,323 150,793,071 91,338,455 91,054,355 72,983,101 7,060,345,114 1,230,674,986 8,291,020,100 % 35.15% 21.47% 8.38% 3.97% 3.90% 3.09% 2.15% 2.15% 1.82% 1.10% 1.10% 0.88% 85.16% 14.84% 100.00% ENERSIS 2002 ANNUA L REPORT MOST IMPORTANT CHANGES IN OWNERSHIP During 2002, the most important changes in the ownership of Enersis were: Shareholder Tax Register Number Number of Shares 2001 Number of Shares 2002 Variation % Citibank (according to Circ. 1,375 SVS) 97.008.000-7 744,587,100 328,916,750 AFP Habitat S.A. AFP Provida S.A. AFP Cuprum S.A. 98.000.100-8 246,829,975 323,304,197 98.000.400-7 354,857,654 255,812,109 98.001.000-7 213,592,328 178,611,688 Banchile Corredores de Bolsa S.A. 96.571.220-8 43,915,204 178,368,323 AFP Santa María S.A. Bancard S.A. 98.000.000-1 156,254,454 150,793,071 96.894.180-1 17,819,771 AFP Summa Bansander S.A. 98.000.600-K 129,094,720 Larraín Vial Corredores de Bolsa Cía de Seguros de Vida Consorcio Nacional Bolsa de Comercio de Santiago Consorcio Corredores de Bolsa S.A. 80.537.000-9 99.012.000-5 90.249.000-0 96.772.490-4 26,028,630 48,752,062 13,883,000 5,102,454 91,338,455 91,054,355 72,983,101 61,996,453 47,995,976 42,267,412 (55.83) 30.98 (27.91) (16.38) 306.17 (3.50) 412.57 (29.47) 180.40 27.17 245.72 728.37 STOCK EXCHANGE TRADING BY DIRECTORS AND MAIN EXECUTIVE OFFICERS Enersis shares traded by directors and main executive officers of the Company during 2002 are as follows: Shareholder Tax Reg. Number No. of Shares Traded Unit Price Relationship with the Company Inversiones y Asesorías Sydarta Ltda. 78.133.360-3 1,000,000 Ch$ 123.0 Company related to Ernesto Silva, Director of Enersis SANTIAGO STOCK EXCHANGE, CHILEAN ELECTRONIC STOCK EXCHANGE AND VALPARAISO STOCK EXCHANGE The number of shares traded in the stock exchange where Enersis shares are traded, both in Chile, through the Santiago Stock Exchange, the Chilean Electronic Stock Exchange, and the Valparaíso Stock Exchange, as well as in the United States and Spain, through the New York Stock Exchange (NYSE) and Latin American Stock Exchange of Madrid (Latibex) correspondingly, are detailed below: ENERSIS 20 02 ANNUAL REPORT 1 1 1 0 1 0 QUARTERLY STOCK EXCHANGE INFORMATION OF THE LAST THREE YEARS During 2002, 2,363 million shares, equivalent to Ch$ 219,385 million were traded. The share price Santiago Stock Exchange 1st Quarter 2000 2nd Quarter 2000 3rd Quarter 2000 4th Quarter 2000 1st Quarter 2001 2nd Quarter 2001 3rd Quarter 2001 4th Quarter 2001 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 Units Amount ($) Average Price closed at Ch$ 59. 190,988,277 110,101,006 88,658,193 198,483,727 217,618,425 292,388,256 226,195,786 393,051,599 512,037,133 474,079,058 692,521,240 684,639,252 40,078,550,323 23,513,620,910 18,383,256,232 39,102,614,613 44,437,043,299 57,663,194,013 41,936,113,910 73,344,332,507 72,041,084,807 48,911,115,424 54,285,443,986 44,147,517,186 216.22 213.51 209.79 200.73 205.94 197.59 185.74 183.26 140.70 103.17 78.39 64.48 Chile Electronic Stock Exchange Units Amount ($) Average Price During 2002, 1,273 million shares were traded, equivalent to Ch$ 141,605 million. The share price closed at Ch$ 58.6. 1st Quarter 2000 2nd Quarter 2000 3rd Quarter 2000 4th Quarter 2000 1st Quarter 2001 2nd Quarter 2001 3rd Quarter 2001 4th Quarter 2001 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 Valparaíso Stock Exchange 1st Quarter 2000 2nd Quarter 2000 3rd Quarter 2000 4th Quarter 2000 1st Quarter 2001 2nd Quarter 2001 3rd Quarter 2001 4th Quarter 2001 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 73,157,401 61,091,600 50,955,676 72,312,976 83,608,430 158,055,600 109,886,421 169,896,292 269,920,400 359,523,772 386,541,593 257,464,603 Units 4,651,539 3,320,362 743,378 812,885 1,170,182 2,746,772 2,071,416 4,724,089 18,797,002 7,970,306 22,259,663 9,087,665 ENERSIS 2002 ANNUA L REPORT 15,149,830,280 13,142,859,608 10,684,550,675 14,105,017,267 17,152,644,402 31,321,294,251 20,354,381,577 31,038,862,776 37,714,503,611 48,319,942,414 35,646,626,810 19,923,582,845 207.17 213.97 207.78 195.78 205.77 197.13 186.42 182.94 139.72 134.40 92.22 77.38 Amount ($) Average Price During 2002, 58 million shares were traded, equivalent to Ch$ 5,668 million. The share closed at Ch$ 59. 966,141,613 694,944,396 155,761,788 164,792,985 241,026,099 532,712,377 389,093,093 856,465,194 2,597,626,847 748,664,861 1,751,836,764 570,105,970 207.70 209.29 209.53 202.72 205.97 193.94 187.83 181.29 138.19 93.93 78.70 62.73 1 1 1 0 1 0 New York Stock Exchange ( NYSE) amortization of negative goodwill from normal The shares of Enersis started trading in the New operations in the quarters ending in March, June, York Stock Exchange (NYSE) on October 20, September and December of such fiscal year. For 1993. The ADR for the Company consists of 50 purposes of the above calculation, the interim shares and its stock exchange ticker symbol is dividends for the year 2003 already distributed ENI. Citibank N.A. performs as depositary bank on such distribution date will be deducted and Banco de Chile performs as custodian bank in from the 85% of the cumulative income before Chile. amortization of negative goodwill. During 2002, in the United States of America, Dividends established in pursuance of this policy 22 million ADR´s (1 ADR = 50 shares), equivalent will be applied to the income originated from to US$ 174 million, were traded. The price of the normal company operations, understanding as ADR closed at US$ 4.09. such the income before amortization of negative goodwill obtained by the Company in the period Latin American Stock Exchange of Madrid 2003, without considering those resulting from Stock Exchange (LATIBEX) the following events: The shares of Enersis started trading in the Latin American Stock Exchange (Latibex) on December 1. Accounting effects deriving from the valuation 17, 2001. The contract unit for the company is of equity contributions made to subsidiary 50 shares and its stock exchange ticker symbol is companies. XENI. Santander Central Hispano Investment S.A. performs as linking entity and Banco Santander 2. Accounting effects deriving from the performs as custodian bank in Chile. recognition of the premium in equity In Latibex, during 2002, 3,775,758 titles were traded (1 title = 50 shares), equivalent to 3. Profits arising, directly or indirectly, from 25 million Euros. The price of the share participation in related companies organized closed at 3.92 Euros. in Chile or abroad. placement by subsidiaries of their own stock. DIVIDEND POLICY FOR THE YEAR 2003 4. Profits generated by subsidiary companies organized abroad or by subsidiary companies All present members of the Board of Directors in which the participation of the Company, unanimously agreed to submit to the Enersis either directly or indirectly, is less than 60% of Ordinary Shareholders’ Meeting, scheduled for the capital stock of those companies, as well as March 31, 2003, the following Dividend Policy profits deriving from the disposal of assets in they expect to enforce during the period 2003: such companies. Distribute in May, August and November of the 5. Accounting recognition of positive and year 2003, and in February 2004, an interim negative goodwill associated with such dividend to be charged to the net income of the investments. year 2003, amounting to 85% of the income before ENERSIS 20 02 ANNUAL REPORT 1 3 1 2 1 2 The Board of Directors shall not distribute Company makes from time to time, or to the interim dividends based on the income before existence of given conditions. amortization of negative goodwill that arise from the above events and the Ordinary Shareholders’ As for the final dividend policy, it is the purpose Meeting shall state their view thereon when of the Board of Directors that such dividends approving the final dividend. are as a minimum the interim dividends already The foregoing is the intention of the Board of Law on Stock Companies, whichever of the two is distributed or the minimum stated by the Chilean Directors of the Company and, consequently, its higher. fulfillment will be subject to the income before amortization of negative goodwill as well as to The following table shows the dividends per the results reflected in the projections that the share paid out over the last five years. Dividend Number Dividend Type Closing Date Due Date Ch$ per Share ($ of each year) Accrued in 67 68 69 70 71 Interim Definitive Interim Definitive Definitive 20.02.98 07.05.98 20.11.98 11.05.99 19.04.01 26.02.98 13.05.98 26.11.98 17.05.99 25.04.01 0.800000 4.500000 1.600000 4.000000 1.806391 1997 1997 1998 1998 2000 DISTRIBUTABLE PROFITS (in thousands of Ch$ to December 2002) SYNTHESIS OF SHAREHOLDERS’ COMMENTS AND PROPOSALS Profits of the period Negative goodwill amortization (223,748,087) 112,247,774 Income before amortization of negative goodwill (335,995,861) No comments were submitted to Enersis regarding businesses carried out from January 1st to December 31st, 2002, either from senior partners Percentage on distributable profits distributed as dividend 0% or groups of shareholders that total 10% or more of the shares issued with voting right, pursuant to the provisions of Article 74 of Law No. 18,046 and the Articles 82 and 83 of the Regulation of the Law on Stock Companies. ENERSIS 2002 ANNUA L REPORT 1 3 1 2 1 2 CHAIRMAN Pablo Yrarrázaval Tax register number: 5.710.967-K Chairman of the Santiago de Chile Stock Exchange VICECHAIRMAN Rafael Miranda Tax register number: 48.070.966-7 Profession: Industrial Engineer Instituto Católico de Artes e Industrias (ICAI) de Madrid DIRECTOR José L. Palomo Tax register number: 51.316.595-F Profession: B.S. in Economic and Business Sciences, in Law and in Sociology Universidad de Madrid Board of Directors Enersis is managed by a Board of Directors made REMUNERATION OF THE BOARD up by seven members who serve a three-year term OF DIRECTORS and may be reelected. The Board of Directors was elected in the Law No. 18,046 on Joint Stock Companies, Ordinary Shareholders’ Meeting on April 2, 2001. the Ordinary Shareholders’ Meeting held on Pursuant to the provisions of Article 33, On July 26, 2002, due to the resignation of the that corresponds to the Board of Directors for the April 11, 2002, agreed upon the remuneration Directors Mr. Alfredo Llorente and Mr. Luis accounting period 2002. Rivera, the Board of Directors agreed to appoint Mr. Pablo Yrarrázaval as Director and Chairman of Details on amounts paid to the Directors of the Board, and Mr. José L. Palomo as Director. Enersis members of the Committee of Directors, and to those who were Directors of this Company and performed as subsidiary directors as well, are shown below: ENERSIS 20 02 ANNUAL REPORT 1 5 1 4 1 4 SECRETARY OF THE BOARD OF DIRECTORS: Domingo Valdés Tax register number: 6.973.465-0 Profession: Lawyer Universidad de Chile DIRECTOR José M. Fesser Tax register number: 48.064.839-0 Profession: Lawyer Universidad de Sevilla DIRECTOR Ernesto Silva Tax register number: 5.126.588-2 Profession: Commercial Engineer Pontificia Universidad Católica de Chile DIRECTOR Hernán Somerville Tax register number: 4.132.185-7 Profession: Lawyer Universidad de Chile DIRECTOR Eugenio Tironi Tax register number: 5.715.860-3 Profession: Sociologist School of High Studies in Social Sciences, Paris, France DIRECTOR Alfredo Llorente Pablo Yrarrázaval Rafael Miranda Luis Rivera José L. Palomo José M. Fesser Ernesto Silva Hernán Somerville Eugenio Tironi 28,406 22,814 37,524 13,019 11,407 24,406 25,015 25,015 24,413 At December 31, 2002, ThCh$ ENERSIS BOARD ENERSIS COMMITTEE At December 31, 2001, ThCh$ ENERSIS BOARD ENERSIS COMMITTEE OTHER SUBSID. TOTAL 29,586 25,225 37,524 13,019 11,407 24,406 28,606 28,606 24,413 222,792 1,180 2,411 - - - - 3,591 3,591 - 10,773 49,323 - 35,183 24,006 - 24,597 24,601 24,601 24,599 206,910 2,340 - - - - - 2,332 2,332 - 7,004 TOTAL 51,663 - 35,183 24,006 - 24,597 35,472 26,933 24,599 - - - - - - 8,539 - - TOTAL 212,019 8,539 222,453 BOARD OF DIRECTORS’ EXPENSES During 2002, the Board of Directors did not make use of the budget for functioning expenses approved by the Ordinary Shareholders’ Meeting held on April 2002. ENERSIS 2002 ANNUA L REPORT 1 5 1 4 1 4 COMMITTEE OF DIRECTORS rating private companies and Fitch, Moody’s and Standard & Poor’s as international risk Pursuant to the provisions of Article 50 bis of Law rating private companies, proposals that were No. 19,705, Enersis has a Committee of Directors accepted by such Board, with the exception of made up of three members, with the powers and the independent External auditors for reasons duties provided in such article. well-known to the public, being replaced by Deloitte & Touche. On July 27, 2002, the Board of Directors of the Company appointed Pablo Yrarrázaval, Hernán The Committee of Directors quarterly analyzed Somerville and Ernesto Silva as members of the and approved the Individual and Consolidated Committee of Directors of Enersis. In turn, in Statements of the Company; examined the its Meeting No. 03/2002 on July 31 of that year, antecedents of the operations referred to by all present members of the Board of Directors Articles 44 and 89 of Law 18,046 on Stock unanimously agreed to appoint Pablo Yrarrázaval Companies; issued reports on such subject as Chairman of the Committee and Domingo matters; and examined the remuneration systems Valdés as Secretary of the same Committee. and compensation plans for managers and main ACTIVITIES OF THE COMMITTEE DURING 2002 executive officers as well. As a conclusion, during the fiscal year 2002, Enersis’s Committee of Directors not only has In its first session of the period, on February properly dealt with the issues provided in Article 26, 2002, the Committee of Directors examined 50 bis of Law 18,046 on Stock Companies, buy the External auditors’ report regarding the has also conducted a prompt follow-up of the Balance Sheet and the Financial Statements economic-financial situation of the Company. corresponding to the accounting period 2001, and the examination of the External auditors’ report EXPENSES OF THE COMMITTEE on bank draft and money brokerage. During 2002, the Committee of Directors did not In the aforementioned session and for the fiscal make use of the budget for functioning expenses year 2002, the Committee of Directors proposed approved by the Ordinary Shareholders’ Meeting to the Board of Directors as follows: Arthur held on April 2002. Additionally, the Committee Andersen-Langton Clarke as External auditors, has not required to hire professional consultants Feller Rate and Fitch Chile as domestic risk to perform its functions. ENERSIS 20 02 ANNUAL REPORT 1 7 1 6 1 6 Organizational Structure �������� ����� ����������� ����� ��������� ������� ������� ������ ��������� �������������� ������� �������� ����� ������������� ������� �������� ���� �� ��������� ��������� �������� ������� ���� �� �������� ��������� ����� ������������ ��� �������� ������� ������� ����� ��������� ����� �������� � ��������� ������� ����� �������� ��������� ����� �������� ��� ������� ������� ������ ����� ������� ������� ������� ������ ����� ����������� ������� ������� ��������� ������� ����� ����������� ��� ����� ������� ������� ������ ����� �������� ��� ����������� ������� ������� ���� �� ������� ��� �������� ������ �� �� ���� ����� ����� ��������� ������� ����� ���� ����� ����������� ������� ������� ����� ����� ��������� ���������� ������� �������� ���� ����� �������� ������ ��� �������� ������ ������� �������� ������� ����� �������� ������������ ��� ���������� ������� ���� �� �������� ����� ����� �������� ������� ������ �� ������� ����� ����� ��������� ����������� ������� ������ ������� ENERSIS 2002 ANNUA L REPORT 17 16 16 Management CHIEF HUMAN RESOURCES OFFICER: Mateo Pizá Tax register number: 14.756.238-1 Profession: Senior Industrial Engineer Escuela Técnica Superior de Ingenieros Industriales de Barcelona CHIEF STAFF BUSINESS OFFICER: Víctor H. Badilla Tax register number: 7.284.550-1 Profession: Psychologist B.S. in Psychology Pontificia Universidad Católica de Chile CHIEF HUMAN RESOURCES DEVELOPMENT OFFICER: Álvaro Moncada Tax register number: 8.074.284-3 Profession: Commercial Engineer Universidad de Concepción MANAGEMENT OF ENERSIS CHIEF EXECUTIVE OFFICER: Enrique García Tax register number: 14.704.156-K Profession: Civil Engineer (Infrastructure) Escuela Técnica Superior de ICCP de Madrid CORPORATE CHIEF DISTRIBUTION AND SERVICES OFFICER: Marcelo Silva Tax register number: 5.056.359-6 Profession: Commercial Engineer Universidad de Chile CORPORATE CHIEF ECONOMIC & FINANCIAL OFFICER: Mario Valcarce Tax register number: 5.850.972-8 Profession: Commercial Engineer Universidad Católica de Valparaíso CORPORATE CHIEF PLANNING AND CONTROL OFFICER: Rafael López Tax register number: 14.709.119-2 Profession: B.S. in Economic and Business Sciences Universidad de Málaga CORPORATE COMMUNICATIONS OFFICER: Fernando Nadal Tax register number: 14.683.859-6 Profession: Journalist and Lawyer Universidad Alcalá de Henares de Madrid CORPORATE AUDITING OFFICER: José M. Raventós Tax register number: 14.743.221-6 Profession: B.S. in Economic and Business Sciences Universidad de Sevilla GENERAL COUNSEL: Domingo Valdés Tax register number: 6.973.465-0 Profession: Lawyer Universidad de Chile CHIEF INVESTMENTS AND RISKS OFFICER: Ricardo Alvial Tax register number: 7.330.389-3 Profession: Public Administrator Universidad de Chile CHIEF CORPORATE ACCOUNTING OFFICER: Fernando Isac Tax register number: 14.733.649-7 Profession: Economist Universidad de Zaragoza INSTITUTIONAL AFFAIRS DIRECTOR: José L. Domínguez Tax register number: 6.372.293-6 Profession: Civil Engineer Pontificia Universidad Católica de Chile CHIEF INFORMATION SYSTEMS OFFICER: Cristóbal Sánchez Tax register number: 48.072.431-3 Profession: B.S. Information Systems Universidad Politécnica de Madrid CHIEF PROCUREMENT OFFICER: Eduardo López Tax register number: 7.706.387-0 Profession: Commercial Engineer Universidad Católica de Valparaíso CHIEF BUSINESS MARGIN AND ELECTRIC SUPPLY OFFICER: Cristián Herrera Tax register number: 10.545.763-4 Profession: Industrial Civil Engineer Pontificia Universidad Católica de Chile CHIEF REGIONAL DISTRIBUTION AND COMMERCIAL OFFICER: José E. Martínez Tax register number: 37.314.692-K Profession: Telecommunications Engineer Universidad Politécnica de Catalunya CHIEF PLANNING AND OPERATIONAL CONTROL OFFICER: Juan P. Spöerer Tax register number: 10.877.023-6 Profession: Commercial Engineer Pontificia Universidad Católica de Chile TAX DIRECTOR: Máximo de la Peña Tax register number: 5.897.849-3 Profession: Lawyer Universidad de Chile ENERSIS 20 02 ANNUAL REPORT 1 9 1 8 1 8 MANAGEMENT OF SUBSIDIARIES CHIEF EXECUTIVE OFFICER ENDESA CHILE: Héctor López Tax register number: 48.062.402-5 Profession: B.S. in Law and Economic Sciences ICADE de Madrid CHIEF EXECUTIVE OFFICER CHILECTRA: Julio Valenzuela Tax register number: 4.469.173-6 Profession: Civil Engineer (Electric) Pontificia Universidad Católica de Chile CHIEF EXECUTIVE OFFICER RÍO MAIPO: Alejandro Gómez Tax register number: 6.975.457-0 Profession: Civil Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER EDESUR: José M. Hidalgo Spanish Passport: 10.0120778 G Profession: B.S. in Economic and Business Sciences Universidad de Santiago de Compostela CHIEF EXECUTIVE OFFICER EDELNOR: Emilio García Tax register number: NIF 71.249.480-B Profession: Industrial Engineer Escuela Técnica Superior de Ingenieros Industriales de Bilbao CHIEF EXECUTIVE OFFICER CERJ: Manuel Montero Tax register number: NIF 30.785.023-Y Profession: Industrial Engineer Escuela Técnica Superior de Ingenieros Industriales de Madrid CHIEF EXECUTIVE OFFICER COELCE: Celestino Izquierdo Tax register number: NIF 05.872.282-Z Profession: Industrial Engineer Universidad Politécnica de Madrid CHIEF EXECUTIVE OFFICER CODENSA: José M. Martínez Tax register number: 36.547.347-W Profession: Senior Industrial Engineer Escuela de Barcelona CHIEF EXECUTIVE OFFICER SYNAPSIS SOLUCIONES Y SERVICIOS IT LTDA.: Victor H. Muñoz Tax register number: 7.479.024-0 Profession: Civil Engineer Universidad Federico Santa María de Valparaíso CHIEF EXECUTIVE OFFICER COMPAÑÍA AMERICANA DE MULTISERVICIOS: Pantaleón Calvo Tax register number: 6.611.573-9 Profession: Civil Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER INMOBILIARIA MANSO DE VELASCO: Andrés Salas Tax register number: 6.002.870-2 Profession: Civil Engineer Universidad de Chile REMUNERATION OF CHIEF OFFICERS The total remuneration obtained by the aforementioned Enersis’ managers, during the year 2002, amounts to Ch$ 2,453 million. This amount includes the remuneration of the existing officers at December 31, 2002, as well as those of the officers who disassociated along the period. INCENTIVE PLANS Enersis has a yearly bonus plan for its executives for goal achievement and individual contribution level to the Company’s results. This plan includes a definition of bonus ranges in accordance with its executives’ hierarchical level. The bonuses that are occasionally given to the executives consist of a given number of monthly gross remuneration. COMPENSATIONS Compensations paid during 2002 add up to Ch$ 321 million. This amount corresponds to aforementioned managers who disassociated along the fiscal year 2002. ENERSIS 2002 ANNUA L REPORT 1 9 1 8 1 8 DISTRIBUTION OF HUMAN RESOURCES the follow-up regarding the establishment of The distribution of human resources of Enersis, Additionally, together with the Regional in its subsidiaries, to December 31, 2002, was as Distribution Business Line, we generated bases the model in said companies began in August. follows: for bids for distribution services, in the matters of human resources and safety at work, according to COMPANY TOP EXECUTIVES PROFESSIONALS AND TECHNICIANS ADMINISTRATIVE STAFF TOTAL this new model. Enersis Endesa Chile (1) Chilectra (2) Río Maipo Edesur Edelnor Cerj Codensa Coelce Synapsis (3) Cam (4) Inm. Manso de Velasco 31 58 22 1 32 14 34 19 25 15 6 4 106 1,658 487 53 1,611 357 874 726 538 659 569 12 105 242 221 211 22 608 194 543 57 838 52 219 1,937 720 76 2,251 565 1,451 802 1,401 726 794 In September 2002, the human resources system named Meta4 E-Mind Nómina (a world-class technology product) came into operation. This system encompassed all the companies of the Group in Chile, and permitted a homologation of the different systems that were used up to that date. Another relevant fact relates to the continuation of the training of the region’s executive officers 13 29 in an integration and development program TOTAL 261 7,650 3,083 10,994 in Spain, allowing them to share a wider and (1) Includes: Endesa Chile, Ingendesa, Pangue, Pehuenche, Celta, San Isidro, Central Costanera, El Chocón, Edegel, Emgesa, Betania, Cachoeira Dourada, Infraestructura 2000, Autopista Los Libertadores, Autopista del Sol, Túnel El Melón. (2) Includes: Empresa Eléctrica de Colina (3) Includes: Synapsis Chile, Synapsis Argentina, Synapsis Colombia, Synapsis Brazil, Synapsis Perú (4) Includes: Cam Chile, Cam Argentina, Cam Brazil, Cam Colombia, Cam Perú This year, the rearrangement in the use of the physical facilities of the Group in Chile continued with Enersis moving to its new corporate building located at Santa Rosa No. 76, Santiago.Thus, the regional heads of the business lines of the Group are now present and operate in the same building. The Contractor Management model for Latin America was defined. Its diffusion to the companies of the Group in Latin America and global vision of business, as well as to work on management skills that are essential to improve the management potential of this group. The training program is the only corporate activity that gathers executive officers from different countries, cultures, education and business lines under the same umbrella, which results in a higher commitment with the present and future Group’s company project. Likewise, the training plans carried out for workers (professional and administrative), which had been carried out in 2001, continued during 2002. They were aimed at consolidating corporate values and the achievement of the Group’s strategic objectives, totaling 11,974 hours/man. ENERSIS 20 02 ANNUAL REPORT 2 1 2 0 2 0 Activities CULTURAL ACTIVITIES Enersis has reaffirmed its commitment to the community, with a strong bet on education and culture as an integration channel and a real contribution to society. In August 2002, the sustained effort on cultural activities made by Enersis during the last years was rewarded by Corporación Amigos del Arte, a Chilean institution, with the Great Prize “Ernesto Pinto Lagarrigue” in recognition for the Company’s permanent support to the cultural development in Chile. In the words of Corporación Amigos del Arte, this distinction was awarded to Enersis as a token of appreciation to the Company which “through time has sustained a policy of cooperation with the public that has undoubtedly favored our national artists as well as a massive audience, always grateful for every possibility to know and admire the various aspects of each exhibitor.” The prestigious award obtained was a confirmation to Enersis that it is doing a very good job with the activities which, year after year, it has been conducting in the cultural area. During 2002, these activities can be summarized as follows: II Latin American Painting Contest For the third consecutive year, Enersis called for painters to create. This initiative, which began in the year 2000 as a contest for Chilean painters, continued in 2001 with a Latin American exhibition. Due to the great success of this contest, during the second semester of 2002, ENERSIS 2002 ANNUA L REPORT 2 1 2 0 2 0 Churches Lighting Agreement The agreement between Enersis and Endesa- España Foundation, together with the subsidiaries Chilectra and Endesa Chile, and the Chilean Bishops’ Assembly for the lighting of cathedrals, churches and religious temples in Chile, involving a total amount of US$ 1.2 million in five years, materialized in seven projects during the year. During 2002, modern lighting was installed in the following churches: Sagrado Corazón de Jesús Church in Puerto Varas, St. Joseph’s Church in La Unión, Metropolitan Cathedral of Santiago, Votive Temple of Maipú, Cathedral of Valparaíso, Corazón de María Basilica in Antofagasta, and Cathedral of Copiapó. These projects are added to those carried out in 2001, totalling eleven churches with brand new lighting. International Book Fair Enersis organized the II Latin American Painting For the eleventh consecutive year, Enersis Contest, “Power and the World”, with a select sponsored the International Book Fair of Santiago, group of 25 outstanding artists from Argentina, a meeting of literature and culture, which year Brazil, Chile, Colombia and Perú. to year gathers more than 200,000 visitors at The topmost event was the opening ceremony for the exhibition of all the works participating in the contest, which took place at the end of October in the Museo de Artes Visuales de Santiago. During that ceremony, prizes were awarded for the best works by a jury presided by the Director of the National Museum of Fine Arts. The winner was the Brazilian artist Abraham Palatnik, who received a prize of US$ 15,000. The second and third awards were granted to the Colombian artists Santiago Cárdenas and María Cristina Cortés, respectively. ENERSIS 20 02 ANNUAL REPORT 2 3 2 2 2 2 the Centro Cultural de la Estación Mapocho. significant step in the recovery of the historical In addition to its role as sponsor, the Company patrimony of the city of Santiago. During 2002, organized a daily contest between the attendants, the photographic pieces continued to be restored raffling ten libraries including books valued at and catalogued. There are approximately half a million Chilean pesos. 20,000 pieces, including glass plates, acetates and positives. The travelling exhibition with a Energy Information Center selection of 60 images has already been presented The Company has played an important role in in Antofagasta, Copiapó and Santiago. communicating information on electric energy to children and youngsters, according to the Enersis also took part in the donation of libraries guidelines defined by the Ministry of Education. to rural public schools for poor children, During 2002, the Energy Information Center the sponsoring for the literary (story) contest was visited by about 7,000 students aged 5-18, organized by SOFOFA and the Architecture who were able to learn about how electricity is Biennial Exhibition, as well as seminars and produced and how it is distributed. meetings of the energy sector. Also in the Other initiatives social area, Enersis contributed to the campaign for providing a roof In 2001, together with its subsidiary Chilectra, to the homeless, named “Un the Company began to recover the Photographic Techo para Chile”, together Archive, which became the starting point for the with its subsidiaries Endesa book “Lights of Modernity”. This represented a Chile and Chilectra. ENERSIS 2002 ANNUA L REPORT 2 3 2 2 2 2 FINANCIAL ACTIVITIES August: Citibank for US$ 25 million November: BBVA Bank for US$ 48 million As of December 31, 2002 the consolidated leverage ratio is 1.5 times. With the resources from these funding, Changes in the indebtedness of the Company These were taken within the framework defined occurred during 2002 were essentially oriented by the so called Genesis Project in 1999. prepayments of the bilateral credits were made. to reschedule the existing debt to improve its conditions. As for amendments to credit agreements, the credits with Elesur for approximately UF 60 In this sense, during 2002, Enersis subscribed the million and the bilateral credits with ABN Bank following credits, directly and through its Agency for US$ 100 million and with the Bank of Tokyo in Cayman Islands: for US$ 50 million were extended along the year. ENERSIS 20 02 ANNUAL REPORT 2 5 2 4 2 4 Business Activities HISTORICAL EXPANSION Enersis is the largest private electrical Group in Latin America. This has been achieved through a stable and balanced growth in its business activities in electric energy, generation and distribution, as well as in businesses related to these activities. Synapsis Soluciones y Servicios IT Ltda. Aimed at providing services and equipment related to computing and data processing. Inmobiliaria Manso de Velasco Ltda. In the real estate business, committed to the integral development of real estate projects, and to the management, leasing, purchasing and sales of real estate owned by Enersis and its subsidiaries in Chile. Compañía Americana de Multiservicios Ltda. Whose areas of action are related to commercial and other operations in networks for public service companies, preferably in measuring systems for utilities, and as a purchase agent, an importer and exporter, and also as a merchandiser and materials supplier for the subsidiary companies of Enersis and third parties. The electric energy distribution business has been performed jointly with its subsidiary Chilectra S.A., a company whose main aim is the distribution of electric energy in the Metropolitan Region and abroad. It also participates in the distribution and sale of electric energy together with its subsidiary, Compañía Eléctrica del Río INTERNATIONAL DEVELOPMENT Enersis started its process of expansion to other countries during 1992, by participating in various privatization processes in the neighboring countries of Latin America, thus developing a significant presence in the electric sectors of Maipo S.A., in the areas surrounding those served Argentina, Perú, Colombia, and Brazil. by Chilectra. Through its subsidiary Empresa Nacional de Electricidad S.A. (Endesa Chile), it has been materializing its investments in the generation of electric energy in the country and abroad. Additionally, Enersis is present in business areas complementary to its main activities, through the ownership of a majority stake in the following companies: In July of 1992, Edesur, a company that distributes electric energy to the city of Buenos Aires, Argentina, was adjudicated to Distrilec Inversora S.A., a company in which Enersis participates. Afterwards, in December, 1995, Enersis purchased an additional 39% of that company, becoming its controller since then. ENERSIS 2002 ANNUA L REPORT 2 5 2 4 2 4 Between July 1994 and December 1995, Enersis, During 1999, Endesa España became the through the company Inversiones Distrilima S.A. controlling stockholder of Enersis. Through a purchased 60% of the stock capital of the Tender Offer (OAA), in which it offered Ch$ 320 Empresa de Distribución Eléctrica de Lima per share, the Spanish multinational company Norte S.A. (Edelnor) in Perú. In that same year, it bought another 32% of Enersis which, added purchased Edechancay. to the 32% it had acquired in August 1997, increased Endesa España’s final stake in the In 1996, Enersis entered into the Brazilian market ownership of Enersis to 64%. The transaction, for the first time, jointly purchasing with other ended on April 7, 1999, involved an investment of partners an important part of the stock of the US$ 1,450 million. Companhia de Eletricidade do Rio de Janeiro (Cerj) which distributes electric energy in the city On May 11, 1999, Enersis acquired an additional of Rio de Janeiro, Brazil. 35% interest in the ownership of Endesa Chile, where it already held a 25% of the capital stock. In 1997, Enersis successfully participated through Consequently, Enersis attained an approximately a consortium in the process of capitalization 60% share in the ownership of the generation and subsequent control of Codensa S.A. ESP, a company and became its parent company, company that distributes electricity in the city allowing Enersis to consolidate itself as one of of Bogotá and the district of Cundinamarca, the largest private electricity Groups in Latin Colombia. America. At the beginning of 1998, Enersis participated Important operations were carried out during in the Brazilian market once again. This time, 2000, which may be summarized as follows: the through a consortium which acquired control of Company’s equity increased by US$ 520 million. Companhia Energética de Ceará S.A. (Coelce), a Furthermore, proceeds of US$ 1,400 million were company that distributes electricity in Northern received as a result of the sale of our subsidiaries Brazil, in the State of Ceará. Transelec, Esval, Aguas Cordillera and some real ENERSIS 20 02 ANNUAL REPORT 2 7 2 6 2 6 estate divestments, within the strategic scope The above mentioned factors enable Enersis to provided for in the Genesis Project. make investments that contribute to the growth of profits, with an adequate weighting of risks Important investments were made during 2001: deriving from its business activities. US$ 364 million to increase the company’s stake in the capital stock of Chilectra; US$ 150 million INVESTMENTS AND DIVESTMENTS in the purchasing of Edesur’s capital stock by 10%, in Argentina, which was owned by the Chile company workers; US$ 132 million to increase Chile’s most important investment during 2002 the participation in the Brazilian company Cerj; was the continuation of the building of Ralco and US$ 23 million to increase the participation hydroelectric power station, which is being of Enersis in Río Maipo by 15%. developed by the Endesa Chile subsidiary. During 2002, US$ 119 million were invested in GROWTH AND DEVELOPMENT the building of the power station and a physical progress of 74% was achieved by the end of Enersis’ main objective is to maximize the the year. economic value of its equity, through stable growth founded on electric businesses rigorously Within the Genesis Project, Enersis obtained evaluated and managed. The attainment of this US$ 13 million for the disposal of real estate objective is sustained by an investment strategy, property, industrial lots and macrolots of various focused on increasing the value of the subsidiaries real estate projects of Inmobiliaria Manso de and related companies, and the purchasing of new Velasco. companies. Brazil A key factor of this strategy involves making During 2002, Enersis strengthened the financial investments that significantly call for the situation of Companhia de Eletricidade do Rio experience, management skills and operating de Janeiro (Cerj) by converting into capital capabilities of Enersis and its subsidiaries. Such US$ 100 million in convertible bonds, and by a requirement makes it necessary to invest in capital increase of additional US$ 100 million, companies in which Enersis has a final decision in progress. on their management and operation, and the power to approve or reject its investment projects. Pursuant to the strategic objective of increasing the presence in Brazil, particularly in the Another development factor consists in having generation sector, Enersis jointly with an exceptional team of professionals that actively Endesa S.A. proceeded with the construction of interact with the subsidiaries, providing them the Fortaleza Thermoelectric Power Station in with assistance in evaluating their investment the state of Ceará. During 2002, Enersis made projects and are permanently alert to new an equity contribution of US$ 21 million for business opportunities in their respective the development of this power station, having business areas in the Latin American market. an installed capacity of 310 MW and a foreseen ENERSIS 2002 ANNUA L REPORT 2 7 2 6 2 6 investment of US$ 203 million, which will supply PROSPECTS FOR THE YEAR 2003 the Coelce distributor as of 2004. In this manner, Coelce’s electric supply is assured, in a market Chile with one of the highest growth indexes in Brazil. During 2003, the financial strengthening plan for Enersis will be carried out, by increase Also, the commercial operation of the second of its own funds, disposal of assets and debt stage of the electric interconnection between reduction. Besides, the consolidation process and Argentina and Brazil was launched. The first the efficiency improvement, as set forth in the module of 550 MW began its operation in May, Genesis Project, will continue. and the second module of additional 550 MW began in August, thus totaling a transmission This plan involves increasing funds of its own capacity of 2,200 MW between both countries. by approximately US$ 2,000 million. This Perú capital increase will be open to all of Enersis’ shareholders and can be materialized through During 2002, Enersis invested US$ 1.6 million to money contributions and/or capitalization of increase its stake in the capital stock of Distrilima shareholders’ debts. by 1.73%. Through this consortium, Enersis controls Edelnor. A part of the financing which Enersis has provided to its subsidiaries and related companies ENERSIS 20 02 ANNUAL REPORT 2 9 2 8 2 8 will be substituted by credits subscribed by these companies with third parties. There are plans for the divestment of assets, by offering for sale Río Maipo distributing company, Manso de Velasco real estate company and several real estate properties owned by the Group. Endesa Chile subsidiary will continue with the construction of Ralco hydroelectric power station, which is being developed at the Biobío river and which is expected to go into operation during 2004. Brazil The development of Fortaleza’s thermoelectric project and the management improvement in distributors Companhia de Eletricidade do Rio de Janeiro (Cerj) and Companhia Energética do Ceará will continue. Colombia It is expected that Codensa will maintain its performance in the areas of loss decrease and quality service improvement, keeping customers’ orientation and profitability as the objectives of future management. INVESTMENT AND FINANCING POLICY OF THE YEAR 2002 The Ordinary Shareholders’ Meeting, held on April 11, 2002, approved the Investment and Financing Policy as follows: 1. INVESTMENTS (a) Investment areas • Equity contributions for investment or creation of subsidiary or related companies, whose scope of business is similar, related or connected to energy in any of its forms or nature, or the provision of public services or that has energy as their main input. • Investments consisting in the acquisition, exploitation, construction, rental, management, marketing and disposal of any kind of real estate, either directly or through subsidiary companies. • Other investments in any kind of financial assets, titles and movable property. ENERSIS 2002 ANNUA L REPORT 2 9 2 8 2 8 Enersis will make investments, pursuant to (b) Maximum investment limits the provisions in its by-laws, in the following The maximum investment limits for each areas: investment area will be as follows: Enersis’s participation in the ownership of such companies, with appointees originating preferably from the Board of Directors or the senior management of both the Company and its subsidiaries. • Propose to the subsidiary companies the investment, financial and commercial policies, as well as the accounting systems and criteria, which they are to abide by. i) Investments in its subsidiaries of the electric sector, as needed to enable such subsidiaries • Supervise the management of the subsidiary to attain their respective corporate purpose. and related companies. ii) Investment in other subsidiary companies, • Maintain a permanent control of the such that the total of the proportions of the borrowing limits and the clean assets factor fixed assets corresponding to the participation for accounting purposes, in a manner such in each one of these other subsidiary that the investments or equity contributions companies does not exceed the proportion of made or to be made do not involve a variation fixed assets corresponding to the participation that departs from the parameters defining the in the subsidiaries of the electric sector and of maximum investment limits. Said control, Enersis S.A. in respect of the clean assets factor for accounting purposes, will be maintained as iii) Other investments, such that the clean assets long as it remains in force. factor for accounting purposes of Enersis, calculated on the basis of the individual 2. FINANCING balance sheet represents, as a proportion of Enersis’s assets, a same or higher percentage (a) Maximum leverage level than that stipulated in the first paragraph of The maximum leverage level for Enersis will article 45 bis of Decree Law N 3,500, as long be based on a ratio of total debt to equity as this provision is in force. plus minority interest equal to 1.75 of the consolidated balance sheet. (c) Controlling participation in investment areas In order to control areas of investment and (b) Authority of management to agree with pursuant to what is defined in the corporate creditors on restrictions to dividend purpose of the Enersis, actions as far as distributions possible will be taken as follows: Restrictions to dividend distributions may be agreed upon with creditors solely provided • Propose to the Shareholders’ Meetings of that they are previously approved at a the subsidiary and related companies, the Shareholders’ Meeting (either Ordinary or appointment of directors that correspond to Extraordinary). ENERSIS 20 02 ANNUAL REPORT 3 1 3 0 3 0 (c) Authority of management to agree with The international and national risk ratings creditors on the granting of collateral assigned to Enersis to December 31, 2002 are The management of the Company has the as follows: authority to agree with creditors on granting real and personal collateral, in compliance with the law and the Company’s by-laws. (d) Essential assets for the operation of the Company The shares of common stock that represent equity contributions made by Enersis S.A. to its subsidiaries Chilectra and Compañía Eléctrica del Río Maipo are essential assets for the operation of Enersis. RISK FACTORS Enersis is an investment company whose assets are properly diversified in five countries in the region, which provides it with a balanced corporate risk profile. In the same manner, the financial flows of Enersis follow the same diversification, with the additional advantage that they correspond to generation, distribution and other related business, which grants a higher stability to the company’s financial situation. The above has been duly considered by domestic and international risk rating companies. Indeed, such companies acknowledge that, among other factors, one of the strengths of the Group lies in its balanced investment portfolio, which has allowed Enersis to keep a company classification of “Investment Grade”, beyond the contingencies experienced by the region during the last years. Debt in local currency Debt in foreign currency Fitch BBB+ BBB+ Standard & Poor’s Moody’s BBB BBB - Baa3 Shares Bonds Fitch Feller Rate First Class Level 1 First Class Level 1 AA- AA- The corporate strategy applied by the Group to contain the inherent risks to an investment company in the electric industry, has been to manage the company’s assets with both prudence and responsibility. This policy can be observed during last year by the strengthening of cash, decrease of debts, improvement in the quality service index, concentration on primary activities and continuous monitoring of the economic and regulatory situation in each operating country. A concrete measure within the global context of the Group’s risk proactive handling was the creation, during 2001, of the Enersis Group Risk Committee, aimed at identifying the most diverse risks that could affect the company and propose, in due time, the contention measures needed. This Committee has elaborated a Group’s risk map and it is operating under state-of-the-art techniques of Company Risk Management. ENERSIS 2002 ANNUA L REPORT 3 1 3 0 3 0 Corporate Structure ������ ���������� ������ ������������ ������ ����� ������ ������������� ������ ��������������� ������ ��� ������� ������ ������ ����� ���� ����� ��������� ����� ������ ����� ENERSIS 20 02 ANNUAL REPORT 33 32 32 ������������ ������� ���������� ������������ ��������� ����� ��� ����� ����� ������ ����� ������� ����� ���� ����� ������ ����� ������� ����� ����� ����� ������� �������� ����������� ��� ������������������ ��� ���� �������� ���� ������ ����� ����� ��������� ����� ��������� ����� ������������� ����� �� ������ ����� ������ ����� ������ ����� ��� ������ ����� ��������� ������� ����� ����� ���� ���� ����� ��� ����� ������� ����� ������ ����� �������� ����� ���������� ���������� ����� ����������� ��������� ����� ���� ����� ������������ �� ������� ���� �������������� ��� �������� ��������� ��� ��� ����� ��������� ��� ������������ ����� ������� ����� ����� ��������������� ���� ����� ����� �� ����� ���� ���������� ����� ������� ��������� ����� ��������� ��� ��� ����� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � ENERSIS 2002 ANNUA L REPORT 33 32 32 Generation COLOMBIA 2,732 MW PERU 1,003 MW BRAZIL 658 MW ARGENTINA 3,622 MW CHILE 3,935 MW IDENTIFICATION OF THE COMPANY Corporate nameEmpresa Nacional de Electricidad S.A Type of company Limited Liability Stock Company Tax register number 91.081.000-6 Address Santa Rosa N°76 Santiago, Chile Telephone (56-2) 630 9000 Fax (56-2) 635 4720 (56-2) 635 3938 Endesa Chile Web site www.endesa.cl E-mail comunicacion@endesa.cl Securities register number N°114 External Auditors Ernst & Young, Serv. Prof. de Auditoría Ltda. Subscribed and paid in capital (ThCh$) 1,009,510,570 Corporate purpose Generation and provision of electric energy, sale of consulting and engineering services within the country and abroad, and construction and exploitation of infrastructure works. COMPANY OWNERSHIP Its annual generation added up to 16,286 GWh, and its energy sales amounted to 18,334 GWh, Enersis, the main stockholder in Endesa Chile during 2002. with 60% of the property, has channeled investment in the area of electric generation Endesa Chile participates in the Central through this company. Its shareholders are: Interconnected System (SIC), the main Enersis ADR’s AFP’s Retail Investors Others 60,0 % 4,5 % 18,7 % 7,5 % 9,3 % interconnected system in the country, covering an area that serves approximately 93% of the national population. Endesa Chile and its subsidiaries in the country have an installed capacity of 3,753 MW in this system, which represents approximately 53.6% of the SIC. OPERATIONAL ACTIVITY The company also participates in the Northern Interconnected System (SING), through its The main activities carried out by Endesa Chile subsidiary Celta, and indirectly through the and its subsidiaries are related to the generation companies Gasoducto Atacama Chile Limitada and commercialization of electric energy and, and GasAtacama Generación Limitada, serving additionally, to the sales of consulting and various mining companies and selling energy in engineering services in all specialties. the spot market. The installed capacity in this Endesa Chile is the main electric generation SING. When including GasAtacama Generación, company in Chile and one of the country’s where Endesa participates with a 50% ownership, largest companies. In Chile, it operates a total of the installed capacity in the SING totals 25.7%. system is 182 MW, which represents 5.1% of the 3,935 MW, representing 37.1% of the country’s installed capacity. 73.7% of the installed capacity Endesa Chile has presence in Argentina, through of Endesa Chile and its subsidiaries in Chile is Central Costanera S.A. and Hidroeléctrica El hydraulic energy, and the rest is thermal energy. Chocón S.A., operating a total of 3,622 MW, ENERSIS 20 02 ANNUAL REPORT 3 7 3 6 3 6 Property Structure 60% BOARD OF DIRECTORS Chairman Luis Rivera Vice-Chairman Antonio Pareja Directors Rodolfo Martín Jaime Bauzá José M. Hidalgo Emilio García Andrés Regué Antonio Tuset Leonidas Vial Officers Chief Executive Officer Héctor López Chief Human Resources Officer Juan C. Mundaca Chief Energy Planning Officer Rafael Errázuriz Chief Communications Officer Rodolfo Nieto Chief Planning and Control Officer Julio Valbuena Chief Production and Transport Officer Rafael Mateo Legal Counsel Carlos Martín Chief Financial Officer Alfredo Ergas Chief Trading and Commercialization Officer José Venegas Chief Generation Chile Officer Claudio Iglesias which represents 16% of the Argentinean Interconnected System’s total, with an annual generation of 7,168 GWh and annual sales of 7,897 GWh. In Brazil, it participates through Centrais Elétricas Cachoeira Dourada S.A., operating a total of 658 MW, representing approximately 1% of the installed capacity in that country, with an annual generation of 2,467 GWh and annual sales of 3,591 GWh. Likewise, through the interconnection line with Argentina operated by CIEN, 2,000 MW are added to said market, the energy and power being supported by the Argentinean subsidiary Central Costanera S.A. In Perú, the company participates through Edegel, operating a total of 1,003 MW, representing 23% of the Peruvian system, with an annual generation of 4,279 GWh and annual sales amounting to 4,158 GWh. Finally the company participates in Colombia, through Central Hidroeléctrica de Betania S.A. E.S.P. and the power generation company Emgesa, ENERSIS 2002 ANNUA L REPORT 3 7 3 6 3 6 operating a total of 2,732 MW, representing 20% ELECTRIC PROJECTS of the installed capacity in Colombia, with an annual generation of 10,616 GWh and annual The most important activities and projects along sales adding up to 14,639 GWh. 2002 were: CIEN, Energy Interconnection Argentina-Brazil effort, the Group provides more than half the On August 1, 2002, the fourth and last module annual requirements of capacity in Brazil, an of the converter station Garabí in Brazil began extraordinary figure compared to the participation its commercial operation. This was the endpoint of its companies in that market. of an ambitious project, which has had to overcome a number of geographic and technical Finally, the CIEN project is totally in service, difficulties. Thus becoming not only a model practically all its capacity being engaged in from the technological point of view, but also the contracts. The contracts are for: 300 MW with most important electric interconnection in Latin Tractebel, 700 MW with Furnas, 800 MW with America and one of the most modern throughout Copel and 200 MW with Cerj, totalling 2,000 MW. the world. Additionally, in the short term, the company should supply to Coelce, energy purchased from The total investment for this project has amounted Petrobrás (106 MW in 2003 and 54 MW in 2004). to over US$ 700 million. With this investment ENERSIS 20 02 ANNUAL REPORT 3 9 3 8 3 8 Ralco Project The Ralco project is located at the Alto Biobío area, about 120 km southeast of Los Angeles and 30 km upstream from the Pangue power station. The project involves the construction of various works which will constitute a dam power station. Its nominal power will be 570 MW and it will annually contribute an average generation of 3,100 GWh to the Interconnected Central System (ICS). At December 2002, the physical progress of the works construction was 73.9%. become its property. During 2002, the contractor Regarding the environmental issues of the project, company made progress in the excavation, during 2002, Endesa Chile has successfully construction of foundations, mounting of developed all the plans and programs engaged, structures and laying of the conductor. The and have achieved significant progress, both starting on service is foreseen for the second in what was offered in the environmental semester of 2003. impact study and in what was imposed by the environmental evaluation decisions on the OTHER BUSINESSES project. Among other businesses, the Ingendesa company Ralco Power Station-SIC Joint may be pointed out, which participated in This project includes the construction of important investment projects in Chile and a transmission line of 220 kV and 140 km Latin America, particularly in the areas of two-circuit line, which will join the Ralco energy, infrastructure, mining, public works and Hydroelectric Power Station and the Charrúa telecommunications, through services rendered Substation, from which electricity will be to the companies of the Group as well as to other delivered to the Central Interconnected System. non-related customers. During 2002, the company continued to engage Additionally, Endesa Chile manages the in agreements for rights of way with the property companies Sociedad Concesionaria Túnel owners affected by the line. On the other hand, El Melón S.A. which operates on Ruta 5 Norte; the proceedings for the electric concession have Sociedad Concesionaria Autopista del Sol S.A. reached the final stage. engaged in the design, construction and operation of the Santiago-San Antonio highway, and a new This project is being materialized by the Abengoa 24-km section in the urban area Santiago-Malloco; Chile S.A. company, under the modality that and Sociedad Concesionaria Autopista Los Endesa Chile pays an annual toll for 20 years, Libertadores, comprising the expansion and a term after which the transmission line will improvement of the General San Martín highway. ENERSIS 2002 ANNUA L REPORT 3 9 3 8 3 8 Distribution COLOMBIA 1,910,737 Clientes PERU 871,430 Clientes BRAZIL 3,787,819 Clientes ARGENTINA 2,089,997 Clientes CHILE 1,620,981 Clientes IDENTIFICATION OF THE COMPANY Corporate name: Chilectra S.A. Type of company: Limited Liability Stock Company Tax register number: 96.524.320-8 Address: Santa Rosa N°76, Piso 8 Santiago, Chile Telephone: (56-2) 675 2000 Fax: (56-2) 675 2999 P.O. Box: 1557, Santiago Web site: www.chilectra.cl E-mail: rrpp@chilectra.cl Securities register number: N°321 External auditors: Deloitte & Touche Sociedad de Auditores y Consultores Ltda. Total number of shares: 366,045,401 Subscribed and paid in capital (ThCh$): 282,119,751 Chilean stock exchange ticker symbol Chilectra Participation of Enersis (direct and indirect): 98.2% Chilectra COMPANY OWNERSHIP Puyehue S.A. (1.1%), ESSA (1.1%), and Enersis, its main shareholder having 98.2% of ownership, has destined Chilectra as its Tariff Setting Process others (2.9%). operator in the investments in the area of energy The electricity rates are set every four years, in distribution. compliance with the current regulations (DFL No. 1 of 1982 issued by the Ministry of Mining). OPERATING ACTIVITY The next tariff review will take place in the Chilectra is the largest electric energy distribution company in the country. It serves 33 boroughs of Energy Losses year 2004. the Metropolitan Region including 2,118 sq km During 2002, Chilectra continued with its efforts within its concession area, and has 555 km of to control energy losses. There were inspections different high tension circuit lines. It also owns to closed customers and to those with dubious 52 substations and 122 power transformers with a demands. The company maintained its levels of capacity of 4,927 MVA. investment in new projects related to technical measures and in the control and maintenance of Sales and Purchases of Energy those already existing, together with preventive The physical energy sales reached 9,952 GWh and corrective activities carried out on site. All during 2002, representing a 3.8% increase as of the large customers’ electric connections were compared to the same period of 2001. Out of inspected and a special plan of removal of service the total energy invoiced, 29.1% corresponds to connections and closing of distribution boxes was residential sales, 26.9% to industrial sales, 21.5% implemented. to commercial sales and 22.5% to other areas. During 2002, Chilectra purchased energy from possible to keep the energy loss index under several generation companies in the country, such relatively constant values, amounting to 5.6% at This set of measures and activities made it as Endesa Chile (30.0%), AES Gener S.A. (34.6%), the end of the period. Pangue S.A. (11.7%), Colbún S.A. (18.6%), ENERSIS 20 02 ANNUAL REPORT 4 3 4 2 4 2 Corporate purpose: Operate, either in Chile or abroad, in the distribution and sales of hydraulic, thermal or any other form of electric energy. BOARD OF DIRECTORS Chairman Jorge Rosenblut Vice-Chairman José M. Fernández Directors Pedro Buttazzoni Alberto Martín Marcelo Llévenes Álvaro Quiralte Hernán F. Errázuriz Officers Chief Executive Officer Julio Valenzuela Chief Communications Officer Marcelo Castillo Chief Distribution Officer Rolando Hechenleitner Chief Commercial Officer Juan C. Olavarría Chief Regulation Officer Guillermo Pérez Legal Counsel Gonzalo Vial Commercial Activity Likewise, during 2002, important projects of The number of customers amounted to 1,319,428 electric supply for large customers materialized at December 31, 2002, which represents a 2.4% which implied increasing the installed capacity increase as compared to the same period of 2001. by over 63.000 kW. Also, important long-term supply contracts were renewed, which means Chilectra made progress in the strengthening 4,400 GWh of projected energy sales. and positioning of the company in the energy distribution market, providing services and During 2002, Chilectra developed activities electric products for homes, companies and that will directly or indirectly favor millions of industries. In this respect, Chilectra intensified people, including those outside its concession the sales plan for products that use electric energy area. In all these initiatives, Chilectra contributed as input, as well as services such as protected more than US$ 350 million for different items. energy insurance, electronic payment via the Internet and others, thus achieving almost 8,000 sales for these items. Special mention should be made of the historical agreement reached with Metro S.A. to provide the electricity transportation service through Chilectra’s network for the present and future lines of public transportation, making available to Metro S.A. up to 150,000 kW starting from mid 2004 and during a 30-year term. This is the most important business of the year, because it creates a long-term relationship with one of the greatest consumers of Chilectra’s concession area. ENERSIS 2002 ANNUA L REPORT 4 3 4 2 4 2 IDENTIFICATION OF THE COMPANY Corporate name Compañía Eléctrica del Río Maipo S.A. Address Covadonga N°139, San Bernardo, Chile Type of company Limited Liability Stock Company Tax register number 96.557.330-5 Telephone (56-2) 600 858 5858 Fax (56-2) 540 7007 Río Maipo P.O. Box 30, San Bernardo E-mail riomaipo@rmaipo.enersis.cl Securities register number N°345 External Auditors Deloitte & Touche Sociedad de Auditores y Consultores Ltda. Chilean stock exchange ticker symbol Rio Maipo Total number of shares 360,613,552 Subscribed and paid in capital (Th Ch$) 15,463,145 Participation of Enersis (direct and indirect) 98.7% COMPANY OWNERSHIP Additionally in 2002, Río Maipo purchased energy from Chilectra (98%) and from At December 31, 2002, Enersis, its main AES Gener (2%). shareholder, controls 98.7% of the shares of the company. Tariff Setting Process OPERATING ACTIVITY current regulations (DFL No.1 of 1982, issued by the Ministry of Mining) are set every four years. Río Maipo is the fourth largest electric energy The next Tariff Setting Process will take place The electricity rates, in compliance with the distribution company in Chile. Its concession area in 2004. comprises the boroughs of San José de Maipo, Puente Alto, La Pintana, El Bosque, San Bernardo, Energy Losses Calera de Tango, Isla de Maipo, Talagante, During 2002, Río Maipo continued with efforts Peñaflor, Padre Hurtado and Curacaví, serving in the control of energy losses, undertaking a a population of about 1,500,000 people, over an series of actions and investments in new projects area of 1,596 sq. km. It currently owns 27 km of of technical measures, and in the control and high-tension lines, a power substation and 10 maintenance of the already existing ones. transformers with a total capacity of 81 MVA. All of this, together with the preventive and Energy Sales And Purchases corrective activities carried out on site, allowed In 2002, the physical energy sales reached us to maintain the energy loss rate at relatively 1,274 GWh, representing a 2.8% increase as constant values, which improved by the end of compared to the same period the year before. Out the year. Despite the macroeconomic condition of this total, 40.0% corresponds to residential that the country is still going through, the loss sales, 7.7% to the commercial sector, 42.2% to the rate reached a level of 6.2% for the period from industrial sector and 10.1% to other sectors. January to December 2002. ENERSIS 20 02 ANNUAL REPORT 4 5 4 4 4 4 Corporate purpose To exploit the distribution and sales of electric energy, hydraulic, thermal or of any other nature. BOARD OF DIRECTORS Chairman Julio Valenzuela Directors Jorge Claro Pantaleón Calvo Rolando Hechenleitner Fernando Urbina Guillermo Pérez Chief Executive Officer Alejandro Gómez Commercial Activity commercial offices, which were assessed by our At December 31, 2002, the company’s customers customers with a 77.6% rating, which represents totaled 301,553, which represented an increase an improvement of 6.9% as compared to 2001. of 2.7% as compared to the same period last year. Out of that figure, 96.4% are residential As a part of the global project for changing their customers, 2.3% are commercial customers and public image and enlarging the relation with the remaining 1.3% corresponds to industrial and customers, we developed a new consumption bill other customers. that was introduced in November. This change of format aims at the consolidation of the bill as Río Maipo aims its commercial work at achieving an efficient communication instrument to the excellence in service quality and service to customer, which delivers more information about residential, commercial and industrial customers. energy consumption, new products, and social campaigns in which the company is involved. To this effect and with the purpose of having a tool to improve customers’ service, in 2002 Likewise, in 2002, Río Maipo carried out 3,074 Río Maipo carried out three service quality hours/man training, aimed at improving service measurements, in order to set customers’ quality mainly in the following: customers’ satisfaction indexes in all contact areas: Maipo service, regulation in force, electricity supply, phone, Emergency Service, Commercial and and the company’s services and products. Sales Offices, and Municipalities. As a result of these measurements, the global satisfaction index of residential customers and the Small and Medium Size Companies (PYME) for the period was 81.5%, which represents an increase by 1.2% compared to the year 2001. It is important to point out the improvement obtained by our ENERSIS 2002 ANNUA L REPORT 4 5 4 4 4 4 IDENTIFICATION OF THE COMPANY Corporate name Empresa Distribuidora Sur S.A. (EDESUR S.A.) Address San José N°140 (1076), Buenos Aires, Argentina Type of company Stock Company Telephone (54-11) 4370 3700 Edesur Fax (54-11) 4381 0708 Web site www.edesur.com.ar External auditors Pistrelli Díaz y Asociados S.R.L. Total number of shares 898,585,028 E-mail servicio@edesur.com.ar Subscribed and paid in capital (Argentinean $) 898,585,028 Corporate purpose Distribution and commercialization of electric energy and associated operations. BOARD OF DIRECTORS Chairman Enrique García (Enersis Chief Executive Officer) Vice-Chairman Rafael Fernández OPERATING ACTIVITY the Executive Power to renegotiate the contracts for works and public services. Edesur S.A.’s main purpose is the distribution and commercialization of electric energy in the The approval of this law affected Edesur’s southern area of Buenos Aires, comprising two situation during 2002. Due to the measures thirds of the Federal Capital and twelve districts adopted against the crisis, a great alteration in the in the Province of Buenos Aires. It has a total company’s economic-financial equation occurred, concession area of 3,309 sq km, serving a total of which drove it to a particularly critical situation 2,089,997 customers with a level of physical sales regarding the provision of services and the of 12,138 GWh, which represents a decrease of fulfillment of its contractual obligations according 6% with respect to the same period in the to the original terms. year 2001. With the purpose of trying to repair this On January 7, 2002, Law No. 25,561 was dictated, situation, in February the Executive dictated declaring a public emergency in social, economic, Decree No. 293/02, which ordered the Ministry administrative, financial and exchange matters. of Economy to renegotiate, through an ad hoc This law modified the convertibility law and committee, the contracts for works and public deleted the indexing clauses based on other services, within a maximum term of 120 days. countries’ price indexes and every other indexing mechanism in the contracts agreed upon by the Since the original deadline was not met, in public administration, among them contracts for September the Executive dictated Decree works and public services. In this way, the prices No. 1839/02, extending the term for the and tariffs resulting from those clauses were renegotiation process by 120 additional left established in pesos with the exchange rate working days. 1 peso = US$ 1. Furthermore, the law authorized ENERSIS 20 02 ANNUAL REPORT 4 7 4 6 4 6 Directors Marcelo Silva (Enersis Chief Distribution and Services Officer) Domingo Valdés (Enersis Legal Counsel) Pablo Alejandro Juan C. Cassagne Rafael Arias Jorge Volpe Alfredo Mac Laughlin Deputy Directors Santiago Daireaux Manuel M. Benites Pablo Casado Horacio Babino Jorge G. Casagrande Pablo M. Lepiane Alan Arntsen Pedro E. Aramburu Mariano F. Grondona Main Officers Chief Executive Officer José M. Hidalgo Legal Affairs Director Alvaro Estivariz Human Resources Director Héctor Ruiz Commercial Director Sandro Rollan Distribution Director Daniel H. Colombo Service Director Daniel R. Alasia Planning and Control Director Juan Garade Management and Finance Director Juan Verbitsky With respect to granting urgency tariff raises, Despite this situation, Edesur made the greatest and in anticipation of the final result of the possible effort to accomplish the investments renegotiation process, in December the Executive necessary to maintain the provision and quality dictated Decree No. 2437/02 granting a raise to of service. The amount invested by the company the distribution companies. The effects were during 2002 totaled US$ 26 million. suspended by two judicial resolutions which have been appealed by the government and by Edesur. As a result of these investments, Edesur was able The management of Edesur, regarding technical, 2002, as compared to 9.9% during 2001. to keep the level of energy losses to 11.6% in commercial, administrative, fiscal and financial matters during 2002, was totally designed to try to minimize the serious effects of the emergency and of the measures adopted by the authorities. Company Ownership Other Shareholders 12% Chilectra S.A. 16% Enersis S.A. 16% Distrilec Inversora S.A. 56% ENERSIS 2002 ANNUA L REPORT 4 7 4 6 4 6 IDENTIFICATION OF THE COMPANY Corporate name Empresa de Distribución Eléctrica de Lima Norte S.A.A. Address Jr. Teniente César López Rojas Nº201, Urb. Maranga, San Miguel, Lima, Perú Type of company Limited Liability Stock Company Telephone (51-1) 561 2001 Fax (51-1) 452 3007 Web site www.edelnor.com.pe Total number of shares 1,174,902,874 E-mail enlinea@edelnor.com.pe Subscribed and paid in capital (Peruvian Soles) 1,174,902,874 External auditors Gris, Hernández y Asociados, S.C. – Deloitte & Touche Corporate purpose Engage in activities pertaining to the delivery of distribution, transmission and generation of electric energy services. BOARD OF DIRECTORS Chairman Reynaldo Llosa Directors Emilio García Julio Valenzuela Fernando Fort Fernando Urbina Guillermo Morales José Griso Edelnor OPERATING ACTIVITY Eepsa (7.8%) Egenor (15.3%), Cahua (3.2%), Pacasmayo (0.2%). The remaining 0.1% Edelnor is the concession holding company of corresponds to self-generation of the isolated the public electricity service for the northern systems which supply the rural areas of the Norte part of Metropolitan Lima and the Constitutional Chico zone. Province of Callao, as well as for the provinces of Huaura, Huaral, Barranca and Oyón. It serves 52 The distribution tariffs remain in force for four- districts on an exclusive basis and shares another year periods and are determined considering an 5 districts with the distribution company for the efficient model distribution company and taking southern part. The concession area awarded to into account the different components established Edelnor extends over 2,440 sq km, 1,838 sq km of by law. The last distribution tariff fixation came which corresponds to the northern part of Lima into force on November 1, 2001 and will end up and Callao. on October 31, 2005. The physical energy sales in 2002 reached On December 10, 2002, experts from the 3,872 GWh, which represents an increase by 5.1% International Certification Services (SGS of as compared to 2001. Out of the total energy sold, Perú, S.A.C.) finished auditing the Certification 38.1% corresponds to residential sales, 27.6% to of the Quality Management System of Edelnor, industrial sales, 17.3% to commercial sales and and concluded that the company satisfactorily 17% to sales to other sectors. complies with Rule ISO 9001:2000. During 2002, the number of customers reached The energy losses at the end of the year 2002 871,430, that is a 0.48% increase compared to reached an annual 8.5%. This result was achieved 2001. by following the strategic plan based on the follow-up of critical electric feeders, inspections During the year 2002, Edelnor purchased and normalizations in distribution networks, as energy from six generation companies; well as a stricter control on customers who steal Electroperú (50%), Edegel (23.4%), from the company. ENERSIS 20 02 ANNUAL REPORT 4 9 4 8 4 8 Main Officers Chief Executive Officer (*) Emilio García Chief Management and Control Officer Juan Yamamoto Chief Commercial Officer Enrique Demarini Legal Counsel Luis Salem Chief Human Resources Officer Carlos Ureta Chief Communication Officer María Dávila Chief Technical Officer Walter Sciutto (*) In a Board of Directors Meeting which took place on December 16, 2002, Mr. Ignacio Blanco was appointed Chief Executive Officer, and it was established that this appointment would be effective as of January 16, 2003. Finally, the planned strategy to control the In September, the second short-term Obligation collectable accounts during 2002 was based Program was registered for an amount of up to mainly on a strong electricity cutoff and US$ 50 million, with the purpose of maintaining cutoff verification policy, which was oriented the access of local money to the market and to customers having two unpaid bills, thus complying with the refinancing obligations. permitting to control the growth of new unpaid debts. Thanks to the advantages offered by these debt issuance, and despite the volatility of the interest Within the frame of the Edelnor Corporate Bonds rates, Edelnor was able to reduce the cost of its Issue Program, three successful bond issues were financial debt, which is totally denominated in made in the local market. On January 2002, the local currency, from 9.5% in December 2001, to Third Issue of Edelnor Bonds was placed by an 7.7% in December 2002. amount of S/.30 million (about US$ 8.5 million) for a 2-year term, achieving a cutoff rate of 6.5%. In April 2002, the Fourth and Fifth Bond Issues were placed, by amounts of S/.20 million (about US$ 5.7 million) and S/.19 million (about US$ 5.3 million) for 2- and 5-year terms, obtaining rates of Company Ownership 6.34% and VAC + 6.1875%, respectively. Other Shareholders 3% Likewise, within the frame of Edelnor’s first Short-Term Obligation Program, in August, the fifth Securities Issue was placed for S/.25 million AFP`s 37% (about US$ 7.1 million), in two series. Series C was placed for a term of 270 days, obtaining a 5% rate and Series D was placed for a term of 360 Inversiones Distrilima 60% days, obtaining a 5.25% rate. ENERSIS 2002 ANNUA L REPORT 4 9 4 8 4 8 IDENTIFICATION OF THE COMPANY Corporate name Cerj-Companhia de Eletricidade do Rio de Janeiro Address Praça Leoni Ramos Nº1, Säo Domingos, Niterói, Rio de Janeiro, Brazil Type of company Stock Company Telephone (55-21) 2613 7000 Fax (55-21) 2613 7153 Web site www.cerj.com.br E-mail cerj@cerj.com.br External auditors Deloitte & Touche Tohmatsu Total number of shares 2,124,730,536,352 Subscribed and paid in capital (Th Brazilian reales) 545,424,306 Corporate purpose Generation, transmission, distribution and commercialization of electric energy. Cerj OPERATING ACTIVITY certain period. The last adjustment took place in December 2002, and tariffs were raised by The concession area of Companhia de Eletricidade 28.56%. do Rio de Janeiro (Cerj) covers 31,741 sq km, corresponding to 73.3% of the Rio de Janeiro Cerj has dedicated a special effort to the control State. The company serves a population of 4.1 of energy losses, for which purpose the following million people, through 1,778,407 customers in measures were taken: 66 municipal districts. The main areas in which the company serves are Niterói, Sao Gonçalo, • 435,000 inspections were accomplished, Petrópolis, Campos and the Los Lagos area. generating, in this way, 96,000 normalizations. Energy sales in the period amounted to collection bills were issued for non registered Within these normalizations, 73,000 7,146 GWh, which is higher by 6% compared to consumption. the same period in 2001. Out of the total energy sold in the year 2002, 38.4% corresponds to • Two projects were developed, Jardín Catarina residential sales, 24.2% to industrial customers, and Morros Comunitarios, serving areas with a 18.9% to commercial customers and 18.5% to high concentration of low socioeconomic level other customers. customers. To serve this market, Cerj bought electric energy • Measurements were taken in the distribution mainly from Furnas (78.3%) and Itaipú (19.0%), transformers, thus focusing on the site of with a 2.7% that was self-generated. electric energy theft. Cerj’s distribution tariffs are adjusted as set forth • Collections and cutoffs were carried out more in the Concession Agreement of November 1996. effectively and in less time. In December of each year, ANEEL (National Electric Energy Agency) reviews the tariffs The latter led to the fact that, as of October according to the variations occurred in some 2002, the energy losses started to decrease variables stipulated in the contracts during a systematically from 23.3% to 20.7% in ENERSIS 20 02 ANNUAL REPORT 5 1 5 0 5 0 BOARD OF DIRECTORS Chairman Eduardo J. Bernini Vice-Chairman Emilio López Deputy Directors Manuel F. das Neves Luis F. Goncalves Francisco J. Arias Fernando G. Urbina Directors Juan A. Madrigal Antonio M. García Fernando Nadal (Enersis Corporate Communications Director) Luiz C. Barcelos Marcelo Llévenes Marcelo Silva (Enersis Corp. Chief Distribution and Services Officer) Alfonso Arias Main Officers Chief Executive Officer Manuel Montero Chief Financial Officer Julio Moratalla Chief Human Resources Officer Claudio Mendes Chief Commercial Officer Gonzalo Mardones Chief Technical Officer Manuel F. das Neves Legal Counsel Antonio P. Fagundes December 2002. The level of accumulated losses for 12 months reached 22.6%, being slightly lower than the 22.7% reached in 2001. Among the most relevant facts in the financial area of the company, which occurred during Company Ownership Other Shareholders 4% 2002, is the conversion of Luz de Río Bonds Endesa Internacional Energía 4% (Debentures). This, due to a capital increase in Cerj by R$ 260.8 million (about US$ 75 million) Endesa Internacional S.A. 14% during the month of July, as well as a Eletricidade de Portugal Intern 15% second capital increase which will conclude during the month of January 2003, which consists in the capitalization of the debt of Luz de Río Ltda. 16% Enersis S.A. Ag. Islas Cayman 20% Enersis S.A. by a total amount of R$ 370 million Chilectra S.A. Ag. Islas Cayman 27% (about US$ 105 million). ENERSIS 2002 ANNUA L REPORT 5 1 5 0 5 0 IDENTIFICATION OF THE COMPANY Corporate name Companhia Energética do Ceará Type of company Limited Liability Stock Company Address Av. Barão de Studart, 2917, Bairro Dionísio Torres, Fortaleza, Ceará, Brazil CEP 60.127-900 Fax (55-85) 216 1410 Web site www.coelce.com.br External auditors Deloitte & Touche Tohmatsu Total number of shares 155,710,600,088 Corporate purpose Exploit the distribution and sales of electric energy, thermal, hydraulic or any other form. Telephone (55-85) 216 1100 E-mail investor@coelce.com.br. Subscribed and paid in capital (Brazilian reales) 433,057,722.64 Coelce OPERATING ACTIVITY and high tension lines, installed 8,088 new distribution transformers, increased power and Coelce is the electric energy distribution company built 9 substations, among others things. of the State of Ceará, in the northeast of Brazil, covering a total concession area of 146,817 sq km. As defined in the concession contract, in April the The company serves a population of more than tariffs were adjusted by 14.27%. During that same seven million people, represented by 2,009,412 month, an extraordinary raise was authorized, customers. The customers’ growth rate for the intended to repair the losses caused by the year 2002 was of 4.8%. electric rationing, as a consequence of the severe The energy sales at December, 2002 amounted February 2002. The tariffs were raised by 2.9% for to 5,558 GWh, that is, an increase of 3.8% residential customers and by 7.9% for industrial compared to the same date in 2001. Out of the and commercial customers, and these new tariffs drought suffered by Brazil from the year 2001 to total energy sold, 30.4% corresponds to industrial will be valid until 2004. customers, 29.9% to residential customers, 18.1% to commercial customers, and 21.6% to Likewise, during the month of April, the tariff other customers. On the other hand, the peak revision process for Coelce was initiated. It should demand occurred during December, amounting end by April 2003 with the application of new to 1,020 MW. tariffs that will remain in force for the company during the four following years. During September 99% of the energy required by the company was 2002, the National Agency of Electric Energy purchased from Companhia Hidroelétrica do Sao (ANEEL) defined the calculation methodology for Francisco-Chesf. the remuneration basis of the company’s assets, through Resolution No. 493 / 2002. During 2002, Coelce invested US$ 58.2 million in the development, improvement and expansion With respect to the commercial activities of of the electric system, within which the company the company during 2002, Coelce focused on built 30 feeders and 5,745 km of medium lowering the customers’ delay in payment, ENERSIS 20 02 ANNUAL REPORT 5 3 5 2 5 2 BOARD OF DIRECTORS Chairman Marcelo Llévenes Vice-Chairman Ignacio Blanco Directors Manuel Soto Fernando Urbina Juan A. Madrigal Antonio Cleber Fernando A. de Moura Emilio López Jorge Parente Manuel F. das Neves Fernando Nadal (Enersis Corporate Communications Director) Main Officers Chief Executive Officer Celestino Izquierdo Chief Commercial Officer Josep Pujols Chief Strategic Planning and Management Control Officer Juan P. Harrison Chief Distribution Officer José Távora Chief Administrative, Financial and Investor Relations Officer Antonio O. Alves Chief Management and HR Officer José R. Ferreira Chief Institutional Project Officer José Nunes Legal Counsel Silvia Cunha reducing energy losses and increasing energy consumption. For those purposes, the following activities were carried out: • 215,954 inspections were accomplished, thus generating 31,507 normalizations where 3 million reales were recovered. As for large customers, 1,866 inspections were made, resulting in an increase of 120 thousand reales in collection of non registered consumption. • 11,116 customers with irregular payments were reconnected, thus generating a consumption of 8,267 MWh. • Measurements were taken in the distribution transformers, so as to focus on the site of electric energy theft. • Collections and cutoffs were carried out more effectively and in less time. Other Shareholders 1% Company Ownership As a result of these activities, the energy losses at Endesa 2% December 31, 2002 reached 12.95% (accumulated Electrobrás 7% for 12 months), slightly lower than the 13.0% registered in 2001. Inversionistas Privados 33% Investluz 57% ENERSIS 2002 ANNUA L REPORT 5 3 5 2 5 2 IDENTIFICATION OF THE COMPANY Corporate name Codensa S.A. E.S.P. Type of company Private Stock Company Address Carrera 13ª N° 93-66 Bogotá, Colombia Telephone (571) 601 6060 Fax (571) 601 5917 Codensa Web site www.codensa.com.co Total number of shares 132,093,274 E-mail tservice@codensa.com.co External auditors Deloitte Colombia Ltda. Subscribed and paid in capital (Th Colombian $) 1,320,855,815,028 Corporate purpose Distribution and commercialization of electric energy, as well as all the similar, complementary and related activities. OPERATING ACTIVITY During 2002, Codensa supplied 9,015 GWh, which is 4% higher than the 8,673 GWh Codensa S.A. E.S.P. renders services in the registered in the same period of 2001, to 1,910,737 distribution and commercialization of energy in customers. The company’s customers increased by the city of Santa Fe de Bogotá and in 96 municipal 60,248 during 2002. districts in the Departments of Cundinamarca, Tolima and Boyacá. The total concession area With respect to the tariff setting process of comprises 14,087 sq km, of which 1,587 sq km Codensa, the methodology for the calculation of correspond to urban areas. the rate of return was approved in April. This rate ENERSIS 20 02 ANNUAL REPORT 5 5 5 4 5 4 BOARD OF DIRECTORS Chairman Andrés Regué Directors David F. Acosta José M. Martínez Cristián Herrera (Chief Business Margin and Electric Supply Officer) José A. Vargas Israell Fainboim Moisés Rubinstein Deputy Directors Alvaro Bolaños Germán Castro Lucía Piedrahita Roberto Ospina Henry Navarro Silvia Escobar Carmenza Saldias Main Officers Chief Executive Officer José M. Martínez Chief Commercial Officer David F. Acosta Chief Communication Officer Emilia Sarracino Chief Distribution Officer Germán Castro Chief Financial Officer Lucía Piedrahita Legal Counsel Álvaro Camacho Chief Planning and Control Officer Roberto Ospina Chief Human Resources Officer Alvaro Bolaños Chief Regulation Officer Omar Serrano will be used to calculate the remuneration of the • Activities of promotion and development distribution activity during the next tariff setting were accomplished, intended to establish a period. This rate (WACC) was set at 16.06% relationship with the community in order to before taxes (it used to be 9%). Moreover, the guarantee the development of the operations Regulation Commission approved, in October and the improvement of Codensa’s image. 2002, a tariff transition with a monthly raise of the distribution costs by 2.4% through March 2003, During September 2002, the company’s capital thus accumulating an increase of 15.29% to that was reduced by an amount of Co$ 551,000 million date. (about US$ 192 million), in order to optimize and make better use of the financial structure of the With respect to the commercial activities of the company. company, the following were carried out: • Plans were developed for the collection policy. As a result, the uncollectable of Codensa was of Co$ 55,427 million (about US$ 19 million) by the end of the year, thus achieving a Company Ownership net reduction of Co$ 13,445 million (about US$ 5 million) during the year. • The accumulated twelve-month energy losses Empresa Eléctrica de Bogotá 52% index was reduced by 1.5 percentage points, going from 11.8% to 10.3%. Luz de Bogotá 48% • 212,000 jobs were accomplished, corresponding to normalizations in marginal neighborhoods, 92,000 meters replaced and 28,000 inspections made. ENERSIS 2002 ANNUA L REPORT 5 5 5 4 5 4 Others Businesses COLOMBIA Synapsis CAM PERU Synapsis CAM BRAZIL Synapsis CAM ARGENTINA Synapsis CAM CHILE Synapsis CAM Inmobiliaria Manso de Velasco Telephone (56–2) 632 1240 Fax (56–2) 699 2695 Web site www.synapsis-it.com External auditors Deloitte & Touche E-mail synapsis@synapsis-it.com Subscribed and paid in capital (ThCh$) 3,943,580 IDENTIFICATION OF THE COMPANY Corporate name Synapsis Soluciones y Servicios IT Ltda. Type of company Limited Liability Stock Company Tax register number 96.529.420-1 Address Catedral N° 1284, Santiago, Chile Synapsis COMPANY OWNERSHIP Its strengths lie in the technological development with the generation of advanced solutions in Synapsis is 100% property of Enersis. This is sofware; experience and wide knowledge of the the Group’s professional service company for problems of the Latin American market, and information technologies. commitment to continuous improvement with OPERATING ACTIVITY services, that confer added value to its customers’ the object of providing high quality products and Founded in 1988, with its main offi ce in Santiago, businesses. Chile, and offi ces in the most important capital The services provided by Synapsis are addressed cities of the region, Synapsis is consolidated as to large companies and institutions in various the most experienced and trustworthy specialist economic sectors, both in the domestic and the in business consulting services for IT solutions in international market, covering practically any the Latin American market. need from a technological point of view. Starting from a thorough knowledge of its customers’ The pillars of Synapsis are its work team formed problems, Synapsis designs and implements by more than 700 highly qualifi ed professionals, solutions and tools, taking the best advantage and its presence in Argentina, Brazil, Colombia, of the information technologies, as instruments Perú and Chile, thus ensuring the coverage of all of innovation, improvement and support for the Latin American region. company management. During 2002, Synapsis continued to follow the guidelines given by the Genesis Project, generating a great change in the structure of the company, with a new approach based on three pillars: Consulting Services, Software Plant and Operation. With this new business approach, centered on offering technology and business ENERSIS 20 02 ANNUAL REPORT 59 58 58 Corporate purpose Supply and sell services and equipment related to computers, data processing, telecommunication systems and control systems for public utility companies and others, both domestic and foreign. Participation of Enersis 100% Agents Cristóbal Sánchez (Enersis Chief Information Systems Officer) Víctor H. Muñoz Main Officers Chief Executive Officer Víctor H. Muñoz Chief Financial Officer Rodrigo A. Morelli Chief Consulting Services Officer Gustavo Pardo Chief Plant Officer Guillermo Toro Chief Operations Officer María A. Letelier Chief New Business Officer Manuel de Andrés consulting services, Synapsis becomes a strategic partner for its customers. Several achievements during 2002, which foretell important successful events in the future, are: the ISO 9000 Certification, Synapsis being one of the first professional services companies to obtain this quality certification; the opening of the new Santa Rosa Data Processing Center, with an investment of US$ 1,400,000 and a total area of 400 m2; and the expansion of the Call Center with more than 300 operators and the most modern technological tools, in order to provide better service to the customers. In Chile, Synapsis achieved the renewal of the During the year, Synapsis obtained important Scada system for the main electric companies, contracts for outsourcing services, and the Scada and Telecommunications project in accomplished large projects with state-of-the-art Essbio company, the establishment of Synergi@ 4i technology, among which it is worth pointing in Chilectra and Río Maipo, the SAP project in out: Nova Era, presently being established in Empresa de Ferrocarriles del Estado (EFE), the Coelce, Brazil; the establishment of Synergi@ 4i adoption of the Synergi@ 4i product in Abastible commercial system in Enelbar, Venezuela; the company, the generation of the Sirhena system for Medellín City Hall project in Colombia; the Human Resources management in Chilectra, the establishment of SDE-SAC in Edelnor, Perú; the full establishment of SIE 2000A, based on SAP, in conclusion of the Electra project with Synergi@ 4i all the companies of the Group, the control system in Panama; the SDE project in Edesur, Argentina; project in CDEC-SIC, and the microinformation and the establishment of Scada system for the San system and service quality improvement project Gaban company in Perú. of the Call Center for Smartcom, among others. ENERSIS 2002 ANNUA L REPORT 5 9 5 8 5 8 IDENTIFICATION OF THE COMPANY Address Bulnes N°1238, Santiago, Chile Web site www.camchile.cl Telephone (56–2) 389 7300 Fax (56–2) 389 7342 E-mail cam@cam.enersis.cl External auditors: Deloitte & Touche Sociedad de Auditores y Consultores Ltda. Subscribed and paid in capital (ThCh$) 2,572,038 Corporate purpose Perform, on its own behalf, for third parties and/or in association with third parties, both in Chile and abroad, general services, real estate services and building of real estate, import, export and distribution of products of any nature. Participation of Enersis 100% Agents Pantaleón Calvo Eduardo López (Enersis Chief Procurement Officer) Corporate name Compañía Americana de Multiservicios Ltda. Type of company Limited Liability Stock Company Tax register number 96.543.670-7 CAM GENERAL INFORMATION than 10 million meters. In this area, a modern Merger laboratory was set up in CAM Perú, which will enable to keep an exact registry of the meters Compañía Americana de Multiservicios (CAM) in the commercial systems of Edelnor and third was merged with Distribuidora de Productos parties. In Chile, the laboratories were once again Eléctricos (Diprel) with the purpose of rendering credited (authorized) by the SEC to operate as massive integral services to electric distribution, certification institutions. water, gas and telecommunications companies. In commercial services for utility companies, The merger of both companies strengthened CAM has improved its position as an efficient the operating, commercial and competitive service provider among the main companies, capabilities, by having under the same both electric and water, diversifying its supply management, the responsibility for the materials of services and increasing the number of services and logistics to be included in the services, thus effectively rendered. In 2002, agreements were providing ready-to-use solutions. signed with Aguas Andinas for providing the services of meter readings, delivery, cutoff and Operating activity reconnection, and payment collection. The main office in Chile and its subsidiaries in Argentina, Brazil, Colombia and Perú have In engineering, construction and assembly consolidated their presence in the region, services, CAM has consolidated its presence and have supported the management of in the domestic market. Some good examples the distribution companies of the Group by are the works achieved during 2002 for expanding the customers portfolio and rendering Colbún generation company, accomplishing services to other companies. the construction and assembly of Candelaria and Minero 220 kV substations, having 7 and The expertise and ability demonstrated in the 19 pieces of land, respectively. Additionally, integral service for measurement systems has CAM materialized the construction of the allowed CAM to fully provide and operate today, Casablanca-Algarrobo 110 kV line for Chilquinta electric and water measurement equipment in distribution company, and is presently engaged the region, being technically responsible for more in the construction and assembly of the 110 kV ENERSIS 20 02 ANNUAL REPORT 6 1 6 0 6 0 Deputy Agents Andreas Gebhardt Cristóbal Sánchez (Enersis Chief Information Systems Officer) Main Executive Officers Chief Executive Officer Pantaleón Calvo CAM Brazil Chief Executive Officer Pablo Calderón CAM Perú Chief Executive Officer Mario Albornoz CAM Colombia Chief Executive Officer Fernando Foix CAM Argentina Legal Representative Mauricio Naser Transmission Subsystem for Codelco Chile, El In Perú, sales to third parties amounted to Teniente division. US$ 3.7 million, representing a 2.5 fold increase compared to the previous period. Additionally, In order to improve the access of CAM’s CAM consolidated the technical and commercial customers to information regarding its services, a services for Edelnor distribution company. Also, special system with a platform was implemented CAM Perú was awarded the international bid in the Internet. In this way, the mandator has a for supply of materials made by UNOPS, for the book of virtual works available, which he can extension of the rural electric boundary of the access from any place in the country. country, for an amount of US$ 5.5 million. Another line of basic business is the integral In Argentina, it is worth pointing out the service in the construction of distribution continuity of the ISO 9,002 quality certification networks. In this area, CAM has built the feeders and the ISO 14,001 environmental certification for for Chilectra and Río Maipo, for a total of 138 km an additional year, and the renewal of the contract during 2002; aerial and underground electric with Edenor for the repair of meters and the networks with an extension of 170 km; and, measurement of electric variables. jointly with Chilectra, has transferred distribution networks corresponding to 200 km in Medium CAM Brazil obtained the contract for Tension. Presence in the region “Fiscalización de Empresas Contratistas”, that is, the supervision of contractor companies that render commercial services to Cerj, for CAM Colombia became the first company to a three-year period. This is the first contract expand its services to gas utilities, when it was awarded under the bidding system presently in awarded two contracts for the company Gas force in Brazil. On the other hand, Cerj assigned Natural de Bogotá. In this context, there was CAM the integral service of measurement systems, obtained the certification of the laboratory as both in the laboratory and on site, for its meter a constituent part of the Colombian metrology equipment consisting of about 1.7 million units. network, and a contract signed with Electrocosta The same supervision service, but for distribution for the calibration and certification of 100,000 works in Low Tension, Medium Tension and High electronic meters. Tension, was rendered during the year to Coelce. ENERSIS 2002 ANNUA L REPORT 6 1 6 0 6 0 IDENTIFICATION OF THE COMPANY Corporate name Inmobiliaria Manso de Velasco Ltda. Tax register number 96.909.280-8 Type of company Limited Liability Stock Company Address Santa Rosa N°76, Piso 9 Santiago, Chile Telephone (56–2) 378 4700 Fax (56–2) 378 4702 E-mail rch@mvelasco.enersis.cl Subscribed and paid in capital (ThCh$) 5,848,651 External auditors Deloitte & Touche Participation of Enersis 100% Manso de Velasco were implemented according to the master plan, thus offering better equipment and service areas REAL ESTATE PROJECTS to the lots and users. Manso de Velasco develops important real estate In the 2002 fiscal year, ENEA obtained important projects, mainly for the residential (Santuario progress in commercial terms and in the del Valle and Puerto Pacífico) and the industrial development of its urbanization works. Important sector (ENEA). During 2002, important progress companies joined our Business Center, among was achieved in the urbanization and marketing them: Transportes Nilo, Sociedad Concesionaria of different projects, despite the depressed status Vespucio Norte Express (to build the main offices of the real estate market. and the operation center for the above mentioned Enea Project This project corresponds to a real estate Costanera Norte highway), and the development of the Santa Catalina Housing Project. development in a 1,000 ha area, strategically Inserted in the project is Aguas Santiago located in western Santiago, borough of Pudahuel, Poniente company, which provides the water next to the International Airport “Arturo Merino utility services associated with the real estate Benítez”. The remarkable road relationship development of the ENEA project. Due to the and connectivity of the project have been important sale levels achieved by the project, complemented by future works in the vial link the company has had to activate its water of Av. Américo Vespucio, Av. San Pablo and the infrastructure works, and is presently serving highway under concession Costanera Norte, more than 1,500 residential and industrial which should be in full operation in 2006. This customers. In view of this prospect, Aguas connectivity positions ENEA near the key centers Santiago Poniente is in the process of a notorious of the city, and therefore will permit an important increase of its economic value, due to the development of this Business Center. certainty that the customers who join the Enea project will require the services of this company. It is currently in its Phase I, corresponding to the concept of Industrial and Business Center. Santuario del Valle Project However, other areas intended for housing and Santuario del Valle, located in the La Dehesa commercial purposes are being sold as well. The neighborhood, is being consolidated as one of the project has innovative facilities, and green areas most important real estate projects in the country. ENERSIS 20 02 ANNUAL REPORT 6 3 6 2 6 2 Corporate purpose Purchase, sell, parcel, subdivide, market and commercially operate, in any way, all types of real property, either on its own behalf or on behalf of others. Agents Cristóbal Sánchez (Enersis Chief Information Systems Officer) Andrés Salas Main Officers Chief Executive Officer Andrés Salas Legal Counsel Alfonso Salgado Chief Real Estate Development Officer Gustavo Cardemil ENEA Project Manager Bernardo Küpfer During 2002, the Santuario del Valle project was near important commercial areas and only 5 devoted to the sales of single-family residential minutes away from downtown Viña del Mar. lots oriented towards the high socio-economic segment of the population, and of macrolots, In 2002, the property was subdivided into nine which are larger lots to be developed by third sublots, which the company expects to sell during parties as housing condominiums oriented the next few months. Two of these sublots have towards the same socio-economic segment. already been sold. The sales of the 486 lots corresponding to Sectors REAL PROPERTY 1 to 5 was considered finished, with sales of single-family lots for Ch$ 1,637 million during Immobiliaria Manso de Velasco Ltda. manages a the year. Up to date, 94% of the total project total of 43,241 built m2, corresponding to office has been sold. Only 50 lots of Sector 6, the last buildings, parking buildings and stores, most stage, remain for sale. As for macrolots, a total of which are rented to related companies and area of 12 ha was sold during 2002, for a total of third parties, having generated an income of Ch$ 7,037 million. Ch$ 1,774 million in 2002. Tapihue Project Tapihue project includes properties corresponding to lands associated to the farms Tapihue, Amancay (lot B) and La Petaca. Such properties, as a whole, involve an area of 7,302 ha in the borough of Til-Til, province of Chacabuco, Metropolitan region, and are classified as CUDA (Conditioned Urban Development Area), as per the Santiago Metropolitan Urban Development Plan. Meseta Puerto Pacífico The company owns a property of more than 35,000 m2 in Viña del Mar, located in an excellent site (15 Norte Street and Nueva Libertad Street), ENERSIS 2002 ANNUA L REPORT 6 3 6 2 6 2 Liability Statement The undersigned Directors and Chief Executive Officer of Enersis are liable under oath for the truthfulness of all the information provided in the present annual report, in compliance with the General Rule No.30 issued by the Superintendence of Securities and Insurance. CHAIRMAN Pablo Yrarrázaval Tax registry number: 5.710.967-K VICECHAIRMAN Rafael Miranda Tax registry number: 48.070.966-7 DIRECTOR José L. Palomo Tax registry number: 51.316.595-F DIRECTOR José M. Fesser Tax registry number: 48.064.839-0 DIRECTOR: Ernesto Silva Tax registry number: 5.126.588-2 DIRECTOR: Hernán Somerville Tax registry number: 4.132.185-7 DIRECTOR: Eugenio Tironi Tax registry number: 5.715.860-3 GERENTE GENERAL: Enrique García Tax registry number: 14.704.156-K ENERSIS 20 02 ANNUAL REPORT 6 5 6 4 6 4 Identification of Other Subsidiaries and Related Companies DISTRILEC ENERSIS DE ARGENTINA Corporate name Distrilec Inversora S.A. Corporate name Enersis de Argentina S.A. Type of company Foreign Closed Stock Company Type of company Foreign Stock Company Address San José Nº 140 (C1076AAD) Buenos Aires - Argentina Address Suipacha N°1111 Piso 18, Buenos Aires, Argentina Telephone (54-11) 4114 3000 Fax (54-11) 4114 3001/3002 External auditors Pistrelli Díaz y Asociados S.R.L . Subscribed and paid in capital (Arg$) 497,612,021 Participation of Enersis (direct and indirect) 51.5% Corporate purpose The exclusive purpose of capital investment in companies, already organized or to be organized, that have as main activity the distribution of electric energy. Telephone (54-11) 4114 3000 Fax (54-11) 4114 3001 External auditors Pistrelli Díaz y Asociados S.R.L. Subscribed and paid in capital (Arg$) 12,000 Participation of Enersis (direct and indirect) 100% Corporate purpose Mainly financial, able to carry out all types of financial and investment activities. BOARD OF DIRECTORS Chairman Rafael Fernández Vice-Chairman Enrique García (Enersis Chief Executive Officer) Directors Marcelo Silva (Enersis Corp. Chief Distribution and Services Officer) Domingo Valdés (Enersis Legal Counsel) Mariano F. Grondona Alan Arntsen Horacio R. Babino Luis M. Sas Jorge G. Casagrande Daniel J. Maggi Deputy Directors Pablo Casado Manuel M. Benites Luis D. Barry Pedro E. Aramburu Santiago Daireaux Rigoberto Mejía Jorge R. Barros Pablo A. Ferrero Nicolás Carusoni Antonello Tramonti Chief Executive Officer José M. Hidalgo ENERSIS 2002 ANNUA L REPORT 6 5 6 4 6 4 ENERSIS ENERGÍA DE COLOMBIA (en liquidation) Corporate name Enersis Energía de Colombia S.A. E.S.P. Type of company Foreign Stock Company Address Carrera 13A Nº 93-66, Piso 2, Bogotá, Colombia Telephone (57-1) 601 5790 Fax (57-1) 601 5799 ENERSIS INTERNACIONAL INVESTLUZ DISTRILIMA Corporate name Enersis Internacional Type of company Foreign Stock Company Corporate name Investluz S.A. Type of company Foreign Stock Company Corporate name Inversiones Distrilima S.A. Type of company Foreign Stock Company Address P.O. BOX 309, Ugland House, South Church St, Grand Cayman, Cayman Islands Address Av. Barao de Studart N°2917, Dionisio Torres Fortaleza, Ceará, Brazil Address Tnte. César López Rojas Nº 201, Urbanización Maranga, San Miguel, Lima, Perú Telephone (345) 949 8066 Fax (345) 949 8080 Telephone (55-85) 216 1123 Fax (55-85) 216 1423 Telephone (51-1) 561 1604 Fax (51-1) 452 3007 External auditors Deloitte Colombia Ltda. External auditors Deloitte & Touche External auditors Deloitte & Touche Tohmatsu External auditors Deloitte & Touche Subscribed and paid in capital (Col$) 300,000,040 Subscribed and paid in capital (Th US$) 360,557,687 Subscribed and paid in capital (R$) 954,618,954.27 Subscribed and paid in capital (S/.) 595,422,815.98 Participation of Enersis (direct and indirect) 100% Participation of Enersis (direct and indirect) 100% Participation of Enersis (direct and indirect) 48.4% Participation of Enersis (direct and indirect) 55.7% Corporate purpose Purchase of electric energy and sales to final users, either regulated or non regulated. Corporate purpose Any legal activity related with energy or fuel. Corporate purpose Participation in the capital of Coelce and in other companies in Brazil and abroad, as a shareholder. LIQUIDATORS Main Liquidator Fernando Foix Deputy Liquidator Álvaro Pérez BOARD OF DIRECTORS Chairman Mario Valcarce (Enersis Chief Economic Financial Officer) Secretary Máximo de la Peña (Enersis Tax Director) MAIN EXECUTIVE OFFICERS Chairman Director Celestino Izquierdo Finance Vice-Chairman Antonio O. Alves Directors José R. Ferreira Manuel M. Montero Silvia Cunha Eduardo J. Bernini Juan P. Harrison Corporate purpose Making investments in other companies, especially in those related with distribution and generation of electric energy. BOARD OF DIRECTORS Chairman Julio Valenzuela Vice-Chairman Reynaldo Llosa Directors José Griso Marciano Izquierdo Fernando Urbina Emilio García José Chueca Deputy Directors Mario Albornoz Fernando Fort Patricia Mascaró Marco de Andrea Enrique Demarini Walter Sciutto Pilar Dávila Chief Executive Officer Emilio García ENERSIS 20 02 ANNUAL REPORT 6 7 6 6 6 6 ENDESA MARKET PLACE Corporate name Endesa Market Place S.A. Type of company Stock Company Address Paseo de la Castellana N°95, Madrid, Spain Telephone (34-91) 213 4100 Fax (34-91) 213 4199 External auditors Deloitte & Touche Subscribed and paid in capital (Euros) 6,743,800 Participation of Enersis (direct and indirect) 15.0% Corporate purpose B2B and new technologies. Associated Managers Evaristo Villa Ignacio Antoñanzas CGTF Corporate name CGTF – Central Geradora Termelétrica Fortaleza S.A. Type of company Foreign Stock Company Address Av. Barrao de Studart N°2917/83, Dionisio, Fortaleza, Ceará, Brazil Telephone (55-85) 216 1100 Fax (55-85) 216 1410 External auditors Deloitte & Touche Tohmatsu Subscribed and paid in capital (R$) 41,472,571 Participation of Enersis (direct and indirect) 48.8% Corporate purpose Development of thermoelectric generation projects in Brazil. Chairman Juan A. Madrigal Directors Francisco Bugallo Marcelo Llévenes Chief Executive Officer Hernán Salazar LUZ DE BOGOTÁ Corporate name Luz de Bogotá S.A. Type of company Foreign Stock Company Address Carrera 13A Nº 93-66, Piso 6, Bogotá, Colombia Telephone (571) 601 5402 Fax (571) 601 5905 External auditors Deloitte Colombia Ltda. Subscribed and paid in capital (Col$) 336,780,602,632 Participation of Enersis (direct and indirect) 44.7% Corporate purpose Any legal activity related with energy or fuel or with public utility services. BOARD OF DIRECTORS Chairman Andrés Regué Directors Felipe Acosta José M. Martínez Cristián Herrera Enersis Chief Business Margin and Electric Suppy Officer Deputy Directors Marcelo Llévenes Germán Castro José Inostroza Lucio Rubio Chief Executive Officer José M. Martínez ENERSIS 2002 ANNUA L REPORT 6 7 6 6 6 6 Consolidated Enersis Consolidated Financial Statements ENERSIS 2002 ANNUAL REPORT INDEX Accounts Inspector`s Report Independent Accountant’s Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Changes in Shareholders’ Equity Consolidated Statements of Cash Flow Notes to the Consolidated Financial Statements Consolidated Relevant Facts Consolidated Management Analysis 70 71 72 74 75 76 78 198 209 ENERSIS 2002 ANNUA L REPORT 6 9 6 8 6 8 ACCOUNTS INSPECTOR’S REPORT Pursuant to the provisions in law No. 18,046 on Limited Liability Stock Companies and in compliance with the mandate granted by the Ordinary Shareholders’ Meeting held on April 11, 2002, we have examined the Consolidated Financial Statements of Enersis S.A. for period between January 1 and December 31, 2002. Our assignment was focused on verifying, on a selecyive basis, the coincidence of the fi gures presented in the Financial Statements with the offi cial records of the Company and its subsidiaries and to such and end we compared the fi gures presented in the ledger with the grouping and classifi caton worksheets. To subsequently ascertain if these amounts which are the balances of accounts of the same nature match with those included in the Financial Statements, a revision which entailed no objections. Marcela Araya Accounts Inspector Marco Acevedo Accounts Inspector Santiago, January 31, 2003 ENERSIS 20 02 ANNUAL REPORT 71 70 70 ENERSIS 2002 ANNUA L REPORT 71 70 70 Consolidated Balance Sheets (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) ASSETS CURRENT ASSETS: Cash Time deposits Marketable securities Accounts receivable, net Notes receivable, net Other accounts receivable, net Amounts due from related companies Inventories Income taxes recoverable Deferred income taxes Prepaid expenses Other current assets Total current assets 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ 37,648,796 48,184,878 178,113,234 145,626,894 203,072 1,543,290 550,248,992 458,839,724 5,683,330 72,220,719 18,019,578 77,424,074 57,510,102 24,162,101 13,971,567 5,131,349 62,776,096 195,398,835 60,382,653 54,435,976 51,955,793 7,666,018 127,241,229 132,021,608 67,053 202,651 2,148 638,510 7,141 87,358 271,912 84,027 75,752 72,300 10,668 183,718 1,162,446,794 1,223,963,114 1,703,238 PROPERTY, PLANT AND EQUIPMENT, NET 9,625,049,659 9,879,458,183 13,748,011 OTHER ASSETS: Investments in related companies Investments in other companies Long-term receivables Goodwill, net Negative goodwill, net Amounts due from related companies Intangibles Accumulated amortization Other assets Total other assets 167,448,008 149,560,997 101,903,562 1,318,832,593 194,164,157 159,466,794 125,850,513 847,513,499 (181,194,560) (95,172,950) 170,667,792 71,697,080 898,167 80,915,893 (25,148,069) (34,648,290) 198,535,455 238,755,596 270,194 221,910 175,130 1,179,379 (132,440) 1,250 112,601 (48,216) 332,246 1,972,302,858 1,517,743,379 2,112,054 TOTAL ASSETS 12,759,799,311 12,621,164,676 17,563,303 The accompanying notes are an integral part of these consolidated financial statements ENERSIS 20 02 ANNUAL REPORT 7 3 7 2 7 2 LIABILITIES AND SHAREHOLDERS’ EQUITY 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ CURRENT LIABILITIES: Short-term debt due to banks and financial institutions 301,010,064 425,049,260 Current portion of long-term debt due to banks and financial institutions Promissory notes Current portion of bonds payable Current portion of long-term notes payable Dividends payable Accounts payable Short-term notes payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income taxes payable Deferred income Other current liabilities Total current liabilities LONG-TERM LIABILITIES: Due to banks and financial institutions Bonds payable Long-term notes payable Accounts payable 425,536,729 605,261,953 54,630,248 13,189,514 62,848,322 498,501,344 26,580,340 7,008,951 41,628,914 14,554,203 258,955,300 222,075,984 45,429,070 53,324,443 31,120,649 79,920,329 53,957,592 77,283,022 11,314,564 150,383,758 4,833,074 73,417,551 16,285,712 84,930,321 55,485,759 27,532,029 9,085,674 59,541,957 591,488 842,268 18,354 693,702 57,930 20,253 309,036 6,726 102,166 22,663 118,187 77,213 38,313 12,643 82,857 1,639,303,381 2,151,373,249 2,993,799 1,971,249,920 1,691,338,670 2,271,468,659 2,097,845,568 215,513,230 220,886,690 34,746,948 22,606,529 2,353,625 2,919,310 307,381 31,459 Amounts payable to related companies 1,001,707,159 988,291,605 1,375,282 Accrued expenses Deferred income taxes Other long-term liabilities Total long-term liabilities MINORITY INTEREST SHAREHOLDERS’ EQUITY: Paid-in capital, no par value Additional paid-in capital – share premium Other reserves Retained earnings Net income (loss) for the year Total shareholders’ equity 234,388,938 226,922,617 36,059,964 61,740,871 67,228,005 103,975,862 315,780 85,917 144,690 5,832,362,823 5,413,608,412 7,533,444 4,073,571,128 4,050,602,721 5,636,719 751,208,197 751,208,197 1,045,363 33,370,057 27,176,075 33,370,057 41,942,477 360,653,617 402,807,650 42,154,033 (223,748,087) 1,214,561,979 1,005,580,294 46,437 58,366 560,537 (311,362) 1,399,341 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 12,759,799,311 12,621,164,676 17,563,303 ENERSIS 2002 ANNUA L REPORT 7 3 7 2 7 2 Consolidated Statements of Income (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) OPERATING INCOME: Sales Cost of sales Gross profit Administrative and selling expenses Operating income NON-OPERATING INCOME AND EXPENSE: Interest income Equity in income of related companies Other non-operating income Equity in losses of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatement, net Exchange difference, net Non-operating expense, net 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ 3,059,380,761 2,485,873,220 3,459,280 (2,025,312,072) (1,730,050,356) (2,407,496) 1,034,068,689 755,822,864 (279,524,922) (223,178,503) 754,543,767 532,644,361 1,051,784 (310,570) 741,214 56,592,832 3,629,292 85,284,624 14,996,244 194,693,581 308,143,887 (14,328,089) (6,732,461) (80,576,348) (506,344,171) (452,801,275) (439,536,318) (183,929,244) (241,196,604) 2,175,075 4,964,890 (30,542,651) (16,110,247) 118,680 20,868 428,805 (9,369) (704,616) (611,646) (335,643) 6,909 (22,419) (505,086,827) (796,530,156) (1,108,431) INCOME (LOSS) BEFORE INCOME TAXES EXTRAORDINARY ITEMS, MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL 249,456,940 (263,885,795) (367,217) Income taxes Extraordinary items (129,850,137) (66,016,985) - (22,375,640) (91,868) (31,137) INCOME (LOSS) BEFORE MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL 119,606,803 (352,278,420) (490,222) Minority interest (125,152,619) 16,282,559 22,658 INCOME BEFORE AMORTIZATION OF NEGATIVE GOODWILL (5,545,816) (335,995,861) (467,564) Amortization of negative goodwill 47,699,849 112,247,774 156,202 NET INCOME (LOSS) FOR THE YEAR 42,154,033 (223,748,087) (311,362) The accompanying notes are an integral part of these consolidated financial statements ENERSIS 20 02 ANNUAL REPORT 7 5 7 4 7 4 Consolidated Statements of Changes in Shareholders’ Equity (Expressed in thousands of historical Chilean pesos, except as stated) Number of shares (in thousands) Paid-in capital ThCh$ Additional paid-in capital ThCh$ Other reserves ThCh$ Retained earnings ThCh$ Net income (loss) for the year ThCh$ Total ThCh$ As of January 1, 2001 8,291,020 707,398,979 31,423,970 7,266,721 264,427,970 90,082,590 1,100,600,230 Transfer of prior year income to retained earnings Dividends Price-level restatement of capital Cumulative translation adjustment Net income for the year - - - - - - - - - - - (14,976,824) 90,082,590 (90,082,590) - 21,929,368 974,144 225,268 10,615,407 - - - - 18,892,550 - - - - - - (14,976,824) 33,744,187 18,892,550 40,926,246 40,926,246 As of December 31, 2001 8,291,020 729,328,347 32,398,114 26,384,539 350,149,143 40,926,246 1,179,186,389 As of December 31, 2001 (1) 8,291,020 751,208,197 33,370,057 27,176,075 360,653,617 42,154,033 1,214,561,979 As of January 1, 2002 8,291,020 729,328,347 32,398,114 26,384,539 350,149,143 40,926,246 1,179,186,389 Transfer of prior year income to retained earnings Price-level restatement of capital Cumulative translation adjustment Net loss for the year - - - - - - - 40,926,246 (40,926,246) - 21,879,850 971,943 791,536 11,732,261 - - - - 14,766,402 - - - - - 35,375,590 14,766,402 (223,748,087) (223,748,087) As of December 31, 2002 8,291,020 751,208,197 33,370,057 41,942,477 402,807,650 (223,748,087) 1,005,580,294 (1) Restated in thousands of constant Chilean pesos as of December 31, 2002. The accompanying notes are an integral part of these consolidated financial statements ENERSIS 2002 ANNUA L REPORT 7 5 7 4 7 4 Consolidated Statements of Cash Flows (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) Years ended December 31, 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) for the year Gain on sales of property, plant and equipment 42,154,033 (223,748,087) (5,734,441) (1,095,916) (311,362) (1,525) Charges (credits) to income which do not represent cash flows: Depreciation Amortization of intangibles Write-offs and accrued expenses Equity in income of related companies Equity in losses of related companies Amortization of goodwill Amortization of negative goodwill Price-level restatement, net Foreign currency translation, net 426,020,442 454,471,134 8,031,971 83,298,120 10,389,287 55,938,311 (3,629,292) (14,996,244) 14,328,089 80,576,348 6,732,461 506,344,171 632,431 14,457 77,842 (20,868) 9,369 704,616 (47,699,849) (112,247,774) (156,201) (2,175,075) 30,542,651 (4,964,890) 16,110,247 (6,909) 22,419 (318,747) 205,474 Other credits to income which do not represent cash flows (85,418,284) (229,054,815) Other charges to income which do not represent cash flows 69,401,896 147,655,390 Changes in assets which affect cash flows: Decrease in trade receivables Decrease in inventory Decrease (increase) in other assets Changes in liabilities which affect cash flows: Increase (decrease) in accounts payable associated with operating results Increase in interest payable Decrease in income tax payable Increase (decrease) in other accounts payable associated with non-operating results Net decrease in value added tax and other similar taxes payable 119,961,261 1,211,389 55,973,106 11,768,733 24,428,653 (23,047,923) 77,891 16,377 (32,073) (62,185,972) (49,587,699) (69,005) 7,825,819 55,125,046 (54,073,346) (45,838,237) 76,711 (63,787) (93,868,474) 30,029,884 41,789 (117,627,568) (1,891,294) (2,632) Income (loss) attributable to minority interest 125,152,619 (16,282,559) (22,658) Net cash flows provided by operating activities 560,520,990 627,782,332 873,609 The accompanying notes are an integral part of these consolidated financial statements ENERSIS 20 02 ANNUAL REPORT 7 7 7 6 7 6 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of shares Proceeds from the issuance of debt Proceeds from bond issuances Other sources of financing Capital decrease subsidiary Dividends paid Payment of debt Payment of bonds Payment of loans obtained from related companies (100,900,143) (44,389,633) Payment of bond issuance costs Other disbursements for financing (996,147) (11,140,779) (43,615,899) (24,567,635) Years ended December 31, 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ - 1,905,653 2,652 1,936,899,708 978,914,577 1,362,233 280,374,847 131,515,409 57,920,839 26,348,466 - (119,286,568) (144,467,460) (100,446,315) 183,014 36,666 (165,996) (139,779) (1,870,062,467) (1,094,545,835) (1,523,143) (74,167,788) (29,347,204) (40,839) (61,771) (15,503) (34,188) Net cash provided by (used) in financing activities 40,985,490 (285,039,864) (396,654) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment Proceeds from loans obtained from related parties Other receipts from investments 19,716,715 5,525,961 22,605,406 31,457 - - 13,675,849 18,556,146 25,822 Additions to property, plant and equipment (341,553,736) (317,915,443) (442,403) Long-term investments Investment in financial instruments (12,879,738) (23,465,277) - (724,403) (32,654) (1,008) Other loans granted to related companies (233,615) - - Other investment disbursements Net cash used in investing activities (187,891,023) (35,935,186) (503,639,587) (336,878,757) (50,009) (468,795) POSITIVE NET CASH FLOW FOR THE YEAR 97,866,893 5,863,711 8,160 EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS (74,996) (2,499,632) (3,478) NET INCREASE IN CASH AND CASH EQUIVALENTS 97,791,897 3,364,079 4,682 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 120,035,704 217,827,601 303,123 CASH AND CASH EQUIVALENTS AT END OF YEAR 217,827,601 221,191,680 307,805 The accompanying notes are an integral part of these consolidated financial statements ENERSIS 2002 ANNUA L REPORT 7 7 7 6 7 6 Notes to the Consolidated Financial Statements (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002, except as stated) 1. DESCRIPTION OF BUSINESS a. Enersis S.A. (the “Company”) is registered in the Securities Register under N°0175 and is regulated by the Chilean Superintendency of Securities and Insurance (the “SVS”). The Company issued publicly registered American Depositary Receipts in 1993 and 1996. Enersis S.A. is a reporting company under the United States Securities and Exchange Act of 1934. b. The Company’s subsidiaries, Chilectra S.A., Compañía Eléctrica del Río Maipo S.A. (Río Maipo S.A.), Empresa Nacional de Electricidad S.A. (Endesa S.A.) are registered in the Securities Register under N°s 0321, 0345, 0114, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. General The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in Chile and the regulations established by the SVS (collectively “Chilean GAAP”), and the specific corporate regulations of Law N°18,046, related to the formation, registration and liquidation of Chilean corporations, among others. Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation. The preparation of financial statements in conformity with Chilean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications – For purposes of comparision, in the 2001 of financial statements the following reclassifications were made in the 2001 financial statements: ENERSIS 20 02 ANNUAL REPORT 7 9 7 8 7 8 Balance sheet reclassifications From Notes receivable Goodwill Land Technical appraisal Charge (credit) ThCh$ To Charge (credit) ThCh$ (6,334,876) Other accounts receivable, net 3,391,332 Negative goodwill, net (34,153,467) Other assets 17,117,163 Accumulated depreciation Current portion of long-term notes payable Miscellaneous payables 5,571,195 (5,718,123) Current portion of long-term debt due to banks and financial institutions Due to banks and financial institutions (17,545,577) Other current liabilities Other long-term liabilities (21,520,395) Short-term notes payable Other reserves 1,210,739 Bonds payable Deficit during development period of subsidiaries Statement of income reclassifications From Charge (credit) ThCh$ To Other non-operating expenses 1,586,072 Other non-operating income Income taxes Deferred income taxes (4,444,572) Interest expense (2,392,830) Foreign currency transalation, net Amortization of negative goodwill (248,147) Amortization of goodwill Statement of Cash flow reclassifications From Payment of bonds Other credits to income which do not represent cash flows Other sources of financing Other charges to income which do not represent cash flows Charge (credit) ThCh$ 85,102,292 24,250,320 27,586,411 906,583 To Other accounts payable associated with non-operating results Decrease in income tax payable Other charges to income which do not represent cash flows Other disburments for financing Amortization of intangibles ENERSIS 2002 ANNUA L REPORT 7 9 7 8 7 8 6,334,876 (3,391,332) 34,153,467 (17,117,163) (4,619,536) 4,766,464 18,453,424 20,612,548 (1,210,739) Charge (credit) ThCh$ 1,940,610 3,629,529 (318,809) 248,147 Charge (credit) ThCh$ (102,068,728) (7,283,884) (17,297,324) (10,289,087) (906,583)  The accompanying financial statements reflect the consolidated results of operations of Enersis S.A. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Investments in companies in the development stage are accounted for using the equity method, except that income or losses are included directly in equity instead of being reflected in the Company’s consolidated statement of income. The Company consolidates the financial statements of companies in which it controls over 50% of the voting shares, which are the following: Percentage participation as of December 31, Company name Chilectra S.A. Compañía Eléctrica del Río Maipo S.A. Synapsis Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. Cía. Americana de Multiservicios Ltda. (4) Endesa Chile S.A. (1) Enersis de Argentina S.A. Enersis International Ltd. Inversiones Distrilima S.A. Empresa Distribuidora Sur S.A. (Edesur) Empresa Eléctrica de Panamá S.A. (3) Interocean Developments Inc. (3) Luz de Bogotá S.A. (2) Cerj Investluz (2) Cía. Americana de Multiservicios Uno Ltda. (4) Enersis Energia de Colombia S.A. 2001 Total 98.24 98.74 100.00 100.00 100.00 59.98 100.00 100.00 54.54 65.09 99.67 100.00 44.66 58.16 47.02 100.00 100.00 2002 Direct 98.24 98.74 99.99 99.99 99.93 59.98 100.00 100.00 15.93 16.02 - - 25.71 20.37 15.61 - 100.00 Indirect - - 0.01 0.00 0.07 - - - 39.75 49.07 - - 18.95 41.58 32.80 - - Total 98.24 97.74 100.00 100.00 100.00 59.98 100.00 100.00 55.68 65.09 - - 44.66 61.95 48.41 - 100.00 Includes certain majority owned companies not presented herein. (1) (2) The Company obtained shareholder agreements dated June 25, 1999, from Endesa International, the majority shareholder of these companies, giving the Company the right to elect a majority of the Board of Directors. The Superintendency of Securities and Insurance was notified on June 28, 1999. (3) These companies were absorbed by the parent company. (4) On January 1 2002, Cía. Americana de Multiservicios Ltda. merged with Cía. Americana de Multiservicios Uno. Situation in Argentina In Argentina, at the end of 2001, as a result of the serious economic crisis, a change in the economic model and in the law of convertibility was implemented with the promulgation of new National Government regulations. This situation gave rise to, among other consequences: devaluation of the Argentinean peso with respect to the US dollar and the pesification of certain assets and liabilities recorded in foreign currency in said country, pesification of public service tariffs, introduction of deposit withdrawal limitations in financial institutions, limitations to make certain transfers abroad for capital services and financial loan interest without prior authorization of the Central Bank of the Republic of Argentina. Considering the above mentioned unstable environment, the company performed an evaluation of the recoverability of its investments in Argentinean companies. Management believes that the evolution of the aforementioned measures will not result in significant adjustments different to those recognized in these financial statements. b. Periods covered These financial statements reflect the Company’s financial position as of December 31, 2002 and 2001, and the results of its operations, the changes in its shareholders’ equity and its cash flows for the years ended December 31, 2002 and 2001. ENERSIS 20 02 ANNUAL REPORT 8 1 8 0 8 0 c. Constant currency restatement The cumulative inflation rate in Chile as measured by the Chilean Consumer Price Index (“CPI”) for the two-year period ended December 31, 2002 was approximately 6.19%. Chilean GAAP requires that the financial statements be restated to reflect the full effects of loss in the purchasing power of the Chilean peso on the financial position and results of operations of reporting entities. The method described below is based on a model that enables calculation of net inflation gains or losses caused by monetary assets and liabilities exposed to changes in the purchasing power of local currency. The model prescribes that the historical cost of all non-monetary accounts be restated for general price-level changes between the date of origin of each item and the year-end. The financial statements of the Company have been price-level restated in order to reflect the effects of the changes in the purchasing power of the Chilean currency during each year. All non-monetary assets and liabilities, all equity accounts and income statement accounts have been restated to reflect the changes in the CPI from the date they were acquired or incurred to year-end (see also Note 24). The purchasing power gain or loss included in net income reflects the effects of Chilean inflation on the monetary assets and liabilities held by the Company. The restatements were calculated using the official consumer price index of the National Institute of Statistics and based on the “prior month rule,” in which the inflation adjustments are based on the CPI at the close of the month preceding the close of the respective period or transaction. This index is considered by the business community, the accounting profession and the Chilean government to be the index that most closely complies with the technical requirement to reflect the variation in the general level of prices in Chile, and consequently it is widely used for financial reporting purposes. The values of the Chilean consumer price indices used to reflect the effects of the changes in the purchasing power of the Chilean peso (“price-level restatement”) are as follows: November 30, 2002 November 30, 2001 Index 113.36 110.10 Change over Previous November 30, 3.0% 3.1% By way of comparison, the actual values of the Chilean consumer price indices as of the balance sheet dates are as follows: December 31, 2002 December 31, 2001 Index 112.86 109.76 Change over Previous December 31, 2.8% 2.6% The above-mentioned price-level restatements do not purport to represent appraisal or replacement values and are only intended to restate all non-monetary financial statement components in terms of local currency of a single purchasing power and to include in net income or loss for each year the gain or loss in purchasing power arising from the holding of monetary assets and liabilities exposed to the effects of inflation. ENERSIS 2002 ANNUA L REPORT 8 1 8 0 8 0 Index-linked assets and liabilities Assets and liabilities that are denominated in index-linked units of account are stated at the year-end values of the respective units of account. The principal index-linked unit used in Chile is the Unidad de Fomento (“UF”), which is adjusted daily to reflect the changes in Chile’s CPI. Certain of the Company’s investments are linked to the UF. As the Company’s indexed liabilities exceed its indexed assets, the increase in the index results in a net loss on indexation. Values for the UF are as follows (historical Chilean pesos per UF): December 31, 2002 December 31, 2001 Comparative financial statements Ch$ 16,744.12 16,262.66 For comparative purposes, the 2001 consolidated financial statements and the amounts disclosed in the related Notes have been restated in terms of Chilean pesos of December 31, 2002, purchasing power. Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translations of Chilean pesos into US dollars are included solely for the convenience of the reader, using the observed exchange rate reported by the Chilean Central Bank as of December 31, 2002 of Ch$718.61 to US$1.00. The convenience translations should not be construed as representations that the Chilean peso amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange. d. Assets and liabilities in foreign currencies Assets and liabilities denominated in foreign currencies are detailed in Note 30. These amounts have been stated at the observed exchange rates reported by the Central Bank of Chile as of each year-end as follows: Currency United States dollar (Observed) British pound sterling Colombian peso New Peruvian sol Brazilian real Japanese yen Euro French Franc (2) Pool Unit (IBRD)(1) Unidad de Fomento (UF) Unit of Account (IDB) (1) Argentine peso Symbol used US$ £ $ Col Soles Rs ¥ FFr UP UF UC $ Arg 2001 Ch$ 654.79 948.01 0.29 190.29 282.97 4.99 578.18 88.36 7,742,160.26 16,262.66 929.26 385.17 2002 Ch$ 718.61 1,152.91 0.25 204.73 203.57 6.07 752.55 - 9,089,158.76 16,744.12 1,093.75 219.09 (1) Units of measurment used by the International Bank for Reconstruction and Development (IBRD) and Interamerican Development Bank (IDB) to express the weighted-average of multicurrency loan obligations granted using fixed currency rates to the US dollar, at a determined date. (2) Beginning on January 1, 2002, these currency will be expressed in the Euro. ENERSIS 20 02 ANNUAL REPORT 8 3 8 2 8 2  e. Time deposits and marketable securities Time deposits are presented at original placement plus accrued interest and UF indexation adjustments, as applicable. Marketable securities include investments in quoted shares they are valued at the lower of cost or maket value. The investments are in both short-term highly liquid fixed rate investments shares and mutual fund units valued at cost plus interest and indexation or redemption vale as appropriate. f. Allowance for doubtful accounts Accounts receivable are classified as current or long-term, depending on their collection terms. Current and long-term trade accounts receivable, notes receivable and other receivables are presented net of allowances for doubtful accounts (see Note 5). Write-offs of uncollectible accounts amounted to ThCh$115,349,531 and ThCh$52,836,900 for the years ended December 31, 2002 and 2001, respectively. In addition, the total sum owed by the companies that have gone into bankruptcy amounting to ThCh$707,755 (ThCh$585,195 in 2001) is included in the bad debts estimation. g. Inventories Inventory of materials in transit, land and operation and maintenance materials, are valued at the lower of price-level restated cost or net realizable value. The cost of real estate projects under development, included in inventory, include the cost of land, demolition, urbanizing, payments to contractors and other direct costs. The costs and revenues of construction in progress are accounted for under the completed contract method in accordance with Technical Bulletin N°39 of the Chilean Association of Accountants and are included in current assets as their realization is expected in the short-term. h. Property, plant and equipment Property, plant and equipment are valued at net replacement cost as determined by the former Superintendcy of Electric and Gas Services (SEG) adjusted for price-level restatement in accordance with D.F.L. N°4 of 1959. The latest valuation under the D.F.L. 4 was in 1980. Property, plant and equipment acquired after the latest valuation of net replacement cost are shown at cost, plus price-level restatement. Interest on debt directly obtained to finance construction projects is capitalized during the period of construction (only in power generators). In 1986, an increase based upon a technical appraisal of property, plant and equipment was recorded in the manner authorized by the SVS in Circulars No.’s 550 and 566 dated October 15 and December 16, 1985, respectively, and Communication N°4790, dated December 11, 1985. The Company and its subsidiaries have evaluated the recoverability of the book value of their property, plant and equipment in accordance with Technical Bulletin N°33 of the Chilean Accounting Association. As a result of this evaluation no adjustments have been arrived at that affect the book values of these assets. i. Depreciation Depreciation expense is calculated on the revalued balances using the straight-line method over the estimated useful lives of the assets. Depreciation expense was ThCh$454,471,134 and ThCh$426,020,442 as of December 31, 2002 and 2001, respectively. Depreciation expense of ThCh$439,903,194 and ThCh$413,824,670 was included in Cost of sales and ThCh$14,567,940 and ThCh$12,195,772 were included in Administrative and selling expenses, respectively. ENERSIS 2002 ANNUA L REPORT 8 3 8 2 8 2 j. Leased assets The leased assets, whose contracts have financial lease characteristics, are accounted for as acquisition of propery plans and equipment, recognizing the total obligation and the unaccrued interest. Said assets do not legally belong to the Company, for which reason, as long as the call option is not exercised, it will not be able to freely dispose of them. k. Power installations financed by third parties As established by D.F.L. 1 of the Ministry of Mines dated September 13, 1982, power installations financed by third parties are treated as reimbursable contributions. As such, the installations constructed using this mechanism form part of the Company’s plant and equipment. Such installations made prior to D.F.L. 1 are deducted from Plant and equipment and their depreciation is charged to Power installations financed by third parties. l. Investments in related companies Investments in related companies are included in “Other assets” using the equity method. This valuation method recognizes in income the Company’s equity in the net income or loss of each investee on the accrual basis (Note 11). Investments in foreign affiliates are recorded in accordance with Technical Bulletin No.64 of the Chilean Association of Accountants. The Company and its subsidiaries have evaluated the recoverability of the book value of their property, plant and equipment in accordance with Technical Bulletin N°33 of the Chilean Accounting Association. As a result of this evaluation no adjustments have been arrived at that affect the book values of these assets. m. Intangibles, other than goodwill Intangibles, other than goodwill, correspond mainly to easements, parent company contributions, and rights for the use of telephone lines and are amortized in accordance with Technical Bulletin N°55 of the Chilean Association of Accountants. n. Severance indemnity The severance indemnity that the Company is obliged to pay to its employees under collective bargaining agreements is stated at the present value of the benefit under the vested cost method, discounted at 9.5% and assuming an average employment span which varies based upon years of service with the Company. o. Revenue recognition This is revenue for electric power generation and distribution, among which are included energy supplied and unbilled at each year-end, valued at the selling price using the current rates and has been included in revenue from operations. The unbilled amount is presented in current assets as trade receivables and the corresponding cost is included in cost of operations. The Company also recognizes revenues for amounts received from highway tolls for motorized vehicles, income related to computer advisory services, engineering services and sale of materials. ENERSIS 20 02 ANNUAL REPORT 8 5 8 4 8 4 p. Income tax and deferred income taxes At December 31, 2002 and 2001, the Company recorded current tax expense according to the tax laws and regulations in each country of ThCh$155,527,993 and ThCh$124,813,922, respectively. The Company records income taxes in accordance with Technical Bulletin N°60 of the Chilean Association of Accountants, and with circular N°1466 issued on January 27, 2000 by the SVS, recognizing, using the liability method, recognizing the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities using the tax rates to be in effect at the time of reversal. q. Accrued vacation expense In accordance with Technical Bulletin No.47 issued by the Chilean Association of Accountants, employee vacation expense is recorded on the accrual basis. r. Reverse repurchase agreements Reverse repurchase agreements are included in “Other current assets” and are stated at cost plus interest and indexation accrued at year-end, in conformity with the related contracts. s. Statements of cash flows The Consolidated Statements of Cash Flows have been prepared in accordance with the indirect method. Investments considered as cash equivalents, as indicated in point 6.2 of Technical Bulletin N°50 issued by the Chilean Association of Accountants, include time deposits, investments in fixed income securities classified as marketable securities, repurchase agreements classified as other current assets, and other, cash balances classified as other accounts receivable with maturities less than 90 days. For classification purposes, cash flows from operations include collections from clients and payments to suppliers, payroll and taxes. t. Financial derivative contracts As of December 31, 2001 and 2002 the Company and its subsidiary have forward contracts, currency swaps, and interest swaps and collars with several financial institutions, defined as cover, which are recorded according to Technical Bulletin N°57 of the Chilean Association of Accountants. In 2001, such contracts were defined as investment. u. Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular N°368 of the SVS. Amortization is determined using the straight-line method, considering the nature and characteristic of each investment, foreseeable life of the business and investment return, and does not exceed 20 years. The Company has evaluated the recoverability of its goodwill and negative goodwill value arising from investments abroad, and in virtue of Technical Bulletin N°56 of the Chilean Association of Accountants, it has resorted to IAS 36 “Impairment of Assets Value”. v. Pension and post-retirement benefits Pension and post-retirement benefits are recorded in accordance with the respective Collective Bargaining Contracts of the employees based on the actuarially determined projected benefit obligation. ENERSIS 2002 ANNUA L REPORT 8 5 8 4 8 4 w. Bonds Bonds payable are recorded at the face value of the bonds. The difference between the face value and the placement value, equal to the premium or discount, is deferred and amortized over the term of the bonds. x. Investments in other companies Invesments in other companies are presented at acquisition cost adjusted for pricel-level restatement. y. Research and development costs Costs incurred by the Company in research and development are either general in nature (water-level studies, hydroelectric research, seismic-activity surveys) which are expensed as incurred, or studies related to specific construction projects which are capitalized. During 2001 and 2002 there have been no expenses under this caption. CHANGE IN ACCOUNTING PRINCIPLES There were no changes in accounting principles during 2002 that would effect the comparison with the prior year financial statements. TIME DEPOSITS Time deposits as of each year-end are as follows: 3. 4. Financial Institution Banco Bilbao Vizcaya Banco CCF Brasil Banco Colpatria Banco Continental Banco Crédito del Perú Banco de Bogotá Banco de Chile Banco de Chile N.Y. Banco do Brasil Banco do Estado do Ceará Banco Frances Banco Ganadero Banco Holandes Banco Interbank Banco Itau Banco Liberal Banco Nationale de Paris Banco Pactual Banco Provincia Buenos Aires Banco Rio Banco Santander Annual Rate % Scheduled Maturity 2001 ThCh$ 2002 ThCh$ 1.28 - 8.50 2.42 1.13 7.50 1.10 1.10 18.55 - 25.00 - 3.50 1.46 3.00 - 2.75 1.46 6.50 7.30 2.90 30.01.03 28,873,651 4,539,102 - 812,623 - 02.01.03 01.02.03 03.01.03 02.01.03 02.01.03 02.01.03 15.09.03 8,654,209 14,808,363 - 3,369,062 1,762,858 444,764 491,759 3,339,638 179,675 606,954 149,484 344,943 - 1,060,351 - 4,959,682 - 07.01.03 - 01.01.03 14.01.03 01.01.03 - 01.01.03 01.01.03 02.01.03 21.01.03 02.01.03 - 603,576 11,119 - 391,658 - 482,268 13,048,776 - - 9,832 796,736 - 431,741 2,862,988 213,069 - 693,825 2,923,141 650,606 5,125,732 2,339,169 ENERSIS 20 02 ANNUAL REPORT 8 7 8 6 8 6 Financial Institution Banco Santander CDB Banco Santander Do Brasil Banco Sudameris Banco Tequendama Banco Union Colombiano Banco Votorantim Banco Wiese Sudameris Bank Boston Bank of America Banco Credito-Soles Bonos de Solidaridad Bradesco Citibank N.Y. Cititrust Colcorp S.A. Corficolombia Corfivalle Corporacion las Villas Cuenta Corriente Remunerada Annual Rate % 7.50 18.55 - - - Scheduled Maturity 02.01.03 02.01.03 - - - 2001 ThCh$ 1,058,196 909,937 3,800,198 2,936,874 2,720,943 2002 ThCh$ 4,312 1,170,656 - - - 19.40 23.09.03 - 3,228,008 1.44 1.10 0.87 1.13 10.00 19.37 1.10 6.24 9.00 8.12 7.98 - - 02.01.03 03.01.03 01.01.03 02.01.03 02.01.03 15.09.03 02.01.03 02.01.03 03.02.03 02.01.03 02.01.03 - - 166,454 1,322,428 17,553,537 - 675 431,166 94,094 5,320,419 3,932,045 1,070 683,371 3,764,259 54,433,352 55,244,377 - 1,673,922 - 9,812,357 3,480,285 2,749,309 56 1,024,239 3,687,381 3,724,459 - - Encargo Fiduciario Banco Santander 6.18 02.01.03 - 2,363,837 Fiduciaria Banco Colpatria Fiduciaria Banco de Bogotá Fiduciaria Bancolombia Fiduciaria Cititrust Fiduciaria de Crédito Fiduciaria de Santander Fiduciaria Lloyds Bank Fiduciaria Cancolombia Fiducolombia Fiduganadero Fiduoccidente Fiduvalle HSBC - Bamerindus Megabanco Merrill Lynch Suvalor Time Deposit Unibanco Total - - 8.12 6.55 - 9.00 - - - - 7.73 7.66 3.00 - 1.50 9.04 - 7.00 - - 01.01.03 01.01.03 - 02.01.03 - - - - 02.01.03 01.01.03 01.01.03 - 06.01.03 02.01.03 19,448 6,292,881 - 41,848 297,505 23,540 52,337 1,431,793 125,117 774,567 5,070 - 586,792 42,296 - - - - 226 475 - 161,687 - - - - 9,728 761,371 5,450,031 - 8,211,535 4,015,453 - 1,038,629 - 08.09.03 - 2,124,229 178,113,234 145,626,894 ENERSIS 2002 ANNUA L REPORT 8 7 8 6 8 6 5. ACCOUNTS, NOTES AND OTHER RECEIVABLES Current accounts, notes and other receivables and related allowances for doubtful accounts as of each December 31, are as follows: As of december 31, Account Under 90 days 91 days to 1 year Sub total Current Long-term 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ Accounts receivable 576,467,295 487,395,335 17,305,993 76,912,334 564,307,669 550,248,992 458,839,724 Allowance for doubtful accounts (105,467,945) Notes receivable 6,295,375 4,653,993 407,105 1,442,684 6,096,677 5,683,330 5,131,349 Allowance for doubtful accounts (965,328) - - - - Other receivables 42,743,736 53,684,615 37,770,437 18,007,739 71,692,354 72,220,719 62,776,096 101,903,562 125,850,513 Allowance for doubtful accounts (8,916,258) Total 628,153,041 526,747,169 101,903,562 125,850,513 Current and long-term accounts receivable per country as of each December 31, are as follows: Country Chile Peru Argentina Colombia Brasil (1) Total 2001 ThCh$ 180,592,722 40,147,163 75,119,315 127,104,349 307,093,054 As of December 31, % 24.74 5.50 10.29 17.41 42.06 2002 ThCh$ 145,659,152 58,187,147 40,461,768 99,788,238 308,501,377 % 22.32 8.92 6.20 15.29 47.27 730,056,603 100.00 652,597,682 100.00 (1) In accordance with Decree Law N°14 and Resolution N°91 of the Council for Managing the Electric Energy Crisis (CGCEE), both dated December 21, 2001, and based on Resolution N°31 of the National Agency of Electric Energy (ANEEL) dated January 24, 2002, the Company’s distribution subsidiaries in Brasil have recongized as of December 31, 2001 and at March 1, 2002, a regulated asset, which will be recovered through extraordinary tarrifs in order to recover losses experienced during the period of energy rationing from June 1, 2001 to March 1, 2002. The Brazilian rationing program came to an end on March 1, 2002, the Brazilian Congress ratified the law to compensate Brazilian electric companies on April 16, 2002. The law approved a 2.9% and 7.9% increase for residential and industrial customers, respectively. ANNEL subsequently established an 18.6% tariff adjustment for CERJ to be effective on January 1, 2002; also, ANNEL set a 14.3% tariff adjustment for Coelce, to become effective on April 22, 2002. ENERSIS 20 02 ANNUAL REPORT 8 9 8 8 8 8 6. TRANSACTIONS WITH RELATED COMPANIES Balances of accounts receivable and payable are as follows at December 31, 2001 and 2002: a. Notes and accounts receivable: Company As of December 31, Short-term Long-term 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ Aguas Santiago Poniente S.A. 2,496,548 257,796 - Atacama Finance Co. 4,297,348 182,046,895 169,196,652 Central Geradora Term. de Fortaleza Cía. Interconexión Energética S.A. Com. de Energía del Mercosur Consorcio Energetico Punta Cana-Macao Distrilec Inversora S.A. Edenor S.A. Elesur S.A. Empresa Eléctrica de Bogotá S.A. Empresa Eléctrica Piura S.A. Endesa España Endesa Internacional S.A. Etevensa Fundación Endesa Gasoducto Atacama Generación Gasoducto Tal Tal Ltda. Ingendesa Do Brasil Ltda. Inversiones Electrica Quillota S.A. Sacme S.A. Smartcom S.A. Soc. de Inv. Chispa Uno S.A. Transmisora Eléctrica de Quillota Ltda. 11,383 3,004,871 3,369,682 967 6,810 187,117 20,379 133,978 100,180 364,605 2,387,673 190,584 - 49,224 313,819 - 1,030 175,047 896,261 830 11,242 3,861 4,101,221 4,422,881 939 7,257 - 24,217 171,747 279,542 322,122 1,632,089 220,020 165,273 570,445 144,871 - 1,000 101,097 619,403 1,937 304,222 - - - 37 - - - - - - - - - - - - - 16,021 - - - - - - - - - - - - - - - - - - - - - - - - 1,471,140 882,109 Total 18,019,578 195,398,835 170,667,792 898,167 ENERSIS 2002 ANNUA L REPORT 8 9 8 8 8 8 b. Notes and accounts payable: Company Aguas Santiago Poniente S.A. Com. de Energía del Mercosur Compañía Transmisión del Mercosur S.A. Electrogas S.A. Elesur S.A. Empresa Eléctrica de Bogotá S.A. Empresa Eléctrica Piura S.A. Endesa Internacional S.A. Endesa Inversiones Generales S.A. Endesa Servicios Etevensa S.A. Gasoducto Tal Tal Ltda. Mundivia S.A. Sacme S.A. Smartcom S.A. Transmisora Eléctrica de Quillota Ltda. 2001 ThCh$ 8 7,175,604 339,240 - 17,289,294 3,629,114 720,573 342,658 - - 1,116,904 213,599 76 185,803 65,236 42,540 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 631 760,170 107,045 233,837 - - - - - - - - 11,465,695 984,980,016 987,371,066 1,226,667 857,426 1,109,741 8,589 116,041 - 160,559 - 101,720 55,189 82,402 - - 16,727,143 - - - - - - - - 920,539 - - - - - - - - - - Total 31,120,649 16,285,712 1,001,707,159 988,291,605 c. Effects in income (expense) in each year are as follows: Company Nature of Transaction Atacama Finance Co. Interest Monetary correction Exchange difference Central Geradora Term. de Fortaleza Services Com. de Energía del Mercosur Sale of energy Exchange difference Purchase of energy Interest Services Income (expense) 2001 ThCh$ 10,056,288 4,575,344 17,033,254 473,819 (21,636) 22,810,613 (15,347,195) (62,519) 73,855 2002 ThCh$ 6,659,856 498,688 11,107,652 - - 19,152,859 (1,958,213) - - Com. Transmisión del Mercosur S.A. Purchase of energy (3,985,903) (1,397,696) Cía. Interconexión Energética S.A. Sale of energy 46,839,739 26,990,992 Exchange difference Monetary correction 450 210 - - Inversiones Eléctrica Quillota S.A. Exchange difference Services Interest Services Monetary correction (3,523) 903,382 134,407 - 43,994 - 272,906 144,050 5,066 - ENERSIS 20 02 ANNUAL REPORT 9 1 9 0 9 0 Company Nature of Transaction Empresa Eléctrica Piura S.A. Gasoducto Tal Tal Ltda. Elesur S.A. Etevensa S.A. Electrogas S.A. Edenor S.A. Smartcom S.A. Aguas Santiago Poniente S.A. Endesa Internacional S.A. Sacme S.A. Empresa Propietaria de la Red Mundivía S.A. Soc. de Inv. Chispa Uno S.A. Sale of energy Purchase of energy Services Exchange difference Services Interest Services Monetary correction Exchange difference Sale of energy Services Exchange difference Services Services Services Interest Services Services Interest Services Services Services Services Income (expense) 2001 ThCh$ 938,354 (9,812,046) 1,213,149 (809) - 2002 ThCh$ 1,457,382 (9,619,648) 175,914 - 40,494 (51,512,360) (43,408,831) 20,478 15,919 (30,547,186) (29,082,684) (753,213) 3,063,312 3,247,425 (563) - 5,757,877 153,617 - (2,449,634) (2,978,702) 4,434,499 4,093,653 209,426 29,798 242,914 (2,193,466) (823,528) - 61,157 6,582 - 3,407,292 70,757 32,060 182,716 (1,026,534) (364,396) 346,994 - 8,432 Total 3,317,895 (12,769,303) The transfer of short-term funds between related companies, is on the basis of a current cash account, at a variable interest rate based on market conditions. The resulting accounts receivable and accounts payable are essentially on 30 day terms, with automatic rollover for the same period and settlement in line with cash flows. Conditions of the long-term payables are as follows: Transmisora Eléctrica de Quillota Ltda. Account payable Atacama Finance Co. Account payable ENERSIS 2002 ANNUA L REPORT 9 1 9 0 9 0 Company Elesur S.A. Type Due Date Currency Capital Account payable Account payable Account payable May 2004 May 2004 Aug 2004 2006 2003 UF UF UF UF 35,827,780 22,873,999 266,448 70,242 US$ 250,872,179 Interest Rate 4.57% 1.46% 2.95% 9.00% 3.33% 7. INVENTORIES Inventories include the following items and are presented net of an allowance for obsolescence amounting to ThCh$4,104,724 and ThCh$4,342,197 as of December 31, 2001 and 2002, respectively: Real estate under development Materials in transit Operation and maintenance materials Other Total As of December 31, 2001 ThCh$ 27,262,972 499,963 41,944,252 7,716,887 2002 ThCh$ 23,804,228 1,104,204 32,051,573 3,422,648 77,424,074 60,382,653 8. DEFERRED INCOME TAXES a. Income taxes (recoverable) payable as of each year-end are as follows: Income tax provision – current Recoverable tax credits As of December 31, 2001 ThCh$ 77,283,022 (57,510,102) 2002 ThCh$ 27,532,029 (54,435,976) Total 19,772,920 (26,903,947) b. The Company incurred taxable losses of ThCh$110,967,917 and ThCh$89,744,825 for the years ended December 31, 2002 and 2001, respectively. c. The balance of taxed retained earnings and the related tax credits are as follows: Year 2002 2001 Amount of loss ThCh$ 23,698,947 (18,159,574) Credit ThCh$ 4,524,557 - ENERSIS 20 02 ANNUAL REPORT 9 3 9 2 9 2 d. The net effect of timing differences resulted in a net charge to income of ThCh$9,072,273 and a net credit of ThCh$18,862,491 during the years ended December 31, 2002 and 2001, respectively. e. In accordance with BT N°60 and 69 of the Chilean Association of Accountants, and Circular N°1,466 of the SVS, the Company and its subsidiaries have recorded consolidated deferred income taxes as of December 31, 2002 and 2001 as follows: As of December 31, 2001 As of December 31, 2002 Asset Liability Asset Liability Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Long-term ThCh$ Allowance for doubtful accounts 26,027,011 12,307,740 Deferred income Vacation accrual Intangibles Leasing assets Depreciation Severance indemnities Other events Contingencies Bond discount Cost of studies Finance costs Imputed interest on construction Deferred charges Withholdings Regulated assets Derivative contracts Provision real estate projects Materials used Salaries for construction-in-progress Tax losses Hid. El Chocón investment Capitalized expenses Actuarial deficit (companies in Brazil) 7,487,563 684,649 1,822,685 - - 3,475,357 1,395,215 - - - - - - - 24,954 - - - - - - 24,128,592 8,089,173 921,547 1,824,544 1,211,297 - - - - - - 2,301,708 3,730,312 5,248 - - - - - - - - - - 63,991 425,486,736 - 814,241 3,500,985 115,620 388,240,574 4,166 - 1,954,040 1,507,717 1,859,468 6,603,676 3,707,977 4,211,789 2,083,015 4,376,406 9,391,056 4,325,818 39,102,316 - - 6,594,295 38,042,633 - - - - - - - - - 194,771 - - - 421,131 1,704,883 - - - - 4,675,640 8,304,618 4,830,117 1,510,731 - - - - - 1,230,644 4,339,981 6,766,431 - - 117,034 - - - 154,508 1,717,127 - - - - - 7,972,554 13,755,855 4,863,433 - 2,301,708 566,417 1,597,733 5,659 2,391,794 860,956 5,494 193,144 - - - - 3,828,000 - - 2,775 1,000,985 - - - - - 5,843,294 2,905,532 77,167,379 - - - - - - - - - - - 512,289 350,818 234,174 - 2,656,047 - - 3,926,807 - - 15,305,920 99,985,069 3,349,399 - - 119,374 552,418 4,506,944 - - - 1,086,289 - - - - - - - - - - - 37 2,897,754 770,801 3,112,269 447,462 1,179,874 517 516 - - 1,475,222 1,288,870 3,866,610 - - - Provision for labor benefits 306,354 192,678 559 Differences between the financial and tax value of Río Maipo S.A. Exchange difference -subsidiaries - - - - - - - - - Complementary account, net (12,121,039) (49,272,564) (28,750) (296,221,936) (3,647,280) (42,168,372) (3,187) (290,044,693) Valuation allowance - (3,322,326) - - - (2,271,667) - - Total 33,088,012 95,474,667 8,925,911 131,534,631 62,627,582 121,807,118 10,671,789 183,547,989 ENERSIS 2002 ANNUA L REPORT 9 3 9 2 9 2 f. Income tax expense for the years ended December 31, 2001 and 2002 is as follows: Tax expense Income tax provision Deferred taxes Adjustment for tax expense-prior year Deferred taxes Benefits for tax losses Amortization of complementary accounts Change in valuation allowance Other charges or credits 2001 ThCh$ 2002 ThCh$ (114,099,337) (74,581,690) 3,111,691 (36,891,994) 13,509,821 6,143,861 (1,607,004) (17,175) (507,568) 24,471,978 5,043,185 (15,501,218) (126,575) (4,815,097) Total (129,850,137) (66,016,985) 9. OTHER CURRENT ASSETS Other current assets as of each year-end are as follows: Forward contracts and swaps (1) Guarantees and indemnities Deferred expenses Post-retirement benefits Deposits for commitments and guarantees (2) Investment projects Fair value-derivates contracts Reverse repurchase agreements Other Total (1) See detail in Note 27. (2) Infraestructura 2000 S.A. Th$25,342,941 of time deposits in 2002. As of December 31, 2001 ThCh$ 110,734,637 1,785,077 3,115,540 884,210 1,656,844 3,303,579 - 1,909,395 3,851,947 2002 ThCh$ 72,800,589 1,183,406 5,709,113 908,669 26,098,519 8,399,481 11,603,424 - 5,318,407 127,241,229 132,021,608 The balance included under this item corresponds to time deposits invested with funds from the issuance of bonds and that are to be kept in reserve accounts as agreed in the corresponding finance contracts. ENERSIS 20 02 ANNUAL REPORT 9 5 9 4 9 4 10. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment as of each year-end is as follows: Land As of December 31, 2001 ThCh$ 2002 ThCh$ 123,257,963 129,904,787 Buildings and infrastructure Distribution and transmission lines and public lighting Less: third party contributions 6,305,284,319 4,702,594,096 (55,731,873) 6,605,971,611 5,061,388,676 (45,056,759) Sub-total 10,952,146,542 11,622,303,528 Machinery and equipment 1,823,140,358 1,978,358,503 Work in progress Construction materials Leased assets Furniture and fixtures, tools, and computing equipment Vehicles Equipment in transit Other assets Sub-total 351,183,870 63,882,077 2,552,754 82,938,365 15,595,644 8,193,631 13,938,603 364,506,933 56,458,627 715,141 79,254,829 13,097,921 7,462,991 13,364,422 538,284,944 534,860,864 Technical appraisal 697,624,932 740,645,407 Total property, plant and equipment 14,134,454,739 15,006,073,089 Less: accumulated depreciation (4,509,405,080) (5,126,614,906) Total property, plant and equipment, net 9,625,049,659 9,879,458,183 Enersis S.A. and its local subsidiaries have proceeded to carry out an analysis of the book values of their property, plant and equipment and of the companies in which it has invested abroad. This analysis is motivated by the appearance of negative circumstances in the economies of the region’s countries and by the fact that the property, plant and equipment in these countries are measured in US dollars. The analysis consisted of evaluating both the recoverability of property, plant and equipment of these companies’, and the recorded goodwill and negative goodwill, in accordance with accounting principles generally accepted in Chile. ENERSIS 2002 ANNUA L REPORT 9 5 9 4 9 4  The property, plant and equipment recoverability analysis, as explained in Note 2 k, was carried out considering that when there is evidence that the company’s operations do not permanently have sufficient earnings to cover all costs, incluiding the depreciation of property, plant and equipment taken as a whole, and when the book value of said assets exceed its realization value, these values must be written down to recoverable amounts, charging non operating income. The results of this analysis determined that no adjustments affecting the Company and its Subsidiaries’ book values of property, plant and equipment are required. 11. INVESTMENT IN RELATED COMPANIES a. Investments as of each year-end are as follows: Related Companies Aguas Santiago Poniente S.A. (1) Number of shares 1,031,949 Cía. de Interconexión Energética S.A. 128,270,527 Gas Atacama Generación Gasoducto Atacama Argentina Ltda. Gasoducto Atacama Chile Ltda. Inversiones Eléctricas Quillota S.A. Inversiones Electrogas S.A. - - - 608,676 425 Com. de Energía del Mercosur S.A. 6,305,400 Transquillota Ltda. Atacama Finance Co. Endesa Market Place Sacme S.A. Consorcio ARA - Ingendesa Ltda.. Electrogas S.A. Distrilec Inversora S.A. Consorcio Ingendesa – Minmetal Ltda. Central Geradora Termelectrica Fortaleza S.A. - 3,150,000 210 12,000 - 85 4,416,141 - 20,246,908 Percentage owned % Related equity ThCh$ Carrying Value Equity in net income (losses) 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2,270,319 - 1,248,675 - - 118,325,971 50,667,801 53,246,687 (5,826,850) 7,230,684 67,770,629 36,300,892 33,885,315 (3,441,037) (4,793,334) 64,226,451 27,899,622 32,113,226 (4,686,666) 55,859,069 23,197,393 27,929,534 3,303,780 7,602,220 6,037,668 4,680,261 2,389,373 2,555,396 602,376 41,818 - 2,038 11,288 23,623 17,127,364 15,712,743 7,614,035 5,032,660 5,179,023 3,199,945 78,684 105,854 11,190,123 - 3,676 - - 8,563,682 6,677,916 3,426,316 2,516,330 2,589,511 (29,794) 34,091 48,872 87,840 120,819 479,992 (336,407) 39,342 52,883 2,378 - 1,838 (7,335) - 37 11,289 22,564 - - 5,386,640 21,333,090 49,599 57,442 2,386,141 3,212,680 1,310,128 638,377 (1,524,596) 126,529 (133,267) (281,264) 15,523 56,927 339 - 18,916 - - 55.00 45.00 50.00 50.00 50.00 50.00 42.50 45.00 50.00 50.00 15.00 50.00 - 0.02 51.50 50.00 48.82 Ingendesa do Brasil Limitada (1) - 100.00 Total 167,448,008 194,164,157 (10,698,797) 8,263,783 (1) There subsidiaries were in development stage for the years shown and accordingly, were not consolidated under Chilean GAAP. b. Income and (losses) recognized by Enersis S.A. based on the participation in the related companies as of December 31, 2002, amounted to ThCh$14,996,244 (ThCh$6,732,461 in 2001), and ThCh$14,328,089 (ThCh$3,629,292 in 2001). ENERSIS 20 02 ANNUAL REPORT 9 7 9 6 9 6 c. In accordance with Technical Bulletin N°64 of the Chilean Association of Accountants for the years ended December 31, 2002 and 2001, the Company has recorded foreign exchange gains and losses on liabilities related to net investments in foreign countries that are denominated in the same currency as the functional currency of those foreign investments. Such gains and losses are included in the cumulative translation adjustment account in shareholders’ equity, and in this way, act as a hedge of the exchange risk affecting the investments. As of December 31, 2002 the corresponding amounts are as follows: Company Central Hidroeléctrica Betania Cachoeira Dourada Edegel S.A. Cía. Interconexión Energética S.A. Country of Origin Colombia Brasil Peru Brasil Atacama Finance Co. Islas Caymán Hidroeléctrica El Chocón S.A. Com. de Energía del Mercosur S.A. Central Costanera S.A. Edesur S.A. Edelnor S.A. Cía. do Electricidade do Río do Janeiro Codensa S.A. Coelce Total Argentina Argentina Argentina Argentina Peru Brasil Colombia Brasil Investment ThCh$ Reporting Currency 600,762,975 430,106,204 220,917,766 53,246,687 2,589,511 212,761,767 3,426,316 89,044,456 482,071,599 52,786,427 362,673,182 276,586,841 93,034,182 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Liability ThCh$ 336,577,165 530,228,953 243,486,508 62,574,905 1,854,668 121,855,669 3,952,377 65,498,672 392,146,648 23,385,019 385,080,177 306,287,700 116,004,085 2,880,007,913 2,588,932,546 d. The investments made by Enersis S.A. and it affiliates during the year ended December 31, 2002, amounted to ThCh$23,465,277, which are detailed as follows: Acquisitions Luz de Río Ltda. Central Termelétrica Fortaleza S.A. Chilectra S.A. Compañía Electrica del Río Maipo S.A. Cachoeira Dourada S.A. Aguas Santiago Poniente S.A. Pangue S.A. Inversiones Distrilima S.A. Other Total As of December 31, 2001 ThCh$ - 5,911,275 4,982,826 498,137 1,487,500 - - - - 2002 ThCh$ 61,469 15,480,376 - 1,134 58,931 1,633,280 4,998,894 1,190,289 40,904 12,879,738 23,465,277 ENERSIS 2002 ANNUA L REPORT 9 7 9 6 9 6  • In May of 2002, Enersis S.A. acquired 6,824,495 Sociedad Inversiones Distrilima S.A. shares equivalent to 1.14% of issued capital for US$1,767,761,22 increasing its direct interest from 14.79% to 15.93%. • In February and April of 2002 Enersis S.A. made contributions of US$22,773,195.87 to Central Geradora Termelétrica Fortaleza S.A. for a capital increase, maintaining its 48.82% interest equivalent to 20,246,908 shares. • During 2002, Lajas Inversora (Endesa subsidiary) acquired 753,627 (0.0803%) Central Eléctrica Cachoeira Dourada S.A. (Brasil) shares for Th$58,931, increasing its interest to 99.59%.in said company. • On September 13, 2002, Endesa acquired 7,275,433 (2.51%) Pangue S.A. (Chile) shares for Th$4,998,894, increasing its interest to 94.97% in said company. • Debenture capitalization in Cerj On July 11, 2002, the company Luz de Río Ltda. and Endesa Internacional Energía Ltda., holders of convertible bonds issued by Companhía de Electricidade do Río de Janeiro, exercised the option to capitalize their investment. To that effect, 420,705,127,532 no par value shares were issued. Said capitalization resulted in a net increase of the consolidated interest in the company to 61.95%. 12. INVESTMENTS IN OTHER COMPANIES Investments in other companies at December 31, 2001 and 2002 are as follows: Company Distasa S.A. E.S.P. Emgesa S.A. E.S.P. Club de la Banca y Comercio Club Empresarial Edegas Empresa Eléctrica de Aysen S.A Inmobiliaria España S.A. Inverandes S.A. Cooperativa Eléctrica de Chillán CDEC-SIC Ltda. Empresa Eléctrica de Bogotá S.A. Autopista del Río Maipo S.A. Financiera Eléctrica Nacional Saelpa Teleceara Supra CCVM Lltda. Banco Destak Menescal Produções Artisticas Termocartagena Coger Total Number of shares Percentage owned % As of December 31, 2001 ThCh$ 2002 ThCh$ 1 1 2 2 1 2,516,231 1 1,011,899 - - 12,818,264 25 - - - - - - 22 - - - 0.001 0.001 0.010 - - - - 30.770 11.000 0.200 0.100 - - - - - - - 6 3 2,699 6,150 3,422 2,572 6,328 2,616 1,978,031 1,978,031 98 3,420 12,907 153,100 98 3,420 12,907 223,114 147,160,783 156,799,970 4,827 124,006 1,036 738 37,906 61,376 8,344 - 2,909 4,827 353,555 725 516 26,525 42,947 5,838 6 2,035 149,560,997 159,466,785 ENERSIS 20 02 ANNUAL REPORT 9 9 9 8 9 8 13. GOODWILL a. In accordance with current standards, recognition has been given to the excess of purchase price of the proportional equity in the net assets acquired (goodwill) in the purchase of shares as of December 31, 2001 and 2002, as follows: Company As of December 31, 2001 2002 Amortization ThCh$ Net Balance ThCh$ Amortization ThCh$ Net Balance ThCh$ Central Costanera S.A. (1) Chilectra S.A. Cía. de Electricidade do Río de Janeiro (1) C. Hidroeléctrica Cachoeira Dourada (1) (1,635,472) (6,178,814) (6,802,644) (4,080,506) 22,542,503 (24,019,065) 112,424,542 (6,244,383) 106,276,518 102,650,570 (109,374,320) 65,288,089 (69,564,545) (12,171,789) 200,834,527 (213,989,455) (1,677,992) 26,569,990 (1,787,998) 26,522,265 Coelce (1) Codensa Distrilec Inversora S.A. (1) Edegel S.A. Edesur S.A. (1) Emgesa S.A. Empresa Eléctrica de Colina S.A. Empresa Eléctrica de Pangue S.A. (660,678) (37,900) (639,580) (1,516,659) (185,188) 10,926,526 (11,642,227) 609,554 8,900,820 24,013,765 2,731,517 (41,020) (9,483,835) (1,615,435) (185,188) (69,692) - - - - - - 608,459 - 23,970,674 2,546,329 3,275,515 Endesa (Chile) (42,958,281) 710,600,834 (42,958,280) 667,642,554 Gasoducto Atacama y Cía Ltda. Hidroeléctrica El Chocón S.A. (1) Hidroinvest S.A. (1) Inversiones Distrilima S.A. Investluz S.A. (1) Lajas Inversora S.A. (1) Luz de Bogotá S.A. Cía. Eléctrica del Río Maipo S.A. (4,772) (810,026) (77,694) (1,408) (62,297) (105,474) (402,719) (566,455) 81,927 9,450,309 1,294,904 18,301 1,027,913 1,687,590 6,376,384 10,802,028 (4,772) (10,069,320) (1,379,722) (1,500) (1,095,242) (1,798,130) (445,628) (574,414) 77,154 - - 18,000 - - 6,348,417 10,227,614 Total (80,576,348) 1,318,832,593 (506,344,171) 847,513,499 ENERSIS 2002 ANNUA L REPORT 9 9 9 8 9 8 b. Following current standards, recognition has been given to the excess of the equity in the net assets purchased over the purchase price (negative goodwill) in the purchase of shares as of December 31, 2001 and 2002 as follows: Company Inversiones Destrilima S.A. Hidroeléctrica El Chocón S.A. (1) Synapsis Soluciones y Servicios IT Ltda. Edelnor S.A. Central Hidroeléctrica Betania S.A. Cía. Eléctrica Cachoeira Dourada (1) Edegel S.A. Empresa de Energía de Bogotá S.A. Cía. de Electricidade do Río de Janeiro (1) Coelce (1) As of December 31, 2001 2002 Amortization ThCh$ Net Balance ThCh$ Amortization ThCh$ - - 248,147 15,315 1,167,676 33,765,719 1,996,761 9,661,331 239,139 118,238 487,523 3,391,331 156,983 3,696,809 56,035,189 34,362,010 68,866,610 3,826,225 2,246,500 8,612,903 18,366 3,613,468 15,315 1,244,160 34,886,018 36,869,705 10,294,161 254,803 15,874,719 9,177,059 Net Balance ThCh$ 611,346 - 141,668 2,694,795 24,819,551 - 63,083,303 3,822,287 - - Total 47,699,849 181,194,560 112,247,774 95,172,950 (1) To carry out the analysis of the recoverability of goodwill and negative goodwill on investments abroad, as explained in Note 2 u, the Company used International Accounting Standard (IAS) N°36. The analysis determined that the impairment of goodwill and negative goodwill in the companies, related to investments in Argentina and Brazil, is 100%, as, when comparing cash flows generated by the companies in said countries, such flows do not cover the recorded goodwill and negative goodwill. Thus, these balances have been fully amortized, resulting in a higher net charge to income for the period of ThCh$236,434,558, net of minorities, that are included in goodwill and negative goodwill amortization in the income statement. 14. OTHER ASSETS Other assets as of each year-end are as follows: Bond discount Bond issuance cost Forwards contracts and swaps Deferred expenses Deferred commissions on foreign currency loans Post-retirement benefits Guarantee deposits for contingencies Presumed minimun net income Reimbursable contributions Argentinean Goverment bond (Edesur) Income taxes recoverable Regulated assets Fair value-derivative contracts Others As of December 31, 2001 ThCh$ 23,317,438 2,227,309 6,778,289 29,372,305 8,504,753 50,753,635 17,219,611 4,401,120 1,644,724 6,744,337 12,537,121 28,334,477 - 6,700,336 2002 ThCh$ 20,817,166 11,513,319 9,363,825 32,395,491 10,428,709 19,278,057 23,650,617 6,185,401 1,445,742 793,976 8,390,378 36,046,501 51,900,113 6,546,301 Total 198,535,455 238,755,596 ENERSIS 20 02 ANNUAL REPORT 101 100 100  15. DUE TO BANKS AND FINANCIAL INSTITUTIONS a. Short-term debt due to banks and financial institutions: Foreign Currency Financial Institution Short-term: ABN Amro Bank Banco Alfa Banco Banrisul Banco Bayernische Landes Banco BBVA Argentaria Banco BBVA BHIF Banco Beal Banco Brasiletros Banco Granahorrar Banco Continental - Perú Banco Continental - Soles Banco Crédito (Perú) Banco Crédito Inversiones Banco de Bogotá Banco de Chile Banco de Occidente Banco Davivienda Banco Europeu de Investimentos Banco Ganadero Banco HBSC Banco Itau Banco Lloyds Banco Nationale de Paris Banco Nazionale del Lavoro Banco Real Banco Río Banco Safra Banco Santander Banco Santander Central Hispano Banco Santiago Banco Wiese Bank Boston Bank of América Bank of Tokio Barings Bndes BNP Paribas Brandesco Caixa General de Depósitos Chase Manhattan Bank Citibank Deutsche Bank Interbank San Paolo IMI Bank Santander Overseas Bank Unibanco Total US$ Other foreign currencies Ch$ Total 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ - - - 3,900 19,383,881 11,690,051 - - - - 6,091,898 - 6,249 - - - - - - - 14,868,328 12,725,024 5,451,346 25,998 3,285,690 15,773,388 4,621,310 1,505,541 - 1,407,374 36,542 22,883,118 18,039,049 129,569 6,767,943 - - 6,557,278 - - 8,744,459 15,389,863 14,868,221 14,077,559 - - - 9,978,137 2,943,626 - - - - 325,235 - 8,967 15,050,838 - - - - 1,395,421 - - 986,292 - 20,726,463 4,401,289 - - - - - - 2,914,580 2,033,821 - 7,176,274 - - - 5,058,544 3,688,212 20,734,860 20,534,043 - 12,605,923 53,818 5,024,251 2,297,651 - - 8,328,537 884,609 14,966,456 17,336,064 11,001,720 - - - - - - - - - 5,169,358 - 22,748 - 10,494,702 8,441,260 88,495 944,155 - 21,573,421 - 12,207,873 5,034,740 - - - - 23,274 12,840,183 - - - - - - - 962,348 - - - 4,638,644 - 11,236,876 6,756,148 - - 7,617,506 - - - 3,797,550 1,728,888 - 11,929,665 4,069,600 6,643,422 - 578 22,932,354 3,510,307 - - 10,119,892 5,169,139 - - 17,080,123 - 24 40,312,584 - 3,973,468 - 4,488,965 2,943,675 7,618,861 173 - 10,622,525 723,970 - - - - - - - - - - - - - - - - - - 260 20,387,682 - - - - - - - - - - - - - - 5,677,901 - 94 7,074,827 - - - - - - - - - - - - - - - - - - - - - - - - - - 116 - 2,363,855 30,047,885 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9,978,137 2,943,626 3,900 19,383,881 11,690,311 - 325,235 - 15,050,838 6,091,898 20,726,463 4,407,538 - 94 - - - 8,328,537 - 14,868,328 12,725,024 5,451,346 25,998 3,285,690 15,796,136 4,621,310 9,946,801 - 3,771,229 59,816 35,723,301 18,039,049 129,569 6,767,943 - - 18,573,087 - 2,944,253 30,551,215 3,510,480 - - 10,119,892 5,169,139 6,557,278 2,914,580 2,033,821 8,744,459 22,566,137 35,255,903 14,077,559 - 5,058,544 3,697,179 20,734,860 20,534,043 5,677,901 12,605,923 8,524,066 5,024,251 2,297,651 986,292 884,609 14,966,456 17,336,064 11,964,068 - - - 9,808,002 - 21,731,694 6,844,643 30,992,040 - 29,190,927 - 12,207,873 5,034,740 3,797,550 1,728,888 4,069,600 4,488,965 - 27,702,648 723,970 24 40,312,584 - 3,973,468 198,358,134 226,280,843 100,287,721 135,580,006 2,364,209 63,188,411 301,010,064 425,049,260 ENERSIS 2002 ANNUA L REPORT 101 100 100 Total Principal 161,053,463 172,781,954 66,462,707 122,203,397 2,364,209 63,024,860 229,880,379 358,010,211 Weighted average annual interest rate 10.98% 8.14% 11.28% 14.84% 4.62% 2.48% 10.99% 9.42% Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2001 % 99.21 0.79 100.00 2002 % 85.13 14.87 100.00  b. Current portion of long-term debt due to banks and financial institutions: Foreign Currency Financial Institution US$ Euros Yen Other foreign currency UF Total 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ Current portion of long -term: ABN Amro Bank 4,641,206 2,636,765 Corporación Fin. del Valle Banco Bayernische Landes Banco BBVA Bhif Banco Beal Banco de Chile Banco do Brasil Banco do Estado de Ceará Banco do Nordeste do Brasil Banco Estado Bancolombia Banco HBSC Banco Hermes Banco Lloyds Banco Medio Crédito Banco Nacional Desarrollo Soc. Banco Real Banco Rio Banco Nacional del Lavoro Banco San Paolo Banco Santander Banesto Bank Boston Bank of América - 21,333,470 586,366 15,484,073 - 55,827 5,622,544 1,447,394 - - 147,266 152,837 - - - - 1,654,097 - 931,318 107,119 21,590 10,824,955 6,577,752 - 4,214,536 - - - - 67,508,298 3,744,556 4,292,992 - 5,391,528 7,219,445 - - - - 171,165 - 768,636 4,601,056 600,561 69,521,918 97,779,555 Bank of Tokio - Mitsubishi 56,082,775 46,988,580 Banque Nationale París 4,626,119 11,861,505 Birf - - Chase Manhattan Bank 57,741,816 596,408 BNP Paribas Citibank N.A. Dresner B. Luxemburg Electrobras - Brasil Eximbank Export Develop. Corp. J.P.Morgan Chase Bank - - 22,631,820 24,295,402 232,752 82,932,830 - - - - 1,681,533 2,506,978 - 408,710 3,624,390 4,545,759 Kreditanstal Fur Weideraubau 403,235 424,774 Midland Bank 5,085,611 5,668,452 Santander Central Hispano - 215,947,206 Santander Inv. Bank Scotiabank Skandinaviska Enskildabnken Societe Generale Unibanco 5,063,018 6,349,226 559,807 2,229,111 1,740,953 - 2,375,122 1,845,522 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,067,648 - - - - 3,365,645 - - - 14,637,719 - - - - - - - 916,285 6,865 185,154 - - - - - - 1,896 - - 2,178,745 - - - 127,292 395,184 14,585,777 496,814 651,402 2,019,382 - 470,332 - - - - - - 2,409 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,481,411 - - - - - - 456,684 1,066,471 - - - - - 2,969,352 - - - - - - - - - - 1,195,763 6,615,690 - - - 459,473 - - - - - - - - - 73,033 52,797 - - - - - - - 882,985 1,987 - - - - - 17,742,450 - - - - - - - - - - - - 4,641,206 2,636,765 - 55,827 21,333,470 586,366 15,484,073 17,742,450 1,063,551 6,865 185,154 5,622,544 1,447,394 - - 152,837 882,985 1,987 42,548 19,679,568 1,739,232 21,333,665 2,713,098 - - - - - - - - - - 17,742,450 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 107,119 21,590 10,824,955 6,577,752 5,391,528 - 14,287,093 4,214,536 - 651,402 2,019,382 - 470,332 1,896 - - 3,539,219 67,508,298 23,665,751 - 768,636 4,292,992 4,601,056 - 15,238,280 69,521,918 97,779,555 56,974,773 61,701,649 4,626,119 12,318,189 1,066,471 57,741,816 - 1,792,171 - 6,615,690 22,631,820 24,295,402 232,752 82,932,830 2,969,352 - - 459,473 1,681,533 3,624,390 403,235 2,506,978 4,954,469 424,774 5,085,611 5,668,452 - 222,428,617 5,063,018 6,349,226 559,807 2,229,111 1,740,953 73,033 - 2,375,122 1,845,522 52,797 Total 357,806,670 540,511,420 3,624,390 4,673,051 395,184 46,138,200 8,546,017 12,200,050 55,164,468 1,739,232 425,536,729 605,261,953 Total principal 307,836,499 513,485,849 3,624,390 4,647,499 395,184 45,826,512 8,544,119 8,884,706 55,164,468 1,554,097 375,564,660 574,398,663 Weighted average annual interest rate 6.03% 3.24% 4.26% 3.79% 0.90% 2.08% 8.60% 8.53% 7.50% 8.73% 6.27% 3.30% As of December 31, 2001 % 87.04 12.96 2002 % 99.71 0.29 100.00 100.00 Percentage of debt in foreign currency: Percentage of debt in local currency: Total ENERSIS 20 02 ANNUAL REPORT 103 102 102 In order to develop their investment plans, Enersis S.A., Endesa S.A. (Enersis subsidiary) and Pehuenche S.A. (Endesa S.A. subsidiary), have obtained financing from banks and financial institutions or through issuance of financial instruments, both in the local market and abroad and which contain financial and non-financial covenants. 16. LONG-TERM PORTION OF DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS As of December 31, 2002 After 2 year but within 3 years ThCh$ After 3 year but within 5 years ThCh$ After 5 year but within 10 years ThCh$ After 10 yers years ThCh$ Financial Institution Currency ABN Amro Bank Banco Bayernische Landes Banco BBVA Banco Estado Banco Europeo de Investimentos Banco do Brasil Banco Medio Crédito Banco Nacional Desarrollo Soc. Banco Nacional del Lavoro Banco Nacionale de Paris Bancolombia Banco Santander Scotiabank Banco Santander Central His. Banesto Bank Boston Bank of America Bank Tokio - Mitsubishi Bco. do Estado de Ceará Bco. do Nordeste do Brasil BIRF BNDES J.P.Morgan Chase Bank Citibank N.A. Citibank N.Y. Corfinsura Electrobas - Brasil Export Develop. Corp. HBSC Bank Kreditanstal Fur Weideraubau Lloyd’s Bank Midland Bank Santander Investment Skandinaviska Enskildabnken Dresdner Bank Societe Generale Unibanco US$ US$ US$ US$ US$ $ Reaj. US$ US$ Rs US$ US$ $ Arg Rs US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Yen US$ US$ US$ US$ US$ US$ Lira Pound Yen Euros Rs Rs U.P. Rs Rs US$ US$ US$ Euros US$ US$ US$ US$ Rs US$ US$ US$ US$ US$ US$ Yen US$ US$ US$ US$ US$ Rs After 1 year but within 2 years ThCh$ 10,060,540 71,861,000 348,727 - 467,096,500 14,644,588 4,604 - 1,612,832 666,812 - 1,843,524 924,558 - 10,624,361 1,927,400 - - - - - - 287,444,000 6,979,153 3,545,818 - - 6,895,050 - - - 438,973 462,018 122,980 145,548 83,792 1,189,530 - 21,350,096 - - - - - 22,584,885 359,305,000 - - 987,113 1,043,482 - 393,104 1,135,176 - 1,077,915 - 3,664,911 2,375,122 - 1,378,048 78,528 - - 348,727 - - 39,055,660 - - 806,416 310,166 - 1,843,524 462,279 - 10,624,361 1,927,400 - - - - - - - - 3,545,818 - - 6,895,050 - - - 438,973 462,018 122,980 - 34,914 - 49,049,488 7,116,699 - 39,523,550 - - - 11,292,443 - - - 987,113 1,043,482 - 393,104 - - - - - 2,375,122 - - - - - 697,454 - - 2,936,985 - 11,976,834 1,612,832 543,906 - 1,843,524 - - 21,248,722 3,854,800 484,743 - - - - - - - 7,091,636 - - - - - - - - - - - - - - - 17,965,250 - - - - - 32,609,567 - 1,974,226 2,086,964 - 786,208 - - - - - 2,375,007 - - - - - 697,457 - - - - 23,953,666 4,032,080 1,223,757 - 6,440,033 - - 16,661,934 5,895,808 - - - - - - - - 14,183,276 - - - - - - - - - - - - - 10,519,313 - - - - - - - - - 4,935,565 2,608,704 - 589,654 - - - - - - - - - Total Long-term portion ThCh$ 10,060,540 71,861,000 2,092,365 - 467,096,500 56,637,233 4,604 35,930,500 8,265,761 4,547,135 - 11,970,605 1,386,837 - 59,159,378 16,180,874 484,743 - - - - - 287,444,000 6,979,153 28,366,548 - - 13,790,100 - - - 877,946 924,036 245,960 145,548 118,706 1,189,530 49,049,488 38,986,108 - 57,488,800 - - - 33,877,328 359,305,000 32,609,567 - 10,858,246 6,782,632 - 2,162,070 1,135,176 - 1,077,915 - 3,664,911 7,125,251 - 1,378,048 78,528 Annual interest rate average Total Long-term portion - 2001 ThCh$ 2.75% 2.81% 2.70% 0.00% 2.66% 4.32% 6.50% 1.37% 19.13% 4.05% 0.00% 1.75% 9.04% 0.00% 4.35% 4.70% 3.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2.64% 2.09% 4.30% 0.00% 0.00% 2.66% 0.00% 0.00% 0.00% 4.81% 0.89% 4.13% 9.83% 8.04% 5.32% 10.00% 26.00% 0.00% 8.53% 0.00% 0.00% 0.00% 3.88% 2.56% 12.38% 0.00% 2.90% 2.75% 0.00% 4.85% 5.75% 0.00% 2.09% 0.00% 7.25% 0.65% 0.00% 1.62% 6.54% 1,963,737 67,443,370 - 2,085,128 406,852,130 58,028,908 864,034 - 10,016,239 4,363,330 35,267,772 - 2,548,105 3,303,104 65,648,923 7,477,621 7,327,862 7,729,276 708,728 20,680 130,840,138 366,386,108 - - 32,850,615 14,247,345 27,584,337 14,785,268 8,138,664 19,413,538 293,321 1,115,357 1,173,625 - 166,106 221,316 2,056,583 9,441,620 - 74,113 53,954,696 5,395,470 3,589,264 52,991,219 36,311,511 362,170,897 - 524,017 6,478,693 7,552,397 10,116,506 2,398,095 6,744,337 1,011,651 - 12,525,197 9,307,185 8,916,338 77,627,317 3,017,776 180,353 - - - - - - - - 201,601 1,802,494 - - - - - 2,575,466 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,974,229 - - - - - - - - - - - - 6,553,790 1,691,338,670 1,971,249,920 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ENERSIS 2002 ANNUA L REPORT Total 1,304,295,688 178,659,287 110,088,658 91,741,247 Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2001 % 97.06 2.94 100.00 2002 % 97.13 2.87 100.00 103 102 102  17. OTHER CURRENT LIABILITIES Other current liabilities at each year-end are as follows: Advances and guarantee on construction Taxes payable Contingencies - third party claims Customer advances Azopardo provision Employee obligations Forward contracts and swaps Fair value - derivative contracts Emergency energy provision (Brazil) Other current liabilities As of December 31, 2001 ThCh$ 6,803,215 4,293,154 11,142,417 4,341,372 - 3,187,555 114,377,655 - 1,319,668 4,918,722 2002 ThCh$ 601,997 2,482,871 15,212,625 3,293,578 2,336,683 2,228,103 5,729,893 11,251,521 10,708,453 5,696,233 Total 150,383,758 59,541,957 18. PROMISSORY NOTES Financial Instrument 2001-029 Commercial paper Commercial paper Commercial paper Promissory note-AFR OPP-027/2002 Promissory note - Banco Santander OPP-058/2002 Total Face Value ThCh$ Maturity Date Interest Rate % 42,328,262 May 13, 2002 10,456,868 Feb 01, 2002 3,030,678 2,081,801 - May, 2003 Aug, 2003 Dec, 2003 1,000 June, 2003 286,299 Jan, 2003 1,000 Sep, 2003 18.13 8.48 5.00 5.25 10.00 - 5.00 - As of December 31, 2001 ThCh$ 43,598,110 11,032,138 - - - - - - 2002 ThCh$ - - 3,089,607 2,124,305 122,129 3,465,944 286,299 4,101,230 54,630,248 13,189,514 ENERSIS 20 02 ANNUAL REPORT 105 104 104  19. BONDS PAYABLE a. Details of the current portion of bonds payable is as follows at each year-end: Instrument Series Currency Face Value Outstanding ThCh$ Interest Rate % Bonds – Distrilima Bonds – Distrilima Bonds – Distrilima Bonds – Distrilima Bonds – Distrilima Bonds – Distrilima Bond No.269 Yankee Bonds – Enersis Yankee Bonds – Enersis Yankee Bonds – Enersis Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa 1 1st Prog 1st Prog 1st Prog 1st Prog 1st Prog B1 – B2 1 2 3 1 2 3 1 1 E-1, E-2 Bonds Endesa Internacional C Bonds Endesa Bonds Endesa Bonds Pehuenche Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Endesa Bonds Emgesa Eurobonds Bonds Autopista del Sol S.A. Bonds Autopista del Sol S.A. Bonds Autopista del Sol S.A. Bonds Autopista del Sol S.A. Total B-1, B-2 C2; D1, D2 1 1 2 3 4 5 B-1 B-5 B-7 B-10 C-10 B-10 2nd A-5 B-3 A-1 F C-10 First A-1 A-2 B-1 B-2 9.61 7.50 6.50 6.34 7.50 6.90 5.63 6.90 7.45 6.63 7.88 7.33 8.13 7.75 8.50 6.20 7.20 6.00 6.80 7.30 8.75 8.41 8.75 8.44 11.50 15.80 14.95 15.27 15.60 10.25 15.78 8.35 14.79 13.95 6.20 9.88 3.34 5.80 5.80 5.80 5.80 Soles Soles Soles Soles Soles Soles UF US$ US$ US$ US$ US$ US$ US$ US$ UF US$ UF UF US$ US$ US$ US$ US$ US$ $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. UF $ Col. Euro UF UF UF UF 49,919,000 15,104,316 6,134,974 4,089,983 3,859,972 18,949,365 2,945,863 300,000,000 350,000,000 150,000,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 6,000,000 150,000,000 750,000 1,315,960 170,000,000 30,000,000 30,000,000 30,000,000 20,000,000 10,000,000 85,000,000 12,750,006 19,500,010 229,825,122 19,777,918 273,130 172,858 31,525,018 15,000,006 1,500,000 1,245,298 400,000,000 3,466,160 861,540 964,372 243,578 105 104 104 Maturity Date Feb 01, 2011 Jul 01, 2006 Jan 01, 2004 Jan 01, 2004 Jan 01, 2004 Oct 10, 2006 Jun 15, 2009 Nov 21, 2006 Nov 21, 2016 Nov 21, 2026 Feb 01, 2027 Feb 01, 2037 Feb 01, 2097 July 15, 2008 Apr 01, 2009 Aug 01, 2006 Apr 01, 2006 Oct 01, 2001 Nov 01, 2010 May 01, 2003 June 13, 2007 Feb 14, 2007 Jun 03, 2006 Nov 21, 2005 Feb 22, 2003 Jun 01, 2006 Oct 09, 2004 Oct 09, 2006 Oct 09, 2009 Oct 09, 2009 Nov 09, 2009 Oct 12, 2010 Feb 08, 2002 July 09, 2006 Aug 01, 2022 Oct 10, 2010 July 24, 2003 Oct 18, 2018 Oct 19, 2018 Oct 20, 2018 Jan 01, 2018 Par Value 2001 ThCh$ 5,827 577,643 - - - 273,062 7,338,014 1,124,617 1,004,024 537,860 4,559,675 4,528,542 947,084 9,582,578 5,732,686 2,557,305 1,820,971 2002 ThCh$ 5,946 595,057 178,340 49,009 43,787 289,297 7,707,332 1,198,281 1,069,787 573,091 4,858,340 4,825,168 1,009,124 10,210,249 6,108,185 2,556,325 1,940,247 - - 2,332,264 2,448,643 1,394,954 123,650,025 139,657 648,384 91,499 123,910 280,254 1,721,866 119,042 186,358 148,805 690,620 97,493 135,327 7,450,131 - 74,909 118,162 2,247,058 1,435,070 136,358 336,523 228,550 9,461,897 108,833 639,327 - 43,693 220,970 70,046 10,162,475 1,426,838 639,081 80,679 2,061,700 303,740,866 - - - - 1,632,119 408,030 486,834 122,963 62,848,322 498,501,344 ENERSIS 2002 ANNUA L REPORT b. Details of the long-term portion of bonds payable is as follows at each year-end: Series Uno I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. Uno Dos Tres B1 B2 Uno Dos Tres Uno Unica E-1 y E-2 C2; D1 Y D2 F Unica Uno Dos Tres Cuatro Cinco A Cinco B A-1 B-1 B-5 B-7 B-10 C-10 B-10 2° emision A-1 A-2 B-1 B-2 Unica Unica Face Value Outstanding ThCh$ Currency 825,918 15,104,316 18,949,365 6,134,974 4,089,983 3,859,972 300,000,000 350,000,000 150,000,000 2,928,543 2,500,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 6,000,000 1,439,153 1,500,000 170,000,000 30,000,000 30,000,000 30,000,000 20,000,000 10,000,000 30,000,000 15,000,006 85,000,000 12,750,006 19,500,010 229,825,122 19,777,918 60,000,031 3,446,160 861,540 964,372 243,578 400,000,000 150,000,000 Soles Soles Soles Soles Soles Soles US$ US$ US$ U.F. U.F. US$ US$ US$ US$ US$ U.F. U.F. U.F. US$ US$ US$ US$ US$ Soles Soles $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. U.F. U.F. U.F. U.F. Euro US$ Interest Rate % 9.61% VAC + 7,5 % VAC + 6,9 % 6.5% 6.34% VAC + 7.5% 0.069 0.0745 0.0663 0.055 0.0575 0.0788 0.0733 0.0813 0.0775 0.085 0.062 0.068 0.062 0.073 0.0875 0.0841 0.0875 0.0844 0.1154 0.06 0.1343 0.1575 0.1495 0.1527 0.156 0.1025 0.1578 0.058 0.058 0.058 0.058 0.0334 0.072 Instrument Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds - Enersis Bono N° 269 Bono N° 269 Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Pehuenche Bonos Edegel Bonos Edegel Bonos Edegel Bonos Edegel Bonos Edegel Bonos Edegel Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Autopista del Sol S.A Bonos Autopista del Sol S.A Bonos Autopista del Sol S.A Bonos Autopista del Sol S.A Eurobono Bonos Endesa Internacional Total Par Value Maturity Date 2001 ThCh$ 2002 ThCh$ 01.02.11 01.07.06 10.10.06 01.01.04 01.01.04 01.03.07 21.11.06 21.11.16 21.11.26 15.06.09 15.06.22 01.02.27 01.02.37 01.02.97 15.07.08 01.04.09 01.08.06 01.11.10 01.08.22 01.05.03 13.08.07 14.02.07 13.06.06 21.11.05 22.08.03 22.02.04 09.07.06 01.07.06 09.10.04 09.10.06 09.10.09 09.10.09 08.11.09 15.01.18 15.01.18 15.01.18 15.01.18 24.07.03 01.04.06 957,975 1,000,390 15,557,445 16,482,681 19,517,846 20,677,950 - - - 6,134,974 4,089,983 3,859,972 202,330,110 215,583,000 168,429,026 179,461,350 101,165,055 107,791,500 56,523,126 49,035,877 41,876,350 41,860,300 138,853,085 147,948,145 148,375,414 158,094,200 27,257,913 29,043,342 269,773,480 287,444,000 269,773,480 287,444,000 100,503,239 100,464,720 22,043,038 19,831,566 25,125,810 25,116,180 114,653,729 - 20,233,011 21,558,300 20,233,011 21,558,300 20,233,011 21,558,300 13,488,674 14,372,200 6,854,001 - 4,415,413 - 6,134,974 3,762,632 25,020,672 21,321,580 3,753,101 5,740,037 3,198,237 4,891,422 67,651,483 57,649,691 5,821,842 5,279,069 17,661,651 15,050,527 - - - - 57,702,917 14,425,729 16,147,555 4,078,505 236,481,576 - 101,165,055 107,791,500 2,271,468,659 2,097,845,568 ENERSIS 20 02 ANNUAL REPORT 107 106 106 c. Bonds payable are comprised of the following: i. Enersis S.A. Series B1-B2 On September 11, 2001, Enersis S.A. registered two series of bearer bonds as of June 14, 2001, as follows: Series B1 B1 B2 B2 Total amount In UF 1,000,000 3,000,000 1,000,000 1,500,000 N°of bonds per series 1,000 300 1,000 150 Face value In UF 1,000 10,000 1,000 10,000 The scheduled maturity of the Series B-1 bonds is 8 years, interest and principal payable semi-annually. Annual interest is 5.50%, compounded semi-annually. The scheduled maturity of the Series B-2 bonds is 21 years, principal payments beginning after 5 years, interest and principal payable semi-annually. Annual interest is 5.75%, compounded semi-annually. ii. Enersis S.A. (Yankee Bonds) On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes (Yankee Bonds) for US$800 million in three series, as follows: Series 1 2 3 Total amount In US$ 300,000,000 350,000,000 150,000,000 Years to maturity Stated annual interest rate 10 20 30 6.90% 7.40% 6.60% Interest is payable on a semi-annual basis and principal is due upon maturity. The Series 3 bond holders have an option to require the Company to redeem all or any US$1,000 portion thereof on December 31, 2003 at a redemption price equal to face value. Repurchase of Yankee Bonds During November 2001, the Company made a tender offer to repurchase all or a portion of the Series 2 Yankee Bonds. The offer expired November 21, 2001 and the Company repurchased a total of US$100,266,000 in bonds with accrued interest, at a price of US$95,536,000, resulting in a gain of US$8,201,000 (ThCh$5,531,051), which is included in other non-operating income (see Note 23a). ENERSIS 2002 ANNUA L REPORT 107 106 106 iii. Edelnor Bonds (Subsidiary of Distrilima S.A.) First issue Date of Issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment Principal amortization Second issue Date of Issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment Anticipated redemption option Third issue Date of Issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment First program of Corporate Bonds First issue Date of Issue Face value Redemption term Interest rate Interest payment Second issue Date of Issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : March 1, 1996 49,919 100 soles each 15 years 9.6136% annual Annually, on coupon maturity Amortization of total principal upon maturity November 10, 1998 146,300 1,000 soles each 4 years 14.396% Accrued and paid within 90 days Early redemption option August 7, 1998 15,000 US$1,000 each 3 years 7.7% Accrued and paid within 90 days October 29, 2001 30,000 new soles each 2 years 7.5% Semi – annual October 19, 2001 20,000 5,000 new soles each 5 years 6.9% Semi – annual ENERSIS 20 02 ANNUAL REPORT 109 108 108 Third issue: Date of issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment Fourth issue: Date of issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment v. Endesa Chile S.A. : : : : : : : : : : : : January 24, 2002 6,000 5,000 (new soles each) 2 years 6.5 % annual Semi – annual April 24, 2002 4,000 5,000 (new soles each) 2 years 6.34 % annual Semi – annual I The Company made four public offerings of bonds in the local market on the following dates: • On September 12, 1988, the Company registered in the Securities Register of the Chilean Superintendency of Securities and Insurance, under N°105, the first issuance of bonds for UF5,000,000, which was fully placed prior to the end of December 31, 1988. This issue was totally cancelled on September 1, 2000. • On August 24, 1989, the second issuance of bonds was registered under N°111, for UF6,000,000, and was fully placed as of December 31, 1990. This issue was totally cancelled on October 1, 2001. • On December 7, 1990, the third bond issuance was registered under N°131 for UF4,000,000. Of this issuance, UF2,030,000 has been placed as of December 31, 1997. The balance of UF1,970,000 has been cancelled due to the expiration of the placement period. • On August 9, 2001, the fourth bond issuance was registered under N°264 for UF7,500,000, and was fully placed as of December 31, 2001. Risk rating of the issued bonds is as follows as of the date of these financial statements: - Comisión Clasificadora de Riesgo - Fitch IBCA Chile Clasificadora de Riesgo Ltda. - Clasificadora de Riesgo Humphreys Ltda. Category AA AA AA ENERSIS 2002 ANNUA L REPORT 109 108 108 ISSUANCE TERMS Third Issuance Issuer Securities issued Issuance Value Indexation Amortization period Capital amortization Early Redemption Nominal interest rate Interest Payments Guarantee Placement period Fourth Issuance Issuer Securities issued Issuance Value (1) Readjustment Amortization period Early redemption Nominal interest rate : : : : : : : : : : : : : : : : : : Empresa Nacional de Electricidad S.A. Bearer bonds in local currency, denominated in Unidades de Fomento Four million Unidades de Fomento (UF4,000,000) divided into: - Series C-1: 120 bonds at UF10,000 each - Series C-2: 800 bonds at UF1,000 each - Series D-1: 120 bonds at UF10,000 each - Series D-2: 800 bonds at UF1,000 each Based on variations in Unidad de Fomento index Series C-1 and C-2: 15 years (5-year grace period and 10 years to amortize capital). Series D-1 and D-2: 20 years (5-year grace period and 15 years to amortize capital). Series C-1 and C-2: 20 consecutive installments payable semi-annually, starting April 1, 1996. Series D-1 and D-2: 30 consecutive installments payable semi-annually, starting May 1, 1996. Amortization installments are incremental As elected by the issuer, starting May 1, 1996 and only on the interest payment and amortization dates. 6.8% annually upon expiration, compound and actual rate per semester on outstanding capital, readjusted by the value of the Unidad de Fomento. The applicable semi-annual interest rate will be equal to 3.34409%. Interest will be paid semi-annually each May 1 and November 1, starting May 1, 1991. Accrued interest at the end of the period amounts to ThCh$245,619 (ThCh$268,716 in 2001), and is shown under current liabilities. There is no specific guarantee, however, a general guarantee covers all the issuer’s assets. 48 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance. Empresa Nacional de Electricidad S.A. Bearer bonds in local currency, denominated in Unidades de Fomento Up to seven and a half million (UF7,500,000) divided into: - Series E-1: 1,500 bonds at UF1,000 each. - Series E-2: 600 bonds at UF10,000 each. - Series F: 200 bonds at UF10,000 each. Variation in the UF Series E-1 and E-2: August 1, 2006. Series F: August 1, 2022. Only in the Series F case, beginning February 1, 2012. 6.2% annually, compounded semi-annually and effective on the outstanding capital adjusted for the value of the Unidad de fomento. The semi-annual interest rate will be 3.0534%. ENERSIS 20 02 ANNUAL REPORT 111 110 110 Interest payments Guarantee Placement period : : : Accrued interest as of December 31, 2002 amounts to ThCh$3,195,406 (ThCh%3,196,631 in 2001) which is shown under current liabilities. There is no specific guarantee; however, a general guarantee covers all the issuer’s assets 36 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance (1) Through a currency swap, the UF debt was changed to US dollars, leaving a net position of ThCh$2,192,610 as of December 31, 2002 and which is included in other assets. II The Company has issued and placed three public offerings of bonds in the international market as follows: First Issuance Issuer Securities issued Issuance Value Readjustment Amortization period Nominal interest rate Interest Payments Second Issuance Issuer Securities issued Issuance Value Readjustment Capital amortization Nominal interest rate Interest Payments : : : : : : : : : : : : : : Empresa Nacional de Electricidad S.A. Marketable securities denominated in US$(Yankee bonds) in the US market. Six hundred and fifty million US Dollars (US$650,000,000) divided into: - Series 1: US$230,000,000 - Series 2: US$220,000,000 - Series 3: US$200,000,000 Variation in the US Dollar Series 1 matures on February 1, 2027: Series 2 matures on February 1, 2037 (Put Option on February 1, period 2009, on which date the holders may redeem 100% of bonds plus accrued interest). Series 3 matures on February 1, 2097. Series 1: 7.875% annually Series 2: 7.325% annually Series 3: 8.125% annually Interest will be paid semi-annually each February 1 and August 1 annually, starting January 27, 1997. Accrued interest as of the year end amounts to ThCh$15,114,018 (ThCh$14,184,888 in 2001), which is shown under current liabilities. Empresa Nacional de Electricidad S.A. Marketable securities denominated in US$(Yankee bonds) in the US market. Four hundred million US Dollars (US$400,000,000) : Variation in the US Dollar Series 1 matures on July 15, 2008 period Series 1: 7.75% annually Interest will be paid semi-annually each January 15 and July 15 annually, starting January 15, 1999. Accrued interest as of the year end amounts to ThCh$10,210,249 (ThCh$9,582,578 in 2001), which is shown under current liabilities. ENERSIS 2002 ANNUA L REPORT 111 110 110 Third Issuance Issuer Securities issued Issuance Value Readjustment Capital amortization Nominal interest rate Interest Payments : : : : : : : Empresa Nacional de Electricidad S.A. Marketable securities denominated in US$(Yankee bonds) in the US market. Four hundred million US Dollars (US$400,000,000) : Variation in the US Dollar Series 1 matures on April 1, 2009. Series 1: 8.502% annually Interest will be paid semi-annually each October 1 and April 1 annually, starting October 1, 1999. Accrued interest as of the year end amounts to ThCh$6,108,185 and ThCh$5,732,686 in 2002 and 2001, respectively, which is shown under current liabilities. The risk rating of these bonds is as follows as of the date of these financial statements: - Standard & Poor’s - Moodys Investors Services - Fitch Repurchase of Yankee Bonds Category BBB Baa3 BBB+ Endesa Chile Internacional, a 100% subsidiary of Endesa, made a tender offer in November 2001, for the total or partial purchase, in cash, of the following bond issue in US dollar (Yankee Bonds) made by its parent company, Endesa. • Series 1: ThCh$230,000 at 30 years, maturing in 2027. • Series 3: ThCh$200,000 at 100 years, maturing in 2097. As a result of the offer which expired on November 21, 2001, series 1 and series 2 bonds, for ThUS$21,324 and ThUS$134,828, respectively, were purchased, whose nominal values amounted to ThUS$24,119 and ThUS$159,584 for each series, resulting in a non-operating gain of ThUS$27,551 (ThCh$18,581,792), which is included in other non-operating income. (See Note 23 a) vi. Subsidiaries of Endesa S.A. I Endesa Chile Internacional issued Yankee Bonds on April 1, 1996. Risk rating of the bond issuance is as follows as of December 31, 2002: - Standard & Poor’s - Moodys Investors Services Category BBB Baa3 ENERSIS 20 02 ANNUAL REPORT 113 112 112 ISSUANCE TERMS First Issuance Issuer Securities issued Issuance Value Capital amortization Nominal interest rate Interest Payments Guarantee : : : : : : : Endesa Chile Internacional. Marketable securities denominated in US$(150,000 bonds). One hundred and fifty million Dollars (US$150,000,000): Maturity as of April 1, 2006 7.2 % annually in arrears. Interest will be paid semi-annually in arrears starting October 1, 1996. Accrued interest as of the year end amounts to ThCh$1,940,247 (ThCh$1,820,971 in 2001) and is shown under current liabilities. Guarantee from Empresa Nacional de Electricidad S.A. As of July 24, 2000, the first issue of Eurobonds (European Medium Term Note Programme) was registered in England for 1,000 million Euros. ISSUANCE TERMS First Registration Securities registered Issuance value Capital amortización Nominal interest rate Interest payments Guarantee : : : : : : 1,000 million Euros Euros 400,000,000 (*) Principal due July 24, 2003 Euribor + 0.80 Quarterly beginning October 24, 2000 in arrears. Accrued interest as of the year end amounts to ThCh$2,310,497 (ThCh$2,061,701 in 2001) and is shown in current liabilities. Empresa Nacional de Electricidad S.A. (*) By way of a swap operation, the debt in Euro was changed to US dollars. II Empresa Eléctrica Pehuenche S.A. issued bonds on May 2, 1996. First Issuance Issuer Securities issued Issuance Value Capital amortization Nominal interest rate Interest payments : : : : : : Empresa Eléctrica Pehuenche S.A. Marketable securities denominated in US$. One hundred and seventy million US Dollars (US$170,000,000) Maturity as of May 1, 2003 7.3 % annually Interest will be paid semi-annually in arrears, starting November 1, 1996. Accrued interest as of the year end amounts to ThCh$1,486,325 (ThCh$1,394,954 in 2001) and is shown in Current Liabilities. ENERSIS 2002 ANNUA L REPORT 113 112 112 III Edegel S.A. issued bonds on June 4, 1999, February 15, 2000, June 14, 2000 and November 27, 2000 and August 22, 2001 as per the following: First Issuance Issuer Securities issued Issuance value Capital amortization Nominal interest rate Interest payments : : : : : : Edegel S.A. Marketable securities denominated in US$(120,000 bonds). US$120,000,000 June 3, 2006, February 14, 2007, June 13, 2007, November 26, 2005 and August 22, 2003, respectively. 8.75%, 8.41%, 8.75%, 8.4375% and 11.50% annually Interest will be paid semi-annually, starting December 3, 1999. Accrued interest as of the year-end amounts to ThCh$1,367,515 (ThCh$1,283,703 in 2001) and is shown in other current liabilities. IV Emgesa S.A. issued bonds on October 8, 1999 and July 9, 2001 as per the following: First Issuance Issuer Securities issued Issuance Value Capital amortization Interest nominal rate Interest payment : : : : : : Emgesa S.A. Marketable securities denominated in Colombian pesos $Col 530,000,000 Maturities as of 2002, 2004, 2006, 2007, 2009 and 2010 for $Col 1,525,000; $Col 15,000,000; $Col 85,000,000; $Col 81,407,744; $Col 19,500,000; $Col 297,567,256 and $Col 30,000,000 respectively 15.5% annual average rate Interest will be paid semi-annually. Accrued interest as of the year end amounts to ThCh$5,385,981 (ThCh$5,715,660 in 2001) and is shown under current liabilities. V Sociedad Concesionaria Autopista del Sol S.A. issued bonds on March 8, 2002. First Issuance Issuer Securities issued Issuance Value Indexation Amortization period Capital amortization Interest nominal rate Interest payment : : : : : : : : Sociedad Concesionaria Autopista del Sol S.A. Bearer bonds in local currency, denominated in Unidades de Fomento U.F. 5,540,000 divided into: - Series A – 1 U.F.3,460,000 - Series A – 2 U.F.865,000 - Series B – 1 U.F.970,000 - Series B – 1 U.F.245,000 Variation in the U.F. 16 years Semi - annually and consecutive 5.8% annually in arrears, compounded semi - annually on outstanding capital, readjusted for the value of the Unidad de Fomento. The applicable semi-annually rate will be equal to 2.8591% Interest will be paid semi-annually each January 15 and July 15 starting January 15, 2003. Accrued interest at the year end amounts to ThCh$2,427,752 and is show in current liabilities. ENERSIS 20 02 ANNUAL REPORT 115 114 114  Bond discounts of Enersis S.A. and its affiliates of ThCh$23,317,438 and ThCh$20,817,166 as of December 31, 2001 and 2002, respectively are included in Other Assets (see Note 14). 20. ACCRUED EXPENSES a. Short-term accruals: Accrued expenses included in current liabilities as of each year-end are as follows: Profit sharing and other employee benefits Litigation and contingencies Construction and other Energy purchases and other Income tax installments and other taxes Pension accruals Suppliers and services Others accruals Total As of December 31, 2001 ThCh$ 29,586,443 21,817,851 7,757,541 10,004,985 192,034 1,282,688 2,891,319 6,387,468 2002 ThCh$ 26,911,641 21,256,038 7,173,039 14,461,761 198,643 1,793,090 6,294,182 6,841,927 79,920,329 84,930,321 During the 2002 period, bad debts write-offs for an amount of ThCh$1,297,010 (ThCh$6,340,092 in 2001) were made. b. Long-term accruals: Provision for contingencies and lawsuits Advance monthly corporate and other taxes Post-retirement benefits-Chilean subsidiaries Severance indemnity Labour contingencies (Cerj) Post-retirement benefits (Cerj Coelce) Supplementary pension-foreign subsidiaries Others Total As of December 31, 2001 ThCh$ 143,903 10,659,029 8,686,281 7,091,909 83,342,951 80,089,342 44,375,523 - 2002 ThCh$ 1,131,005 7,000,596 10,352,416 8,589,109 87,993,076 38,637,287 71,228,212 1,990,916 234,388,938 226,922,617 ENERSIS 2002 ANNUA L REPORT 115 114 114 Long-term accruals include employee severance indemnities, calculated in accordance with the policy described in Note 2n. An analysis of the changes in the accruals in each year is as follows: Opening balance as of January 1 Increase in accrual Transfer to short-term Payments during the year As of December 31, 2001 ThCh$ 6,396,342 2,352,065 (276,711) (1,379,787) 2002 ThCh$ 7,377,430 2,072,912 82,969 (944,202) Total 7,091,909 8,589,109 21. MINORITY INTEREST a. Minority shareholders’ participation in the shareholders’ equity of the Company’s subsidiaries as of each year-end is as follows: As of December 31, 2001 As of December 31, 2002 Company Autopista Los Libertadores S.A. Cam Argentina S.A. (Ex - M.Velasco Arg.) Cam Colombia S.A. Capital de Energía S.A. Central Hidroeléctrica Betania S.A. Central Cachoeira Dourada Central Costanera S.A. Cía. do Electricidade do Río do Janeiro Chilectra S.A. Cía. Eléctrica San Isidro S.A. Cía. Peruana de Electricidad S.A. Codensa S.A. Companhia Energetica Do Ceara - Coelce Compañía Eléctrica del Río Maipo S.A. Constructora y Proyectos Los Maitenes S.A. Edegel S.A. Edelnor S.A. Edesur S.A. Emgesa S.A. Empresa Eléctrica Pangue S.A. Endesa Endesa Argentina S.A. Generandes Perú S.A. Hidroeléctrica El Chocón S.A. Hidroinvest S.A. Inecsa 2000 S.A. Infraestructura 2000 S.A. Ingendesa S.A. Inmobiliaria Centro Nuevo Ltda. Inmobiliaria y Constructora Stgo. 2000 Ltda. Inversiones Distrilima S.A. Investluz S.A. Luz de Bogotá S.A. Empresa Eléctrica Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. Equity ThCh$ 25,296,795 687,066 1,081,791 534,797,609 494,429,051 499,191,115 137,706,613 489,488,446 498,295,654 30,362,233 39,939,117 1,112,677,346 658,685,746 22,260,807 936,792 661,672,216 272,154,844 677,251,928 919,463,877 59,573,673 1,446,549,434 30,646,605 351,973,200 237,400,257 111,674,081 25,510,699 63,589,515 2,480,040 (12,043) 74,764 159,715,296 532,119,077 643,243,838 177,950,062 6,066,690 52,532,429 (1,313,139) Participation % Total ThCh$ 0.05% 0.10% 0.001% 49.10% 14.38% 0.49% 48.07% 41.25% 1.76% 50.00% 49.00% 51.52% 43.41% 1.26% 45.00% 36.44% 40.00% 34.11% 51.52% 7.52% 40.02% 0.01% 40.37% 34.81% 30.07% 2.68% 40.00% 2.36% 0.08% 7.50% 32.75% 37.55% 55.00% 6.34% 42.50% 45.00% 0.05% 12,648 687 14 262,585,626 71,088,020 2,452,676 66,192,075 201,912,651 8,770,774 15,181,116 19,565,417 573,222,783 285,937,346 279,942 421,556 241,138,499 108,861,938 230,997,210 473,679,287 4,479,940 578,895,713 3,064 142,088,131 82,639,029 33,580,396 683,687 25,435,806 58,591 (9) 5,607 52,306,760 199,810,714 353,784,118 11,282,034 2,578,343 23,639,595 (656) Equity ThCh$ 25,213,021 545,460 1,864,792 566,223,719 519,458,738 486,715,435 171,461,783 579,561,108 421,691,742 34,217,794 43,202,088 1,009,464,988 694,587,778 22,623,680 349,958 680,564,639 292,048,556 729,817,969 963,653,136 74,436,633 1,430,635,320 21,798,627 369,454,446 227,177,787 92,470,425 25,412,375 64,002,478 2,266,772 (13,327) 80,994 172,793,816 357,552,300 600,529,806 182,901,476 6,936,375 52,902,360 (4,230,882) Participation % 0.05% 0.10% 0.001% 49.10% 14.38% 0.41% 48.07% 37.42% 1.76% 50.00% 49.00% 51.52% 43.41% 1.26% 45.00% 36.44% 40.00% 34.11% 51.52% 5.01% 40.02% 0.01% 40.37% 34.81% 30.07% 2.68% 40.00% 2.36% 0.08% 7.50% 31.61% 37.55% 55.00% 7.35% 42.50% 45.00% 0.05% Total ThCh$ 12,607 545 25 278,015,846 74,686,738 1,982,200 82,417,327 216,887,924 7,366,481 17,108,897 21,169,023 520,777,588 301,522,520 284,505 157,481 248,023,616 116,819,422 248,926,444 496,444,223 3,729,275 572,527,032 2,180 149,145,139 79,080,588 27,805,857 681,052 25,600,991 53,552 (10) 6,075 54,620,126 134,260,889 330,291,399 13,443,258 2,947,959 23,806,062 (2,115) Total 4,073,571,128 4,050,602,721 ENERSIS 20 02 ANNUAL REPORT 117 116 116  b. Minority shareholders’ participation in the net income of the Company’s subsidiaries as of each year-end is as follows: Year-ended December 31, 2001 Year-ended December 31, 2002 Net income ThCh$ Participation % Total ThCh$ Net income ThCh$ Participation % Total ThCh$ Company Autopista Los Libertadores S.A. Cam Argentina S.A. (Ex - M.Velasco Arg.) Cam Colombia S.A. Capital de Energía S.A. Central Hidroeléctrica Betania S.A. Central Cachoeira Dourada Central Costanera S.A. Inm. Centro Nuevo Cía. do Electricidade do Río do Janeiro Chilectra S.A. Cía. Eléctrica San Isidro S.A. Cía. Peruana de Electricidad S.A. Codensa S.A. Companhia Energetica Do Ceara - Coelce Compañía Eléctrica del Río Maipo S.A. Constructora y Proyectos Los Maitenes S.A. Edegel S.A. Edelnor S.A. Edesur S.A. Emgesa S.A. Empresa Eléctrica Pangue S.A. Endesa S.A. Endesa Argentina S.A. Generandes Perú S.A. Hidroeléctrica El Chocón S.A. Hidroinvest S.A. Inecsa 2000 S.A. Infraestructura 2000 S.A. Ingendesa S.A. Inmobiliaria Centro Nuevo Ltda. Inmobiliaria y Constructora Stgo. 2000 Ltda. Inversiones Distrilima S.A. Investluz S.A. Luz de Bogotá S.A. Empresa Eléctrica Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. (45,093) 1,428,756 (414,777) (8,602,334) 8,666,017 (25,841,820) 11,567,900 - 3,400,351 (73,185,248) 101,281 (3,074,599) (22,798,893) (13,440,399) (9,261,986) 494,907 (28,636,179) (18,672,139) (83,679,490) (18,796,538) (6,568,538) (72,160,018) 10,823,292 (27,929,472) (8,929,943) (2,636,004) (32,301) (996,272) (873,679) (1,449) (2,763) (12,342,281) 11,720,860 (11,524,049) (4,963,596) 165,481 (3,031,153) 1,932,383 0.05% 0.10% 0.001% 49.10% 14.38% 0.49% 48.07% - 41.25% 1.76% 50.00% 49.00% 51.52% 43.41% 1.26% 45.00% 36.44% 40.00% 34.11% 51.52% 7.52% 40.02% 0.01% 40.37% 34.81% 30.07% 2.68% 40.00% 2.36% 0.08% 7.50% 32.75% 37.55% 55.00% 6.34% 42.50% 45.00% 0.05% (23) 1,429 (5) (4,223,747) 1,245,983 (126,969) 5,560,396 - 1,402,635 (1,382,051) 50,641 (1,506,554) (11,745,404) (5,834,514) (133,933) 222,708 (10,436,112) (7,468,855) (28,541,415) (9,683,394) (493,954) (28,877,772) 1,083 (11,274,854) (3,108,513) (792,647) (865) (398,509) (20,640) - (207) (4,042,097) 4,401,183 (6,338,227) (314,692) 70,329 (1,364,019) 966 83,773 186,609 (712,142) (23,671,013) 7,354,973 35,501,840 (24,735,275) 1,285 9,012,430 31,001,664 (5,250,225) (3,258,139) 6,655,951 (20,351,782) (11,727,292) 586,836 (4,554,496) (19,759,294) (8,205,141) (56,168,714) (18,850,842) 9,319,056 10,781,159 (13,105,328) 25,772,502 26,502,276 98,323 (412,963) (923,250) - (6,231) (13,071,302) 198,253,211 4,512,003 (20,012,133) (104,616) (98,333) 2,917,743 0.05% 0.10% 0.001% 49.10% 14.38% 0.41% 48.07% 0.08% 37.42% 1.76% 50.00% 49.00% 51.52% 43.41% 1.26% 45.00% 36.44% 40.00% 34.11% 51.52% 5.01% 40.02% 0.01% 40.37% 34.81% 30.07% 2.68% 40.00% 2.36% - 7.50% 31.61% 37.55% 55.00% 7.35% 42.50% 45.00% 0.05% 42 187 (9) (11,622,467) 1,057,483 144,585 (11,889,619) 1 3,372,704 541,744 (2,625,113) (1,596,488) 3,429,146 (8,834,766) (147,477) 264,076 (1,659,831) (7,903,718) (2,798,611) (28,936,380) (944,427) 3,729,400 1,078 (5,290,492) 8,971,408 7,969,234 2,635 (165,185) (21,812) - (468) (4,131,839) 74,444,081 2,481,602 (1,470,892) (44,462) (44,250) 1,459 16,282,559 Total (125,152,619) ENERSIS 2002 ANNUA L REPORT 117 116 116  22. SHAREHOLDERS’ EQUITY a. Dividends There are no restrictions on the payment of dividends. The following dividends were paid as of each year-end: Dividend Number 71 Payment date April 2001 Historical value Ch$ per share 1.806391 Type of dividend Final Related to 2000 b. Number of shares Series First As of December 31, 2002 Number of shares Subscribed Paid With vote 8,291,020,100 8,291,020,100 8,291,020,100 c. Subscribed and paid capital is as follows as of the year-end: Series First As of December 31, 2002 Capital subscribed ThCh $ 751,208,197 Capital paid ThCh$ 751,208,197 d. Other reserves Other reserves are composed of the following as of December 31, 2002: Accumulated net losses of development-stage subsidiaries Reserve for equity fluctuations Reserve for accumulated conversion differences Total ThCh$ (4,937,110) 1,177,508 45,702,079 41,942,477 Detail of changes in the reserve for accumulated conversion differences are as follows for the year ended December 31, 2002: Cumulative translation adjustment 25,105,169 Initial Balance ThCh$ Reserve for Assets ThCh$ 96,536,552 Reserve for Liabilities ThCh$ (75,939,638) Final Balance ThCh$ 45,702,079 ENERSIS 20 02 ANNUAL REPORT 119 118 118  The detail of the accumulated conversion difference reserve at December 31, 2002 is as follows: Enersis Energía de Colombia S.A. Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Cía. de Electricidade do Río de Janeiro Luz de Bogotá S.A. Investluz S.A. Endesa Market Place S.A. Central Geradora Termoelétrica Fortaleza S.A. Total ThCh$ 19,753 2,494,214 3,034,207 5,027,002 13,222,829 10,996,981 2,370,986 7,012,529 280,302 1,243,276 45,702,079 e. Net losses from operations and accumulated net income (losses) of development-stage subsidiaries are as follows: Company Compañía Eléctrica Taltal Ltda. Central Geradora Termoelectrica Fortaleza S.A. Aguas Santiago Poniente S.A. Infraestructura 2000 S.A. Gas Atacama Generación Ingendesa (Ingendesa do Brasil) Enigesa (Ingendesa do Brasil) Cía. Eléctrica Conosur S.A. (CIEN) As of December 31, 2002 Net income (losses) Of the period ThCh$ - (939,553) (111,586) - - 1,451 19 Accumulated ThCh$ 146,371 (1,302,505) (111,586) 347,252 811,149 (46,306) (642) (4,780,843) (4,780,843) Total (5,830,512) (4,937,110) ENERSIS 2002 ANNUA L REPORT 119 118 118 23. OTHER INCOME AND EXPENSES a. The detail of other non-operating income in each year is as follows: Adjustments to investments in related companies Gain on sale of property, plant and equipment Gain on forward contracts and swaps Services - proyects and inspections Penalties charged to contractors and suppliers CDEC-SING power settlement gain Public lighting and telephone lines Gain on sale of investments Cost recoveries Recoverable taxes Effect of application of BT 64 Comahue fourth line income Gain on repurchase of bonds Dividend from investees Other Total b. Other non-operating expenses in each year are as follows: Adjustments to investments in related companies Cost of sales – materials Cost of projects, inspections and other Effect of application of BT 64 (2) Contingencies and litigation Deferred expense amortization SIC power settlement loss Loss on forward contracts Pension plan expense Penalties and fines Sales tax adjustment (Brazil) Argentinean Government bond-market value adjustment Provision for real estate projects Provision for write off-work in progress Other Total Year ended December 31, 2001 ThCh$ 3,253,049 12,845,817 17,822,984 9,251,066 15,141,355 6,487,257 13,963,267 3,163,324 6,349,126 8,116,807 62,673,747 411,352 24,112,843 5,425,032 5,676,555 2002 ThCh$ 512,200 6,131,310 4,815,297 14,382,141 10,129,602 11,153,158 13,525,674 - 5,112,788 6,387,623 210,813,735 337,450 - 10,732,246 14,110,663 194,693,581 308,143,887 Year ended December 31, 2001 ThCh$ 2,181,904 14,806,557 8,290,316 39,426,469 35,163,985 1,224,252 9,450,051 23,575,152 22,407,456 15,663,147 - - - - 11,739,955 2002 ThCh$ 4,166,463 11,254,237 5,255,189 30,767,763 48,293,521 9,133,401 16,978,444 - 5,745,126 13,018,169 6,731,332 5,103,764 16,600,195 46,311,933 21,837,067 183,929,244 241,196,604 ENERSIS 20 02 ANNUAL REPORT 121 120 120  24. PRICE-LEVEL RESTATEMENT The (charge) credit to income for price-level restatement as of each year-end is as follows: Assets Inventory Current assets Accounts receivable from subsidiaries Property, plant and equipment Investment in subsidiaries Amortization of goodwill Other assets Credit for cost and expense accounts As of December 31, 2001 ThCh$ 2002 ThCh$ 679,797 86,825 4,575,344 69,607,844 30,582,762 27,626,882 25,101,509 8,601,641 1,081,801 6,108,070 5,032,682 71,181,494 35,860,652 25,787,859 2,282,536 18,269,156 Net credit - assets 166,862,604 165,604,250 Liabilities and Shareholders’ equity Shareholders’ equity Current and long-term liabilities Minority interest Accounts payable to subsidiaries Non-monetary liabilities Charge to income accounts (34,756,513) (95,013,142) 6,517,278 (30,547,186) (679,233) (10,208,733) (35,375,590) (86,890,351) 5,418,099 (24,050,002) (51,951) (19,689,565) Net charge-liabilities and shareholders’ equity accounts (164,687,529) (160,639,360) Net credits to income 2,175,075 4,964,890 ENERSIS 2002 ANNUA L REPORT 121 120 120 25. EXCHANGE DIFFERENCES The (charge) credit to income for foreign currency translation as of each year-end is as follows: Assets Liabilities Current assets Currency Cash Time deposits Marketable securities Accounts receivable, net Other accounts receivable, net Inventory Prepaid expenses Other current assets Non-current assets Long-term receivables Amounts due from related companies Deferred expenses Other assets Forward contracts and swaps US$ Other US$ Other US$ Other US$ Other US$ Other Other US$ Other US$ Other US$ Other US$ US$ US$ US$ As of December 31, 2001 ThCh$ 2002 ThCh$ 1,495,922 2,671,496 (56,291) 202,284 (77,389) (13,698) 264,124 (31,054) Current liabilities Currency Short-term debt due to banks and financial institutions 11,797,767 6,855,639 Current portion of long-term debt due to banks and financial institutions (1,886) 104,099 (48,663) - 489,200 - 1,124,688 218,125 Current portion of bonds payable 52,495 (11,824) 168,986 (2,365) 11,521,079 (264,455) 42,536 Current portion of notes payable - Dividends payable 29,442 - (136,043) (140,837) Accounts payable Notes payable Miscellaneous payables Other current liabilities Accrued expenses Deferred income Long-term liabilities 1,054,144 277,166 599,944 202,009 17,033,254 11,082,499 246,859 228,059 Due to banks and financial institutions 28,336,082 6,541,035 Bonds payable 36,011,211 16,037,562 Notes payable Accounts payable Other long-term liabilities As of December 31, 2001 ThCh$ 2002 ThCh$ (6,823,954) (2,633,314) (1,890) - (2,346,817) 3,552,078 26,250 (63,570) - (71,707) (242,103) (26,128) (3,831,594) (2,102,419) (1,426,092) (856,727) 19,127 101 284,714 193,407 (307,780) (81,896) (430,288) 195,405 (921,658) (11,922) 37,716 (29,947) (56,780) - 1,840 472,907 (861,657) - - (649,158) - 83,986 - (103) - (362,291) (42,070,677) (22,646,874) 22,840 - (246,923) (180,770) (60,487) (368,719) (52,035,450) (24,995,100) (6,734,909) (2,814,391) (995,614) 358,233 (21,897,139) (6,647,384) US$ Other US$ Yen Other Euro US$ US$ Other Other US$ Other US$ Other US$ Other US$ Other US$ Other US$ US$ Yen Euro Other US$ US$ US$ US$ Total gain 108,963,163 44,940,038 Total loss (139,505,815) (61,050,285) Exchange difference - net loss (30,542,652) (16,110,247) Other 29,525 3 ENERSIS 20 02 ANNUAL REPORT 123 122 122 26. EXTRAORDINARY ITEMS In this item, the Company shows the net equity 1.2% tax, in accordance with decree N°1,949 of August 29, 2002 of the Republic of Colombia; a tax that will be used for said country’s democratic security. At December 31, 2002, the subsidiaries paying this tax and the corresponding amounts are as follows: Company Central Hidroeléctrica de Betania S.A. Capital de Energía S.A. Emgesa S.A. Cam Colombia S.A. Codensa S.A. Total 27. FINANCIAL DERIVATIVES ThCh$ 2,025,115 67,124 8,837,853 33,540 11,412,008 22,375,640 As of December 31, 2002 the Company and its subsidiaries held the following financial derivative contracts with financial institutions with the object of decreasing exposure to interest rate and foreign currency risk, as follows: Type (1) COLLAR COLLAR COLLAR COLLAR COLLAR FR FR FR FR FR FR FR FR FR S S S S S S S S S S S S S S S S S S S S S Nominal amount US$ 50,000,000 400,000,000 50,000,000 250,000,000 850,000,000 7,000,000 88,000,000 77,755,000 154,600,000 68,400,000 93,000,000 15,000,000 108,000,000 23,084,000 100,000,000 100,000,000 4,253,031 44,229,017 95,000,000 20,150,000 58,453,199 381,200,000 1,708,667 6,668,000 17,520,000 94,696,298 50,000,000 41,932,249 50,000,000 50,000,000 33,600,000 50,000,000 144,470,000 50,000,000 81,905,702 (1) Fr= Forward, S = Swap Date of Maturity II quarter 2004 III quarter 2004 III quarter 2005 I quarter 2006 II quarter 2006 I quarter 2003 I quarter 2003 I quarter 2003 II quarter 2003 II quarter 2003 II quarter 2003 lI quarter 2003 IV quarter 2003 I quarter 2004 I quarter 2003 I quarter 2003 I quarter 2003 I quarter 2003 II quarter 2003 II quarter 2003 II quarter 2003 III quarter 2003 III quarter 2003 IV quarter 2003 IV quarter 2003 I quarter 2004 I quarter 2004 II quarter 2004 II quarter 2004 III quarter 2004 II quarter 2005 II quarter 2006 III quarter 2006 III quarter 2006 II quarter 2009 Item Interest rate Interest rate Interest rate Interest rate Interest rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Interest rate Interest rate Interest rate Exchange rate Exchange rate Interest rate Interest rate Exchange rate Exchange rate Interest rate Interest rate Interest rate Interest rate Exchange rate Interest rate Interest rate Interest rate Interest rate Currency Currency Exchange rate Sales/ Purchase Hedged Item Initial hedged amount ThCh$ Closing hedged amount ThCh$ As of December 31, 2002 35,930,500 287,444,000 35,930,500 179,652,500 610,818,500 5,030,270 293,192,880 48,413,946 111,096,962 49,153,068 788,315,170 10,779,150 78,783,930 13,945,714 71,861,000 71,861,000 3,056,270 31,783,414 68,267,950 14,479,992 42,005,053 273,934,132 1,227,865 4,545,759 12,590,047 68,049,707 35,930,500 30,132,934 35,930,500 35,930,500 24,145,296 35,930,500 103,021,045 35,529,359 56,637,729 P/S P/S P/S P/S P/S P P P P P P P P P P/S P/S P P P P P P/S P P P P P/S P P/S P/S P P P S P Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Accounts payable Bank obligations Bank obligations Yankee Bonds/Bank obligation Bank obligations Bank obligations Accounts payable Bank obligations Bank obligations Bonds Bank obligations Accounts payable Bank obligations Bank obligations Bonds Bank obligations Bonds Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bonds Bonds Bonds 123 122 122 35,930,500 287,444,000 35,930,500 179,652,500 610,818,500 5,030,270 293,192,880 53,869,310 111,096,962 49,153,068 788,315,170 10,779,150 78,783,930 16,086,072 71,861,000 71,861,000 3,056,270 31,783,414 61,703,496 14,479,992 42,005,053 273,934,132 1,227,865 4,545,759 12,590,047 68,049,707 35,930,500 30,132,934 35,930,500 35,930,500 24,145,296 35,930,500 103,021,045 35,529,359 56,637,729 ENERSIS 2002 ANNUA L REPORT 28. COMMITMENTS AND CONTINGENCIES Direct guarantees held by third parties: Guarantee Subsidiary Type of guarantee Committed assets Type Currency Pending balance at December 31, Release of guarantees Currency 2001 2002 2003 2004 2005 Cía. de Telecomunicaciones de Chile Enersis S.A. Pledge Promissory note UF Public Works Bureau Banco Estado de Chile Director Customs Office of Chile Director Customs Office of Chile Creditors Banks Mitsubishi Corp. Autopista del Sol Pehuenche S.A. Pehuenche S.A. Pangue S.A. Pangue S.A. San Isidro S.A. Public Works Bureau Autop. Los Libertadores Public Works Bureau Autop. Los Libertadores Tax Authorities of Chile Banco Estado de Chile Celta S.A. Tunel el Melón FSA Inc FSA Inc Infraestructura 2000 S.A. Autopista del Sol Soc. de Energía de la Rep. Arg. S.A. EASA Complian. Operat. ctto. conc Chat. Mortg. Whithout conveyan Equipment Bank bond Bill of exchange Mortgage and pledge Chattel mortgage Construction compliance concession contract Construction compliance concession contract Bond Pledge over 45% of income minim. guaranteed Pledge Pledge Pledge Real estate prop. and Equip. Facilities Invest. Works of concession Operation of concession Bond Shares Shares ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Indirect guarantees held by third parties: Guarantee Subsidiary Type of guarantee Committed assets Type Currency Chase Manhattan Bank CitbanK N.A. CitbanK N.A. Midlanbank B. Santander C. Hispano Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International J.P. Morgan and CSF Boston Endesa Chile International Banco San Paolo BNP BBVA Mitsubishi Co. B. Santander C. Hispano Chase Manhattan Bank Endesa Chile International Endesa Chile International Endesa Chile International Cía. Eléctrica San Isidro S.A. Cía. Eléctrica Tarapacá S.A. Cía. Eléctrica Tarapacá S.A. Banco Español de Crédito Cía. Eléctrica Tarapacá S.A. ABN Amro Bank Cía. Eléctrica Tarapacá S.A. B. Estado de Chile and Santander Autopista Del Sol S.A. Chase Manhattan Bank B. Santander C. Hispano Endesa Colombia S.A. Cía. Eléctrica Conosur S.A. Banco de Santiago y de Chile Autopista Del Sol S.A. Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary ENERSIS 20 02 ANNUAL REPORT Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Accounting value 1,675 654,208 12,030,211 - 64,675 83,976,230 76,193,289 - - 2,632,804 172,681 1,351,074 35,476,728 22,580,871 68,033,383 - - - Accounting value 359,688,633 5,668,452 110,922,308 109,731,747 151,870,433 151,870,433 49,098,687 768,635 32,967,603 4,267,923 - - 205,521,266 137,655,836 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ - ThCh$ Pending balance at December 31, Release of guarantees Currency 2001 2002 2003 2005 2004 359,688,633 2,632,804 2,632,804 2,632,804 Según Op 1,675 654,208 2,518,131 46,536 60,699 23,032,252 - 822,752 - - - - - - 39,711,918 337,769,295 25,177,959 17,610,807 131,241,462 102,986,026 67,508,298 129,594,668 129,561,158 53,760,423 2,197,072 2,744,283 37,143,610 6,090,065 53,417,472 182,078,243 124,119,900 65,796,196 - 654,208 935,922 49,584 64,675 20,231,494 71,509,333 - - - - - - - 359,688,633 5,668,452 110,922,308 109,731,747 151,870,433 151,870,433 49,098,687 768,635 32,967,603 4,267,923 205,521,266 137,655,836 - - - - - - 125 124 124 12,030,211 64,675 3,811,708 3,811,708 3,811,708 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,668,452 110,922,308 151,870,433 151,870,433 768,635 205,521,266 109,731,747 4,267,923 - - - - - - - - - - - - - - - - - - - - - - - - Guarantee Subsidiary Type of guarantee Committed assets Type Currency Cía. de Telecomunicaciones de Chile Enersis S.A. Pledge Promissory note UF Complian. Operat. ctto. conc Chat. Mortg. Whithout conveyan Equipment Public Works Bureau Banco Estado de Chile Director Customs Office of Chile Director Customs Office of Chile Creditors Banks Mitsubishi Corp. Autopista del Sol Pehuenche S.A. Pehuenche S.A. Pangue S.A. Pangue S.A. San Isidro S.A. Public Works Bureau Autop. Los Libertadores Tax Authorities of Chile Banco Estado de Chile Celta S.A. Tunel el Melón FSA Inc FSA Inc Infraestructura 2000 S.A. Autopista del Sol Soc. de Energía de la Rep. Arg. S.A. EASA Real estate prop. and Equip. Facilities Invest. Works of concession Bank bond Bill of exchange Mortgage and pledge Chattel mortgage Construction compliance concession contract Construction compliance concession contract Pledge over 45% of income minim. guaranteed Bond Pledge Pledge Pledge Bond Shares Shares Public Works Bureau Autop. Los Libertadores Operation of concession Indirect guarantees held by third parties: Guarantee Subsidiary Type of guarantee Committed assets Type Currency J.P. Morgan and CSF Boston Endesa Chile International Chase Manhattan Bank CitbanK N.A. CitbanK N.A. Midlanbank B. Santander C. Hispano Banco San Paolo BNP BBVA Mitsubishi Co. B. Santander C. Hispano Chase Manhattan Bank Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International Endesa Chile International Cía. Eléctrica San Isidro S.A. Cía. Eléctrica Tarapacá S.A. Cía. Eléctrica Tarapacá S.A. Banco Español de Crédito Cía. Eléctrica Tarapacá S.A. ABN Amro Bank Cía. Eléctrica Tarapacá S.A. B. Estado de Chile and Santander Autopista Del Sol S.A. Chase Manhattan Bank B. Santander C. Hispano Endesa Colombia S.A. Cía. Eléctrica Conosur S.A. Banco de Santiago y de Chile Autopista Del Sol S.A. Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary ENERSIS 2002 ANNUA L REPORT ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Guarantor Accounting value 1,675 654,208 12,030,211 - 64,675 83,976,230 76,193,289 - - 2,632,804 172,681 1,351,074 35,476,728 22,580,871 68,033,383 Accounting value - 359,688,633 - 5,668,452 110,922,308 109,731,747 - 151,870,433 151,870,433 49,098,687 768,635 - 32,967,603 4,267,923 - 205,521,266 137,655,836 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ - ThCh$ Pending balance at December 31, Release of guarantees Currency 2001 2002 2003 2004 2005 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 1,675 654,208 2,518,131 46,536 60,699 23,032,252 - 822,752 - - 654,208 935,922 49,584 64,675 20,231,494 71,509,333 - - 2,632,804 2,632,804 - - - - - - - - - - - - - - - 3,811,708 - - - 2,632,804 Según Op - - - - - - 12,030,211 - 64,675 3,811,708 - - - - - 3,811,708 - - - - - - - - - Pending balance at December 31, Release of guarantees Currency 2001 2002 2003 2004 359,688,633 2005 39,711,918 337,769,295 25,177,959 17,610,807 131,241,462 102,986,026 67,508,298 129,594,668 129,561,158 53,760,423 2,197,072 2,744,283 37,143,610 6,090,065 53,417,472 182,078,243 124,119,900 65,796,196 - - - 5,668,452 110,922,308 - - 151,870,433 151,870,433 - 768,635 - - - - 205,521,266 - - - 359,688,633 - 5,668,452 110,922,308 109,731,747 - 151,870,433 151,870,433 49,098,687 768,635 - 32,967,603 4,267,923 - 205,521,266 137,655,836 - 125 124 124 - - - - - - - - - - - - 4,267,923 - - - - 109,731,747 - - - - - - - - - - - - - - - - - - - - - - - - - -  Litigation and other legal actions: Enersis S.A. Individual i. Arbitration award (Case ICC N° 11046/KGA) substantiated before the Court of Arbitration of the International Chamber of Commerce with headquarters in Paris, France, started with occasion of the claim lodged by Pérez Companc S.A. and PCI Power Edesur Holding Limited. The claim requests that the Arbitration Court declare a sought after right of PCI Power Edesur Holding Limited to designate a Regular Director and an Alternate Director in the Argentinean company Distrilec Inversora S.A., a company holding Class “A” shares of Empresa Distribuidora Sur S.A. (Edesur S.A.), and on a subsidiary basis, for the event that said Court estimates that PCI Power Edesur Holding Limited lacks such right, declare that Grupo Enersis and Grupo Pecom, former Pérez Companc, have the same number of directors in Distrilec Inversora S.A. The claim was answered timely by the Company on August 4, 2000. Together with the answer to the aforementioned claim, Enersis S.A. presented a reconventional claim against the claimants, that is, against Pecom S.A. and PCI Power Edesur Holding Limited, in order to request the annulment of various agreements entered into by the parties. This reconvention was answered by the reconventional defendants on October 13, 2000. On December 4 2000, Grupo Enersis filed its arguments expansion writ and the answer to the reply of the reconventional defendants. On December 6, 2000, the reconventional defendants, in an “Additional Statements” writ, request, among other things that, in case the reconventional claim lodged by Grupo Enersis is accepted, that a damages indemnity be declared in its favor. The reconventional defendants have provisionally estimated this possible and required indemnity in an amount between US$180 and US$200 million. On April 8, 2001 a Minutes of Mission was signed establishing the unquestionable facts, the controversial facts, the parties’ aims and the matters on which the Court will pronounce a judgment. On June 14, 2001 the parties submitted their evidence offer writs. On August 27 2001 presentation of the offered witnesses’ affidavits ceased. The testimonial audience was carried out on November 12, 2001, in the city of Montevideo. On December 14, 2001 the parties presented their closing allegations and on December 20 the Court officially closed the Arbitration proceeding. On September 6, 2002 the Final award dated September 2, 2002 was notified to the parties, substantively establishing that Grupo Pecom and Grupo Enersis maintain the right to designate the same number of directors in the Distrilec Inversora S.A. Board and rejecting the contravention claim of Grupo Enersis. It also rejects the indemnity amounting between US$180 and 200 million claimed by Grupo Pecom against Grupo Enersis. The Final Award has been impugned timely through an annulment appeal filed before Uruguayan Justice on September 18, 2002, based on that it has gross procedural vices that invalidate it. The filing of said appeal suspends compliance with the verdict. On December 12, 2002 Pecom Energía answered said impugnation. ii. Court : Honorable resolutive commission Process number : 577-99 Cause : Requirements of the “Fiscal Nacional Economico” against Enersis S.A. for the increase of ownership in Endesa- Chile S.A., asserting the transaction has considerably increased the vertical integration in the electric sector, affecting free competition. ENERSIS 20 02 ANNUAL REPORT 127 126 126  Process status: The discussion stage has ended and the corresponding complaints have been made. The case is now in the sentencing stage. It is important to note the Commission decided not to receive the case in trial. Additionally, the petitions of the Fiscalía Nacional Económica have changed since the beginning of the case, limiting the request to the inability of Enersis S.A. and Endesa Chile to have common directors and the necessity for these companies to hire different external auditors. Amounts involved: Undetermined. On October 30, 2002 the Resolutive Commision pronounced sentence on the case, and which is summarized as follows: a) “The position of principal or alternate director of Enersis S.A., Empresa Nacional de Electricidad S.A., or of some of them with Chilectra S.A. and Compañía Eléctrica del Río Maipo S.A., shall be held by different and independent individuals. A director will be regarded as independent when holding positions or carrying out employment or activities in a position of dependence of any of these companies or of any of its directors; and b) “The external audit of Enersis S.A., Empresa Nacional de Electricidad S.A., and Chilectra S.A. or Compañía Eléctrica del Río Maipo S.A., which, pursuant to current open stock company legislation, will be performed by different external auditing firms, having any relationship or tie of any nature between them. The same stipulation will be applied should the bylaws of said companies contemplate the appointment of account inspectors;” c) “By the exercise of its official faculties, the following measures will be adopted and in effect until the issue by the Resolutive Commission of a resolution to the contrary: “Enersis S.A., Elesur S.A., Empresa Nacional de Electricidad S.A., Chilectra S.A. and Compañía Eléctrica del Río Maipo S.A., may not enter into or execute any operation the objective of which would be the merger of the companies controlled by the Enersis group, whose activity would be the generation and distribution of electricity, with Enersis S.A. having to maintain the development of both segments separately, through different companies representing independent business units; and” “Enersis S.A., Empresa Nacional de Electricidad S.A., Chilectra S.A. and Compañía Eléctrica del Río Maipo S.A., shall continue to be subject to supervision of the Superintendency of Securities and Insurance and comply with provisions applicable to open stock companies, even if they have ceased to have the staus of open stock companies;” d) “In exercising the powers established in Decree Law Nº 211 article 17, letter b), this Resolutive Commission issues the following general instructions which any individual who, by application of Ministry of Mining Electric Code article 240, Decree Nº 317, of 1998, must publicly open to bid the supply and load in the terms of said norm: e) All those companies, associations, or company consortiums with existing or potential supply capacity will be able to participate in the supply bidding processes; f) The bidding conditions shall allow the applicants to present bids for the total amount of the supply intended to be contracted or for a part of the energy blocks and load open to bidding, and will include in their entirety the contracts which will be signed by the parties to execute the delivery of the supply bid; and, g) The receipt and opening of bids will be public. The bidding conditions to be established, as well as the result of the awarding, shall be reported to the Economic National Legal Department simultaneously upon the execution of said acts. ENERSIS 2002 ANNUA L REPORT 127 126 126 h) Any other measure of a cautionary or precautionary nature taken in these cases are invalidated in particular, that ordered in Resolution N° 542 numeral 1, dated May 10, 1999, as evidenced on page 132 of the precautionary measures record.” On November 6, 2002, Messrs. Briones and Bosselin filed an appeal as a complaint against the aforementioned sentence, which is currently in the procedural phase. Together with filing the appeal, the petitioners requested that an injunction order be decreed, which was issued on November 14, 2002, thus suspending the sentence’s effects. Amount: Not determined. iii. Accusation filed by Empresa Nacional de Telecomunicaciones S.A. (ENTEL) before the Resolutive Commission against Enersis S.A., started by presentment dated May 13, 2002. The aim was to inform the Commission about the data transmission services provided through the electric networks by Compañía Americana de Multiservicios Limitada, Enersis S.A.’s subsidiary, so as it took the necessary protection measures to guarantee free competition. The Commission requested the Telecommunications Under-department some information, which was provided through a report dated May 31, 2002. On June 5, 2002, Enersis S.A. answered ENTEL’s presentment, requesting that the precautionary measures requested by ENTEL be rejected because they are contrary to law and unnecessary and, also, because if they were accepted they would establish an entry barrier to the industry and postpone the investments necessary for rendering the aforementioned services. The issuance of a report by the Economic National Legal Department is pending, as well as the resolution of the precautionary measures requested by ENTEL. On July 19 of the current year, the Resolutive Commission acknowledged the Economic Legal National Department report, resolving to thoroughly investigate the matter and rejecting the precautionary measured requested. On last September 25, the case was heard and the trial turned into judicial decision term. iv. Court : 2nd Labor Court of Santiago Process number : 6061-2001 Cause : Complaint filed for severance pay for years of service on December 19, 2001 by Mr. Guillermo Calderón Ortega against Enersis S.A. Process status : First petition sentencing stage Amounts involved: ThCh$52,858 v. The Labor Ordinary Trial, titled “Acevedo Bravo, Efraín and Others with Enersis S.A.”, case list N°4.175-2002, heard before the 4th Labor Court for Santiago, arising from the claim for the payment of 2% monthly contribution made to finance the claimants’ conventional severance indemnity. The claim was notified on 11/06/2002, against which dilatory exceptions were opposed on 12/09/2002 and the claim was answered on a subsidiary basis. The case is currently in the approbatory term. vi. Court : 25th Civil Court of Santiago Process number : 3151-00 Cause : Complaint filed for compensation of damages by Mrs. Odette Legrand Halcartegaray against Enersis S.A.. Process status : First petition sentencing stage Amounts involved: ThCh$50,000 ENERSIS 20 02 ANNUAL REPORT 129 128 128 vii. Economic protection appeal, filed before the Court of Appeals for Santiago, List N°4591-2002, for Compañía de Teléfonos Complejo Manufacturero de Equipos Telefónicos S.A.C.I., CMET, against Enersis S.A.. The appeal was filed on 08/27/02 by CMET against Enersis S.A., which seemed to be based on the fact that Enersis S.A., through various acts, facts or omissions, would have breached article 19 N°21 of the Political Constitution of the Republic, preventing CMET from developing its commercial activities. On 09.17.02, Enersis S.A. informed to Court, as requested, carrying out all the discharges it deemed reasonable in accordance to law, expressly rejected CMET’s accusations because of their unfounded nature. To date, the appeal is pending for its hearing and judgment, which is estimated to take place during March. viii. Chilean Internal Revenue Service review of taxable income for the 2000, 2001 and 2002 tax years, and the tax trial in first petition for the difference of First Category Income Tax and Reintegration of Monthly Tax Prepayments for absorbed net income in the amount of ThCh$62,400, corresponding to the 1998 tax year. ix. First instance tributary trial, that is, before the Internal Revenue Service, for Tax difference to First Category Income Tax and Refund of Monthly Provisional Payments for absorbed earnings, in the amount of Th$1,461,000 corresponding to taxable year 1999. This proceeding is in the discussion term. Chilectra S.A. As of December 31, 2002, there are certain complaints against the Company for damages, which management believes are not significant based on reports from its legal counsel or for which the Company has made provisions up to the corresponding insurance coverage deductibles. Compañía Eléctrica del Río Maipo S.A. As of December 2001 and 2002 there are complaints against the Company for compensatory damages, which management and its legal counsel believe are not significant since they have insurance coverage for this type of occurrence. Inmobiliaria Manso de Velasco S.A. i. Court : Arbitration Court Process number : N/A Cause : Originates in Mr. Valero’s intention to charge professional fees for measures on related to reducing the amount of the Company’s Real Estate Taxes Process status : First petition resolution, being appealed. Amounts involved: Ch$ 100 million was claimed. The first petition resolution was for a sum of Ch$ 37 million, which is being appealed. A provision was made for 50% of the claim. ii. Court : Court of Appeals Process number : 4087 - 2000 Cause : Sociedad Agrícola Pastos Verdes Ltda. (a subsidiary of Inmobiliaria Manso de Velasco S.A.), filed Indemnity Assessment Complaint Proceeding for expropriation of Access Road to Aeropuerto Arturo Merino Benítez. The Chilean Government expropriated a piece of land for construction of the access road; experts in accordance with the Expropriation Procedure appraised the indemnity paid. The Appraisal was protested, there is a first petition judgment that raised the indemnity by approximately UF35,000. Process status : Pending in the Court of Appeals. ENERSIS 2002 ANNUA L REPORT 129 128 128  Cerj S.A. The Company has civil, fiscal and labor legal proceedings for which it has made a provision of approximately ThUS$122,000. Codensa S.A. The Company has lawsuits of a civil, fiscal and labor nature, for which it has registered provisions for approximately ThUS$0.9. Endesa-Chile Individual Pending litigation There is litigation pending against Endesa-Chile, for which defenses have been filed, totaling ThCh$2,242,254 and ThCh$1,895,083 as of December 31, 2001 and 2002, respectively. Other litigation i. Court : Supreme Court of Argentina Process number : 2753-4000/97 Cause : Dirección Provincial de Rentas, Provincia de Neuquén versus TGN (Transportadora de Gas del Norte S.A.). Resolution regarding Stamp Tax sum that eventually should be paid jointly by TGN and ENDESA. Process status : TGN requested a precautionary measure before the Supreme Court of Argentina to paralyze the proceeding filed by the Province of Neuquen, which was accepted. Therefore the administrative complaint proceeding is paralyzed. Amounts involved: $Arg 13,943,572.54 (Includes tax, interest and fines). ii. Court : Arbitration Court Process number : N/A Cause : On December 27, 2001, Empresa Nacional de Electricidad S.A. was notified of an arbitration to resolve controversies related to insurance policy N°94.676, issued by Compañía de Seguros Generales Consorcio Allianz, currently AGF/Allianz Chile Compañía de Seguros Generales S.A., in favor of Endesa, for the construction of the Ralco Hydroelectric Plant. Process status : Claimant and the Insurance Company have a period of 20 days to corroborate the complaint. Amounts involved: ThUS$32,000. iii. Declarative ordinary trial of mere certainty started by ENDESA against the Treasury of Chile to define the application criterion of General Law of Electric Services concerning indemnities payment for supply interruptions during electric rationing periods, filed before the Third Court of Civil First Instance for Santiago, list 3140-2000. With the promulgation of the Supreme Ordinance N° 287, of 1999, the Ministry of Economy, Development and Reconstruction that established the electric rationing between June 12 and August 31 1999 in the Central Interconnected System and the modification of article 99 bis of D.F.L. N°1/82 of Mining, General Law of Electric Services introduced by Law 19.613 of June 8, 1999, the electric power generation companies that, in case of generation short fall due to either prolonged failures of power plants or droughts, are not able to satisfy their distributor or final customers’ normal consumption or submitted to price regulation, were forced to pay compensations or indemnities to those customers in accordance with the regulations and procedures that are established in the rationing decree. This situation affected ENDESA and its subsidiaries Pehuenche and Pangue. In this respect, the declarative trial of mere certainty has been started, among others, an action in which Court is requested to declare that, in accordance with Art.99 bis of D.F.L. 1/82, it is ENDESA’s obligation to pay their distributor customers the ENERSIS 20 02 ANNUAL REPORT 131 130 130 compensations or indemnities established in that provision only for the days and hours that during the validity of the rationing Decree N° 287, electricity supply suspensions occurred and which affected those customers. The Treasury has sustained in the trial that the indemnities should be paid for the rationing period. Endesa-Chile Subsidiaries Pehuenche S.A. i. Court : 20th Civil Courthouse of Santiago Process number : 5863-2001 Cause : Empresa Eléctrica Pehuenche S.A. versus Empresa Eléctrica Colbún S.A. This complaint is for services rendered by Pehuenche S.A. to Colbún during the drought period. Process status : Currently in the evidence term Amounts involved: ThUS$2,000. ii. Court : Court of Appeals of Talca Process number : 39945 Cause : Asociación del Canal Maule versus DGA Resolution 1768 dated November 1984 related to the approval of reservoir works and building of the Colbún power plant. Pehuenche also filed a complaint to reinforce the claim of the irrigation subscribers that it is the obligation of Colbun S.A. to operate a reservoir above an elevation of 425 meters above sea level. Process status : Judment was pronounced being rejected the clain reclamation. Amounts involved: Undeterminable. iii. Actions were filed related to the payment of compensation as per Supreme Decree N°287, dated 1999 and issued by the Ministry of Economy, Development and Reconstruction and modification of Art. 99 bis of DFL N°1/82 of Mining Law. iv. Court : 24th Civil Court of Santiago Process number : 3908-99 Cause : A precautionary prejudicial measure was presented and was denied by the Tribunal. In the same proceeding Pehuenche presented an ordinary public law motion to vacate against Sociedad Austral de Electricidad S.A. Witnesses gave evidence. Process status : Verdict notification pending Amounts involved: Undeterminable. v. Court : 17th Civil Courthouse of Santiago Process number : 3940-99 Cause : Pehuenche versus Chilectra S.A. A precautionary prejudicial measure was presented and denied by the Tribunal. Pehuenche presented in the same case, an ordinary demand to annul public right against Chilectra S.A. Process status : Summoned to hear verdict, judgment has not been pronounced yet. Amounts involved: Undeterminable. vi. Court : 20th Civil Courthouse of Santiago Process number : 4005-99 Cause : A precautionary prejudicial measure was presented and denied by the Tribunal. Pehuenche presented in the same case, an ordinary demand to annul public right against Empresa Electrica Atacama S.A. Process status : Judgment pronouncement pending. Amounts involved: Undeterminable. 131 130 130 ENERSIS 2002 ANNUA L REPORT vii. Court : Santiago Court of Appeals Process number : 6515-99 Cause : CDEC-SIC failure to provide timely information to the CNE. Resolution 1,557 dated October 1, 1999. The State Defense Council made itself a party to the case. Process status : Expert Appraisal. Amounts involved: Five fines for a total of 1,610 UTM. viii.Court : 5th Civil Courthouse of Santiago Process number : 2272-99 Cause : Resolution 631 dated April 27, 1999, for not establishing Dispatch Center before January 1, 1999. The court informed a resolution that it received the case for trial. Pending official letter to the Superintendency of Electricity and Fuels (SEC). Process status : Verdict notification pending. Amounts involved: Fine of 500 UTM. ix. Court : 16th Civil Courthouse of Santiago Process number : 4164-97 Cause : Claim against Resolution 856, resulting in a fine imposed on October 16, 1997, for failure on May 11, 1997. Process status : Notification and appeal pending. Amounts involved: Fine of 450 UTM x. Court : 16th Civil Courthouse of Santiago Process number : 1928-98 Cause : Claim against Resolution 331 dated May 8, 1998, for failure on October 13, 1997. Process status : Notification and appeal pending. Amounts involved: Fine of 300 UTM xi. Court : SEC Process number : N/A Cause : Reposition appeal before the SEC for Resolution 805 dated May 2, 2000 for a fine for failure on July 14, 1999. Process status : Pending resolution. Amounts involved: Fine of 400 UTA xii. Court : 3rd Local Police Court of Santiago Process number : 50419-AGO Cause : SERNAC with Pehuenche, claim for lack of electrical supply Process status : Pending sentence. Amounts involved: Undeterminable. xiii. Court : 5th Labor Court of Santiago Process number : 2923-2001 Cause : Labor lawsuit for work accident. There are incidents of former adjudication and prescription pending verdict. Second petition verdict confirming First Petition verdict. Pending confirmation of appeal for dismissal. Process status : Pending confirmation of appeal for dismissal. Amounts involved: Undeterminable. ENERSIS 20 02 ANNUAL REPORT 133 132 132  Empresa Eléctrica Pangue S.A. i. Court: 1st Civil Court of Santiago Process number : 1294-99 Cause : Claim against Resolution SEC 415 dated March 12, 1999 which fined Pangue for not complying with Article 9 of rationing Decree 640, which is to inform the SEC of normal customer consumption of its customers. Process status : Remitted the file to the Santiago Court of Appeals. Amounts involved: Fine of 10 UTM. ii. Court: 1st Civil Court of Santiago Process number : 2273-99 Cause : Claim against SEC Resolution N°631 dated April 27, 1999 that fined Pangue for infraction of Article 183 of the Regulation when it did not build an independent Dispatch and Control Center. Process status : Reception of case to trial was notified. A motion to set aside was presented against the writ of evidence. Amounts involved: Fine of 500 UTM. iii. Court: 23rd Court Process number : 4293-97 Cause : Claim against SEC Resolution N°856 dated October 16, 1997, which fined for a blackout on May 1, 1997. Process status : Verdict notification pending. Amounts involved: Fine of 450 UTM. iv. Court: 23rd Court Process number : 1910-98 Cause : Claim against SEC Resolution N°331 dated May 8, 1998 that fined Pangue for a blackout on October 13, 1997. The Tribunal rejected the recourse in its verdict dated July 30, 1999. Process status : Appealed to the Court of Appeals and is pending hearing. Amounts involved: Fine of 500 UTM. v. Court: SEC Process number : N/A Cause : Appeal to set aside before the SEC by SEC Resolution N°740 dated April 26, 2000 which fined Pangue for blackout on July 14, 1999. Process status : Reversal verdict pending. Amounts involved: Fine of 300 UTA. vi. Court: 18th Civil Court of Santiago Process number : 3886-99 Cause : Ordinary public right annulment complaint. Request to annul obligation to pay compensation to regulated price users derived from electric rationing decree N°287 issued by the Ministry of Economy. Process status : Judgment pronouncement pending Amounts involved: Undeterminable. vii. There are 37 administrative oppositions presented by Pangue S.A. before the Provincial Government of Malleco, to the corresponding requests of diverse individuals to regularize water use rights in the Commune of Lonquimay. ENERSIS 2002 ANNUA L REPORT 133 132 132 viii.Cerda with Pangue, electric right of way summary trial, list 992-96 of Santa Bárbara Court. Brief review of the contingency: on SANTA BARBARA TRUPAN line. 2x220 KW, electric right of way had to be established in SAN JOSÉ property whose appraisal by the arbitrator commission was impugned by the affected party, which was definitely decided in the sum of $13,757,896. - Status of the Proceeding: trial completed, promoted incident of incidental compliance, Forecast: The indemnity is judicially regulated, and loan liquidation is pending. San Isidro S.A. i. Court: 7th Civil Court of Santiago Process number : 2195-99 Cause : Claim against Resolution N°628 dated April 27, 1999, which applied a fine for infraction of Article 183 of D.S. N°327 dated 1997. (Non construction of independent Dispatch Center). Process status : Official reports are being filed at the evidential stage. Amounts involved: Fine of 500 UTM ii. Court: SEC Process number : N/A Cause : Appeal to set aside before the SEC for SEC Resolution N°719 dated April 24, 2000, which fined San Isidro 150 UTA, for blackout on July 14, 1999. Process status : Pending reinstatement verdict. Amounts involved: Fine of 150 UTA Compañía Eléctrica de Tarapacá S.A. i. Court: SEC Process number: Official Letter 4966 Cause : Formulation of SEC charges, dated August 3, 2000 for SING blackout on September 23, 1999. Process status : Pending SEC Resolution. Amounts involved: Undeterminable. ii. Court: 20th Civil Court of Santiago Process number: 2760-2000 Cause : Verification of Credit in Inmobiliaria La Cascada Agreement for ThCh$203,718. There was a first distribution of funds from the sale of goods. Process status : Report N°1 from the Liquidating Commission was received. Amounts involved: Celta received ThCh$60,557. iii. Annulment ordinary trial and other actions presented by Compañía Punta de Lobos S.A. against Endesa, Celta and Treasury of Chile before 30th Civil Court for Santiago LIST 4061-2002. Review of legal contingency On August 22, ENDESA and CELTA were notified of a claim interposed by Compañía Punta de Lobos S.A. before the 30th Court for Santiago, against ENDESA, CELTA and TREASURY OF CHILE. ENERSIS 20 02 ANNUAL REPORT 135 134 134 In the claim, a request is made declare the absolute annulment of the assignment and transfer or of any juridical act carried out by ENDESA to CELTA, regardless the capacity and object the real estate properties have had due to the nature or adherence that comprise them or as integral part of the marine concession granted to ENDESA in Punta Patache’s sector. A request is also made to declare the expiration of the concession because of ENDESA’s incurring in a series of serious infractions to the legislation that regulates marine concessions and that are grounds for expiration and therefore the entirety of the construction built on the concession’s lands must be incorporated at no cost to the equity of the Treasury of Chile and that Compañía Punta de Lobos is entitled to obtain compensation, prize or recognition for 20% of the liquid value of said common property for the recovery, for the Treasury of said assets. ENDESA sustains that the claim is unfounded since no disposal act of the marine concession of ENDESA to CELTA has ever existed or of the assets comprising the concession; that the constructions or improvements carried out by CELTA in the concession’s assets, have been executed to comply with a mandate granted by its parent company ENDESA to act on its own behalf; that the claimant lacks juridical interest in annulment it requests since it is not an integral part of the concession contract. Amount or repercussion of the litigation: the litigation does not have a specified amount, but in case the claim is successful, especially if the marine concession expiration is declared, the pier’s facilities would be affected, which are worth US$15,000,000, that would become Treasury’s equity, also seriously affecting the operation of Central Térmica Tarapacá. Status of the Proceeding: On August 28, 2002, the claimant obtained a Court decree as a precautionary measure, prohibiting the execution of acts and contracts on the marine concession granted to ENDESA and on the properties by nature or for adherence that comprise or are an integral part of this concession. Main Trial Settlement: On August 9, 2002, the plaintiff filed with distribution to the court of appeals for Santiago, the contract annulment claim, in the ordinary trial against Endesa, Celta and the Treasury of Chile, a claim that entered the court on September 12, 2002. On September 9, 2002, ENDESA and CELTA opposed dilatory exceptions consisting in the Court’s incompetence to hear the claim. A) as regards the expiration declaration, this being an exclusive competence matter of the Ministry of National Defense B) as regards the annulment declaration, as a different sanction is contemplated by the law in the event of breach to be applied by an authority other than that of Courts and C) as regards the prize or recognition the, being an exclusive faculty of the President of the Republic. On October 4, the Court accepted the incompetence exception with respect to the expiration and recognition, maintaining its competence regarding the annulment action and orders the answering of the claim. On October 10, 2002: The claimant appeals. On this same date Endesa and Celta appeals. On October 14, the Court provides: On page 106: the appeal is accepted only in returnable effect. On page 122: the appeal is accepted only in returnable effect. On this same date the custody of the file is ordered. On October 14 ENDESA and CELTA answer the claim. On October 15, 2002: The claimant attaches documents. ENERSIS 2002 ANNUA L REPORT 135 134 134  On October 16, 2002, the court provides: On page 129: acknowledges claim answer. On page 138: Acknowledges attachment of documents with summon. On October 16, 2002, the Treasury of Chile answers the claim. On October 18, 2002: transfer was conferred for reply. On this same date, Endesa makes use of summons and attaches documents as part of evidence with summons. On October 21, 2002, the Court provides: On page 146: Be considered what is presented in connection with the document attached to page 138. On page 149: Be considered what is presented and acknowledge document attachment with summon. The reply term is currently running. On November 5, 2002, INJUNCTION AGAINST FURTHER MOVES arrives from the Court of Appeals. PRECAUTIONARY MEASURE FILE: Endesa and Celta by virtue of the judgment that accepted the incompetence, requested on October 14, 2002, to declare the release of the precautionary measure. The Court on October 16, 2002, provided: Transfer. On 19-10: they issued the transfer. On October 21 and 22, 2002, Endesa submitted writs to he considered. On October 23, 2002, the Court provides: On page 73: On the merit of the case: acknowledge transfer, comply with what will be resolved; in a first accessory petition, acknowledge attachment of documents with summon, exercise custody. On page 89 and 90: Be considered. WHEREAS: an incidental term of evidence is opened setting the points on which the following will fall: 1st - Effectiveness in case of change of the circumstances considered when the precautionary measure on page 1 was awarded; 2nd - In the affirmative term of the previous point, if there exist serious presumptions that the right claimed that merit that the precautionary measure granted on page 8 is maintained. The last three days of the probatory term at 9 a.m., are indicated to receive the pertinent testimony. On October 25, 2002, the List of Witness is presented and Endesa makes use of summons. On October 28, 2002 The Court provides: On page 95: On the merit of the case: Be considered the list of witnesses and summon them; in first accessory petition: As requested, be exhorted; in second accessory petition: as requested and expanded for only once the probatory term for 15 days, from the end of the term expiration of the ordinary one; in third accessory petition: it is not accepted; in fourth accessory petition: As requested, be certified; in fifth accessory petition: be considered. On October 31, 2002: it was certified by the court that the witnesses summoned to the audience did not appear. On November 06, 2002 the claimant requested letters notifying witnesses. On November 7, 2002: The court provides: As requested, be exhorted. Forecast: In the current status of the trial, it is not possible to anticipate the outcome. ENERSIS 20 02 ANNUAL REPORT 137 136 136 iv. Empresa Eléctrica de Arica and others with Empresas Eléctricas del Norte Grande S.A. and others (Celta) list 5237-2002 twelfth civil court for Santiago. Parties: Claimant: EMELARI and others Defendant: EDELNOR and others (CELTA) Content of the Case: ordinary Trial for reimbursement of indemnities paid by the electricity distribution companies Empresa Elécrica de Arica S.A., Empresa Eléctrica de Iquique S.A. and Empresa Eléctrica de Antofagasta S.A., to their customers because of the blackout occurred in the SING on July 25, 1999. The claim has been filed against EDELNOR, ELECTRANDINA, NORGENER, AES GENER AND CELTA, in order that they be sentenced to jointly reimburse, or alternatively in equal parts, to the former the sums that each one of them has had to pay to its end customers as compensation for delivered power as a result of the blackout of July 25, 1999, on the Greater North Interconnected System (SING). Amount: the claim amounts to $64,268,903, (US$91,378.02). Status of the Proceeding: CELTA, prior to defending the claim, filed dilatory exception for incapacity of the libel due to the absence of requisites in the claim. Same was done by the other defendants. Pronouncement by the Court regarding the dilatory exceptions is pending. Forecast: in the current status of the lawsuit, it not possible to anticipate the outcome. Infraestructura Dos Mil S.A. i. Court: Talagante Local Police Court Process number: 217-00 Cause : Damage indemnity complaint for stoning at the Talagante Overpass Process status: Pending judgment. Amounts involved: Approximate amount of ThCh$3,839. ii. There is a litigation between Infraestructura Dos Mil S.A. and the Chilean State for absolute nullity, under case number Nº 6504- 2002, at the 18th Civil Court for Santiago. The claim was filed on December 23, 2002, and was served to the defendant on January 2, 2003, with the defense by the State’s Defense Council pending. Autopista del Sol S.A. There are lawsuits pending in favor of the company for indemnity claims for damages to the Autopista del Sol. The total amount is ThCh$177,043. There are lawsuits pending against the company, for which the corresponding defense has been filed. The total amount is for ThCh$447,800. ENERSIS 2002 ANNUA L REPORT 137 136 136 Inecsa Dos Mil S.A. i. Court: Arbitration Commission Process number: 3049-2000 Cause : Complaint for annulment of the public right of the bidding called by the Ministry of Public Works for the Northeast Santiago Access. Process status: Complaint has been suspended by court resolution Amounts involved: Undeterminable. Sociedad Concesionaria Autopista Los Libertadores S.A. There are pending lawsuits in favor of the Company for a claim for indemnity payment for damages and losses on the highway. The entire sum amounts to ThCh$10,046. There are pending lawsuits against the Company which the defense has appropriately answered. The entire sum amounts to ThCh$2,200,830. Hidroeléctrica el Chocón S.A. Federal Public Revenues Administration – General Tax Services The Federal Public Revenues Administration – General Tax Services (FPRA-GTS) notified the Company for alleged tax evasion on revenues earned between tax year 1993 and 1994, due to deduction of certain start-up and financing costs incurred by Hidroeléctrica el Chocón S.A. in the calculation of taxable income, which the FPRA-GTS considers to be capitalizable costs to be depreciated in accordance with the terms of the concession. In addition, the FPRA-GTS claimed that the Company omitted making certain withholding taxes on payments made outside of the country for a bank loan obtained in 1994. The Company had not made these withholding taxes as it considered that they related to foreign-source income not subject to taxes. The corresponding amount of taxes on these revenues in dispute is equivalent to approximately US$9.7 million, which does not include accrued interest. The Company is disputing these charges. On December 28, 2000 the FPRA-GTS notified the Company of Resolution N°166/00 in the amount of US$1,754,938 on withholding taxes for foreign-source incomes. In addition it deemed that the Company should submit US$3,987,219 for accrued interest up to December 20, 2000. Finally, the FPRA-GTS assessed a penalty of US$1,228,457 for alleged infraction of Article 45 of Law 11,683. Regarding the complaint against treatment of certain startup and financing expenses, it prescribed on January 1, 2001. On December 28, 2000 the Company was notified of Resolution N°204/00, which officially determined that the tax credits and debits for the period from December 1993 to July 1995 , equaled to US$794,095 for interest assessed as of December 11, 2000. Additionally, it was resolved to fine the Company US$1,002,504 for alleged infraction of Article 45 of Law 11,683. The FPRA-GTS considers the moment at which the Company determined that the taxable event was generated to be in error, therefore it deems Article 18 of Regulatory Decree of the Value Added Tax Law to be applicable. The Company rejected the pretension of the FPRA-GTS to apply Article 18 of the Regulatory Decree of the Value Added Tax Law to the taxable events mentioned previously, before the date of publication of the regulation in the Official Bulletin. They ENERSIS 20 02 ANNUAL REPORT 139 138 138 invoked the inconstitutionality of the above-mentioned regulation and the application of decree 493/95, which condoned interest and fines for obligations or infractions overdue or committed as of July 31, 1995. On February 20, 2001, the Company filed an appeal before the Fiscal Court of the Nation. Royalties On June 26, 2000, the Company was notified of a complaint for interest charged for royalties allegedly paid outside the terms, initiated by the province of Neuquén before the Nation’s Court of Supreme Justice. The complaint includes an initial amount of approximately ThCh$335,636. Additionally, on September 27, 2000 the Company was notified regarding a new complaint from the province of Neuquén against the National State and hydroelectric generators of Comahue to obtain royalties charged on accumulated funds in the Sales Account. The mentioned complaint does not state a precise amount or date as of which the sums claimed are considered as owing, but the action would seek to charge each generator 12% of the funds the plaintiff understands were contributed by them to the referred account. Provincial Revenue Service of the Province of Buenos Aires On September 10, 2001, the Company received the notification from the Provincial Revenue Services of the Province of Buenos Aires of the beginning of an official determination for ThCh$404,145 (amount that does not include interest or fines), for taxes on gross income for the fiscal periods from February 1995 to December 1998. The differences claimed originate in: a) lack of presentation of tax in the Province of Buenos Aires between February 1995 and June. 1996 for contracts signed by the Company and b) for the use of an estimated tax payment less than what the government deemed applicable. Subsequently the Company resorted to a moratorium from the Province of Buenos Aires in which it input the differences claimed by the government for lack of tax revenue in that province for contracts signed by the Company in the sum of US$642,575, rejecting the differences claimed related to the applied estimated tax payment. In the opinion of the Company’s Management and their legal counsel the complaints made by the government organizations mentioned above are not applicable, except for the concepts mentioned in the previous paragraph, therefore it is not probable that those matters will produce a significant adverse effect on the Company’s shareholders’ equity and income as of December 31, 2002. Hidroinvest S.A. On December 27, 2000, the AFIP-DGI served Hidroinvest S.A. Resolution Nº 519/00 which officially determined the amount of Th$831,397 as income tax for the 1993 period that Hidroinvest S.A. was presumably to pay over the difference between the acquisition and transfer values of the bonds delivered to the National State for having obtained a benefit in said operation, since a greater debt than the stock purchase price was paid and Th$1,788,336 of compensatory interest. In addition, the AFIP-DGI applied a fine of Th$581,978 on Hidroinvest S.A. for an alleged infringement of Art. 45 of Law Nº11,683. On February 19, 2001, Hidroinvest S.A. filed an appeal at the Nation’s Tax Court. On September 12, 2002, Hidroinvest S.A. was notified of the registration of the General Asset Prohibition on the company’s assets within the scope of a precautionary proceeding started by the AFIP-DGI in virtue of what is established under Law Nº11,683 article 111, as a result of the obligation to deliver the sums mentioned above. An appeal injunction against the resolution which decided the origin of the precautionary measure, was filed, appeal that was granted on November 25, 2002. ENERSIS 2002 ANNUA L REPORT 139 138 138  The advisors to Hidroinvest S.A. believe that it is unlikely that said matters might produce a significant adverse impact on the equity and income position of the company as of December 31, 2002. Central Costanera S.A. As for the debt corresponding to the “Agreement related to work order Nº 4322 (the “Agreement”), from the enforcement of Law Nº25,561, Decree Nº214/02 and its regulatory provisions, the obligation of Central Costanera S.A. has been “pesified” upon the basis of the exchange rate of one peso to one US dollar. Decree Nº53/03 of January 10, 2003 excludes some obligations from the “pesification”. Should the Secretary of Energy understand that the mentioned Decree include the obligations arising from the Agreement, Central Costanera S.A. will request the declaration of unconstitutionality of Decree Nº53/03 which, if it did not have the expected results, would oblige Central Costanera S.A. to pay the sums owed as a result of the Agreement in US dollars. This contingency would imply, at December 2002, a decrease in net income and an increase in indebtedness of ThCh$26,228,000, approximately. In the company’s legal counsels’ opinion, it is very unlikely that the above will have a negative impact on the Company’s equity and income. Edegel S.A. i. From November, 2000, to October, 2001, the tax authority reviewed the income tax and turnover tax (IGV) of the Subsidiary for the periods corresponding to 1995 to 1999. As a result of said review, in December 2001, the National Superintendency of Tax Management (SUNAT) informed the Subsidiary of its findings through several resolutions to Set Fines, related to the income tax and the IGV for the periods under review. From the concepts indicated, the amount rejected and not paid by the Subsidiary mainly refers to the intent of the Tax Administration to apply Law Nº27034 Seventh Transitory Final Provision and, therefore, not recognize, as of the 1999 period, the Subsidiary’s right to deduct, as tax expense, the depreciation corresponding to the greater assigned value resulting from the revaluation of its assets due to the purchase of the Subsidiary taken place in 1995, under Law Nº26,283, even when the Subsidiary has a juridical stability agreement that has stabilized the income tax regime until 2005. The total estimated amount for said item amounts to $60,941,002 (ThUS$84,804). On February 11, 2002, the Subsidiary started an arbitration proceeding against the Peruvian State, represented by CONITE, as provided under clause eight of the Juridical Stability Agreement. On April 22, 2002, the Arbitration Court issued the arbitration award through which the complaints of the Subsidiary relating to the inapplicability of the Seventh Transitory Final Provision of Law N°27024, are declared as substantiated, pursuant to the juridical stability agreement subscribed with the Peruvian State. Therefore, the Arbitration Court recognizes the Subsidiary’s right to deduct from the income tax base the depreciation corresponding to the higher value assigned by the revaluation in previous years. Although the arbitration award granted, the contentious tax proceeding continued, reason by which, on July 12, 2002, the Subsidiary filed a remedy of appeal before the Tax Court against the Resolutions to Set and Apply Fines related to income taxes (1996, 1997, 1998 and 1999 periods). In November, 2002, the Tax Court issued its pronouncement, indicating that: (i) SUNAT will have to carry out a new review and issue a new pronouncement considering what was ruled in the award dated April 22, 2002, which was favorable to Edegel S.A.A., and which relates to the deduction of the depreciation corresponding to the revaluation of fixed assets, and (ii) it ruled against in other matters determined by the SUNAT. ENERSIS 20 02 ANNUAL REPORT 141 140 140  As for the items which are to be the subject of a new review carried out by SUNAT, Edegel’s management and its legal counsels believe that the final outcome of said review will not result in additional liabilities other than those recorded at December 31, 2002. ii. Lawsuits filed by (ESSALUD) for payment of contributions under Law Decrees 22482, 19990 and 18846 amounting to ThUS$4,210 (equivalent to ThCh$3,025,000). In the opinion of management and their legal counsel, these proceedings will be resolved in favor of Edegel S.A.. iii. Resolutions of Determination and fines in the amount of ThUS$581 (equivalent to ThCh$417,512) were issued against the Talleres Moyopampa S.A. for which Edegel S.A. has filed the corresponding complaints and appeals when the referred company split. These complaints and appeals are pending final resolution by the Tax Administration. It is the opinion of management and their legal advisors that these actions will not have a significant negative effect, individually or jointly, on the financial position, operating income, or liquidity of Edegel S.A.. iv. Complaint filed by Edegel’s workers union, which seeks that the percentage of participation, which the law sets at 5%, be raised to 10%, in this way duplicating the payment of these profits for fiscal years 1994, 1995 and 1996 by approximately ThUS$4,667 (equivalent to ThCh$3,353,753). On August 24, 2000 the sentence was issued in the first petition, declaring the action unfounded. By means of the sentence dated December 12, 2000 (notified November 13, 2001) the Second Labor Court Room of the Superior Court of Lima annulled the first petition sentence which declared the syndicate’s action unfounded. The Company filed a motion to vacate against said sentence, which was not admitted, whereby the file will return to the court for the issuing of a new sentence. In the opinion of the management and its external legal advisors, the final resolution would be favorable to the Subsidiary, for which reason no liabilities for these items have been recorded at December 31 2001 and 2002. Central Hidroeléctrica de Betania S.A. Presumed income-tax contingency – In 1997, 1998 and 1999, Betania recorded tax losses and did not pay taxes through the presumptive income system based on a concept of the national Tax Administration (DIAN) of 1995. Said concept was modified in 1999 and ratified by the State Council in 2001, in that presumed income tax should have been paid for the presumptive income. Consequently, the DIAN, on this matter, instructed Betania to make the appropriate correction to income forms for the years 1997 and 1998. The approximate amount of the presumptive income contingency for 1997 and 1998 amounts to Th$25,118,828 (including interest for Th$10,524,298 and fines for Th$8,987,422). Betania considers that DIAN’s intent is not substantiated. Therefore, on September 13, 2002, a claim was filed at the Administrative Court for Huila, since the DIAN resolved against the appeal for review filed by Betania regarding the official income payment for 1997. By 1998, the DIAN has not replied to the appeal for review filed by the company. At December 31, 2002, Betania carried a provision of Th$6,521,895 to cover this contingency. Tax contingency for ordinary income – The National Tax Department issued the official liquidation relating to income tax for 1997 and 1998, based on the net income for the ordinary system, disregarding some tax deductions. The estimated amount of the ordinary tax contingency is $12,173,619 and $47,836,345 for 1997 and 1998, respectively, including taxes, fines and estimated interest on arrears. The Company, for 1997 and 1998, has been audited for both the calculation of its regular income as well as the presumed income, reason by which it is important to note that only the higher of these two items becomes taxable and pays income upon which tax must be determined considering appropriate charges, fines and interest. ENERSIS 2002 ANNUA L REPORT 141 140 140  Since the higher of the two is the tax base, it is impossible to pay contingencies on both, as the presumed income will only apply as taxable income as long as it is higher than the ordinary income determined through the tax netting method on earnings. In addition, for 1999, the DIAN issued the official liquidation on the income tax return, reason for which the company filed an appeal for review on December 20, 2002. The estimated amount of the ordinary income contingency amounts to $19,398,625. Other contingencies At December 31, 2002, the amount of the claims for administrative, civil and labor litigations amount to ThCh$5,590,769, and others for undetermined amounts. Based on the evaluation of the probability of success in defending these cases, at December 31, 2002, ThCh$1,005,512 has been provided to cover probable losses resulting from these contingencies. Management believes that the outcome of the litigations corresponding to the unprovisioned portion will favorable to the Companies and will not cause significant liabilities to be accounted for, or that, if any, these will not significantly affect its financial position. Restrictions: Enersis S.A. The Company’s loan agreements establish an obligation to comply with the following financial ratios, on a consolidated level: • The ratio between debt and debt plus equity, not exceeding 0.7; • The ratio between operational cash flow and payment of debt interest, not less than 2.4; • Net tangible equity not less than UF45 million; • Assets corresponding to companies whose business is regulated, not less than 50% of total consolidated assets. As of December 31, 2001 and 2002 all these obligations have been met. Chilectra S.A. The Company does not have any management restrictions or financial covenants during the years ended December 31, 2001 and 2002. The Company holds long-term energy purchase contracts with Endesa, Gener S.A., Pangue S.A., Colbún Machicura S.A., Carbomet Energía S.A., Empresa Eléctrica Puyehue S.A. (formerly Pilmaiquén), Sociedad Canalistas del Maipo and Iberoamerica de Energía IBENER S.A., the terms of which extend to beyond 2002, in order to ensure its supply and corresponding cost. Compañía Eléctrica del Río Maipo S.A. The Company holds signed energy purchase contracts with Chilectra S.A. and Gener S.A., in order to assure its supply and corresponding cost. The Company does not have any management restrictions or financial covenants during the years ended December 31, 2001 and 2002. Endesa S.A. On a consolidated level, Endesa must comply with financial covenants and requirements derived from loan agreements with financial institutions, among which the following are emphasized: ENERSIS 20 02 ANNUAL REPORT 143 142 142 • Gross Cash Flows equal to or greater than 13% of the average consolidated financial debt for terms beyond one year, plus short-term bank debt if its term is extendable to more than one year, obtained according to the debt reflected in the consolidated financial statements at the closing date of the last four quarters. • Gross Cash Flow equal to or greater than 1.9 times the consolidated financial expenses, obtained according to the expenses reflected in the consolidated financial statements at the closing date of the last four quarters. • The financial debt for terms greater than one year, plus short-term bank debt if its term is extendable to more than one year, cannot exceed 58% of the sum of shareholders’ equity, plus minority interests, plus the financial debt for terms greater than one year and short-term bank debt. As of December 31, 2001 and 2002 al these obligations have been met. Pehuenche S.A. The Santander Investment Bank Ltd. and the Chase Manhattan Bank N.A., in relation to loans granted to the Company, place obligations and restrictions on Pehuenche S.A., some of which are of a financial nature, such as: long-term financial liabilities not exceeding 1.5 times the shareholders’ equity, and a minimum company equity of UF9,500,000. Infraestructura Dos Mil S.A. With the bond placement by the subsidiary, concession holder Autopista Del Sol S.A., Infraestructura Dos Mil S.A., concurred as “Sponsor” to the contracts of said transaction, committing itself to comply with the restrictions to the transfer of its interest in the bond issuer. Also, Infraestructura Dos Mil S.A., is not able to carry out major changes in its assets without the written authorization of the insurance company guaranteeing the issuance (FSA Inc). Likewise, the shares of the concession holding company Autopista de Sol S.A. owned by Infraestructura Dos Mil S.A. were pledged in favor of FSA Inc. Sociedad Concesionaria Autopista del Sol S.A. In virtue of the bond issuance agreement, the Company must comply with financial ratios based on the generation of operating flows. In addition, the Company must request the authorization of the insurer to obtain funding other than the current sources. These rations are compliant at December 31, 2002. Other restrictions As a common and habitual practice for some bank loan debts and also in capital markets, a substantial portion of Enersis S.A.’s financial indebtedness is subject to cross-failure provisions. Some failures of Endesa-Chile or of its subsidiaries, if not corrected in time (as to those specific provisions allowing a period of time to correct the problem), might result in the cross-failure at Endesa-Chile and Enersis S.A. level., and, in this case, some sixty percent of Enersis S.A.’s consolidated liabilities might eventually become on demand. On the other hand, certain failures of a distribution subsidiary, if not corrected in time, would not affect Endesa-Chile, and the amount at risk of Enersis S.A.’s consolidated liabilities would decrease by thirty percent. Some loan agreements include clauses should the risk category of the debt expressed in US dollars fall below the “investment grade” level, according to the risk classification agency determining the applicable margin of the interest rate (which, for practical purposes hereof, is S & P). Should the long-term US dollar unsecured debt fall into a “non-investment grade” category, or below BBB – according to the nomenclature used by S & P, then, the obligation to prepay all the outstanding principal existing under these loans within the following sixty days, unless agreed upon otherwise by the parties, arises. At December 31, 2002, US$1,464 million of the company’s borrowings and US$718 million of Endesa-Chile’s loan agreements, include compulsory prepayment clauses under the mentioned circumstances. ENERSIS 2002 ANNUA L REPORT 143 142 142  There exist no clauses in the loan agreements penalizing the Company if it is ranked below the “Investment Grade” level. Because of the above, no provisions have been recorded for said item. At December 31 2002, these obligations and restrictions have been fully met. 29. SURETIES OBTAINED FROM THIRD PARTIES Chilectra S.A. The Company presents among its current liabilities, guarantees received in cash for the use of temporary connections by customers of the company for ThCh$44,929 and ThCh$126,805 at December 31, 2002 and 2001, respectively. Inmobiliaria Manso de Velasco Ltda. The Company has received guarantees from third parties to guarantee obligations incurred in the acquisition of assets of MUF1,645 as of December 31, 2002. Compañía Americana de Multiservicios Ltda. The Company has delivered bank bonds for ThCh$734,870 and has received bank bonds for ThCh$1,511,865. Endesa S.A. The Company has received performance bonds from contractors and third parties to guarantee jobs and construction (mainly the Ralco Project), for ThCh$24,799,372 as of December 31, 2002 (ThCh$29,321,593 in 2001). The Company has delivered perfomance bonds in favor of third parties to guarantees compliance with works, and contration for ThCh$1,122,609. San Isidro S.A. Documents in guarantee received for ThCh$4,676,984 as of December 31, 2002 (ThCh$4,386,107 in 2001). Compañía Eléctrica de Tarapacá S.A. The Company has received documents in guarantee for ThCh$287,026 as of December 31, 2002 (ThCh$920,761 in 2001). Sociedad Concesionaria Autopista Los Libertadores S.A. The Company has deposits and performance bonds for UF25,495 as of December 31, 2002. Sociedad Concesionaria Autopista del Sol S.A. The Company has deposits and performance bonds for UF27,395 as of December 31, 2002. Pangue S.A. The Company has received, bank issued performance bonds from contractors for ThCh$8,879 as of December 31, 2002 (ThCh$4,386,107 in 2001). Synapsis, Soluciones y Servicios IT Limitada At December 31, 2002, bank bonds issued amount to ThCh$1,018,136 (ThCh$1,806,488 in 2001). The documents received as guarantees in 2002 amount to ThCh$102,417 (ThCh$479,225 in 2001). ENERSIS 20 02 ANNUAL REPORT 145 144 144 30. FOREIGN CURRENCIES: As of December 31, 2001 and 2002, foreign currency denominated assets and liabilities are as follows: a. Current assets Account Cash Time deposits Marketable securities Accounts receivable, net Notes receivable Other receivables As of December 31, Currency UF Ch$ US$ Euro Yen $ Col. Soles $ Arg. Reales US$ $ Col. Soles $ Arg. Reales Ch$ US$ $ Col UF Ch$ US$ $ Col. Soles $ Arg. Reales Ch$ US$ $ Arg. Reales UF Ch$ US$ $ Col. Soles $ Arg. Reales U.C. 2001 ThCh$ 498,849 6,954,506 2,348,900 285 12,631,156 1,884,656 2,243,026 11,087,418 115,975,839 47,474,350 852,201 3,289,380 10,521,464 4,823 198,249 - 7,521,141 95,627,381 10,419,409 103,526,327 30,682,183 70,062,837 232,409,714 3,037,324 763,309 54,956 1,827,741 3,638,662 10,826,719 8,885,323 19,294,694 7,008,783 2,985,430 18,544,773 1,036,335 2002 ThCh$ 45,990 - 5,731,512 2,139,191 326 12,399,246 1,273,600 4,467,055 22,127,958 75,154,206 31,582,158 4,856,855 9,413,216 24,620,459 4,822 1,264,075 274,393 6,605,028 105,038,323 6,738,638 79,625,850 35,764,701 42,172,533 182,894,651 2,125,118 1,108,267 25,028 1,872,936 57,647 11,843,434 3,413,113 14,381,770 10,462,278 1,256,478 20,201,788 1,159,588 ENERSIS 2002 ANNUA L REPORT 145 144 144 Subtotal 844,118,143 722,102,231 Account Currency Amounts due from related companies Inventories, net Income taxes recoverable Prepaid expenses and other Deferred income taxes Other current assets Subtotal Ch$ US$ $ Col. Soles $ Arg. Reales Ch$ $ Col. Soles $ Arg. Reales Ch$ $ Col. Soles $ Arg. Reales UF Ch$ US$ $ Col. Soles $ Arg. Reales Ch$ $ Col $ Arg. Reales UF Ch$ US$ $ Col. Soles $ Arg. Reales As of December 31, 2001 ThCh$ 3,768,124 7,265,042 133,978 477,881 6,374,553 - 44,895,120 12,827,697 13,479,412 4,913,469 1,308,376 33,613,125 1,359,672 214,438 13,763,334 8,559,533 810 668,627 3,372,247 167,469 1,227,529 962,081 7,572,804 5,005,415 - 1,722,188 17,434,498 127,694 15,498,661 110,876,213 - 472,013 266,648 318,328,651 2002 ThCh$ 1,899,674 184,198,792 171,747 499,562 4,523,978 4,105,082 35,357,403 8,864,940 12,534,464 1,958,287 1,667,559 27,521,833 473,718 229,625 10,743,267 15,467,533 - 928,209 2,570,012 124,219 553,358 479,327 3,010,893 22,814,199 1,151,172 7,429,959 20,560,463 693,297 43,131,732 38,147,413 888,202 400,509 3,001,474 45,758,981 501,860,883 Total current assets 1,162,446,794 1,223,963,114 ENERSIS 20 02 ANNUAL REPORT 147 146 146 b. Property, plant and equipment Account Land Buildings, infrastructure and work in progress Machinery and equipment Other plant and equipment Technical appraisal Accumulated depreciation Currency Ch$ $ Col. Soles $ Arg. Reales Ch$ $ Col. Soles $ Arg. Reales Ch$ $ Col. Soles $ Arg. Reales Ch$ $ Col. Soles $ Arg. Reales Ch$ $ Col. Soles Reales Ch$ $ Col. Soles $ Arg. Reales As of December 31, 2001 ThCh$ 42,596,302 31,886,463 9,523,636 9,540,763 29,710,800 3,647,155,601 3,012,920,159 1,107,370,586 1,539,453,777 1,645,246,419 53,173,353 24,566,761 419,732,507 736,699,370 588,968,367 85,747,968 8,340,278 49,196,813 159,950,550 235,049,335 26,643,651 64,759,545 475,304,698 130,917,038 2002 ThCh$ 41,451,908 34,137,051 10,210,210 9,940,165 34,165,453 3,750,803,720 3,259,152,642 1,176,938,743 1,643,686,859 1,791,721,564 55,260,210 15,475,472 457,417,069 781,090,841 669,114,911 119,396,976 4,099,024 59,948,689 161,835,159 189,581,016 25,917,954 73,406,012 505,989,949 135,331,492 (1,493,173,888) (1,570,010,403) (563,059,689) (886,968,669) (880,473,038) (685,729,796) (709,129,647) (974,745,107) (1,213,704,900) (659,024,849) Total property, plant and equipment 9,625,049,660 9,879,458,183 ENERSIS 2002 ANNUA L REPORT 147 146 146 c. Other assets Account Currency Investments in related companies Investments in other companies Goodwill, net Negative goodwill, net Long-term accounts receivable Amounts due from related companies Other assets Ch$ US$ $ Arg. Ch$ $ Col. Soles Reales Ch$ US$ $ Col. Soles $ Arg. Reales Ch$ US$ $ Col. Soles Reales UF Ch$ US$ $ Col. Soles $ Arg. Reales U.C. Ch$ US$ Reales UF Ch$ US$ $ Col. Soles $ Arg. Reales As of December 31, 2001 ThCh$ 103,502,429 63,903,764 41,815 2,152,383 147,284,788 11,516 112,310 840,970,393 247,066,350 26,569,990 - - 204,225,860 (156,983) (36,608,510) (59,861,413) (72,563,419) (12,004,235) 8,228,092 2,963,790 25,698,682 4,283,328 2,456,197 2,016,092 54,310,825 1,946,556 1,471,140 169,196,652 - 3,661,762 37,004,148 44,408,302 43,811,194 4,202,184 921,919 111,074,956 2002 ThCh$ 113,436,968 80,687,847 39,342 2,222,396 157,153,540 12,271 78,587 790,045,684 6,974,876 50,492,939 - - - (141,668) (611,346) (28,641,838) (2,694,795) (63,083,303) 1,522,452 2,049,474 7,137,749 6,552,426 1,744,678 2,098,185 103,634,188 1,111,361 882,109 - 16,058 2,961,502 92,875,289 23,091,955 38,697,375 4,614,807 8,899,892 113,882,379 Total other assets 1,972,302,857 1,517,743,379 ENERSIS 20 02 ANNUAL REPORT 149 148 148 d. Total assets Account Currency Total assets by currency UF Ch$ US$ Euro Yen $ Col. Soles $ Arg. Reales U.C. As of December 31, 2001 ThCh$ 23,677,010 3,569,950,112 742,529,646 - 285 2,938,572,897 1,165,780,722 1,704,890,900 2,611,414,848 2,982,891 2002 ThCh$ 11,291,688 3,582,702,998 526,451,759 525,982 326 3,052,761,648 1,306,348,863 2,400,792,004 1,738,018,459 2,270,949 Total assets 12,759,799,311 12,621,164,676 ENERSIS 2002 ANNUA L REPORT 149 148 148 e. Current liabilities Account Currency As of December 31,2001 As of December 31,2002 As of December 31,2001 As of December 31,2002 Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Within 90 days 91 days to 1 year $ Reaj. - - - - $ no Reaj. 2,364,209 - - - - 2,346,203 - - Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions Promissory notes Current portion of bonds payable Current portion of long-term notes payable 85,478,976 10.98% 112,613,976 - - - - - - 11,282,293 29,199,298 15.00% 12.20% 112,879,158 2,943,675 - - 24,696,590 22,748 32,143,117 - - 4.62% 10.98% 4.35% 60,842,208 113,666,867 4,542,783 2.48% 8.14% 4.38% - - - - 12.20% 6.80% 15.50% - - 7,602,894 37,190,394 16,254,518 8,745,951 - - 14.35% 8.68% 6.00% 9.24% - 2.21% 8.73% 3.24% 53,549,447 44,023,022 7.50% 5.17% 313,051 207,929,156 - - - - - - - - 3,624,390 39,191,269 2.08% 395,184 - - 1,896 5,638,384 8.60% 15.50% 1,365,862 2,136,708 22.75% 11.23% - - - - - - 5,086,095 10.00% - - - - - - - - 2,061,700 3.34% - - - - - - - - 122,129 5,603,166 10.00% 4.50% - - - - - - - - - - 856,532 10.00% 1,161,436 7.28% - - - - 1,615,021 313,783,648 - - 1,342,452 1,066,471 394,123 102,691 5,946,043 - - - - 7.50% 6.15% 4.26% 0.90% - - 15.50% 5.32% 5.38% 4.44% 6.92% 2.48% 8.14% - - 14.75% 4.07% 6.00% - - - 8.73% 3.24% 3.79% 2.08% 43,699,361 14,525,801 3,018,304 - - - 1,426,181 332,582,264 4,673,051 6,946,931 - - 655,929 5,154,483 1,195,763 456,684 1,234,621 - 1.75% 11.23% 5.32% 4.81% - - - - 7,464,219 4.50% - - 43,598,110 12,866,910 32,236,441 18.13% 5.80% 7.06% 16,001,327 156,514,742 - - 303,740,866 14,546,485 280,254 90,293 13.70% 11.50% 13,501,963 7,581,010 5.80% 7.06% 3.34% 13.70% 13.70% $ no Reaj. - - - - - - - 18,039,328 7.40% 29,756,019 9.00% 8,450,719 7.20% 11,872,895 9.00% US$ Euro Yen $ Col. Soles $ Arg. Reales $ no Reaj. $ no Reaj. $ Reaj. US$ Euro Yen Soles $ Arg. Reales U.P. Pound Other $ Reaj. Soles Other $ Reaj. US$ Euro $ Col. Other US$ $ Arg. Other Soles $ Arg. Reales Other - - 36,707 1,444 5,060,346 - Accounts payable $ no Reaj. 48,354,696 US$ Euro $ Col. Soles $ Arg. Reales Other $ no Reaj. $ no Reaj. Reales U.P. $ Reaj. $ no Reaj. US$ $ Col. 14,703,322 137,924 20,517,413 19,275,090 44,832,831 93,916,602 - - 216 45,428,854 - - 15,105,006 11,929,531 9,077,611 Short-term notes payables Miscellaneous payables ENERSIS 20 02 ANNUAL REPORT - - - - - - - - - - - - - - - - - - - - - - - 18,529 - - 727,268 54,262,880 12,342,737 - 27,173,942 23,788,231 26,949,437 59,659,028 10,963,983 - 571 - - - - - - - - - - - - - - - - 1,056,663 16.89% - - - - - - 4,328,842 1,740,700 - 8,982,460 2,026,856 - - 138,564 - - - - - - 9,244,324 8,228,015 22,549,403 - - - - 84,334 156,864 71,993 71,686 - - - - - - - - - - - - - - - - - - - - - - - - - - 4,122,352 - 5,812,077 1,123,669 - - - - - - - - - - - - - - 9.00% - - - - - - - - - 3,775,840 16.89% - - 416,874 8,648,943 - - - - - - 151 150 150 Account Currency As of December 31,2001 As of December 31,2002 As of December 31,2001 As of December 31,2002 Within 90 days 91 days to 1 year Amount ThCh$ 3,185,984 105,397 13,531,642 - 17,289,294 321,383 528,537 - 1,837,477 7,514,844 - Soles $ Arg. Reales Other $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. $ Reaj. $ no Reaj. 16,211,086 US$ $ Col. Soles $ Arg. Reales Other $ no Reaj. $ Col. Soles $ Arg. Reales Other - 5,127,068 1,649,379 4,531,574 26,514,775 - 5,881,699 1,830,706 2,534,964 17,117,232 25,614,845 - 430,473 15,582,792 158,987 10,192,095 33,165,210 252,972 1,497,876 411,679 - 1,193,328 2,621,386 45,345 13,478,269 12,004,488 184,577,161 90,720,028 203,707,905 5,143,299 - 69,303,461 54,277,055 293,018,263 97,798,330 - - - Avg Rate % - - - - - 9.14% 8.49% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount ThCh$ 5,838,886 3,054 6,773,826 375,753 11,465,695 532,618 1,234,371 1,226,667 857,426 968,935 14,153 12,393,170 101,572 13,279,185 2,315,644 2,133,800 23,708,069 80,987 7,127,750 1,872,570 5,113,011 10,827,560 29,114,712 2,556 537,181 19,911,919 683 3,332,909 1,110,901 - 5,816,007 - 413,656 15,111,509 1,996,817 50,146 15,875,558 20,281,534 11,918,345 151,641,354 653,397,898 4,542,783 39,191,269 104,312,240 81,937,552 152,587,392 77,711,633 - - 12,150,547 Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,395 - - - - - 3,629,114 - - 8,375 20,763,097 186,815 3,219,760 1,708,400 - - - 978,146 - - - - - 9,038,936 2,948,539 5,765,990 - - - 3,680,493 5,471,544 - - 1,029,544 5,718,123 79 - 20,527,792 46,280,476 447,701,090 3,624,390 395,184 31,163,396 44,418,667 44,940,561 4,474 1,066,471 394,123 241,255 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11,338,473 - - - - - - - - - 8,372 28,578,032 89,246 - 2,228,091 - - - 1,427,600 - - - - - - - 2,638,436 - - - 2,856,011 - - 287,973 - - - - 17,441,649 47,882,353 366,156,187 308,413,917 6,946,931 57,201,324 38,325,899 13,052,675 3,674,233 1,195,763 456,684 1,234,621 Amounts payable to related companies Accrued expenses Withholdings Income tax payable $ no Reaj. Deferred income Total current liabilities by currency $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ $ Col. US$ $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles Reales $ Arg. U.P. Libra Others ENERSIS 2002 ANNUA L REPORT 151 150 150 Total current liabilities 998,545,502 1,289,391,013 640,757,879 861,982,236 f. Long-term liabilities, December 31, 2002 Account Currency As of December 31,2001 As of December 31,2002 As of December 31,2001 As of December 31,2002 Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Within 90 days 91 days to 1 year Due to banks and financial institutions Bonds payable Long-term notes payable Accounts payable Amounts payable to related companies Accrued expenses US$ Euro Yen $ Arg. Reales U.P. Libra $ Reaj. US$ Euro $ Col. Soles US$ Reales $ Reaj. $ no Reaj. US$ Reales $ Reaj. $ Col. $ Reaj. $ no Reaj. US$ $ Col. Reales Deferred income taxes $ no Reaj. Other long-term liabilities Total long-term liabilities by currency $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales U.P. Libra Other $ Reaj. 53,700,248 1,332,607,989 245,960 8,981,104 3,687,048 81,665,150 1,189,530 877,946 3.66% 3.19% 4.13% 1.96% 1.75% 17.11% 5.32% 4.81% 2,936,985 103,695,317 - - 3.66% 3.19% - - - - - - 70,749,821 3.19% 6,352,189 3.19% 1,843,524 1,612,832 1.75% 11.23% 6,440,033 14,551,393 1.75% 11.23% - - - - - - - - - - 201,601 11.23% - - - - - - - - - - - - 100,464,720 337,746,700 7.00% 352,118,900 6.20% 8.06% 68,867,443 287,444,000 6.00% 8.50% 159,331,186 622,338,537 - - - - 53,520,562 7.19% 33,173,871 3,859,972 14.35% 7.19% 77,979,287 1,000,390 - - - - 7.50% 9.50% 41,870,347 4,601,606 7.50% 9.50% 59,468,978 8,700,083 - - 6.00% 8.06% - - - - 9.50% - - - - - - - - - - - - - - - - - - - - - - 247,133 161,781 50,546 - - - - - 7,451,115 - 67,686,226 49,113,709 28,873,945 3,588,783 - - - - 13,681,297 4.55% - - - - - - - - 159,492,967 50,056,903 628,690,726 - - 71,275,009 - - 49,562,443 - - - 14.35% 7.19% 7.50% 9.50% - - - - 10,535,563 9.48% - - - - - - - - - - - - - - 10.10% - - - - - - - - - 7,608,279 - - 2,099,410 13,997,687 - - 591,537 - 467,614 4,683,227 - 2,213,674 - - 69,335,057 26,289,193 428,198,362 - - 77,979,287 3,214,064 7,031,570 25,350,886 - - - 988,291,605 3.33% 44,459,671 61,538,872 - 2,130,335 7,144,040 2,584,264 - - 3,496,393 3,732,305 - 839,764 9,390,063 - - 197,179 - 10,805 4,264,255 38,021,057 4,611,282 7,456,475 13,384,938 1,042,002,658 19,281,046 1,763,711,762 245,960 8,981,104 - 58,131,844 11,340,702 160,012,988 1,189,530 877,946 - - - - - - - - - - - - - - - - - - - - - - - - 57,281 3,256,075 - - 81,582,060 3,745,511 - 1,224,714 131,452 - 10,015 - - - - - - - - - - - - - - - - - - 4.55% 14,800,247 4.55% - - - - - - - - - 256,932 114,044 - 103,469,001 21,801,833 497,684,564 - - 33,173,871 5,341,618 2,089,020 87,796,498 - - - Total long-term libilities 3,065,775,540 751,356,405 637,398,419 959,078,048 ENERSIS 20 02 ANNUAL REPORT 153 152 152 g. Long-term liabilities, December 31, 2001 Within 90 days 91 days to 1 year As of December 31,2001 As of December 31,2002 As of December 31,2001 As of December 31,2002 Account Currency Due to banks and financial institutions Bonds payable Long-term notes payable Accounts payable Amounts payable to related companies Accrued expenses $ Reaj. US$ Yen Euro Reales U.P. Libra Otras $ Reaj. US$ Euro $ Col. Soles US$ Reales $ Reaj. $ no Reaj. US$ $ Col. Reales $ Reaj. US$ $ no Reaj. $ Col. Reales Deferred income taxes $ no Reaj. Other long-term liabilities Total long-term liabilities by currency Soles $ Arg. $ Reaj. $ no Reaj. US$ Euro Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales U.P. Libra Other Amount ThCh$ 37,847,407 1,628,044,049 782,417 3,491,490 15,012,070 2,056,583 743,571 195,548 Avg Rate % 7.44% 4.01% 0.90% 4.26% 12.00% 5.32% 5.38% 4.44% Amount ThCh$ 20,181,501 140,188,179 391,208 97,774 2,521,157 Avg Rate % 6.93% 4.01% 0.90% 4.26% Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % - - - - 92,749,098 4.04% 20,913,780 1.75% - - - - - - - - 12.00% 4,409,782 10.93% 1,154,746 10.93% - - - - - - - - - - - - - - 78,566,164 539,546,960 6.30% 7.90% 67,002,160 584,080,493 6.30% 7.90% 5.38% 4.44% 6.30% 7.90% 371,786 97,774 364,194,198 - - 100,503,239 128,142,403 236,481,576 3,753,101 6,854,001 55,606,642 35,644,558 77,590 2,122,540 23,496,465 443,215 8,407,133 984,980,016 16,727,143 2,466,172 - 8,935,898 10,254,481 - - 8,034 15,941,073 20,612,549 - 6,166,036 8,743,924 751,117 1,022,913,047 30,784,266 1,872,629,251 239,973,066 782,417 4,196,316 13,020,037 8,743,924 68,750,776 2,056,583 743,571 195,548 7.90% 3.34% 14.95% 11.54% 7.13% 10.27% - - 6.50% - - 4.90% 7.07% - - - - 35,176,122 36,033,266 42,364,204 4,590,609 13.70% 7.50% 7.13% 10.27% 91,134,976 13.70% - - 52,625,655 9,974,948 7.13% 10.27% - - - - - - - - - - - - - - - - - - 2,499,291 16,984,432 10.00% 143,792,604 10.00% - - - - - - - - - - - - - - - - - - - - 5,471,684 - - 9,108 3,250,257 - - 362,744 1,494,952 - 120,693,848 11,221,232 546,746,581 97,774 391,208 52,160,554 36,396,010 1,494,952 150,904,370 - 371,786 97,774 - - - - - - - - - 10.00% - - - 10.00% - - - - - - - - - - - - - 4,888,461 - 1,785,890 13,704,756 - - 480,589 3,359,972 - - 2,022,283 1,637,101 - 79,046,753 21,953,189 684,921,713 - - 91,134,976 2,022,283 1,637,101 16,170,620 - - - - - - - - - 14,706,614 7.13% - - - - - - - - 9.50% - 10.00% - - - - - - - - - - - 181,599 18,406 - - - - - 6,405,087 40,734,446 5,896,657 6,629,043 - - - 2,388,266 - - - - - 67,183,759 15,440,802 619,700,887 - - 40,734,446 - - 7,051,403 - - - ENERSIS 2002 ANNUA L REPORT 153 152 152 Total long-term libilities 3,264,788,802 920,576,089 896,886,635 750,111,297 31. SANCTIONS Endesa Chile On February 22, 2002, the Superintendency of Securities and Insurance, through Executive Resolution N°044, censured Mr. Héctor López Vilaseco, the company’s Chief Executive Office, for infringement of what is provided in Section III of Form Letter N°1,481, dated May 25, 2000, for having tardily submitted to the Superintendency of Securities and Insurance the list of the company’s shareholders at December 31, 2001. Neither the Company nor its Board of Directors has been fined by the Superintendency of Securities and Insurance or any other administrative authority. 32. SUBSEQUENT EVENTS Enersis S. A. On December 10, 2002, a Special General Shareholders’ Meeting of Cerj, an Enersis S.A. subsidiary, was held, where a capital increase was approved for Cerj, in an amount of ThUS$105,000, approximately. This increase took place on January 10, 2003, through the issuance and subscription of 770,833,333,333 new ordinary shares, at a value of R$0.48 in one thousand-share batches, totaling the ThUS$100,000 approved at the Meeting, with the Company’s capital amounting to ThUS$259,085. With this operation, the percentage of direct participation held by Enersis S.A., through its agency, will increase from 20.38% to 40.03%. As a relevant event on January 15, 2003, it was reported that Enersis S.A.’s Board of Directors, at a special meeting held on that day, agreed to take note that the Company will make accounting adjustments and special charges in its balance sheet for its investments in its Chilean and foreign subsidiaries for a total amount of US$387 million, in its equivalence in Chilean pesos, these special adjustments being reflected in income for 2002. Such special adjustments and charges have no impact on the Company’s cash flow and will be reflected in Enersis’ 2002 financial statements. The special adjustments and charges made as well as the provisions made at November 30, 2002, are detailed as follows: (the figures shown correspond to the impact on Enersis S.A.’s financial statements): Generation: Brazil Argentina US$ 60 million US$ 23 million Total Generation US$ 83 million Distribution: Brazil US$ 255 million Argentina US$ 26 million Total distribution US$ 281 million ENERSIS 20 02 ANNUAL REPORT 155 154 154  Services: Chile Total services: US$ 23 million US$ 23 million Total adjustment US$ 387 million It must be noted that, of the US$387 million, US$329 million will be from the acceleration of the amortization of the net balance of negative goodwill and goodwill of investments made in Brazil and Argentina in generation and distribution. Subtracted from the figure above are the provisions made at November 30, 2002, as shown below: Brazil Argentina Total Provisions US$ 81 million US$ l6 million US$ 97 million In view of the above, and having considered these provisions, the effect of the adjustments and special charges on the company’s income will amount to the equivalent in Chilean pesos of US$290 million, approximately. In the period between January 1, 2003 and the date of presentation of these financial statements, no other significant event that might affect their presentation has occurred. 33. ENVIRONMENT: Edesur S.A. As of December 31, 2002, the Company incurred environmental expenses of ThCh$59,645 and investments of ThCh$15,809. Endesa S.A. During the period from January 1 to December 31, 2002, the Company and its subsidiaries have made disbursements for a value of ThCh$3,786,874, which mainly correspond to: • Operating expenses: corresponding to studies, follow-up procedures and laboratory analysis (ThCh$323,387 expenses in 2002), Environment Law N°99 (Colombia) and ISO 14,001 certification in Central Costanera and El Chocón (US$955,245). • Investments related to the following projects: - Central Ralco’s environmental program. - Central San Isidro, Pangue, Tal Tal, Pehuenche, Loma Alta and Curilligue environmental management system (EMS) installation and its ISO 14,001 certification. ENERSIS 2002 ANNUA L REPORT 155 154 154 34. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Chilean GAAP varies in certain important respects from U.S. GAAP. Such differences involve certain methods for measuring the amounts shown in the financial statements. DIFFERENCES IN MEASUREMENT METHODS The principal differences between Chilean GAAP and U.S. GAAP are described below together with an explanation, where appropriate, of the method used in the determination of the adjustments that affect net income and total stockholders’ equity. References below to “SFAS” are to Statements of Financial Accounting Standards issued by the Financial Accounting Standards Board in the United States. a. Inflation accounting The cumulative inflation rate in Chile as measured by the Consumer Price Index for the three-year period ended December 31, 2002 was approximately 11.2%. Pursuant to Chilean GAAP, the Company’s financial statements recognize certain effects of inflation. The inclusion of price-level adjustments in the accompanying consolidated financial statements is considered appropriate under the prolonged inflationary conditions affecting the Chilean economy even though the cumulative inflation rate for the last three years does not exceed 100%. As allowed pursuant to Form-20-F the reconciliation included herein of consolidated net income, comprehensive income and shareholders’ equity, as determined in accordance with U.S. GAAP, excludes adjustments attributable to the effect of differences between the accounting for inflation under Chilean GAAP versus U.S. GAAP. b. Reversal of revaluation of property, plant and equipment In accordance with standards issued by the SVS., certain property, plant and equipment are recorded in the financial statements at amounts determined in accordance with a technical appraisal. The difference between the carrying value and the revalued amount is included in shareholders’ equity, beginning in 1989, in “Other reserves”, and is subject to adjustments for price-level restatement and depreciation. Revaluation of property, plant and equipment is an accounting principle not generally accepted under U.S. GAAP, therefore, the effects of the reversal of this revaluation, as well as of the related accumulated depreciation and depreciation expense are included in paragraph (bb) below. c. Depreciation of property, plant and equipment Under Chilean GAAP, certain costs related to the cost of acquisition of Edesur S.A., at the time of the acquisitions in 1992 and 1994 by Distrilec Inversora S.A., were charged to earnings as incurred. Under U.S. GAAP, these costs would have been included in the purchase price and would have been allocated to the net assets acquired based upon fair values. For purposes of the reconciliation to U.S. GAAP, these costs were considered to be a part a property, plant, and equipment, the primary assets of Edesur S.A. As discussed in paragraph (i), under Chilean GAAP, assets acquired and liabilities assumed are recorded at their carrying value, and the excess of the purchase price over the carrying value is recorded as goodwill. Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their estimated fair values, and the excess of the purchase price over the estimated fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. As part of the purchase of the majority ownership interest in Endesa-Chile, under U.S. GAAP, the cost of the purchase price would have been allocated to the fair value of property, plant and equipment. The effect on shareholders’ equity and net income for the years presented is included in paragraph (bb) below. ENERSIS 20 02 ANNUAL REPORT 157 156 156 d. Intangibles Under Chilean GAAP, the Company has recorded intangible assets relating to the transfer of revalued assets which originate in the predecessor company, “Compañía Chilena de Distribución Eléctrica S.A.” at the time of the Company’s formation. Under U.S: GAAP, such intangible assets would not have been recorded as the assets would have been recorded at the Predecessor Company’s carrying values. The effects of adjusting shareholders’ equity for the intangible asset net of accumulated amortization, inclusive of accumulated price-level restatement, and net income statement for the annual amortization expense are included in paragraph (bb) below. e. Deferred income taxes Under Chilean GAAP, until December 31, 1999, deferred income taxes were recorded based on non-recurring timing differences between the recognition of income and expense items for financial statement and tax purposes. Accordingly, there was an orientation toward the income statement focusing on differences in the timing of recognition of revenues and expenses in pre-tax accounting income and taxable income. Chilean GAAP also permitted not providing for deferred income taxes where a deferred tax asset or liability, was either offsetting or not expected to be realized. Starting January 1, 2000, the Company recorded income taxes in accordance with Technical Bulletin No. 60 of the Chilean Association of Accountants, recognizing, using the liability method, the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities. As a transitional provision, a contra (referred to as “complementary”) asset or liability has been recorded offsetting the effects of the deferred tax assets and liabilities not recorded prior to January 1, 2000. Such complementary asset or liability are being amortized to income over the estimated average reversal periods corresponding to the underlying temporary differences to which the deferred tax asset or liability relates. Under U.S. GAAP, companies must account for deferred taxes in accordance with SFAS No. 109, which requires an asset and liability approach for financial accounting and reporting of income taxes, under the following basic principles: i. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and tax loss carryforwards. ii. The measurement of deferred tax liabilities and assets is based on the provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. iii. The measurement of deferred tax assets are reduced by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized. Temporary differences are defined as any difference between the financial reporting basis and the tax basis of an asset and liability that at some future date will reverse, thereby resulting in taxable income or expense. Temporary differences ordinarily become taxable or deductible when the related asset is recovered or the related liability is settled. A deferred tax liability or asset represents the amount of taxes payable or refundable in future years as a result of temporary differences at the end of the current year. The principal difference relates to the reversal of the complementary assets and liabilities recorded as a transitional provision for unrecorded deferred taxes as of January 1, 2000 and their corresponding amortization into income. The effect of these differences on the net income and shareholders’ equity of the Company is included in paragraph (bb) below. f. Severance indemnity As described in Note 2 n, under the Company’s employment contracts, it has committed to provide a lump sum payment to each employee at the end of their employment, whether due to death, termination, resignation or retirement. Those obligations are ENERSIS 2002 ANNUA L REPORT 157 156 156 calculated based on the present value of the liability determined at each year-end based on the current salary and average service life of each employee. The Company and certain of its subsidiaries used a real discount rate of 9.5% for the years ended December 31, 2001 and 2002, and assumed an average service life which varies based upon years of service with the Company. The real annual discount rate does not include a projection of inflation and, accordingly, future salary increases are also excluded from the calculation of the obligation, because all such future increases are expected to approximate the increase in inflation over a long-term period. Under US GAAP, this arrangement is considered to be a termination indemnity plan and should therefore be accounted for in accordance with SFAS No. 87, “Employers’ Accounting for Pensions”. The liability would be measured by projecting future expected payments using an assumed salary progression rate and discounting the resulting amounts to their present value. In practice, the Company believes that the salary progression rate will not differ significantly from the general inflation rate. The application of U.S. GAAP would no have produced results materially different from the acceptable method under Chilean GAAP. g. Pension and post-retirement benefits The Company has obligations related to complementary pension plan benefits and other post-retirement benefits as stipulated in collective bargaining agreements. Under U.S. GAAP, post-retirement employee benefits have been accounted for in accordance with SFAS No. 87 and SFAS No. 106. The effects of accounting for post-retirement benefits under U.S. GAAP have been presented in paragraph (bb). h. Investments in related companies The Company’s equity share of the effect of the adjustments from Chilean GAAP to U.S. GAAP of equity accounted investees is included in paragraph (bb) below. The principal U.S. GAAP adjustments affecting the Company’s equity investees are as follows: (a) The recording of pension benefits in accordance with SFAS No. 87. (b) Reversal of complementary accounts (asset or liability) recorded as a transitional provision as of January 1, 2000. (c) Organizational costs deferred under Chilean GAAP that, under U.S. GAAP, should have been included in income. (d) For the year beginning January 1, 2001, the recording of derivative instruments in accordance with SFAS No. 133. (e) The deferred income tax effects of adjustments (a), (c) and (d). i. Goodwill and long-lived assets (i) Under Chilean GAAP, assets acquired and liabilities assumed are recorded at their carrying value, and the excess of the purchase price over the carrying value are recorded as goodwill. Circular No. 1358, dated December 3, 1997 issued by the SVS, extended the maximum amortization period of goodwill to 20 years form the previous 10 years. Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their estimated fair values, and the excess of the purchase price over the estimated fair value of the net identifiable assets and liabilities acquired are recorded as goodwill. Up until December 31, 2001, the Company amortized goodwill on a straight-line basis over the estimated useful lives of the assets, ranging from 20 to 40 years. Goodwill acquired after June 30, 2001 is not amortized (see Note 34 II (o)). In accordance with SFAS No. 142, the Company discounted amortizing goodwill on January 1, 2002. The effects of recording the different amortization periods and reversing the amortization of goodwill for 2002 are included in paragraph (bb) below. ENERSIS 20 02 ANNUAL REPORT 159 158 158 (ii) Under Chilean GAAP, the Company has evaluated the carrying amount of goodwill net of negative goodwill for impairment. The measurement of the impairment loss was based on the fair value of the investment which the Company determined using a discounted cash flow approach and recent comparable transactions in the market. In order to estimate fair value, the Company made assumptions about future events that are highly uncertain at the time of estimation. The results of this analysis showed that the goodwill and negative goodwill associated with investments in Argentina and Brazil were impaired because estimated future discounted cash flows were not sufficient to recover goodwill and negative goodwill. During 2002, under Chilean GAAP the Company recorded a net charge related to its investments in Central Costanera S.A., Hidroeléctrica El Chocón S.A., Hidroinvest S.A., Lajas Inversora S.A., Central Eléctrica Cachoeira Dourada S.A., Cía. de Electricidade do Rio de Janeiro S.A., Coelce S.A., Distrelec Inversora S.A., Edesur S.A., and Investluz S.A., in the amount of ThCh$236,434,558 net minority interest, to write-off all amounts of goodwill and negative goodwill, see Note 13. In accordance with U.S. GAAP, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets”, (SFAS No. 142) as of January 1, 2002. SFAS 142 applies to all goodwill and intangible assets acquired in a business combination. Under the new standard, all goodwill, including that acquired before initial application of the standard, and indefinite-lived intangible assets are not amortized, as of the effective date but must be tested for impairment at least annually. The transitional impairment test required by the standard was performed and no adjustment for impairment was required. However, based on subsequent testing of the Company’s investments in Argentina and Brazil performed as of December 31, 2002, it was determined that these investments were impaired. The following net effects are included in the net income (loss) and shareholders’ equity reconciliation to U.S. GAAP under paragraph (bb) below: (a) the reversal of goodwill amortization related to reporting units that were not found to be impaired under U.S. GAAP for the year ended December 31, 2002, and adjustment of amortization goodwill which is different in amount because of goodwill basis differences in 2000 and 2001. (b) the adjustment to record the reversal of the impairment recorded under Chilean GAAP during 2002, which is different in amount because of goodwill basis differences, (c) the adjustment to record the impairment under US GAAP from investment in Argentina and Brazil. The adjustment as of each year are as follows: Adjustment of goodwill amortization Reversal of impairment record under Chilean GAAP Impaiment of goodwill under US GAAP 2000 ThCh$ (7,541,119) As of December 31, 2001 ThCh$ (1,099,881) 2002 ThCh$ 53,928,310 452,415,861 (600,380,013) Totals (7,541,119) (1,099,881) (94,035,842) ENERSIS 2002 ANNUA L REPORT 159 158 158  Had we adopted SFAS No 142 effective January 1, 2000 and accordingly not amortized goodwill for the years ended December 31, 2001 and 2000 our net gain (loss) and basic income (loss) per share should have been as follows: Net income (loss) under US GAAP 74,431,407 3,088,583 (329,910,417) Goodwill amortization under US GAAP (79,254,926) (81,676,229) - 2000 ThCh$ 2001 ThCh$ 2002 ThCh$ Adjusted net income (loss) under US GAAP 153,686,333 84,764,812 (329,910,417) Basic earnings per share: Reported net income (loss) Goodwill amortization Adjusted net income (loss) 2000 Ch$ 2001 Ch$ 2002 Ch$ 10.4 (11.0) 21.4 0.4 (9.9) 10.3 (39.8) - (39.8) (iii) The company has considered important factors, which could trigger an impairment review, such the following: • Significant underperformance relative to expected historical or projected future operating results; • Significant changes in the manner of use of the acquired assets or the strategy for our overall business; and • Significant negative industry or economic trends In accordance with SFAS No.121, “Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to Be Disposed Of’ during 2000 and 2001, which was superceded by SFAS No.144, “Accounting for the Impairment or Disposa1 of Long-Lived Assets” beginning in 2002, the Company eva1uates the carrying amount of property, plant and equipment and other long-lived assets, in relation to the operating performance and future undiscounted cash flows of the underlying business. These standards require that an impairment loss be recognized in the event that facts and circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment is recorded based on an estimate of future discounted cash flows, as compared to current carrying amounts. For the years ended December 31, 2000, 2001, and 2002, no additional amounts were recorded for impairment under U.S. GAAP, except for adjustments for this concept recorded under Chilean GAAP in the subsidiaries Centrais Eléctrica Cachoeira Dourada S.A. and Inmobiliaria Manso de Velasco Limitada, which are included in other non-operating expenses (see Note 23). This amount are reclassified to operating income for US GAAP purposes. j. Negative Goodwill Under Chilean GAAP, the excess of the carrying value of the assets assumed in a business combination over the purchase price is recorded as negative goodwill. Circular No. 1358, dated December 3, 1997 issued by the SVS, extended the maximum amortization period of negative goodwill to 20 years from the previous 5 years. Under U.S. GAAP, the fair values of the assets acquired less the fair values of the liabilities assumed in excess of over the purchase price is allocated proportionately to reduce the values assigned to non-current assets. If the allocation reduces the non-current monetary assets to zero, the remainder of the excess is recorded as a deferred credit account called negative goodwill upon adoption of SFAS 142 in January 1, 2002 the excess will no longer be deferred but recognized immediately in income. The effect of reducing depreciation expense, due to the proportionate allocation of the excess purchase price to property, plant and equipment, as compared to the amortization of negative goodwill under Chilean GAAP and the reversal of negative goodwill write-offs described in paragraph (i), which ENERSIS 20 02 ANNUAL REPORT 161 160 160 did not meet the U.S. GAAP impairment criteria for long-lived assets under SFAS No. 144 described above, and conforming depreciation methods are included in paragraph (bb) below. k. Capitalized interest and exchange differences In accordance with Chilean GAAP, the Company has capitalized both interest on debt directly related to property, plant and equipment under construction and finance costs corresponding to exchange differences generated by the loans associated with such assets. The capitalization of interest costs associated with projects under construction is optional when incurred on debt that is not directly related to such projects. Under U.S. GAAP, the capitalization of interest on qualifying assets under construction is required, regardless of whether interest is associated with debt directly related to a project. In addition, under U.S. GAAP, foreign translation exchange differences may not be capitalized. The accounting differences between Chilean and U.S. GAAP for financing costs and the related depreciation expense are included in the reconciliation to U.S. GAAP under paragraph (bb) below. l. Accumulated deficit during the development stage Under Chilean GAAP, the losses incurred during the development stage of subsidiary companies is recorded directly in the parent company’s equity. Under U.S. GAAP, such costs must be charged to income as incurred. The effects are included in paragraph (bb) below. m. Minimum dividend As required by the Chilean Companies Act, unless otherwise decided by the unanimous vote of the holders of issued and subscribed shares, the Company must distribute a cash dividend in an amount equal to at least 30% of its net income for each year as determined in accordance with Chilean GAAP, unless and except to the extent the Company has unabsorbed prior year losses. Since the payment of the 30% dividend out of each year’s income is required by Chilean law, an accrual has been made in the reconciliation in paragraph (bb) below to reflect the unrecorded dividend liability for 2001, whenever and to the extent the recorded interim dividends do not reach to 30% minimum dividend. In April 2002, the meeting of shareholders decided, that dividends would consist of the income from normal company operations defined as income before amortization of negative goodwill in the income statement. Therefore, the distributable profit at December 31, 2001 was zero, necessitating a reversal of the prior year accrual under U.S. GAAP. n. Capitalized general and administrative expenses Until 1993, Endesa-Chile capitalized a portion of its administrative and selling expenses as part of the cost of construction in progress because a substantial portion of the efforts of management were involved in the administration of major projects. Under U.S. GAAP, general and administrative expenses are charged to expense unless they can be directly identified with the supervision of the construction of specific projects. The effects of eliminating capitalized general and administrative expenses and the related depreciation for U.S. GAAP purposes are shown below under paragraph (bb). o. Involuntary employee termination benefits Under Chilean GAAP, the Argentine subsidiaries, Central Costanera and Hidroelectricidad, recorded an accrual of certain involuntary employees termination benefits related to the restructuring plan announced in 1997. Since that date employees have continued to be made redundant pursuant to this plan. In accordance with U.S. GAAP, at that time in order to recognize a liability at the balance sheet date for the cost to terminate employees involuntarily, there must be a plan that specifically includes notification to employees prior to the balance sheet date. As of December 31, 2002, this requirement had not been met. The effect of eliminating the accrued liability recognized is presented in paragraph (bb) below. ENERSIS 2002 ANNUA L REPORT 161 160 160 p. Adjustment in selling price of investment Under Chilean GAAP, pursuant to the share transaction contract entered into in 1995 between Endesa-Chile and Endesa Overseas Co. with Enersis Intemational Limited, Chilectra S.A. and Chilectra IntemationaI Limited, Endesa Argentina recognized income related to an adjustment of the share purchase price. Under U.S. GAAP, the contingent price adjustment would be considered a part of the purchase price, and would therefore be offset against the amount of goodwill that was originally determined. As described in paragraph (i), the Company determined goodwill amounts recorded in investments in Argentina were impaired as of December 31, 2002, thus the adjustment in selling price of investment is a basis difference between Chilean and U.S. GAAP that will be eliminated after the impairment charge is recorded. The effects of the adjustments to conform to U.S. GAAP are included under paragraph (bb) below. q. Elimination of capitalized legal reserve Under Chilean GAAP, the Company capitalized interest to property, plant and equipment as a result of the creation of a legal reserve specifically permitted in Brazil for the electricity industry. Under U.S. GAAP, interest capitalized must be based on actual interest incurred, and as such the effects of the elimination of the interest capitalized to property, plant and equipment and the effects on depreciation expense are included in paragraph (bb) below. r. Organizational and start-up costs Certain costs related to the organization and creation of certain subsidiaries of the Company are deferred and capitalized under Chilean GAAP and amortized. Under U.S. GAAP, such organizational and start-up costs may not be deferred and must be included in income as incurred. The effects of the difference are included in paragraph (bb) below. s. Translation of Financial Statements of Investments Outside of Chile Under Chilean GAAP, in accordance with Technical Bulletin 64 (“B.T. 64”) the financial statements of foreign subsidiaries that operate in countries exposed to significant risks (“unstable” countries), and that are not considered to be an extension of the parent company’s operations, are remeasured into US dollars. The Company’s foreign subsidiaries in Argentina, Perú, Brazil, and Colombia all meet the criteria of foreign subsidiaries that operate in countries exposed to significant risks under BT 64, and are remeasured into US dollars. The Company has remeasured its foreign subsidiaries into US dollars under this requirement as follows: • Monetary assets and liabilities are translated at year-end rates of exchange between the US dollar and the local currency. • All non-monetary assets and liabilities and shareholder’s equity are translated at historical rates of exchange between the US dollar and the local currency. • Income and expense accounts are translated at average rates of exchange between the US dollar and local currency. • The effects of any exchange rate fluctuations between the local currency and the US dollar are included in the results of operations for the period. Under BT 64, the investment in the foreign subsidiary is price-level restated, the effects of which are reflected in income, while the effects of the foreign exchange gains or losses between the Chilean Peso and the US dollar on the foreign investment measured in US dollars, are reflected in equity in the account “Cumulative Translation Adjustment”. The amount of foreign exchange gain included in income that is attributable to operations in unstable countries because these amounts have been remeasured into US dollars was ThCh$39,503,788, ThCh$23,247,278 and ThCh$180,045,972 for the years ended December 31, 2000, 2001 and 2002, respectively (See Note 23 (a)). In the opinion of the Company, the foreign currency translation procedures described above are part of the comprehensive basis of preparation of price-level adjusted financial statements required by Chilean GAAP. Inclusion of inflation and translation ENERSIS 20 02 ANNUAL REPORT 163 162 162 effects in the financial statements is considered appropriate under the inflationary conditions that have historically affected the Chilean economy, and accordingly, are not eliminated in the reconciliation to U.S. GAAP as permitted by Form 20-F. t. Derivative instruments Under Chilean GAAP, forward foreign exchange contracts and currency swaps are used to hedge existing balance sheet risks or “fair value” hedges, while interest swaps and collars are used to hedge against future transaction risks or “cash flow” hedges. Fair value hedges are recorded at fair values with losses recorded at the time of their estimation and gains deferred until the transaction date or to the extent losses have been previously recorded, while gains and losses from cash flow hedges are deferred as either an assets or a liability until the transaction date. The hedging criteria and documentation requirements under Chilean GAAP are less onerous than U.S. GAAP. Realized gains and losses are recorded in “Other non-operating income and expense”. Prior to January 1, 2001. under U.S. GAAP, contracts that were designated and effective as hedges of existing assets and liabilities were recorded at the closing spot exchange rate and included in earnings with the initial discount or premium is amortized over the life of the contract as interest expense. However, contracts not designated or effective as hedges were recorded at fair value with the unrealized gains and losses recognized in income. For contracts with fair values different from the values of the contracts at the closing spot exchange rate, a difference between U.S. and Chilean GAAP resulted. The effects of the difference were not considered material to the consolidated financial statements and accordingly were not previously included in paragraph (u) below. Currently under U.S. GAAP, the accounting for derivative instruments is described in SFAS No. 133 “Accounting for Certain Derivative Instruments and Certain Hedging Activities” (SFAS No. 133) and other complementary rules and amendments. SFAS No. 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative instrument’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument’s gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company adopted SFAS No. 133, as amended, on January 1, 2001. SFAS No. 133 required that as of the date of initial adoption, the difference between the market value of derivative instruments recorded on the balance sheet and the previous carrying amount of those derivatives be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle in accordance with Accounting Principles Board Opinion No. 20, “Accounting Changes.” Statement 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain embedded derivative instruments. As permitted under this standard, the Company has applied SFAS No. 133 to only those embedded instruments that were issued, acquired, or substantively modified after January 1, 1999. SFAS No. 133, in part, allows special hedge accounting for “fair value” and “cash flow” hedges. SFAS No. 133 provides that the gain or loss on a 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 be recognized currently in earnings in the same accounting period. The accounting standard provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a “cash flow” hedging instrument be reported as a component of other comprehensive income and be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, must be recognized currently in earnings. While the Company enters into derivatives for the purpose of mitigating its global financial and commodity risks, these operations do not meet the documentation requirements to qualify for hedge accounting under U.S. GAAP. Therefore changes in the respective fair values of all derivatives are reported in earnings when they occur. ENERSIS 2002 ANNUA L REPORT 163 162 162  Current Chilean accounting rules do not consider the existence of derivative instruments embedded in other contracts and therefore they are not reflected in the financial statements. For U.S. GAAP purposes, certain implicit or explicit terms included in host contracts that affect some or all of the cash flows or the value of other exchanges required by the contract in a manner similar to a derivative instrument, must be separated from the host contract and accounted for at fair value. The Company separately measures embedded derivatives as freestanding derivatives instruments at their estimated fair values recognizing changes in earnings when they occur. Estimates of fair values of financial instruments for which no quoted prices or secondary market exists have been made using valuation techniques such as forward pricing models, present value of estimated future cash flows, and other modeling techniques. These estimates of fair value include assumptions made by the Company about market variables that may change in the future. Changes in assumptions could have a significant impact on the estimate of fair values disclosed. As a result such fair value amounts are subject to significant volatility and are highly dependent on the quality of the assumptions used. The Company is also exposed to foreign currency risk arising from long-term debt denominated in foreign currencies, the majority of which is the US dollar. This risk is mitigated, as a substantial portion of the Company’s revenues are either directly or indirectly linked to the US dollar. Additionally, the Company records the foreign exchange gains and losses on liabilities related to net investments in foreign countries which are denominated in the same currency as the functional currency of those foreign investments. Such unrealized gains and losses are included in the cumulative translation adjustment account in shareholders’ equity, and in this way act as a net investment hedge of the exchange risk affecting the investments (see Note 11 (c) and Note 22 (e) for further detail). The Company also uses short duration forward foreign currency contracts and swaps, and cross-currency swaps, where possible, to manage its risk related to foreign currency fluctuations. The effect of adopting SFAS No. 133 as of January 1, 2001, resulted in a cumulative effect on net income of ThCh$21,015,046 net of deferred taxes for ThCh$46,575,921 and minority interest for ThCh$62,621,442, which is presented under the caption “Cumulative effect of changes in accounting principles”, the effects of the adjustment with respect to financial derivatives, commodity derivatives, and embedded derivatives for the year ended December 31, 2002 is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (bb) below. u. Fair value of long-term debt assumed As discussed in paragraph (i), under Chilean GAAP, assets acquired and liabilities assumed are recorded at their carrying value, and the excess of the purchased price over the carrying value are recorded as goodwill. Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their estimated fair values, and the excess of the purchased price over the estimated fair value of the net identifiable assets and liabilities acquired are recorded as goodwill. As part of the purchase of the majority ownership interest in Endesa-Chile, under U.S: GAAP, the cost of the purchase price would have been allocated to the fair value of long-term debt. The effect on shareholder’s equity and net income for the years presented is included in paragraph (bb) below. v. Sale of subsidiaries This corresponds to the reversal of the December 31, 1999 accumulated adjustments to U.S. GAAP which under U.S. GAAP would have been included in the determination of any gain or loss on sale made in connection with the subsidiaries Compañía Nacional de Transmisión Eléctrica S.A. (Transelec), Aguas Cordillera S.A., and Aguas Puerto S.A., as these subsidiaries were sold during 2000. w. Deferred income During 2000, fiber optic cable was contributed to the Company in return for granting the contributing company access to the fiber optic network after installation in the Company’s electricity distribution system. Under Chilean GAAP, the contributed ENERSIS 20 02 ANNUAL REPORT 165 164 164 assets were recorded at their fair market value, with a corresponding credit recognized as income in 2000. Under U.S. GAAP, this item. This adjustment reverses the gain under Chile GAAP and records the amortization of the deferred income under U.S. GAAP. The effect on shareholders’ equity and net income for the years presented is included in (bb) below. The amount was deferred and amortize over the life of the related service contract. x. Regulated assets and deferred costs The electricity sector in Chile and other countries of operation in Latin America is regulated pursuant to the Chilean and other country electricity laws. Most of the Company’s sales are subject to node price regulation, which is designed to ensure an adequate supply of energy at reasonable, determined prices, which considers a variety of factors. The marginal cost pricing model is not solely based upon costs incurred by the Company, and as a result, the requirements of U.S. GAAP under SFAS No.71, “Accounting for the Effects of Certain Types of Regulation”, related to a businesses whose rates are regulated are not applicable to the Company’s financial statements, except for the Company’s operations in Brazil as described below. As a result of changes in Brazilian Electricity Laws and Regulations, the Company’s distribution subsidiaries in Brazil, Companhia de Electricidad do Rio de Janeiro (Cerj) and Companhia Energética do Ceará (Coalce), are subject to the provisions of SFAS No. 71 beginning on January 1, 2001. With the new regulations issued by the National Agency of Electrictric Energy (ANEEL), the rate-setting structure in Brazil is now designed to provide recovery for allowable costs incurred, which will be recovered through future increases in energy tariffs in order to recover losses experienced during the period of Brazilian Federal Government mandated energy rationing from June 1, 2001 to December 31, 2001. The Company estimates costs will be recovered over a period estimated to be three years (as described in Note 5). Accordingly, the Company capitalizes incurred costs as deferred regulatory assets when there is a probable expectation that future revenue equal to the costs incurred will be billed and collected as a direct result of the inclusion of the costs in an increased rate set by the regulator. The deferred regulatory asset is eliminated when the Company collects the related costs through billings to customers. ANEEL perform a rate review on an annual basis. If ANEEL excludes all or part of a cost from recovery, that portion of the deferred regulatory assets is impaired and is accordingly reduced to the extent of the excluded cost. The Company has recorded deferred regulatory assets, which it expects to pass on to its customers in accordance with and subject to regulatory provisions. The regulations also included certain VPA costs, which are certain that each distribution company is permitted to defer and pass on the their customers using future rate adjustments. VPA costs are limited by concession contracts to the cost of purchased power and certain other costs and taxes. Due to uncertainly in the Brazilian economy, ANEEL delayed the approval of such VPA rate increases. An Executive Order in October 2001 created a tracking account mechanism, in order to calculate the variation in the VPA costs for future rate adjustment calculation purposes. The Company has not recognized any regulatory assets for VPA costs incurred prior to 2001, because costs incurred prior to January 1, 2001, are not recoverable through the tracking account. Under Chilean GAAP, the Company recognized revenue and deferred costs related to the regulated assets. Under U.S. GAAP, in accordance with Emerging Issues Taskforce (EITF) No. 92-7, “Accounting by Rate Regulated Utilities for the Effects of Certain Alternate Revenue Programs”, revenue amounts not expected to be collected within 24 months, have been deferred. The effect of deferring revenues expected to be collected after two years is included in (bb) below. y. Reorganization of subsidiaries Corresponds to the reorganization of the Company’s subsidiaries Central Costanera and Central Buenos Aires (CBA) during 2001, in which Central Costanera acquired the minority interest in CBA from third parties and exchanged shares with Endesa Argentina. Under Chilean GAAP, the Company recorded the goodwill for the proportional minority interest acquired as the ENERSIS 2002 ANNUA L REPORT 165 164 164 difference between the purchase price and the carrying values of the assets acquired and liabilities assumed. Under U.S. GAAP, the proportional fair value of the assets acquired compared to the purchase price is recorded as goodwill. The effect on shareholders’ equity is included in (bb) below. z. Assets held for sale Under Chilean GAAP the Company records divestitures of investments or assets in the year in which they occur. Under U.S. GAAP, in accordance with SFAS No. 144, long-lived assets for which there is a plan to sell the assets within the following year, shall be disclosed separately from the Company’s other assets, provided all the criteria are met. Additionally, long-lived assets classified as held for sale must be measured at the lower of their carrying amount or fair value less cost to sell. Long-lived assets shall not be depreciated while they are classified as held for sale, while interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be accrued. The Company’s Board of Directors approved a plan to sell a number of the Company’s assets during October 2002. The following assets to be sold meet the definition of segments, reporting units or long-lived assets held for sale: • Compañía Eléctrica del Río Maipo S.A. • Central Canutillar power plant • Gas Atacama transmission lines • CELTA transmission lines • Infraestructura 2000 S.A. The Company evaluated the carrying values of all assets held for sale, recording a loss to the extent that one of the assets’ fair values less cost to sell was lower than the carrying value of those assets. Additionally, the Company ceased recording depreciation expense once the assets met the qualification criteria of held for sale, which varied from October to December 2002, no impairment was required to these assets as of December 31, 2002. The effect of these adjustments is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (bb) below. aa. Elimination of discontinued operations Under Chilean GAAP, no restatement to the financial statement information presented in previous years is required after a divestiture has occurred. Under US GAAP, in accordance with SFAS No. 144, the discontinued operations of a component must be retroactively separated from the continuing operations of an entity, when the operations and cash flows of a component which will be eliminated from the ongoing operations of an entity as a result of a disposal transaction will not have any significant continuing involvement in the operations of a component after the disposal transaction. The Company evaluated whether any of the assets held for sale met either criteria, noting that the transmission lines and power plant are not components, as they are included as a part of larger cash flow generating groups, and the operations of these assets cannot be separated from their respective groups. Additionally, Endesa-Chile plans to continue generating revenues from Canutillar through a purchase power agreement, management agreement, and a transmission leasing arrangement with the future buyer. Infraestructura 2000 S.A. does meet the conditions for discontinued operations because it has distinct and separable financial results from operations and cash flows. As a result of the disposal the results of operations of the reporting unit have been eliminated from the ongoing operations of Enersis, as Enersis will not have any continuing involvement in the operations of Infraestructura 2000 S.A. after it is sold. The Rio Maipo facility was classified as “held for sale” on December 31, 2002. In April, 2003, the Company sold facility. In accordance with SFAS 144, the Company determined that the Rio Maipo did not must the criteria to be classified as a discontinued operations as of the Enersis will have a significant continuing involvement through continuing sales to Rio Maipo’ though its subsidiary Endesa – Chile. The effect of restating discontinued operations is included in the net income reconciliation to U.S. GAAP under paragraph (bb) below. ENERSIS 20 02 ANNUAL REPORT 167 166 166 bb. Effect of conforming to U.S. GAAP The reconciliation of reported net income required to conform with U.S. GAAP is as follows: Net income (loss) in accordance with Chilean GAAP Reversal of amortization of revaluation of property, plant and equipment (paragraph b) Depreciation of property, plant and equipment and difference in fixed assets value at acquisition date (paragraph c) Amortization of intangibles (paragraph d) Deferred income taxes (paragraph e) Pension and post-retirement benefits (paragraph g) Investments in related companies (paragraph h) Amortization and impairment of goodwill (paragraph i) Amortization of negative goodwill (paragraph j) Capitalized interest and exchange differences (paragraph k) Accumulated deficit during the development stage (paragraph l) Capitalized general and administrative expenses (paragraph n) Involuntary employee termination benefits (paragraph o) Adjustment in selling price of investment (paragraph p) Elimination of amortization of capitalized legal reserve (paragraph q) Amortization of organizational and start-up costs (paragraph r) Derivative instruments (paragraph t) Fair value of long-term debt assumed (paragraph u) Sale of subsidiaries (paragraph v) Deferred income (paragraph w) Regulated assets (paragraph x) Reorganization of subsidiaries (paragraph y) Asset held for sale (paragraph z) Reclassification of discontinued operations (paragraph aa) Effects of minority interest on the U.S. GAAP adjustments Deferred tax effects on the U.S. GAAP adjustments Reclassification extraordinary gain For the year ended December 31, 2000 ThCh$ 2001 ThCh$ 2002 ThCh$ 95,661,404 42,154,033 (223,748,087) 2,597,035 (1,459,538) 1,373,576 (69,517,707) (11,014,880) - (7,541,119) (19,035,079) 34,392,221 156,769 (1,614,199) (2,693,048) 133,953 (3,338,239) 821,187 - 133,411 21,574,004 (3,212,407) - - - (161,966) 58,059,875 (21,143,846) - 1,899,779 (1,845,429) 191,035 (28,618,834) 3,738,634 (18,119,651) (1,099,881) (26,903,634) 4,887,915 (411,369) (126,967) (8,797) (76,429) 591,479 3,960,274 65,189,655 (174,229) - 165,419 3,336,808 (5,455,684) 121,840 (21,149,128) 23,130,027 20,860,935 (94,035,842) (82,314,299) (32,529,417) (5,830,512) 1,958,425 (347,089) 4,491,313 903,367 5,365,083 (78,076,325) (91,559) - 274,829 (41,903,240) (51,237,932) - - (358,538) (4,203,667) (17,138,430) (24,112,843) (319,781) (887,241) (148,617) 127,629,376 78,023,974 - Net income (loss) in accordance with U.S. GAAP before effect of discontinued operations, extraordinary gain and cumulative effect of change in accounting principle 74,171,407 (42,323,715) (330,075,536) Income from discontinued operations net of taxes and minority interest (paragraph aa) 260,000 284,410 165,119 Net income (loss) in accordance with U.S. GAAP before effect of extraordinary gain and cumulative effect of change in accounting principle 74,431,407 (42,039,305) (329,910,417) Extraordinary gain (net of taxes) 24,112,843 Net income (loss) in accordance with U.S. GAAP before cumulative effect of change in accounting principle 74,431,407 (17,926,462) (329,910,417) Cumulative effect of change in accounting principle, net of the tax and minority interest - 21,015,045 - Net income (loss) in accordance with U.S. GAAP 74,431,407 3,088,583 (329,910,417) Other comprehensive income (loss): Cumulative translation adjustment determined under Chilean GAAP Cumulative translation adjustment related to U.S GAAP adjustments 1,336,996 (4,410,079) 19,459,326 (3,494,198) 20,596,914 (12,536,493) Comprehensive income (loss) in accordance with U.S.GAAP 71,358,324 19,053,711 (321,849,996) ENERSIS 2002 ANNUA L REPORT 167 166 166 The reconciliation to conform shareholders’ equity amounts to U.S. GAAP is as follows: Shareholders’ equity in accordance with Chilean GAAP 1,214,561,981 1,005,580,294 Reversal of revaluation of property, plant and equipment net of accumulated amortization revaluation of property, plant and equipment (paragraph b) Depreciation of property, plant and equipment and difference in fixed asset value at acquisition date (paragraph c) (17,254,120) (14,150,945) 763,072 (3,065,017) As of December 31, 2001 ThCh$ 2002 ThCh$ Intangibles (paragraph d) Deferred income taxes (paragraph e) Pension and post-retirement benefits (paragraph g) Investments in related companies (paragraph h and paragraph z) Goodwill (paragraph i) Negative goodwill (paragraph j) Capitalized interest and exchange differences (paragraph k) Minimum dividend (paragraph m) Capitalized general and administrative expenses (paragraph n) Reversal of accrual of certain involuntary employee termination benefits (paragraph o) Adjustment in selling price of investment (paragraph p) Elimination of capitalized legal reserve (paragraph q) Amortization organizational and start-up costs (paragraph r) Derivative instruments (paragraph t) Fair value of long-term debt assumed (paragraph u) Reorganization of subsidiaries (paragraph y) Asset held for sale (paragraph z) Deferred income (paragraph w) Regulated assets (paragraph x) Effects of minority interest on the U.S. GAAP adjustments Elimination of result of discontinuing operations Deferred tax effects on the U.S. GAAP adjustments (1,218,399) (244,411,924) (48,110,011) (17,385,748) 326,090,688 (205,876,773) 44,949,920 (12,646,210) (27,225,414) 412,753 (4,215,211) (9,378,001) (39,325,555) 210,367,650 1,357,440 5,997,065 - (3,391,114) (41,903,240) 96,667,003 - (74,152,019) (1,096,559) (277,953,317) (29,532,561) 4,286,240 236,394,374 (298,291,399) 16,939,438 - (25,675,535) 92,700 - (9,362,051) (37,681,753) 149,900,318 1,265,881 6,070,100 (887,241) (3,437,112) (97,106,372) 225,171,613 724,763 (2,715,812) Shareholders’ equity in accordance with U.S. GAAP 1,154,673,833 845,470,047 ENERSIS 20 02 ANNUAL REPORT 169 168 168 The changes in shareholders’ equity in U.S. GAAP as of each year-end are as follows: As of December 31, 2001 ThCh$ 2002 ThCh$ Shareholders equity in accordance with U.S. GAAP - January 1, 1,131,339,028 1,154,673,833 Dividends paid during the year Reversal of dividends payable as of previous balance sheet date Minimum dividend (paragraph m) Cumulative translation adjustment Reorganization of subsidiaries (paragraph y) Net income (loss) in accordance with U.S. GAAP for the year (15,426,129) 28,698,421 (12,646,210) 15,965,128 3,655,011 3,088,584 - 12,646,210 - 8,060,421 - (329,910,417) Shareholders equity in accordance with U.S.GAAP-December 31, 1,154,673,833 845,470,047 II. Additional disclosure requirements: a. Goodwill and negative goodwill The following is an analysis of goodwill and negative goodwill, determined on Chilean GAAP basis, as of December 31, 2001 and 2002, respectively: Goodwill Less: accumulated amortization As of December 31, 2001 ThCh$ 1,652,861,416 (334,028,823) 2002 ThCh$ 1,235,470,632 (387,957,133) Goodwill, net 1,318,832,593 847,513,499 Negative goodwill Less: accumulated amortization (382,125,693) 200,931,133 (342,816,906) 247,643,956 Negative goodwill, net (181,194,560) (95,172,950) ENERSIS 2002 ANNUA L REPORT 169 168 168 b. Basis and diluted earnings per share: Chilean GAAP (loss) earnings per share U.S. GAAP (loss) earnings per share: For the year ended December 31, 2000 Ch$ 13.32 2001 Ch$ 5.08 2002 Ch$ (26.99) U.S. GAAP (loss) earnings per share before effect of discontinued operations, extraordinary gain and cumulative effect of change in accounting principle 10.33 (5.10) (39.81) Discontinued operations (net of tax) 0.04 0.03 0.02 U.S. GAAP (loss) earnings per share before effect of extraordinary gain and cumulative effect of change in accounting principle 10.37 (5.07) (39.79) Extraordinary gain (net of tax) - 2.91 - U.S. GAAP (loss) earnings per share before cumulative effect of change in accounting principle 10.37 (2.16) (39.79) Cumulative effect of change in accounting principle (net of tax) Basic and diluted U.S. GAAP (loss) earnings per share - 10.37 2.53 0.37 - (39.79) Weighted average number of common shares outstanding (000’s) 7,180,409 8,291,020 8,291,020 (1) The earnings per share figures for both U.S. GAAP and Chilean GAAP purposes have been calculated by dividing the respective earnings (loss) amounts in accordance with U.S. GAAP and Chilean GAAP, respectively, by the weighted average number of common shares outstanding during the year. The Company has not issued convertible debt or equity securities. Consequently, there are no potentially dilutive effects on the earnings per share of the Company ENERSIS 20 02 ANNUAL REPORT 171 170 170 c. Income taxes: The provision (benefit) for income taxes charged to the results of operations determined in accordance with U.S. GAAP is a follows: Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2000 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (1) 65,016,882 38,213,657 1,288,064 21,480,003 33,103,382 321,727 159,423,715 Deferred income taxes as determined under Chilean GAAP (8,963,932) 661,396 16,646,200 (23,941,812) (1,705,564) (17,303,712) Total income tax provision under Chilean GAAP 56,052,950 38,875,053 17,934,264 (2,461,809) 31,397,818 321,727 142,120,003 U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 9,209,924 (5,563,761) 10,295,909 54,698,116 877,519 Deferred tax effect of adjustments to U.S. GAAP (331,518) 5,685,557 78,602 15,804,001 - Total U.S. GAAP adjustments 8,878,406 121,796 10,374,511 70,502,117 877,519 - - - 69,517,707 21,236,642 90,754,349 Total Income tax provision under U.S. GAAP 64,931,356 38,996,849 28,308,775 68,040,308 32,275,337 321,727 232,874,352 Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2001 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (1) 12,794,860 45,203,098 8,212,337 22,660,803 31,499,043 71,781 120,441,922 Deferred income taxes as determined under Chilean GAAP 6,062,958 2,397,955 13,173,620 (13,678,191) 172,468 - 8,128,810 Total income tax provision under Chilean GAAP 18,857,818 47,601,053 21,385,957 8,982,612 31,671,511 71,781 128,570,732 U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 994,832 23,387,331 690,007 3,382,515 164,149 Deferred tax effect of adjustments to U.S. GAAP (2,963,740) 3,033,510 (776,899) (6,378,222) 24,355,649 Deferred tax effect of comulative effect of change in accounting principle Total U.S. GAAP adjustments: (1,841,380) 41,529,856 214,348 (203,244) 6,876,341 (3,810,288) 67,950,697 127,456 (3,198,951) 31,396,139 - - - - 28,618,834 17,270,298 46,575,921 92,465,053 Total Income tax provision under U.S. GAAP 15,047,530 115,551,750 21,513,413 5,783,661 63,067,650 71,781 221,035,785 Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2002 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP 13,292,208 (62,123) 12,661,339 2,602,883 45,248,145 Deferred income taxes as determined under Chilean GAAP 3,214,739 (34,075,899) 30,322,409 (5,879,658) (1,307,058) Total income tax provision under Chilean GAAP 16,506,947 (34,138,022) 42,983,748 (3,276,775) 43,941,087 U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 2,298,780 (30,426,372) 21,488,911 24,299,705 3,488,104 Deferred tax effect of adjustments to U.S. GAAP (13,217,783) 13,786,982 (21,585,415) (20,363,366) (36,644,392) Total U.S. GAAP adjustments: (10,919,003) (16,639,390) (96,504) 3,936,339 (33,156,288) - - - - - - 73,742,452 (7,725,467) 66,016,985 21,149,128 (78,023,974) (56,874,846) Total Income tax provision under U.S. GAAP 5,587,944 (50,777,412) 42,887,244 659,564 10,784,799 - 9,142,139 (1) The income tax provisions under Chilean GAAP for the years ended December 31, 2000 and 2001 are stated net of income tax recovery of ThCh$4,207,583 and ThCh$8,116,807. ENERSIS 2002 ANNUA L REPORT 171 170 170 Deferred tax assets (liabilities) as of balance sheet dates are summarized s follows: As of December 31, 2001 As of December 31, 2002 SFAS No. 109 Applied to Chilean GAAP Balances ThCh$ SFAS No. 109 applied to U.S. GAAP Adjustments ThCh$ Total Deferred Taxes under SFAS No. 109 ThCh$ SFAS No. 109 Applied to Chilean GAAP Balances ThCh$ SFAS No. 109 applied to U.S. GAAP Adjustments ThCh$ Total Deferred Taxes under SFAS No. 109 ThCh$ 6,976,342 4,386,013 11,362,355 6,032,020 13,837,806 19,869,826 14,247,101 8,406,250 1,152,980 7,555,125 16,365,659 - 14,247,101 8,406,250 38,334,751 7,487,563 3,660,314 2,164,150 - 8,558,885 4,166 1,395,215 16,864,691 80,072,911 46,795,319 194,771 5,843,294 - 32,217,765 6,766,431 2,746,091 3,252,750 2,656,047 584,992 5,248 1,211,297 1,627,336 116,468,223 50,931,732 117,034 3,926,807 5,155,480 (3,322,326) (3,448,901) 33,016,167 22,148,453 1,168,618 8,998,383 415,266 10,850,823 5,583,440 - 33,016,167 22,148,453 32,217,765 6,766,431 3,914,709 3,252,750 2,656,047 9,583,375 420,514 1,211,297 12,478,159 116,468,223 50,931,732 117,034 9,510,247 5,155,480 (3,448,901) 38,334,751 7,487,563 2,507,334 2,164,150 - 1,003,760 4,166 1,395,215 499,032 80,072,911 46,795,319 194,771 5,843,294 - (3,322,326) Deferred income tax assets Property, plant and equipment Regulated assets and related deferred cost (conpanies in Brazil) Negative goodwill Allowance for doubtful accounts Actuarial deficit (companies in Brazil) Deferred income With-holdings Provision real estate projects Derivative contracts Severance indemnities Vacation accrual Post retirement benefits Tax loss carryforwards (1) Contingencies Finance costs Salaries for construction-in progress Exchange difference -subsidiaries Valuation allowance Total deferred income tax assets 189,956,282 52,113,128 242,069,410 230,250,352 96,018,956 326,269,308 Deferred income tax liabilities Negative goodwill Property, plant and equipment Severance indemnities Intangibles Regulated assets Deferred charges Actuarial deficit (companies in Brazil) Finance costs Derivative contracts Bond discount Cost of studies Imputed interest on construction With-holdings Materials used Hid. El Chocón investment Capitalized expenses Capitalized interest Post retirement benefits Contingencies Others Differences between the financial and tax value of Río Maipo S.A. 5,229,011 464,500,827 - 388,356,194 1,954,040 24,954 - 1,510,731 5,570,625 8,304,618 512,289 2,126,014 4,675,640 4,830,117 5,659 3,349,399 119,374 5,059,362 559 10,311,653 1,927,532 6,019,514 86,306,393 26,738,515 8,255 229,961 1,927,532 394,375,708 1,954,040 24,954 459,271,816 814,241 - - 3,828,000 1,510,731 5,570,625 8,304,618 86,818,682 2,126,014 4,675,640 4,830,117 5,659 3,349,399 119,374 5,059,362 26,738,515 8,814 10,311,653 229,961 - 2,301,708 13,755,855 - 69,744,951 1,871,635 7,972,554 4,863,433 198,638 1,086,289 2,897,791 3,883,070 1,033 13,767,462 20,896,091 525,304 2,339,411 - - 1,475,222 814,241 - 3,828,000 - 2,301,708 13,755,855 69,744,951 1,871,635 7,972,554 4,863,433 198,638 1,086,289 2,897,791 3,883,070 20,896,091 526,337 13,767,462 2,339,411 1,475,222 Total deferred income tax liabilities 436,711,228 121,230,170 557,941,398 517,988,747 98,734,768 616,723,515 Net deferred assets (liabilities) (246,754,946) (69,117,042) (315,871,988) (287,738,395) (2,715,812) (290,454,207) (1) Tax loss carryforwards relate primarily to Peruvian, Chilean and Brazilian entities. In accordance with the current enacted tax law in Chile and Brazil, such tax losses may be carried-forward indefinitely, however Peruvian tax carryforwards expire after five years. ENERSIS 20 02 ANNUAL REPORT 173 172 172 A reconciliation of the Chilean Statutory Income Tax rate to the Company’s effective tax rate on net income is as follows: Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2000 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Statutory Chilean tax 42,274,015 20,326,388 12,194,040 6,526,106 16,240,891 (32,646,249) 64,915,191 Effect of higher foreign tax rates - 18,710,018 8,064,200 1,091,686 8,940,850 (3,439,430) 33,367,324 Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items Prior years income tax Other 8,795,897 (305,904) 2,898,307 (5,955,061) 4,666,333 - 10,099,572 (24,795,443) 267,276 4,808,544 2,240,689 5,065,308 36,085,678 23,672,052 40,180,413 6,590,676 - (8,077,733) (887,189) (1,575,934) (6,157,565) 343,646 69,386,194 - 37,806,167 61,996,341 52,408 (434,042) 39 2,828,427 (1,750,855) 321,727 1,017,704 Tax expense at effective tax rate 64,931,356 38,996,847 28,308,776 68,040,308 32,275,338 321,726 232,874,351 Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2001 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Statutory Chilean tax 35,207,167 33,046,613 8,262,496 (750,031) 19,766,103 (32,573,861) 62,958,487 Effect of higher foreign tax rates - 63,649,632 16,461,874 1,640,641 30,099,172 (6,560,221) 105,291,098 Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes 10,831,171 (471,398) (472,813) (1,154,998) 14,976,551 - 23,708,513 Non-taxable items Non-deductible items Prior years income tax Effect of Chilean tax rate increase (21,005,978) 12,895,204 4,689,412 94,672 - 39,134,083 35,807,393 (24,172,189) 20,330,824 (7,574,107) (316,500) (719,668) 1,986,643 8,212,618 - - 401,288 (2,163,759) - - - - - - - (12,451,640) 224,172 8,212,618 Other 3,988,096 (13,899,124) (254,737) 8,433,636 (1,054,508) 71,781 (2,714,856) Tax expense at effective tax rate 15,047,528 115,551,751 21,513,413 5,783,661 63,067,650 71,782 221,035,785 Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2002 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Statutory Chilean tax Effect of higher foreign tax rates (66,503,282) 426,279 165,774 196,856 12,985,063 (74,011,455) 6,766,510 14,202,414 (57,760,020) (6,900,286) Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items Prior years income tax Other 6,829,025 (23,354,798) 565,546 1,932,546 13,543,094 (1,268,782) 7,828,561 8,312,037 43,976,453 (199) 64,855,138 (35,286,731) 6,987,296 87,266,915 (4,057,934) 2,669,791 1,354,580 (509,651) (1,420,225) (327,074) (1,519,692) (744,875) 1,943,265 Total ThCh$ (120,597,390) (49,834,757) (484,587) 58,848,070 119,764,684 3,514,720 (2,068,601) Tax (benefit) expense at effective tax rate 5,587,944 (50,777,412) 42,887,244 659,564 10,784,799 - 9,142,139 ENERSIS 2002 ANNUA L REPORT 173 172 172 d. Acquisitions In May of 2002, Enersis S.A. acquired 6,824,495 Sociedad Inversiones Distrilima S.A. shares equivalent to 1.14% of issued capital for US$1,767,761.22 increasing its direct interest from 14.79% to 15.93%. In February and April of 2002 Enersis S.A. made contributions of US$22,773,195.87 to Central Generadora Termelétrica Fortalez S.A. for a capital increase, maintaining its 48.82% interest equivalent to 20,246,908 shares. During 2002, Lajas Inversora (Endesa subsidiary) acquired 753,627 (0.0803%) of Central Eléctrica Cachoeira Dourada S.A. (Brasil) shares for Th$58,931, increasing its interest to 99.59% in said Company. On September 13, 2002, Endesa acquired 7,275,433 (2.51%) Pangue S.A. (Chile) shares for Th$4,998,894, increasing its interest to 94.97% in said Company. Debenture capitalization in Cerj On July 11, 2002, the Company Luz de Río Ltda. and Endesa International Energía Ltda., holders of convertible bonds issued by Companhía de Electricidade do Río de Janeiro, exercised the option to capitalize their investment. To that effect, 420,705,127,532 no par value shares were issued. During the year ended December 31, 2001, the Company did not have significant acquisitions. For acquisitions accounted as a business combination using the purchase method, assets and liabilities have been consolidated as of the purchase date and earnings from the acquisitions have been included in consolidated earnings of the Company from to the purchase date. e. Segment disclosures The Company is primarily engaged in the distribution, generation and transmission of electricity in Chile, Argentina, Brazil, Colombia and Perú. Enersis provides these and other services through four business segments: • Generation • Distribution • Engineering Services and Real State • Corporate and other Generation involves the generation of electricity primarily through its subsidiary Endesa-Chile. Distribution involves the supply of electricity to regulated and unregulated customers. Engineering Services and Real Estate includes engineering services and real estate development. Corporate and other includes computer-related data processing services and the sale of electric- related supplies and equipment. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately. The methods of revenue recognition by segment are as follows: ENERSIS 20 02 ANNUAL REPORT 175 174 174 • Generation Revenue is recognized when energy and power output is delivered and capacity is provided at rates specified under contract terms or prevailing market rates. • Distribution - Operating Revenues Revenue is recognized when energy and power is provided at rates specified under contract terms or prevailing market rates. • Distribution - Non Operating Revenues Revenue is recognized as services are provided, such as public light posts, telephone poles, and other services related to distribution services. • Engineering Services and Real Estate Revenue is recognized as services are provided, or when projects are sold. • Corporate and Other Revenue is recognized as services are provided, or when supplies or equipment are sold. ENERSIS 2002 ANNUA L REPORT 175 174 174 The following segment information has been disclosed in accordance with U.S. reporting requirements, however, the information presented has been determined in accordance with Chilean GAAP: 2000 Sales to unaffilated customers Intersegment sales Total revenues Operating income Generation Distribution Engineering services and real estate Corparate and other Eliminations Consolidated ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 700,831,148 1,972,978,680 236,819,167 29,428,862 937,650,315 2,002,407,542 47,820,038 32,294,269 80,114,307 35,417,231 2,757,047,097 25,803,150 (324,345,448) 61,220,381 (324,345,448) 2,757,047,097 266,929,009 271,970,486 14,955,921 (8,807,981) 7,702,184 552,749,619 Participation in net income of affialate companies 3,556 73,197 76,753 Depreciation and amortization 169,553,126 243,552,307 1,264,335 49,658,881 (266,434) 463,762,215 Identifiable assets including investment in related companies 6,016,567,836 6,005,278,026 143,109,885 4,729,152,140 (5,138,754,125) 11,755,353,762 Capital expenditures 89,662,770 250,520,763 1,028,999 1,796,973 343,009,505 2001 Sales to unaffilated customers Intersegment sales Total revenues Operating income Generation Distribution Engineering services and real estate Corparate and other Eliminations Consolidated ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 836,144,871 2,126,128,164 209,134,449 43,705,715 1,045,279,320 2,169,833,879 35,046,655 28,336,648 63,383,303 62,061,071 3,059,380,761 30,562,731 (311,739,543) 92,623,802 (311,739,543) 3,059,380,761 347,975,163 386,500,673 10,133,274 (4,545,293) 14,479,950 754,543,767 Participation in net income of affialate companies (10,355,056) (343,742) (10,698,798) Depreciation and amortization 150,091,696 260,276,949 1,241,298 56,491,985 (266,433) 467,835,495 Identifiable assets including investment in related companies 6,361,571,367 6,310,062,578 135,386,583 4,945,729,831 (4,992,951,048) 12,759,799,311 Capital expenditures (52,972,422) (287,990,889) (415,494) (174,931) (341,553,736) 2002 Sales to unaffiliated customers Intersegment sales Total revenues Operating income Generation Distribution Engineering services and real estate Corparate and other Eliminations Consolidated ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 724,708,753 1,712,052,829 213,390,398 50,057,741 34,157,580 71,166,328 14,954,058 42,859,584 (377,474,051) 2,485,873,220 938,099,151 1,762,110,570 105,323,908 57,813,642 (377,474,051) 2,485,873,220 336,622,006 183,495,124 13,379,302 (111,044) (741,027) 532,644,361 Participation in net income of affiliate companies 8,541,745 (277,962) 8,263,783 Depreciation and amortization 221,359,385 512,547,464 1,411,217 110,822,164 12,816,588 858,956,818 Identifiable assets including investment in related companies 6,524,201,396 6,105,423,113 140,950,745 4,294,946,364 (4,444,356,942) 12,621,164,676 Capital expenditures 134,858,115 181,859,234 755,092 443,002 317,915,443 ENERSIS 20 02 ANNUAL REPORT 177 176 176 A summary of activities by geographic area is as follows: Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ 2000 Total revenues 699,239,131 759,355,551 233,989,079 634,011,382 430,451,955 2,757,047,098 Long lived assets (net) (1) 2,803,069,054 1,440,626,633 1,064,776,614 1,254,692,103 2,381,648,403 8,944,812,807 2001 Total revenues 805,112,327 827,352,863 265,489,142 691,658,117 469,768,312 3,059,380,761 Long lived assets (net) (1) 2,365,838,917 1,562,886,168 1,173,962,317 1,944,053,053 2,578,309,204 9,625,049,659 2002 Total revenues 799,462,080 297,634,006 292,427,127 624,290,007 472,060,000 2,485,873,220 Long lived assets (net) (1) 2,374,734,591 1,551,821,292 1,235,792,237 2,039,631,354 2,677,478,709 9,879,458,183 (1) Long-lived assets include property, plant and equipment. f. Concentration of risk: The Company does not believe that it is exposed to any unusual credit risk from any single customer. The Company’s debtors are dependent on the economy in Latin America, which could make them vulnerable to downturns in the economic activity in the countries in which the Company operates. No single customers accounted for more than 10% of revenues for the years ending December 31, 2001 and 2002. g. Schedule of debt maturity: Following is a schedule of debt maturity in each of the next five years and thereafter: 2003 2004 2005 2006 2007 Thereafter Total ThCh$ 1,558,378,097 2,355,368,823 177,943,497 611,688,751 155,949,924 1,518,063,448 6,377,392,540 ENERSIS 2002 ANNUA L REPORT 177 176 176 h. Disclosure regarding interest capitalization: Interest cost incurred Interest capitalized under Chilean GAAP Interest capitalized under U.S. GAAP i. Cash flow information: Year ended December 31, 2000 ThCh$ 520,328,589 21,323,611 55,715,832 2001 ThCh$ 457,221,298 24,250,320 29,138,235 2002 ThCh$ 446,064,039 19,467,730 23,656,508 (i) The statement of cash flows under Chile GAAP differs in certain respects from the presentation of a statement of cash flow under U.S. GAAP as follows: Cash provided by operating activities under Chilean GAAP Development stage companies 2000 ThCh$ 538,690,847 Cash provided by (used in) operating activities under U.S. GAAP 538,690,847 Cash provided by (used in) financing activities under Chilean GAAP (814,290,090) Development stage companies Repurchase of Yankee Bonds Cash provided by (used in) financing activities under U.S.GAAP (814,290,090) Year ended December 31, 2001 ThCh$ 662,920,609 1,303,896 664,224,505 (61,414,127) (985,718) (177,168,871) (239,568,716) 2002 ThCh$ 627,782,332 627,782,332 (285,039,864) (285,039,864) Cash provided by (used in) investing activities under Chilean GAAP 176,616,070 (503,639,589) (336,878,757) Development stage companies Repurchase of Yankee Bonds Time deposits (1) (310,893) 177,168,871 Cash provided by (used in) investing activities under U.S.GAAP 176,616,070 (326,781,611) (1) Time deposits with maturities longer than 90 days (10,176,847) (347,055,604) ENERSIS 20 02 ANNUAL REPORT 179 178 178 (ii) Cash and cash equivalents includes all highly liquid debt instruments purchased with a maturity of three months or less: Cash Time deposits Marketable securities Other current assets 2000 ThCh$ 28,073,249 79,697,694 12,264,761 Year ended December 31, 2001 ThCh$ 37,648,796 178,113,234 198,248 1,867,323 2002 ThCh$ 48,184,878 135,450,047 1,543,290 25,836,618 Total cash and cash equivalents 120,035,704 217,827,601 211,014,833 (iii) Additional disclosures required under U.S. GAAP are as follows: Interest paid during the year Income taxes paid during the year Assets acquired under capital leasing Year ended December 31, 2000 ThCh$ 381,782,050 154,341,501 2,314,164 2001 ThCh$ 405,238,393 132,198,412 238,590 2002 ThCh$ 455,550,047 136,413,682 - j. Disclosures about fair value of financial instruments The following methods and assumption were used to estimate the fair value of each class of financial instruments as of December 31, 2001 and 2002 for which it is practicable to estimate that value: • Cash The fair value of the Company’s cash is equal to its carrying value. • Time deposits The fair value of time deposits approximates carrying value due to the relatively short-term nature. • Marketable securities The fair value of marketable securities is based on quoted market prices of the common stock held and approximates carrying value. • Long-term accounts receivable The fair value of long-term accounts receivable was estimated using the interest rates that are currently offered for loans with similar terms and remaining maturities. • Long-term debt The fair value of long-term debt was based on rates currently available to the Company for debt with similar terms and remaining maturities. ENERSIS 2002 ANNUA L REPORT 179 178 178 • Derivative instruments Estimates of fair values of derivative instruments for which no quoted prices or secondary market exists have been made using valuation techniques such as forward pricing models, present value of estimated future cash flows, and other modeling techniques. These estimates of fair value include assumptions made by the Company about market variables that may change in the future. Changes in assumptions could have a significant impact on the estimate of fair values disclosed. As a result such fair value amounts are subject to significant volatility and are highly dependent on the qualify of the assumptions used. The estimated fair values of the Company’s financial instruments compared to Chilean GAAP carrying amounts are as follows: Cash Time deposits Marketable securities Accounts receivable Notes receivable, net Other accounts receivable, net Amounts due from related companies Long-term accounts recievable Accounts payable and other Notes payable long-term debt Derivatives instruments As of December 31, 2001 2002 Carrying amount ThCh$ 37,648,796 178,113,234 203,072 550,248,992 12,018,206 65,885,843 188,687,370 101,903,562 Fair Value ThCh$ 37,648,796 178,113,234 203,072 550,248,992 12,018,206 65,885,843 188,687,370 101,903,562 Carrying amount ThCh$ 48,184,878 145,626,894 1,543,290 458,839,724 5,131,349 62,776,096 196,297,002 125,850,513 (265,964,525) (279,395,725) (265,964,525) (279,395,725) (236,630,187) (225,719,764) Fair Value ThCh$ 48,184,878 145,626,894 1,543,290 458,839,724 5,131,349 62,776,096 196,297,002 125,850,513 (236,630,187) (225,719,764) (6,232,523,988) (6,191,284,245) (6,377,392,540) (6,342,731,573) (79,982,358) 130,385,292 128,686,537 128,686,537 k. Derivative instruments The Company is exposed to the impact of market fluctuations in the price of electricity, primary materials such as natural gas, petroleum, coal, and other energy-related products, interest rates, and foreign exchange rates. The Company employs policies and procedures to manage its risks associated with these market fluctuation on a global basis through strategic contract selection, fixed-rate and variable-rate portfolio targets, net investment hedges, and financial derivatives. All derivatives that do not qualify for the normal purchase and sales exemption under SFAS No. 133 are recorded at their fair value. On the date that swaps, futures, forwards or option contracts are entered into, the Company designates the derivatives as a “hedge”, if the documentation is not appropriate to designate as a “hedge” the derivative’s mark-to-market adjustment flows through the income statement. The Company does not have the appropriate documentation in place to designate contracts as hedges of a forecasted transaction or future cash flows (cash flow hedge) or as a hedge of a recognized assets, liability or firm commitment (fair value hedge). The Company has classified its derivatives into the following general categories: commodity derivatives, embedded derivatives, and financial derivatives. Certain energy and other contracts for the Company’s operations in Chile are denominated in the US dollar. According to SFAS No. 133, an embedded foreign currency derivative should be separated from the host contract because none of the applicable exclusions are met (See Embedded Derivative Contracts below). For purposes of evaluating the functional currency of the Company’s subsidiaries in Argentina, Perú, Brazil, and Colombia, the Company applied BT 64, ENERSIS 20 02 ANNUAL REPORT 181 180 180 consistent with the methodology described in paragraph (s), thus the functional currency of these subsidiaries was the US dollar as these subsidiaries were remeasured into US dollars because foreign subsidiaries operate in countries exposed to significant risks as determined under BT 64. The following is a summary of the Company’s adjustment to fair values for all identified derivative contracts at the date of implementation of SFAS No. 133 on January 1, 2001 and as the year-ended December 31, 2001 and 2002. Commodity derivatives Embedded derivatives Financial derivatives Effects of minority interest Deferred tax effects As of January 1, 2001 Distribution Generation ThCh$ 16,330,955 25,266 (1,650,130) 14,706,091 (7,947,755) (5,185,287) ThCh$ 127,914,469 (8,631,797) (3,776,374) 115,506,298 (54,673,667) (41,390,634) Total ThCh$ 144,245,424 (8,606,531) (5,426,504) 130,212,389 (62,621,422) (46,575,921) Cumulative change in accounting principle 1,573,049 19,441,997 21,015,046 Commodity derivatives Embedded derivatives Financial derivatives Investment in related companies Derivative instruments U.S.GAAP Shareholders equity adjustment Commodity derivatives Embedded derivatives Financial derivatives Investment in related companies Derivative instruments U.S.GAAP Shareholders equity adjustment ENERSIS 2002 ANNUA L REPORT 181 180 180 ThCh$ 80,927,204 (23,089,669) 352,726 58,190,261 ThCh$ (11,240,489) 262,190 (28,432,901) (39,411,200) As of December 31, 2001 Distribution Generation ThCh$ 135,782,017 (3,876,022) (19,026,564) Total ThCh$ 216,709,221 (26,965,691) (18,673,838) 112,879,431 39,297,958 171,069,692 39,297,958 58,190,261 152,177,389 210,367,650 As of December 31, 2002 Distribution Generation ThCh$ 218,474,062 (12,209,854) (16,952,690) Total ThCh$ 207,233,573 (11,947,664) (45,385,591) 189,311,518 7,649,226 149,900,318 7,649,226 (39,411,200) 196,960,744 157,549,544  Certain Company’s generation and distribution commodity contracts could be seen as contracts that meet the definition of a derivative under SFAS No. 133 and would be required to be accounted for at fair value. These conditions are (i) have an underlying, which is the market price of power at the delivery location and a notional amount specified in the contract; (ii) have no initial payment on entering into the contract; and (iii) do not have a net settlement provision have has the characteristic of net settlement because power is readily convertible to cash, as it is both fungible and actively traded in the country of generation or country of distribution. The Company assessed that its commodity contracts that are requirements contracts do no meet the above definition because the contracts do not have notional amounts, as they only have maximum amounts or no specified amounts, and do not include an implicit or explicit minimum amount in a settlement or a default clause. A requirements contract allows the purchaser to use as many units of power as required to satisfy its actual needs for power during the period of the contract, and the party is not permitted to buy more than its actual needs. The Company concluded that all of its power is readily convertible to cash as energy is actively traded, or the Company has access, to markets where energy is actively traded. However, only certain participants have access to the energy markets, thus determination as to whether energy could be considered readily convertible to cash was analyzed on a country by country basis. Currently, Chilean distributors do not have access to the Chilean spot market, however this could change in the future if energy regulations are changed. The Company has also concluded that multiple-delivery long-term power contracts meet the net settlement characteristic. Management multiple-delivery long-term power contracts are readily convertible to cash because the Company operates in countries with active spot markets, that although they contain varying levels of liquidity, can rapidly absorb the contract’s quantities at each delivery date without significantly affecting the price, and thus meet the definition of net settlement, consequently these contracts are accounted as derivatives that under SFAS No.133. The Company’s Argentine generation entities have access to the Brazilian energy market through an interconnection system between the two markets. In order to calculate the fair values of the purchase and sale contracts related to the energy to be sold in the Brazilian market, the Argentine market prices were used. The Company believes this is the best measure for fair value, because in the event that the Brazilian market prices are below the cost to produce the energy in Argentina, the Company will sell the energy in Argentina and purchase the energy from the spot market in Brazil. Additionally, the interconnection line was established to sell energy generated in Argentina in the Brazilian market, as the Brazilian energy market heavily relies on hydro-electric generation and has historically had significant problems with meeting its energy needs economically due to lack of rainfall. Because both the purchases and sales interconnection contracts are for periods up to 20 years in complex markets, where no similar term forward market information is available, the Company has estimated such values based on the best information available, including using modeling and other valuation techniques. The Company has recorded the best estimate of fair value, however with different assumptions such as interest rates, inflation rates, exchange rates, electricity rates, and increases in cost trends, materially different fair values could result. As a result such estimates are highly volatile and dependent upon the assumptions used. The assumption to measure the fair value of these interconnection related contracts using the Argentine market prices has a significant effect on the Company’s net income and shareholder equity. If Brazilian market prices had been used instead of Argentine prices estimated fair values of the related energy contracts a significantly different fair value would result. The Company considers the Argentine prices to be the correct benchmark to value the fair value of the interconnection contracts because the Company does not have concessions to sell the Argentine generated energy in the Brazilian market to any parties other than those currently contracted. Therefore the Company views the interconnection as an extension of the Argentine market and as a more appropriate measure of the fair value of energy. ENERSIS 20 02 ANNUAL REPORT 183 182 182  Such values are included in the reconciliation to U.S. GAAP in paragraph (aa). Embedded Derivative Contracts The Company enters into certain contracts that have embedded features that are not clearly and closely related to the host contract. As specified in SFAS No. 133, bifurcation analysis focuses on whether the economic characteristics and risks of the embedded derivative are clearly and closely related to the economic characteristics and risks of the host contract. In certain identified contracts, the host service contract and the embedded feature are not indexed to the same underlying and changes in the price or value of service will not always correspond to changes in the price of the commodity to which the contract is indexed. U.S. GAAP requires embedded features to be measured at fair value as freestanding instruments. Unless the embedded contracts are remeasured at fair value under otherwise applicable GAAP, the embedded feature must be valued at fair value with changes in fair value reported in earnings as they occur. Embedded foreign currency derivative instruments are not separated from the host contract and considered a derivative instrument if the host contract is not a financia1 instrument and it requires payments denominated in either: (1) the functional currency of any substantial patty to the contract. (2) the local currency of any substantial party to the contract, (3) the currency used because the primary economic environment is highly inflationary, or (4) the currency in which the good or service is routinely denominated in international commerce. Financial Derivatives Changes in interest rates expose the Company to risk as a result of its portfolio of fixed-rate and variable rate debt. The Company manages interest rate risk exposure on a global basis by limiting its variable rate and fixed-rate exposures to certain variable/fixed mixes set by policy. The Company manages interest rate risk through the use of interest rate swaps and collars and cross-currency swaps. The Company does not enter into financia1 instruments for trading or speculative purposes. Net lnvestment Hedges The Company is also exposed to foreign currency risk arising from long-term debt denominated in foreign currencies, the majority of which is the US dollar. This risk is mitigated, as a substantial portion of the Company’s revenues are either directly or indirectly linked to the US dollar. Additionally, the Company records the foreign exchange gains and losses on liabilities related to net investments in foreign countries which are denominated in the same currency as the functional currency of those foreign investments. Such unrealized gains and losses are included in the cumulative translation adjustment account in shareholders equity, and in this way act as a net investment hedge of the exchange risk affecting the investments (see Note ll (c) and Note 22 (f) for further detail). The Company also uses short duration forward foreign currency contracts and swaps, and cross-currency swaps, where possible, to manage its risk related to foreign currency fluctuations. These contracts are considered “cover” contracts under Chilean GAAP. In accordance with Chilean GAAP the gain and losses on these contracts are deferred until realized as assets or liabilities. For U.S. GAAP purposes, as the Company has not met the requirements for designating these derivatives contracts as “hedges”, the contracts are recorded at fair value in the balance sheet with any unrealized gain and/or losses being directly recorded in the income statement. l. Reclassification to U.S. GAAP Certain reclassifications would be made to the Chilean GAAP income statement in order to present Chilean GAAP amounts in accordance with presentation requirements under U.S. GAAP. Amortization of negative goodwill, amortization of goodwill, and certain other non-operating income and expense, would be included in operating income. Recoverable taxes included in other non-operating revenues would be recorded as part of income taxes under U.S. GAAP. The gain from the repurchase ENERSIS 2002 ANNUA L REPORT 183 182 182 of Yankee bonds by Enersis S.A. and Endesa Chile S.A. included in non-operating income under Chilean GAAP would be presented as an extraordinary gain according to U.S. GAAP. Equity participation in income or losses of related companies included in non-operating income would be presented after income taxes and minority interest in accordance with U.S. GAAP. The following reclassifications included in the column labeled “Reclassifications” disclose amounts using a U.S. GAAP presentation, although the amounts displayed have been determined in accordance with Chilean GAAP: Operating income Non-operating expense, net Income taxes Minority interest Year ended December 31, 2000 Chilean GAAP Reclassification U.S. GAAP Presentation ThCh$ ThCh$ ThCh$ 552,749,621 258,352,632 811,102,252 (169,411,441) (219,985,929) (389,397,370) (146,323,505) (184,000,228) 4,203,502 (142,120,003) - (184,000,228) Equity participation in income of related companies, net - 76,753 Amortization of negative goodwill 42,646,957 (42,646,957) 76,753 - Net income 95,661,405 - 95,661,405 Operating income Non-operating expense, net Income taxes Minority interest Year ended December 31, 2001 Chilean GAAP Reclassification U.S. GAAP Presentation ThCh$ ThCh$ ThCh$ 754,543,767 (84,016,035) 670,527,732 (498,001,278) (136,687,539) (125,152,619) 109,936,884 (388,064,394) 8,116,807 (128,570,732) - (125,152,619) Equity participation in income of related companies, net - (10,698,797) (10,698,797) Amortization of negative goodwill 47,451,702 (47,451,702) 0 Net income before extraordinary gain 42,154,033 (24,112,843) - 24,112,843 18,041,190 24,112,843 Extraordinary gain Net income 42,154,033 - 42,154,033 ENERSIS 20 02 ANNUAL REPORT 185 184 184  Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Year ended December 31, 2002 Chilean GAAP Reclassification U.S. GAAP Presentation ThCh$ ThCh$ ThCh$ 532,644,361 (443,002,361) 89,642,000 (796,530,156) 540,598,729 (255,931,427) (66,016,985) (15,988,017) (82,005,002) 16,282,559 - 8,263,783 16,282,559 8,263,783 Amortization of negative goodwill 112,247,774 (112,247,774) - Net loss before extraordinary items (201,372,447) (22,375,640) (223,748,087) Extraordinary items (22,375,640) 22,375,640 - Net loss (223,748,087) - (223,748,087) Certain reclassifications would be made to the Chilean GAAP balance sheet in order to present Chilean GAAP amounts in accordance with presentation requirements under U.S. GAAP. Deferred taxes from depreciation differences that are recorded as short-term under Chilean GAAP would be recorded as long-term under U.S. GAAP. Real estate properties under development and construction-in-progress are included in current assets as inventory in Chilean GAAP and under U.S. GAAP such assets would have been included as property, plant and equipment. Additionally, the regulated asset recorded during 2001 by Coelce and Cerj, Brazilian subsidiaries, has been partially recorded in trade receivables and an additional component was recorded in current assets by Coelce under Chilean GAAP. However, under U.S. GAAP the presentation of these regulated assets should be classified as non-current assets as the recovery of these assets is not expected in the short term. These reclassifications exclude consolidation of development stage companies, the effect of which is immaterial. The effect of the following reclassifications included in the column labeled “Reclassifications” discloses amounts using a U.S. GAAP presentation although the amounts displayed have been determined in accordance with Chilean GAAP: Current assets Year ended December 31, 2001 Chilean GAAP Reclassification U.S. GAAP Presentation ThCh$ ThCh$ ThCh$ 1,162,446,794 (211,305,194) 951,141,600 Property, plant an equipment, net 9,625,049,659 27,262,972 9,652,312,631 Other assets Total assets Current liabilities Long-term liabilities Minority interest Shareholders’s equity 1,972,302,858 (52,706,143) 1,919,596,715 12,759,799,311 (236,748,365) 12,523,050,946 1,639,303,381 (110,607,126) 1,528,696,255 5,832,362,823 (126,141,239) 5,706,221,584 4,073,571,128 1,214,561,979 - - 4,073,571,128 1,214,561,979 Total liabilities and shareholders’ equity 12,759,799,311 (236,748,365) 12,523,050,946 ENERSIS 2002 ANNUA L REPORT 185 184 184 Current assets Year ended December 31, 2002 Chilean GAAP Reclassification U.S. GAAP Presentation ThCh$ ThCh$ ThCh$ 1,223,963,114 (84,691,477) 1,139,271,637 Property, plant an equipment, net 9,879,458,183 23,804,228 9,903,262,411 Other assets Total assets Current liabilities Long-term liabilities Minority interest Shareholders’s equity 1,517,743,379 (24,600,329) 1,493,143,050 12,621,164,676 (85,487,578) 12,535,677,098 2,151,373,249 (28,554,145) 2,122,819,104 5,413,608,412 (56,933,433) 5,356,674,979 4,050,602,721 1,005,580,294 4,050,602,721 1,005,580,294 Total liabilities and shareholders’ equity 12,621,164,676 (85,487,578) 12,535,677,098 m. Employee Benefit Plans Enersis S.A. and its subsidiaries sponsor various benefit plans for its current and retired employees. A description of such’ benefits follows: Severance indemnities The provision for severance indemnities, included in the account “Accrued expenses” short and long-term is calculated in accordance with the policy set forth in Note 2 (n), using the current salary levels of all employees covered under the severance indemnities agreement, an assumed discount rate of 9.5% for the years ended December 31,1999,2000 and 2001, and an estimated average service period based on the years of services for the Company. Benefits for Retired Personnel Other benefits provided to certain retired personnel of Enersis include electrical service rate subsidies, additional medical insurance and additional post-retirement benefits. Descriptions of these benefits for retired personnel are as follows: i) Electrical rate service This benefit is extended only to certain retired personnel of Enersis. These electric rate subsidies result in the eligible retired employees paying a percentage of their total monthly electricity costs, with Enersis paying the difference. ii) Medical benefits This benefit provides supplementary health insurance, which covers a portion of health benefits not covered under the institutional health benefits maintained by employees of Enersis. This benefit expires at the time of death of the pensioner. iii) Supplementary pension benefits Eligible employees are able to receive a monthly amount designed to cover a portion of the difference between their salary at the point of retirement and the theoretical pension that would have been received had the employee reached the legal retirement age of the Institución de Previsión Social (Institute of Social Welfare). This benefit expires upon the death of the pensioner for the Enersis employee, however, continues to cover the surviving-spouse in the case of employees of the subsidiary Endesa-Chile. ENERSIS 20 02 ANNUAL REPORT 187 186 186 iv) Worker’s compensation benefits Employees that were entitled to Worker’s compensation insurance in prior years for work related accidents receive benefits from the Company as such insurance has expired. This benefit continues at the time of death of the pensioner, to cover the surviving-spouse. The Company has recognized liabilities related to complementary pension plan benefits and other postretirement benefits as stipulated in collective bargaining agreements. Under U.S. GAAP, post-retirement employee benefits have been accounted for in accordance with SFAS No. 87 and SFAS No. 106, with inclusion of prior-period amounts in current year’s income as the amounts are not considered significant to the overall financia1 statement presentation. The effects of accounting for post- retirement benefits under U.S. GAAP have been presented in paragraph (bb), above. The following data are presented under U.S. GAAP for Company’s post-retirement benefit plans. Changes in benefit (obligations) Pension Benefits Other Benefits 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ Benefit (obligations) at January 1 (127,276,623) (158,318,450) (5,630,758) (18,790,555) Price-level restatement Foreign exchange effect Net periodic expense Benefits paid Company contributions 3,826,939 (15,743,272) (14,783,599) 1,130,278 8,250,286 4,141,331 (2,514,206) (13,649,465) 14,647,166 32,554,873 136,056 - 468,722 (12,326,341) (18,982,900) 906,077 (170,245) 4,029,429 Benefit (obligations) at December 31 (144,595,992) (123,138,751) (16,914,966) (33,445,549) Funded Status of the Plans Proyected Benefit Obligation Fair value of the plan’s assets (224,243,937) (208,863,000) (19,442,624) (33,293,198) 93,527,895 93,196,829 Funded Status (130,716,041) (115,666,171) (19,442,624) (33,293,198) Unrecognized loss Unrecognized net transition obligation (30,531,801) 16,651,850 (17,138,790) 9,666,203 - 2,527,658 (13,056,708) 12,904,357 Net liability recorded under U.S. GAAP (144,595,992) (123,138,758) (16,914,966) (33,445,549) Adjustment required to reflect minimum liability: Additional minimum liability Intangible asset (291,282) 291,282 (299,601) 299,601 Balance of additional liability - - ENERSIS 2002 ANNUA L REPORT 187 186 186 Change in the plan assets Fair value of plans assets, January 1 Foreign exchange effect Actual return on the plan assets Employer contributions Plan participant contributions Benefits paid Fair value of plans assets, December 31 Pension Benefits 2002 ThCh$ 86,445,632 (19,338,142) 28,063,671 13,665,577 4,110,398 (19,750,307) 93,196,829 Assumptions as of December 31 Discount rate Salary increase Return on plan assets Components of net periodic Benefits expenses Service cost Interest cost 2000 ThCh$ 15.0% 9.6% 10.4% Pension Benefits 2001 ThCh$ 12.2% 7.0% 10.4% 2002 ThCh$ 12.97% 6.86% 10.96% 2000 ThCh$ Other Benefits 2001 ThCh$ 9.5% 11.8% - - - - 2002 ThCh$ 11% - - (748,873) (697,719) (905,752) 1,272,083 (11,129,179) (4,407,258) (16,106,429) (23,595,153) (13,605,434) (716,812) (986,524) (2,586,994) Expected return on assets 1,026,865 15,826,320 6,541,907 Amortization gain (loss) 6,101,489 (3,838,806) Amortization of transition asset (1,482,653) (2,478,241) (4,040,437) (1,639,750) - - - - (10,120,907) 217,167 (210,638) (1,867,741) Net periodic expenses (11,209,601) (14,783,599) (13,649,466) 772,438 (12,326,341) (18,982,900) ENERSIS 20 02 ANNUAL REPORT 189 188 188 n. Comprehensive income (loss) In accordance with U.S. GAAP, the Company reports a measure of all changes in shareholders’ equity that result from transactions and other economic events of the period other-than transactions with owners (“comprehensive income”). Comprehensive income is the total of net income and other non-owner equity transactions that result in changes in net shareholders’ equity. The following represents accumulated other comprehensive income balances as of December 31, 2000, 2001 and 2002 (in thousands of constant Chilean pesos as of December 31,2002). Chilean GAAP cumulative translation adjustment 2000 Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ 8,454,732 1,336,996 ThCh$ 4,135,642 (4,410,079) ThCh$ 12,590,374 (3,073,083) Beginning balance Credit (charge) for the period Ending balance 9,791,728 (247,437) 9,517,291 Chilean GAAP cumulative translation adjustment 2001 Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ 9,791,728 19,459,327 ThCh$ (274,437) (3,494,199) ThCh$ 9,517,291 15,965,128 Beginning balance Credit (charge) for the period Ending balance 29,251,055 (3,768,636) 25,482,419 Chilean GAAP cumulative translation adjustment 2002 Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ 29,251,055 20,596,914 ThCh$ (3,768,636) (12,536,493) ThCh$ 25,482,419 8,060,421 Beginning balance Credit (charge) for the period Ending balance 49,847,969 (16,305,129) 33,542,840 ENERSIS 2002 ANNUA L REPORT 189 188 188 o. Discontinued operations In October of 2001, the FASB issued SFAS No. 144 which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 establishes accounting and reporting standards for the impairment and disposal of long-lived assets and discontinued operations. The Company adopted SFAS No. 144 in 2002. All prior year reporting periods have been restated to reflect the adoption. The application of this statement resulted in the classification, and separate financial presentation of certain entities as discontinued operations, the results of which are not included in continuing operations. There was no impairment of assets related to discontinued operations, as their fair value exceeded their carrying value. Fair values used in these calculations has been determined by using the agreed upon sales prices. In 2002, the Endesa Chile (Enersis Subsidiary) committed to a plan to dispose the 60% equity participation it held in the consolidated subsidiary, Infraestructura Dos Mil S.A. It was accounted for as discontinued operations in accordance with SFAS No. 144 and, accordingly, amounts in reconciliation of net income to US GAAP and the additional disclosure notes required under US GAAP for all periods shown, reflect that component as a discontinued operation. The net sales from discontinued operations for the years 2000, 2001 and 2002 were ThCh$15,081,812, ThCh$20,150,123 and ThCh$20,202,007, respectively. The major classes of discontinued consolidated assets, consolidated liabilities and minority interest included in the Chilean GAAP Endesa Chile consolidated Balance Sheet are as follows: Assets: Cash Account receivable, net Other current assets Property, plant and equipment, net Intangibles Other assets As of December 31, 2001 ThCh$ 2002 ThCh$ 543,989 7,276,944 2,556,811 177,536,030 21,445 2,517,470 190,065 14,769,412 35,355,119 168,496,330 34,420 18,055,721 Total assets of discontinued operations 190,452,689 236,901,067 Liabilities: Current liabilities Long term liabilities Income taxes payable (including deferred) 122,970,123 2,621,183 536,942 74,178,107 97,156,269 835,078 Minority interest 734,927 729,136 Total liabilities and minority interest of discontinued operations 126,863,175 172,898,590 ENERSIS 20 02 ANNUAL REPORT 191 190 190  The major classes of consolidated revenues and expenses included in the Chilean GAAP Enersis consolidated Income Statement are as follows: Sales Costs of sales Gross profit Administrative and selling expenses 2000 ThCh$ 15,081,812 (8,689,379) 6,392,433 (985,710) As of December 31, 2001 ThCh$ 20,150,123 (10,457,778) 9,692,345 (1,291,432) 2002 ThCh$ 20,202,007 (9,961,732) 10,240,275 (1,309,638) Operating income 5,406,723 8,400,913 8,930,637 Non operating (loss) income (4,836,751) (7,003,803) (7,501,002) Income before taxes and minority interest 569,972 1,397,110 1,429,635 Income tax Minority interest 155,745 (465,717) (605,137) (507,563) (972,455) (292,061) Net income for the year 260,000 284,410 165,119 p. Goodwill and intangible assets As discussed in paragraph (i), Enersis S.A. adopted SFAS 142, which requires companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, FAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS 142, effective January 1, 2002 and annually thereafter. Under SFAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company’s reporting units are at the operating subsidiary level. This methodology differs from Enersis’s previous policy, as provided under accounting standards existing at that time of using undiscounted cash flows on an enterprise-wide basis to determine if goodwill was recoverable. Upon adoption of SFAS 142 in 2002, the Company has recognized a non-cash charge of ThCh$600,380,013 to reduce the carrying value of goodwill. In calculating the impairment charge, the fair value of the impaired reporting units underlying the segments were estimated using discounted cash flow methodology. The ThCh$600,380,013 goodwill impairment is associated entirely with goodwill associated with investments in Argentina and Brazil. The impairment reflects the decline in the Company’s revenues and forecasted cash flows in their Argentina and Brazilian subsidiaries and the increase in inflation and interest rates and decreasing expectations of the currencies in Argentina and Brazil. Prior to performing the review for impairment, SFAS 142 required that all goodwill deemed to be related to the entity as a whole be assigned to all of the Company’s reporting units, including the reporting units of the acquirer. ENERSIS 2002 ANNUA L REPORT 191 190 190  A summary of the changes in the Company’s goodwill under U.S. GAAP during the year ended December 31, 2002, by country of operation is as follows: January 1, 2002 (1) ThCh$ 998,343,122 83,196,029 482,974,835 60,415,564 19,993,731 Acquisitions ThCh$ 3,333,940 - - - - Goodwill Translation adjustment ThCh$ Impairment December 31, 2002 ThCh$ ThCh$ - (1,713,130) 999,963,932 6,624,271 (89,820,300) 25,871,748 (508,846,583) - - 2,225,133 1,309,513 - - 62,640,697 21,303,244 Chile Argentina Brazil Colombia Peru Total 1,644,923,281 3,333,940 36,030,665 (600,380,013) 1,083,907,873 (1) In thousands of constant Chilean pesos as of December 31, 2002, using exchange rate of Ch$ 718,61 per US$ The Company’s intangible assets were ThCh$71,697,080 and ThCh$80,915,893 and related accumulated amortization were ThCh$25,148,069 and ThCh$34,648,290 as of December 31, 2001 and 2002, respectively. There is no difference between Chilean and U.S. GAAP in the amortization of intangible assets because all of the Company’s intangible assets are subject to amortization, since they relate to finite contracts or concessions. q. Recent accounting pronouncements In January 2003, the Chilean Association of Accountants issued Technical Bulletin No. 72, “Combinación de Negocios Inversiones Permanentes y Consolidación de Estados Financieros”. This standard complements or replaces existing accounting literature for business combinations under Chilean GAAP, and requires all acquisitions initiated after January 1, 2003 to be accounted for using the purchase method based on fair values of assets acquired and liabilities assumed. In addition, in exceptional cases, the pooling-of-interest method may be used in reorganizations between related parties or for those transactions, where there is no clear acquirer. Technical Bulletin No. 72 continues to require the amortization of goodwill, and specifies the requirement for an impairment test. Notwithstanding any future transactions, the adoption of Technical Bulletin No. 72 is not expected to have a significant effect on the results of operations, financial position or cash flows of the Company. In June 2001 the Financia1 Accounting Standards Board issued Statement of Financia1 Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). This standard requires that obligations associated with the retirement of tangible long-lived assets be recorded as liabilities when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing a liability for an asset retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, this liability is accreted to its present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. If the Company reported in accordance with U.S. GAAP, the Company would be required to adopt SFAS No. 143 effective January 1, 2003. The Company expects that the adoption of this statement will not result in a significant difference between Chilean GAAP and US GAAP in future periods, however the Company is still assessing the impact. In April 2002, the FASB issued Statement of Financia1 Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. This statement rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishments of Debt”, and an amendment of that Statement, Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” This Statement also amends other existing authoritative ENERSIS 20 02 ANNUAL REPORT 193 192 192 pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS 145 related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after May 15, 2002, although early application is encouraged. Any gain or loss on extinguishments of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB Opinion 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for classification as an extraordinary item shall be reclassified. Debt extinguishments used as part of an entity’s risk management strategy represent one example of debt extinguishments that do not meet the criteria for classification as extraordinary items in APB Opinion No. 30. The Company will apply SFAS 145 beginning January 1, 2003. The Company’s application of SFAS 145 will require the reclassification of the extraordinary gain on early retirement of Yankee bonds of ThCh$23,410,527 (as presented in Note 34 l(l) to other non-operating income, so upon application there will be no presentational difference between Chile and U.S. GAAP for the early extinguishments of debt. In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, not when it is “planned”. The Company is required to adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 and does not expect the adoption to have a material impact on the Company’s results of operations or financial position. In April 2003, the Financial Accounting Standards Board (FASB) issued Statement N°149 (SFAS N°149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. FAS N° 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS N°133. SFAS N°149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003, except for SFAS N°133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, and certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist. Enersis is evaluating the effect, if any, that SFAS N°149 will have on its results of operating its financial position and its cash flows. In June, 2003, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 150 (“SFAS No. 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement clarifies classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires classification of financial instruments within a company’s scope as liabilities. Such financial instruments may include mandatorily redeemable shares, financial instruments which embody an obligation to repurchase shares or require issuer to settle the obligation by transferring assets, or financial instruments that embody an unconditional obligation, or, in certain circumstances, an unconditional obligation. The Company believes that the adoption of this pronouncement will not have an impact on its statements of financial condition, its statements of operations or cash flows. In January, 2003, Emerging Issues Task Force (“EITF”) 00-21, “Revenue Arrangements with Multiple Deliverables,” was issued , which is applicable for all revenue arrangements of this nature entered into after June 15, 2003. This EITF applies to all deliverables within contractually binding arrangements in all industries in which a vendor will perform multiple revenue- generating activities with certain exceptions. The application guidance contains guidance on 1) how these arrangements should be measured; 2) whether the arrangement should be divided into separate units of accounting, and 3) how the arrangement consideration should be allocated among the separate units of accounting. The Company believes that the issuance of this EITF will have no impact on its statements of financial condition, its statements of operations or cash flows. ENERSIS 2002 ANNUA L REPORT 193 192 192 In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). The Interpretation will significantly change current practice in the accounting for, and disclosure of, guarantees. In general, the Interpretation applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. Guarantees meeting the characteristics described in the Interpretation, are required to be initially recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, “Accounting for Contingencies”. The Interpretation also requires a guarantor to make significant new disclosures for virtually all guarantees even when the likelihood of the guarantor’s having to make payments under the guarantee is remote. The Interpretation’s disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Interpretation’s initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The Company has implemented FIN 45 during December 31, 2002, noting no adjustments to US GAAP were necessary as the fair values of all direct and indirect guarantees were zero, see Note 28 for a detail of the Company’s guarantees. In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities-an interpretation of ARB 51,” to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Many variable interest entities have commonly been referred to as special-purpose entities or off-balance sheet structures, but the guidance applies to a larger population of entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The Company must apply Interpretation No. 46 immediately to variable interest entities created after January 31, 2003 and apply it to existing variable interest entities in the first fiscal year or interim period beginning after June 15, 2003. The Company does not expect the interpretation to have a material impact on the Company’s results of operation or financial position. r. Subsequent events (1) During January 2003, the governor of the State of Paraná in Brazil suspended payment and announced its intention to cancel or renegotiate the long-term energy contracts between Copel and Endesa-Chile’s equity method investment, CIEN. The 20-year long-term contracts were negotiated during almost two years of negotiations and aim to relieve the energy-suppy shortages in Brazil, and were complied with through December 31, 2002. An investment of more than US$ 700 million was made to build the Interconnection-line between Brazil and Argentina. During 2002, approximately R$1.2 billion (or approximately US$ 340 million) of energy was sold by CIEN to Copel through the long-term energy contracts. CIEN has notified the Ministry of Mines and Energy and the Electric Energy Regulatory Agency (“ANEEL”) of Copel’s default. CIEN has 20-year long-term energy purchase commitments in Argentina to satisfy the supply contracts with Copel. Additionally, the estimated fair value of these long-term energy contracts with Copel was US$ 350 million as of December 31, 2002, and any changes or cancellation of the contracts would likely have a material impact in the Company’s consolidated net income and shareholders’ equity. (2) On March 28, 2003, Enersis announced that the board of directors awarded the sale of its 98.7% equity stake in Río Maipo to CGE Distribución S.A. for US$ 203 million. Enersis’ shareholders approved the sale of Río Maipo at a March 31, 2003 Extraordinary Shareholders’ Meeting. Enersis estimates that the sale of Río Maipo will contribute US$ 126 million before taxes to its income statement for the year ended December 31, 2003, and expects to apply the proceeds of this sale to reduce its debt. On April 30, 2003, Río Maipo was sold for US$ 203 million, including US$ 33 million in debt. ENERSIS 20 02 ANNUAL REPORT 195 194 194 (3) On March 31, 2003, at an Extraordinary Shareholders’ Meeting, Enersis’ management approved a capital increase for the equivalent of up to US$ 2 billion. The capital increase, which commenced on May 31, 2003, already allowed for the capitalization of all of Endesa-Spain’s loan to Enersis (with a face value of approximately US$ 1.37 billion), and will allow the capitalization of Enersis’ local bonds (with a face value of approximately US$ 151 million), as well as the subscription of shares for cash. All existing shareholders, other than Endesa-Spain, will have two pre-emptive rights periods in which they are allowed to subscribe their pro rata equity shares, or sell their rights in the market. Endesa-Spain exercised its rights on June 2, 2003, and has voluntarily excluded itself from the second pre-emptive rights period. The new shares to be offered in the capital increase will not be registered with the Securities and Exchange Commission (the “SEC”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act of 1933, as amended. Enersis’ shareholders approved the removal of the 65% maximum limit that a single shareholder was permitted to own in Enersis. (4) In April 2003, CELG initiated legal proceedings against Cachoeira Dourada and ANEEL demanding the annulment of the energy sale contract signed with Cachoeira Dourada in 1998, alleging, among other things, that the contract is extremely onerous and damaging to the financial stability of CELG, causing it supposed damages of approximately US$ 250 million from 1997 to 2003. CELG obtained a preliminary and provisional judgment that suspends the effects of the contract and authorizes CELG to stop payments, also provisionally, of the amounts contractually due to Cachoeira Dourada which correspond to the energy sale price. Both Cachoeira Dourada and ANEEL presented their defenses and legal argument against the decision to suspend the contract. All parties are waiting for the judge to decide whether or not to confirm the preliminary decision of suspending the effects of the contract. Should the judge confirm the decision to suspend the effects of the contract, Cachoeira Dourada and ANEEL will have the opportunity to appeal to an appropriate authority. Both Cachoeira Dourada and its lawyers believe that there is a high probability of obtaining a favorable final decision. (5) On April 8, 2003 Endesa Chile (Enersis Subsidiary) sold 285 kilometers of 220 kV transmission lines to Transelec for US$ 32 million (approximately ThCh$ 22,400,000). The carrying value of net assets under Chilean GAAP sold amounted to ThCh$21,562,962 as of December 31, 2002. Additionally, GasAtacama Generación Limitada, of which Endesa Chile has a 50% participation, sold 673 kilometers of 220 kV line transmission lines for approximately US$ 78 million (ThCh$54,600,000 approximately). The carrying value of net assets under Chilean GAAP sold amounted to ThCh$53,458,465 as of December 31, 2002. In both cases, the transaction included the transfer of the respective substations. (6) On April 25, 2003, Enersis, Endesa-Chile, Enersis Internacional, Chilectra Internacional, and Chilectra filed an action before the Centro Internacional de Arreglo de Diferencias relativas a Inversiones (“CIADI”) in Washington, D.C., requesting an arbitration for resolving a dispute with the Republic of Argentina. The grounds of this action are the damages suffered by the investments of Enersis and our subsidiaries in Argentina, as a consequence of the approval of Economic Emergency Law, Decree N°214/2002, Decree N°293/2002 and Resolution N°38/2002 of the Ministry of Economy. The outcome of these new rules has been a complete new legal framework for the Argentine investments of Enersis and its subsidiaries, which originally date back to September 1992. The original commitments assumed by the Republic of Argentina regarding these investments have not been met. The arbitration action argues that the Republic of Argentina’s failure to comply with its commitments in relation to our investments by the part of the Republic of Argentina is against the letter and the spirit of the Treaty. ENERSIS 2002 ANNUA L REPORT 195 194 194 (7) On April 30, 2003 Endesa Chile (Enersis Subsidiary) sold Canutillar Plant to Cenelca S.A. for US$ 174 million (approximately ThCh$121,800,000). The carrying value of net assets sold under Chilean GAAP amounted to ThCh$ 125,925,381 as of December 31, 2002 and its installed capacity was 172 MW. (8) In May 2003 Chilectra increased its interest in Cerj in Brazil from 33.4% to 41.2% through a capital increase to which Enersis subscribed in January 2003, and later sold a share to Chilectra. Its interest in Coelce in Brazil was also indirectly increased, through Cerj, from 12.8% to 14.4%. Chilectra also owns a 9.9% interest in Codensa in Colombia and a 15.6% interest in Edelnor in Peru. (9) On May 15, 2003, Enersis and Endesa-Chile refinanced US$ 2.33 billion in syndicated loans and bilateral credit agreements structured as: • a US$ 200 million Senior Secured Syndicated Term Loan Facility for Enersis and a US$ 1,388 billion Senior Secured Syndication Term Loan Facility for Enersis, acting through its Cayman Islands Branch (the “Enersis Facility”) each for five years; and • a US$ 743 million Senior Guaranteed Syndicated Term Loan Facility for Endesa-Chile, acting through its Cayman Islands Branch (the “Endesa-Chile Facility”, and together with the Enersis Facility, the “Facilities”). The refinancing of bank obligations with the Facilities has allowed Enersis and Endesa-Chile to: (a) make payments for the bond maturities and put option coming due in 2003 for a total of US$ 701 million, (b) lengthen the maturity profile of our debt, (c) allow a greater period of time before amortizing principal payments on our debt and (d) provide better conditions for the planned capital increase process. The following table shows the effects that would have been recognized under Chilean GAAP from the refinancing of liabilities mentioned before. CURRENT LIABILITIES: Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions Other current liabilities As of December 31, 2002 Before refinancing After refinancing ThCh$ ThCh$ 425,049,260 605,261,953 1,121,062,036 384,736,676 226,914,211 1,121,062,036 Total assets of discontinued operations 2,151,373,249 1,732,712,923 LONG-TERM LIABILITIES: Due to banks and financial institutions Other long-term liabilities 1,691,338,670 3,722,269,742 2,109,998,996 3,722,269,742 Total liabilities and minority interest of discontinued operations 5,413,608,412 5,832,268,738 (10) On May 15, 2003 the Supreme Court of Chile made its final verdict as a consequence of an appeal against Resolution No. 667, ruling in favor of Enersis and confirming Resolution No. 667 from Comisión Resolutiva. ENERSIS 20 02 ANNUAL REPORT 197 196 196 On May 28, 2003, a private complaint against Enersis was filed with the Comisión Resolutiva alleging that Enersis has failed to comply with Resolution No. 667 since Enersis, Endesa-Chile and Chilectra have supposedly shared finance, auditing and communication departments. The complaint alleges that by joining these departments, Enersis is frustrating the Comisión Resolutiva’s objective of preventing energy companies from sharing essential information and keeping the electricity business of generation and distribution independent. Enersis believes that the Comisión Resolutiva’s investigation will not lead to a prohibition of Enersis’s control over the energy distribution and generation markets, because we believe this matter was clearly resolved by Resolution No.667. (11) The Sixth Civil Court of Santiago recently issued its ruling in relation to a lawsuit opposing the Ralco Project filed by a group of people belonging to the Pehuenche ethnic group. The lower court’s sentence concludes that the voluntary procedure undertaken by Endesa-Chile for the assessment of the environmental impact of the Ralco Project is null since, in the court’s opinion, CONAMA, the Environmental Government Agency, was not legally entitled to assess the environmental impact study presented by the Company to CONAMA. Both defendants, the Company and CONAMA, consider this questioning of the legitimacy of the process is unjustified. The resolution dictated by the Sixth Civil Court of Santiago does not imply the penalization of the project, which to date has achieved more than 80% completion. On May 30, 2003, the plaintiffs requested the suspension of the Ralco Project, which was rejected by the court. Instead, of suspending the entire project, the judge ruled that the flooding of the dam should not proceed. Endesa plans to appeal this ruling before the Appeals Court of Santiago. Schedule II – Valuation and Qualifying Accounts Balance at beginning of period Additions charged to costs and expenses Deductions Others Balance at end of period ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ December 31, 2000 Allowance for doubtful accounts receivable 78,303,154 64,414,380 (10,600,402) (10,783,848) 121,333,284 December 31, 2001 Allowance for doubtful accounts receivable 121,333,284 42,858,379 (6,340,092) (11,474,437) 146,377,134 December 31, 2002 Allowance for doubtful accounts receivable 146,377,134 18,798,815 (1,297,010) (48,529,408) 115,349,531 ENERSIS 2002 ANNUA L REPORT 197 196 196 JUAN CARLOS WIECZOREK General Account ENRIQUE GARCIA Chief Executive Officer Enersis S.A. Consolidated Relevant Facts Provisional Dividends The Board of Directors of Enersis S.A., as of January 31, 2002 agreed, upon unanimous vote of its members, not to distribute in February 2002, a provisional dividend charged to the results of December 2001, due to not satisfying the requirements provided for such action in the Dividend Policy of the Company. In the Ordinary Meeting of the month of May, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, not to distribute in May 2002, a provisional dividend charged to the results of March 2002, according to the policy in force on this subject, due to not satisfying the requirements provided for such action in the above mentioned Dividend Policy of the Company. In the Extraordinary Meeting held on July 31, 2002, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, not to distribute in August 2002, a provisional dividend charged to the results of June 2002, according to the policy in force on this subject, due to not satisfying the requirements provided for such action in the above mentioned Dividend Policy of the Company. In the Ordinary Meeting held on October 28, 2002, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, not to distribute in November 2002, a provisional dividend charged to the results of September 2002, according to the policy in force on this subject, due to not satisfying the requirements provided for such action in the above mentioned Dividend Policy of the Company. Changes to the Board of Directors In the Extraordinary Meeting held on July 25, 2002, the resignation of Director Mr. Luis Rivera to the Board of Directors of the Company was accepted. Likewise, in the Ordinary Meeting held on July 26, 2002, the resignation of Mr. Alfredo Llorente to the positions held by him as Chairman of the Board, Director, President of the Committee of Directors and member of this Committee, was accepted. In the same Ordinary Meeting held on July 26, 2002, the following was agreed upon: - To appoint Mr. Pablo Yrarrázaval as Director and Chairman of the Board of Enersis S.A. - To appoint Mr. Pablo Yrarrázaval, Mr. Hernán Somerville and Mr. Ernesto Silva as members of the Committee of Directors. - Finally, Mr. José Luis Palomo was appointed Director. Relevant aspects on the businesses of Endesa España As of September 20, 2002, our parent company, Endesa S.A. (Spain) has presented to the Comisión Nacional de Mercado de Valores de Madrid (Madrid Stock Exchange National Commission), the Superintendence of Securities and Insurance and the S.E.C., a report on the relevant aspects of its businesses. This report and how the situation of its businesses in Latin America affects Endesa España, states the following: “No extraordinary rightoffs, such as those already carried out by other national and international companies, are foreseen. The rightoffs have been made in each quarter by adjusting the value of the investments according to the devaluation of the Latin American currencies, additionally supplying the provisions deemed necessary. This has meant an accumulated rightoff, from the time when these investments were made, of 2,700 million euros of the Latin American investment. The book value of the Latin American assets reasonably corresponds to the market value of same. ENERSIS 20 02 ANNUAL REPORT 199 198 198  Businesses in Latin America show a general positive behavior during the year, as reflected in the operating result of the Latin American business which was increased by 6% in the first half of the year compared to the previous year. Without taking Argentina into consideration, the operating result has increased by 25%. Brazil. The impact caused by the devaluation of the Real is very limited, because 55% of the debt of our Brazilian subsidiaries is denominated in Reales. The remainder is in US dollars, financing a company, CIEN, whose income is linked to the US dollar. The strong increase in the demand during July and the full operation of the second interconnection line between Argentina and Brazil will contribute to improve the profitability of our operations between these two countries. Additionally, US$ 62 million have already been collected from the BNDES loan due to the electric rationing. Chile. The recovery of the hydraulic production in Chile is largely contributing to a strong operating improvement during the year. The operating result for the generation business in Chile was increased by 55% during the first half. Argentina. Provision has been made for 100% of Endesa’s investment in that country. Taken together, the Argentinean companies have a positive operating result, which is higher than the interests corresponding to the debt. Indebtedness and liquidity of the Latin American companies. - Neither Enersis nor Endesa (Chile) have liquidity problems. - The Enersis group has reduced its indebtedness by 1,140 million euros during the first half. - These companies may, in the short term, dispose assets for a minimal amount of 600 million euros which, taken together with the debt associated with these assets, will represent a total reduction in indebtedness of 1,000 million euros. - The companies have closed August with a positive cash situation of US$ 460 million, and maintain an absolutely normal financial situation with the exception of Argentina, where the general situation of the country is affecting the financial activities. Notwithstanding, the Endesa subsidiaries are serving the interest payments and are obtaining extensions for the maturities of the principal of their debts. - Endesa (España) would be willing to capitalize the loan granted to Enersis for an amount of 1,440 million euros, which would represent an important improvement of its equity situation. - Standard & Poors has ratified in last July, the BBB+ rating for the long term debt of Enersis and Endesa Chile. - Finally, the debt of Enersis with Endesa has no warranty or coverage has been given on this debt and there are no “cross- default” clauses with said debt. Financial strengthening plan In the Extraordinary Meeting held on October 4, 2002, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, to announce that a financial and economic strengthening plan has been approved for Enersis S.A., intended to strengthen its equity, via improving its financial structure and allowing the Company to face the regional situation which affects its investments. Said plan contemplates the following operations: a) Increase of capital: The Board of Directors of Enersis has decided to initiate a capital increase process for an amount of up to US$ 1,500 million, which includes cash and/or financial loan contributions. Said process will involve summoning, in one of the following meetings of the Board of Directors of the Company, an Extraordinary Shareholders’ Meeting which will decide on the terms of this capital increase, anticipating that this meeting should take place during the first four months of 2003; ENERSIS 2002 ANNUA L REPORT 199 198 198 b) Disposal of the following assets: (1) Compañía Eléctrica del Río Maipo S.A. distributing company. (2) Inmobiliaria Manso de Velasco Limitada real estate company. (3) Several real properties owned by Enersis S.A. and its subsidiaries. Regarding the sale of Compañía Eléctrica del Río Maipo S.A., and considering that it is an asset deemed essential within the policy of investment and financing of Enersis, said divestment should be authorized by the Extraordinary Shareholders’ Meeting which will be summoned in due time. Regarding the real properties owned by the subsidiaries of Enersis S.A., this Company will propose the divestment of same to the pertinent companies. The amount expected to be raised through the process of divestment of assets contemplated in the financial and economic strengthening plan of Enersis S.A. will be assigned to reduce the financial indebtedness of the Company; c) Refinancing the intercompany loans of some of the subsidiaries with Enersis S.A.: Part of the Enersis financing with its subsidiaries will be substituted by loans directly contracted in the market. This will result in a substantial improvement in the leverage (ratio between debt and equity) of the balance sheet of Enersis S.A.; and d) Improvement in free cash flow. Enersis S.A. will continue to enforce the efficiency measures for operations and investments, in order to increase its yearly operating consolidated free cash flows by at least US$ 130 million, achievable in a three-year term. These higher flows will be in addition to those derived from demand variations and unit margins for energy sales and purchases. On the other hand, the above mentioned capital increase will benefit the company with an additional increase in cash flow due to the consequent reduction in financial expenses. All of these measures should allow a reduction in the indebtedness of Enersis, S.A. by up to US$ 2,200 million, as well as the attainment of a ratio of debt/funds of its own of about 0.6. The Board of Directors agreed to authorize the Management of the Company to propose to the Board of Directors the appointment of an investor bank to conduct the above mentioned alienation processes, as well as to adopt all of the measures leading to the adequate materialization of the above described operations. Study of stock placement As of November 7, Enersis S.A. has initiated negotiations with the following investment banks, in order to study the possibility of placing shares in foreign markets: Deutsche Bank, Salomon Smith Barney and Santander Investment, leading the process jointly. ENERSIS 20 02 ANNUAL REPORT 201 200 200  CHILECTRA AND SUBSIDIARIES DIVIDENDS 1. The Board of Directors of the Company, in the meeting held on January 29, 2002, agreed to distribute as of February 21, 2002, a provisional dividend of Ch$ 14.00 per share, charged to the profits of the period 2001. 2. In the Ordinary Meeting held on March 22, 2002, the Board of Directors of Chilectra S.A. agreed, upon unanimous vote of its present members, to propose to the Ordinary Shareholders’ Meeting, in respect of definitive dividend No. 67: It is agreed to propose to the Ordinary Shareholders’ Meeting to be held on April 10, 2002, the distribution of the definitive dividend for a total amount of Ch$ 16,821,431,731, to be paid as of April 19, 2002. This amount is made up of an additional definitive dividend of Ch$ 16,753,684,391 and an eventual definitive dividend of Ch$ 67,747,340. 3. The Board of Directors of the Company, in the meeting held on April 29, 2002, agreed to distribute as of May 23, 2002, a provisional dividend of Ch$ 39.60 per share, charged to the profits of the period 2002. 4. The Board of Directors of the Company, in the meeting held on July 30, 2002, agreed to distribute as of August 23, 2002, a provisional dividend of Ch$ 45.90 per share, charged to the profits of the period 2002. 5. The Board of Directors of the Company, in the meeting held on October 28, 2002, agreed to distribute as of November 29, 2002, a provisional dividend of Ch$ 20.60 per share, charged to the profits of the period 2002. CHANGES AND APPOINTMENTS 1. In the meeting of the Board of Directors held on January 29, Mr. Marcelo Castillo was appointed Communications Executive Officer, in place of Mr. Guillermo Amunátegui. Additionally, the Planning and Control Executive Officer, Mr. Alfonso Prieto, has disassociated from the Company, and the position has been assumed by Mr. Jorge Faúndez as Planning and Control Deputy Executive Officer. Finally, the position of Economic Planning and Control Executive Officer held by Mrs. Ana Gete, reporting to the Regional Distribution Chief Executive Officer, has been deleted from the organizational structure of the Company. 2. The Board of Directors of Chilectra S.A., in its Ordinary Meeting No.13/2002 held on December 19, 2002, was informed of and accepted the resignation of Mr. Enrique García to his position as Director. Likewise, it is stated that Mr. García was one of the members of the Committee of Directors. 3. In its Ordinary Meeting No.13/2002 held on December 19, 2002, the Board of Directors of Chilectra S.A. appointed Mr. Alberto Martín and Mr. Marcelo Llévenes as Directors, in place of Mr. Enrique García and Mr. Juan Ignacio Domínguez. On the other hand, the Board of Directors appointed Mr. Jorge Rosenblut, Mr. Hernán Felipe Errázuriz and Mr. Alberto Martín as members of the Committee of Directors. Consequently, the Board of Directors of Chilectra S.A. is now constituted as follows: Jorge Rosenblut (Chairman), José Manuel Fernández (Vice-Chairman), Pedro Buttazzoni, Hernán Felipe Errázuriz, Alvaro Quiralte, Alberto Martín and Marcelo Llévenes. ENERSIS 2002 ANNUA L REPORT 201 200 200  COMPAÑÍA ELÉCTRICA DEL RÍO MAIPO S.A. DIVIDENDS The Board of Directors of the Company, in the meeting held on January 29, 2002, agreed to distribute a provisional dividend of Ch$ 4.81 per share, charged to the profits of the period 2001, which was paid as of February 21, 2002. The Board of Directors of the Company, in its Ordinary Meeting held on April 26, 2002, agreed to distribute a provisional dividend of Ch$ 5.92, charged to the profits of the period 2002, which was paid as of May 23, 2002. The Ordinary Shareholders’ Meeting held on April 9 agreed to distribute a definitive dividend of Ch$ 1,348,832,902 and an eventual dividend of Ch$ 8,623,813, charged to the profits of the period 2001, which was paid as of April 18, 2002. The Board of Directors of the Company, in its meeting held on July 25, 2002, agreed to distribute a provisional dividend of Ch$ 5.2 per share, charged to the profits of the period 2002, which was paid as of August 23, 2002. The Board of Directors of the Company, in its meeting held on October 25, 2002, agreed to distribute a provisional dividend of Ch$ 6.48 per share, charged to the profits of the period 2002, which was paid as of November 29, 2002. BOARD OF DIRECTORS According to the General Rule No.30, we announce as an essential fact, the reception of Mr. Alberto López’s letter of resignation to his position as Chairman of the Board. The resignation of Mr. López García was informed to the Board of Directors in the meeting held on July 25, 2002. In that same meeting, Mr. Marcelo Silva was appointed in place of Mr. López. Mr. Silva Iribarne was also appointed Chairman of the Board and member of the Committee of Directors of this Company. According to the General Rule No.30, we inform as an essential fact, the reception of Mr. Marcelo Silva’s letter of resignation to his position as Chairman of the Board. The resignation of Mr. Silva Iribarne was informed to the Board of Directors of the Company in the meeting held on this date. In that same meeting, Mr. Guillermo Pérez was appointed in place of Mr. Silva. In view of the foregoing, Mr. Julio Valenzuela was appointed Chairman of the Board and member of the Committee of Directors of this Company. ENDESA S.A. AND SUBSIDIARIES During the period January-December 2002, and according to the General Rule No. 30, the Company informed of the following essential or relevant facts to the Superintendence of Securities and Insurance: ENDESA MAIN OFFICE On March 6, 2002, it is informed as a relevant fact, that on March 5 of the present year, ENDESA was notified of a suit for arbitral trial filed by the insurance company AGF/ALLIANZ CHILE COMPAÑÍA DE SEGUROS GENERALES S.A., requesting from the referee Mr. Ricardo Peralta, the rescission of insurance policy No. 96676. Said policy protects agains all building and installation risks, including civil liability and anticipated loss of benefits for the construction of Ralco Hydroelectric Power Station. Said policy is in force from May 1, 1999 to May 1, 2003. ENERSIS 20 02 ANNUAL REPORT 203 202 202  The arbitral suit has, as a direct antecedent, the accident at the cofferdam of the Ralco Project occurred on May 27, 2001, and is founded on the existence of true risks; subsidiarily, on the aggravation of same; and, finally, on the lack of information about the nature and extension of the risks under contract. It is worth pointing out that the settlement of the above mentioned accident is pending until the issuance of the final report by the liquidator appointed in the policy. From the preliminary analysis of the plaintiff’s claims, we can inform that, in our opinion, the suit filed by the insurance company requesting the rescission of the insurance contract lacks support. Therefore, ENDESA, together with adopting all of the pertinent securities for the protection of the assets insured by the referred policy, will respond to the above mentioned suit according to the arguments to which it is entitled in fact and by right, in order to obtain its complete rejection. On March 19, 2002, it is informed as a relevant fact, that the present day press announces extensively that the node price will be reduced by 12% in the next tariff setting process. These news are sourced from a release from the National Energy Commission, to the companies of the energy sector and to the media, of the preliminary report on node prices. Regarding the above and considering the negative effect observed today in the share price of our company in the stock exchange centers where they are traded, we have considered pertinent to point out the following: The thus announced 12% reduction in the node prices corresponds to the result of a model with which the National Energy Commission estimates the level of the node prices in a preliminary calculation and report. However, according to DFL No.1 (Electric Law) which rules this subject, said preliminary calculation must be revised by the National Energy Commission, taking into consideration the observations set forth by the companies. The process ends with a new calculation which should be carried out next April, in view of said observations. Therefore, the present calculation does not constitute in itself the node price setting it is just a step of the process. Endesa anticipates right now, at this point that a preliminary analysis of this first calculation suggests several alternatives of correction, which the Company will present to the authority within the referred process. However, DFL No.1 also establishes as mandatory that the final calculation should be contrasted with the average price level of the non regulated market, through a price band which, in the eventual case of a rise or fall in the prices resulting from the theoretical model, would act to attenuate any effect of rise or fall in the final price that will be set. It is of common knowledge to the companies of the sector and the authority that, if in April the theoretical model maintains results such as those of this preliminary calculation, the referred band would act to significantly attenuate the theoretical effect announced. In view of the foregoing, it is premature and distorting for the market to anticipate falls in the node prices such as those announced, without describing the complete process and without disclosing the existence of the referred band. In the Ordinary Shareholder’s Meeting of the Company held on April 11, 2002, the following decisions were adopted: Approval of the Financial Report, Balance Sheet, Other Financial Statements and Report from the External Auditors, corresponding to the period ended at December 31, 2001. Approval of a definitive dividend for the period 2001, which represents a total dividend to be paid of Ch$ 0.94 per share, which will be paid as of April 22, 2002. ENERSIS 2002 ANNUA L REPORT 203 202 202  The following Directors were elected: Mr. Jaime Bauzá Mr. Emilio García Mr. José María Hidalgo Mr. Pablo Yrarrázaval Mr. Rodolfo Martín Mr. Antonio Pareja Mr. Andrés Regué Mr. Antonio Tuset Mr. Leonidas Vial On this same date, the Board of Directors of the Company was constituted, appointing Mr. Pablo Yrarrázaval and Mr. Antonio Pareja as Chairman and Vice-Chairman of the Board, respectively. In this same meeting, Mr. Jaime Bauzá, Mr. Pablo Yrarrázaval and Mr. Antonio Tuset were appointed members of the Committee of Directors of the Company. On June 27, 2002, it is informed that the Board of Directors of the Company, in a meeting held on this same date and in compliance with the resolution adopted by the last Ordinary Shareholder’s Meeting of Endesa, appointed the firm Langton Clarke Auditores y Consultoría Ltda. as external auditors of the Company for the period 2002. It is stated that this appointment is applicable to the continuator of said firm, considering the incorporation process presently in progress with the international network of Ernst & Young International. On July 25, 2002, it is informed as an essential fact, that in an Extraordinary Meeting of the Board of Directors of the Company held on this same date, Mr. Luis Rivera was appointed as new Chairman of the Board and of the Company. Mr. Rivera was incorporated as Director of Endesa in this same meeting, in place of Mr. Pablo Yrarrázaval, who resigned to the positions he held as Director and Chairman of the Company. On October 4, 2002, it is informed as an essential fact, that in the Extraordinary Meeting held on October 3, 2002, the Board of Directors of the Empresa Nacional de Electricidad S.A. agreed, upon unanimous vote of its present members, to approve a financial and economic strengthening plan for Endesa, and consequently for its national and foreign subsidiaries, via improving its credit structure, expediting the investment process presently in progress, and reasserting the financial strength of Endesa to allow it to face, more easily, the regional situation which affects its investments. Said plan contemplates the disinvestment of several assets, and the refinancing and reduction of debts, with the purpose of achieving an equity and financial strengthening of the Company. The referred plan basically contains the following operations: Initiation of the divestment process of Canutillar Hydroelectric Power Station owned by Endesa, having an installed capacity of 172 MW and a mean production of 950 GWh, and representing 4.4% of the installed capacity of Endesa in Chile. Within this process, an Extraordinary Shareholders’ Meeting will be held for its approval. ENERSIS 20 02 ANNUAL REPORT 205 204 204  Promote the refinancing of the GasAtacama Project in order to replace the debt held by the companies involved in the project with their owners, through external financing granted by international banks. Alienation of transmission lines owned by Endesa and its subsidiaries. To all of the above is added the divestment of Endesa’s stake in Infraestructura Dos Mil S.A., a process presently in progress which, in addition to the price corresponding to the divestment in itself, approximately US$ 50,000,000, will permit the reduction of the consolidated debt by approximately US$ 20,000,000. Compliance with the financial strengthening plan, which comprises the global process of disposal of assets, the effect for the company of the refinancing of Gas Atacama and the consolidated debt reduction through the sale of Infraestructura Dos Mil S.A., will result in an estimated income of US$ 600 million to US$ 700 million, which will be assigned to reduce the financial indebtedness of the Company. The compliance of the plan is progressive, although it should be completed during next year. Also, the Board of Directors agreed to authorize the executive management of the Company to carry out the referred financial strengthening plan, to this effect being able to carry out all the initiatives and actions leading to its complete materialization. On October 29, 2002, it is informed as an essential fact that, in the Ordinary Meeting of the Board of Directors held on October 28, 2002, it was unanimously agreed by all present members, to create a subsidiary named “Empresa Eléctrica Canutillar S.A.”, in which Endesa will own 99.9% of the capital stock and which, in due time and after obtaining the corresponding corporate authorizations, will be provided with all the assets of Canutillar Power Station, today owned by Endesa. All of this is within the process for the alienation of this hydroelectric asset to third parties, as reported in our essential fact of October 4, 2002. On January 15, 2003, it is informed as an essential fact, that the Board of Directors of Empresa Nacional de Electricidad, in an Extraordinary Meeting held today, agreed to will make accounting adjustments and extraordinary charges to its balance sheet, due to its investments in Brazil and Argentina, for a total amount of US$ 137.4 million, or its equivalent in national currency, said extraordinary adjustments being reflected on the results of the period 2002. The above mentioned figure can be broken up as follows for each country: Brazil: US$ 100 million Argentina: US$ 37.4 million. The agreement of accounting adjustments is taken in compliance with the application of the new accounting regulation promulgated in the USA, which is mandatory for the companies listed (registered) in said country. This regulation, incorporated in the generally accepted accounting principles applied by the external auditors of the Company, corresponds to the Rule FAS 142 and its first application will be to the financial statements of December 2002. The extraordinary adjustments will have no impact on the cash flow of the Company and will not affect its liquidity situation, this extraordinary measure being inserted for this only one time as a complement of the financial and economic strengthening plan for the Company, approved by the Board of Directors in October 2002. ENERSIS 2002 ANNUA L REPORT 205 204 204  PEHUENCHE S.A. On January 30, 2002, it is informed as an essential fact, that in the meeting held on January 29, 2002, the Board of Directors of Empresa Eléctrica Pehuenche S.A., considering that the profits of the period January-November 2001 are substantially lower than the expectations considered in the estimated budget for said period, approved upon unanimous vote of its present members, not to distribute during the month of January 2002 the provisional dividend charged to net and realized income for the period January-November 2001, as the amount to be distributed would be immaterial. In fact, the financial statements of the Company as of November 30, 2001 show a net and realized income for the period of Ch$ 59,124,009, a figure which includes an approximate estimate of the tax payments for this period. Therefore, if the provisional dividend were distributed, as contemplated in the dividend policy informed to the Ordinary Shareholders’ Meeting of the Company held on March 30, 2001, and which corresponds to 70% of the net and realized income for the above mentioned period, said provisional dividend would be approximately Ch$ 0.07 per share. All of the above is without prejudice (independent) of the definitive dividend, regarding which the Ordinary Shareholders’ Meeting scheduled for the month of April 2002 should issue a pronouncement. The Ordinary Shareholder’s Meeting of the subsidiary “Empresa Eléctrica Pehuenche S.A.”, held on April 8, 2002, approved the balance sheet corresponding to the period ended at December 31, 2001. On this occasion, the Shareholders’ Meeting approved the proposal of the Board of Directors to pay a definitive dividend for the period 2001, representing a total dividend of Ch$ 7.866182 per share which will be paid as of April 22, 2002. The Board of Directors of the Company, in a meeting held on June 27, 2002, agreed to distribute to the shareholders a provisional dividend, according to the provisions of the dividend policy informed to the Ordinary Shareholder’s Meeting held on April 8, 2002. Said provisional dividend will amount to Ch$ 4.090154 per share and will be paid as of July 25, 2002. The Board of Directors of the Company, in a meeting held on September 26, 2002, agreed to distribute to the shareholders a provisional dividend, according to the provisions of the dividend policy informed to the Ordinary Shareholder’s Meeting held on April 8, 2002. Said provisional dividend will amount to Ch$ 5.534918 per share and will be paid as of October 11, 2002. The Board of Directors of the Company, in a meeting held on December 17, 2002, agreed to distribute to the shareholders a provisional dividend, according to the provisions of the dividend policy informed to the Ordinary Shareholder’s Meeting held on April 8, 2002. Said provisional dividend will amount to Ch$ 9,702599 per share and will be paid as of January 15, 2003. AUTOPISTA DEL SOL S.A. As of March 27, 2002, it is informed as an essential fact, that the Board of Directors of the Company in a meeting held on March 26, 2002, agreed to propose to the Ordinary Shareholder’s Meeting of “Sociedad Concesionaria Autopista del Sol” scheduled for April 5, 2002, to pay a definitive dividend charged to the profits of the period 2001, of Ch$ 429.5 per share, as of April 10, 2002. The Ordinary Shareholder’s Meeting of the subsidiary “Sociedad Concesionaria Autopista del Sol S.A.”, held on April 5, 2002, approved the balance sheet corresponding to the period ended at December 31, 2001. On this occasion, the Shareholder’s Meeting approved the proposal of the Board of Directors of the Company to pay a definitive dividend for the period 2001, which represents a total dividend of Ch$ 429.53440535 per share, which will be paid as of April 10, 2002. ENERSIS 20 02 ANNUAL REPORT 207 206 206  According to the provisions of the law and the by laws of the Company, the Board of Directors of the Company was elected, being constituted by the following Directors: Mr. Mario Valcarce Mr. Víctor Bezanilla Mr. Jorge Alé Mr. Rodolfo Nieto Mr. Alexander Fernández On September 3, 2002, it is informed as an essential fact, that the Extraordinary Shareholder’s Meeting of Sociedad Concesionaria Autopista del Sol S.A., held on August 30, 2002, agreed on a unanimous vote to reduce the capital stock which presently amounts to Ch$ 35,452,296,130 divided into 3,740,916 nominative shares, belonging to only one series and with no face value, to Ch$ 32,947,307,337 divided into 3,740,916 nominative shares belonging to only one series and with no face value, representing a reduction of Ch$ 2,504,988,793, an amount which will be distributed among the shareholders at Ch$ 669.6190967667 per share. AUTOPISTA LOS LIBERTADORES S.A. The Ordinary Shareholder’s Meeting of the subsidiary “Sociedad Concesionaria Autopista Los Libertadores S.A.”, held on April 5, 2002, approved the balance sheet corresponding to the period ended at December 31, 2001. According to the provisions of the law and the by laws of the Company, the Board of Directors of the Company was elected, being constituted by the following Directors: Mr. Mario Valcarce Mr. Víctor Bezanilla Mr. Jorge Alé Mr. Rodolfo Nieto Mr. Alexander Fernández INFRAESTRUCTURA DOS MIL S.A. The Ordinary Shareholder’s Meeting of the subsidiary “Infraestructura Dos Mil S.A.”, held on April 5, 2002, approved the balance sheet corresponding to the period ended at December 31, 2001. According to the provisions of the law and the by laws of the Company, the Board of Directors of the Company was elected, being constituted by the following Directors: Mr. Mario Valcarce Mr. Juan Benabarre Mr. Jorge Alé Mr. Maximiliano Ruiz Mr. Rodolfo Nieto Mr. Víctor Bezanilla Mr. Fernando Larraín Mr. Horacio Peña Mr. Alexander Fernández ENERSIS 2002 ANNUA L REPORT 207 206 206  PANGUE S.A. The Ordinary Shareholder’s Meeting of the subsidiary “Empresa Eléctrica Pangue S.A.”, held on April 8, 2002, approved the balance sheet corresponding to the period ended at December 31, 2001. According to the provisions of the law and the by laws of the Company, the Board of Directors of the Company was elected, being constituted by the following Directors: Mr. Enrique Bordiú Mr. Claudio Iglesis Mr. Osvaldo Muñoz Mr. Alan Fisher Mr. Alejandro Wendling The meeting of the Board of Directors of the Company, held on December 17, 2002, agreed to distribute to the shareholders a provisional dividend, according to the provisions of the dividend policy informed to the Ordinary Shareholder’s Meeting held on April 8, 2002. Said provisional dividend will amount to Ch$ 13.774273 per share and will be paid as of January 27, 2003. ENERSIS 20 02 ANNUAL REPORT 209 208 208 Consolidated Management Analysis ECONOMIC-FINANCIAL SUMMARY As of December, 2002, Net Income registered a loss of Ch$ 223.748 million, compared to the profit of Ch$ 42.154 million as of December, 2001. This decrease is basically related to the Accounting Adjustments made by the Company for our investments in Argentina and Brasil. In any event, it is important to highlight that these one time adjustments, are merely accounting issues, and do not represent cash flow reduction. Therefore, these will not affect the liquidity of the Company. Operating Income amounted to Ch$ 532.644 million, which represents a 29.4% respect to the year 2001. This fall is mainly explained by the economic instability in Argentina and the strong devaluation in Brazil. It is important to highlight, however, the improved Operating Income achieved during this period by Chilean subsidiaries. In this respect, this is clearly shown when isolating the effect of subsidiaries in Argentina, in which case the Operating Income decreased only 8.6%, equivalent to Ch$ 50.009 million, as shown in the Pro-Forma Income Statement. In the Distribution Business, it is important to highlight improvement of 1.6% in consolidated Physical Sales, reaching 48,955 GWh, is equivalent to 767 GWh of higher sales compared to 2001, which shows the recovery of some key ratios of the business. On the other hand, physical sales in generation, decrease mainly in Argentina, from 12.988 GWh to 7.897 GWh. Also in the Distribution Business, there is a 2.8% increase in the number of clients, reaching 275,000 new customers, equivalent to add a company like Río Maipo. This growth in clients, with the recovery of the demand, makes us to believe that sales will increase during the year 2003. Another important element in the operating side is the labor productivity, that increase 2.2%, from 1,379 clients per employee to 1,409 clients per employee, confirming the positive trend shown in the last three years. Energy losses, another key variable in the distribution business, increase from 11.9% to 12.1%, primarily due to Edesur, offset by the decrease of Codensa, from 11.8% to 10.3%, as well as the other subsidiaries. Net Financial Result improved by Ch$ 41.957 million or 10.6%, from a loss of Ch$ 396.208 million as of December 2001 to a loss of Ch$ 354.251 million this year. This variation is the result of lower interest rates on the international markets respect to the previous year. Ch$ 573,508 million of lower operating revenues, offset by a decrease of operating costs in 14.6%, equivalent to Ch$ 295.262 million, additionally Ch$ 56.346 million of lower administrative and selling expenses, equivalent to a 20%. Excluding our Argentinean subsidiaries, the decrease in operating revenues have been only 2.2%. ENERSIS 2002 ANNUA L REPORT 209 208 208  MARKETS IN WHICH THE COMPANY OPERATES Enersis’ commercial activities are handled through subsidiaries that operate the various businesses in the countries where the company has a presence. For Enersis, the most important activities are the Distribution and Generation of electricity. The following tables illustrate the evolution of the key ratios in the different countries Distribution Business Company Chilectra Río Maipo Edesur Edelnor Cerj Coelce Codensa Energy sales (GWh) ( * ) Energy losses (%) Clients (thousand) Clients / Employees (thousand) Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 9,585 1,245 9,952 1,274 12,909 12,138 3,685 6,739 5,352 8,673 3,872 7,146 5,558 9,015 5.4% 6.4% 9.9% 8.9% 22.7% 13.0% 11.8% 5.6% 6.2% 11.6% 8.5% 22.6% 12.9% 10.3% 1,289 294 2,097 867 1,691 1,917 1,850 1,319 302 2,090 871 1,778 2,009 1,911 1,785 3,764 925 1,557 1,249 1,309 2,276 1,833 4,021 928 1,465 1,226 1,434 2,382 Total 48,188 48,955 11.9% 12.1% 10,005 10,280 1,379 1,409 (*) It includes sales to final clients, tools, and intercompany sales. Generating Business Country Chile Argentina Perú Colombia Brasil Total Market of operations SIC y SING SIN SICN SIN SICN Energy sales (GWh) Market share Dec-01 18,673 12,988 4,239 14,590 3,743 Dec-02 18,344 7,897 4,158 14,639 3,591 Dec-01 Dec-02 49.0% 13.5% 23.0% 23.3% 1.2% 46.1% 10.9% 21.2% 21.4% 1.1% 54,233 48,629 ENERSIS 20 02 ANNUAL REPORT 211 210 210 ANALYSIS OF THE FINANCIAL STATEMENTS 1. ANALYSIS OF THE INCOME STATEMENTS As of December, 2002, Net Income registered a loss of Ch$ 223.748 million, compared to the profit of Ch$ 42.154 million as of December, 2001. This decrease is basically related to the Accounting Adjustments made by the Company for our investments in Argentina and Brasil. The variations of the income statements are as follows: Income Statement (million Ch$) Dec-01 Dec-02 Var Dec 02- 01 %Var 02-01 Operating Revenues Operating Costs Operating Margin Selling and Administrative Expenses Operating Income Profit (Loss) in Related Companies. Inet Others non Operating Income Net Financial Margin Positive Goodwill Amortization Monetary Exchange Difference Non Operating Income Income Tax Itemes extraordinarios Minority Interest Negative Goodwill Amortization Net Income 3,059,381 2,485,873 (573,508) (2,025,312) (1,730,050) 295,262 1,034,069 (279,525) 754,544 (10,699) 10,764 (396,208) (80,576) 2,175 (30,543) (505,087) (129,850) - (125,153) 47,700 42,154 755,823 (278,246) (223,179) 56,346 532,644 (221,900) 8,264 66,947 (354,252) (506,344) 4,965 (16,110) 18,963 56,183 41,956 (425,768) 2,790 14,433 (796,530) (291,443) (66,017) (22,376) 16,283 112,248 63,833 (22,376) 141,436 64,548 (223,748) (265,902) (18.7%) (14.6%) (26.9%) (20.2%) (29.4%) (177.2%) 522.0% (10.6%) 528.4% 128.3% (47.3%) 57.7% (49.2%) 100.0% (113.0%) 135.3% (630.8%) R.A.I.I.D.A.I.E. (*) Earnings per Share $ 1,207,029 1,079,877 (127,152) (10.5%) 5,08 (26,99) (32,07) (630.8%) (*) Earning before taxes, interests, depreciation, amortization and extraordinary items. a. Operating Income Operating Income amounted to Ch$ 532.644 million, which represents a decrease of Ch$ 221.900 million or 29.4% respect to the year 2001. This fall is mainly explained by the economic instability in Argentina and the strong devaluation in Brazil. It is important to highlight, however, the improved Operating Income achieved during this period by Chilean subsidiaries. This is clearly shown when isolating the effect of subsidiaries in Argentina, in which case the Operating Income decreased only 8.6%, equivalent to Ch$ 50,009 million, as shown in the Pro-Forma Income Statement. ENERSIS 2002 ANNUA L REPORT 211 210 210  Proforma - Income Statements With Edesur, Central Costanera and Chocón subsidiaries under equity method Income Statement (million Ch$) Dec-01 Dec-02 Var Dec 02- 01 %Var 02-01 Operating Revenues Operating Costs Operating Margin Selling and Administrative Expenses Operating Income Profit (Loss) in Related Companies. Inet Others non Operating Income Net Financial Margin Positive Goodwill Amortization Monetary Exchange Difference Non Operating Income Income Tax Itemes extraordinarios Minority Interest Negative Goodwill Amortization Net Income 2,238,527 2,188,614 (1,455,061) (1,467,935) 783,466 720,679 (203,571) (190,793) 579,895 59,734 (3,900) (365,448) (80,576) 2,178 (16,083) (404,095) (82,283) - (99,063) 47,700 42,154 529,886 9,678 46,413 (303,963) (506,344) 4,967 (16,101) (765,350) (100,155) (22,376) 21,999 112,248 (49,913) (12,874) (62,787) 12,778 (50,009) (50,056) 50,313 61,485 (425,768) 2,789 (18) (361,255) (17,872) (22,376) 121,062 64,548 (2.2%) (0.9%) (8.0%) 6.3% (8.6%) (83.8%) (1.290.1%) 16.8% (528.4%) (128.1%) 0.1% (89.4%) (21.7%) N/A 122.2% 135.3% (223,748) (265,902) (630.8%) In the Generation Business, the Operating Income of Endesa Chile amounted to Ch$ 346.224 million, a decrease of 0.5%, basically due to a lower Operating Income in Argentina and Brazil, compensated by improvements in Chile and Peru. In Argentina, Operating Income amounted to Ch$ 12.256 million, a fall of Ch$ 30.784 million respect to December 2001. This decrease is due to the drop in average sales prices of energy from El Chocón as a result of the devaluation of the Argentine Peso and also 39.2% decrease in physical sales. Furthermore, lower energy prices in Brazil as a result of a surplus water supply in the zone, implied that in 2002 only 2% needed to be purchased from CIEN interconnection line. In Brazil, Operating Income of Cachoeira Dourada decreased by 39.2% to Ch$ 16.981 million. This decrease was result of 20.3% lower average energy sales prices, due to the devaluation of the Brazilian currency respect to the US$ and greater energy purchases associated to the recovery of reservoirs after the drought in southeastern Brazil. In Chile, Operating Income amounted to Ch$ 171.136 million, reflecting an increase of 25.4%, mainly due to the result of higher hydroelectric generation associated to an improvement in the reservoirs levels. Another contributing factor, was the increase in average sales prices resulting from the marketing policies that enabled the company to obtain the best prices on unregulated clients and spot markets. Furthermore, the reduction in the generation of thermoelectric meant a decrease of Ch$ 24.155 million in the cost of fuel and transport of gas and the greater volumes of water allowed for a reduction of Ch$ 10.909 million in the cost of energy purchases. ENERSIS 20 02 ANNUAL REPORT 213 212 212 In Colombia, Operating Income increased by 1.1% to Ch$ 75.373 million, basically as a result of an increase in physical sales of energy due to an improvement in water supplies and rainfall and to higher energy sales prices on the spot market. In Peru, Operating Income rose by 6.7% to Ch$ 70.477 million mainly due to higher average sales prices on the spot market which more than compensated the reduction in physical sales. The Distribution Business shows an improvement of 1.6% in consolidated Physical Sales, reaching 48,955 GWh, which is equivalent to 767 GWh of higher sales compared to 2001. There is a 2.7% increase in the number of clients, reaching 275,000 new customers. In Chile, Chilectra shows an improvement of Ch$ 5.651 million, equivalent to 6.9%, basically due to greater physical sales, compensated by an increase in Selling and Administrative Expenses related to higher salaries expenses. In the case of Rio Maipo, Operating Income increased by Ch$ 223 million due to greater Energy Sales and lower Selling and Administrative Expenses. In Brazil, the Operating Income of our subsidiaries Cerj and Coelce show a decrease of Ch$ 49.609 million and Ch$ 19.720 million, respectively. This variation is due to Regulatory Asset that both companies recognized on December 2001, addressed to the recovery of financial and economic equilibrium of the concessions contracts, and by that way, recover the consumption losses registered during the rationing in place during the year 2001 and early 2002. In Colombia, Codensa shows a decrease of Ch$ 7.226 million, mainly explained by the increase in Operating Expenses and Administrative Expenses, which was partially compensated by the increase in Operating Revenues, due to greater physical energy sales and lower energy losses, improving from 11.8% as of December 2001, to a 10.3% as of December 2002. In Peru, the subsidiary Edelnor reduced its Operating Income by Ch$ 1.749 million, basically due to an increase in Operating and Maintenance Costs. In Argentina, Edesur registered a loss of Ch$ 12.737 million as of December 2002. This lower result is due to the economic instability of the country, that implied lower revenues on sales, due to a freeze on tariffs, a reduction in physical sales a as a result of a lower demand of energy, losses arising from the devaluation of the Argentine Peso and to an increase of energy losses due to theft. This significant negative impact on the Operating Income led to a net reduction in the consolidated Operating Income of Enersis, in comparison with the same period of the previous year. ENERSIS 2002 ANNUA L REPORT 213 212 212  Operating income and expenses, as well as administrative and selling expenses, by subsidiaries, for the year ended December 2002 and 2001, are shown below: Company Endesa S.A. Chilectra S.A. Río Maipo S.A. Edesur S.A. Edelnor S.A. Cerj Coelce Codensa S.A. Cam Ltda. Inmob. Manso de Velasco Ltda. Synapsis Soluc.y Servicios Ltda. Holding Enersis y soc. inversión Dec-01 Dec-02 Operating Revenues Operating Costs Selling & Adm, Expenses Operating Income Operating Revenues Operating Costs Selling & Adm, Expenses Operating Income 1,045,279 (662,608) 370,833 53,150 599,372 189,080 376,867 247,525 326,902 93,646 12,162 45,898 10,405 (257,611) (38,976) (408,059) (135,220) (274,819) (158,451) (269,908) (72,841) (7,438) (32,651) (6,485) (34,697) (31,554) (4,124) (73,464) (19,220) (32,035) (45,361) (28,400) (8,406) (1,725) (5,862) (21,140) 347,974 81,668 10,050 117,849 34,640 70,013 43,713 28,594 12,399 2,999 7,385 (17,220) 938,099 397,937 56,670 199,479 203,634 345,161 227,725 331,505 93,946 11,378 49,533 4,281 (555,586) (278,725) (42,428) (181,631) (151,209) (303,347) (163,320) (277,641) (73,685) (5,977) (37,231) (1,086) (36,289) (31,893) (3,969) (30,585) (19,534) (21,410) (40,412) (32,496) (7,915) (1,625) (6,117) 346,224 87,319 10,273 (12,737) 32,891 20,404 23,993 21,368 12,346 3,776 6,185 (21,852) (18,657) Consolidation Adjustment (311,738) 299,755 26,463 14,480 (373,475) 341,816 30,918 (741) Consolidated Total 3,059,381 (2,025,312) (279,525) 754,544 2,485,873 (1,730,050) (223,179) 532,644 Operating Income by Line of Business Operating income and expenses by subsidiaries, for the year ended December 2002 and 2001, broken down by line of business are shown below: Company Generation Distribution Eng. services & Real Estate Parent Co & Others services Adjustments Total Operating revenues 1,008,053 897,530 2,169,834 1,762,110 100,609 51,948 92,624 147,760 (311,739) (373,475) 3,059,381 2,485,873 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Operating Costs (636,535) (526,866) (1,548,686) (1,398,301) (73,207) (34,697) (66,641) (112,002) 299,757 341,816 (2,025,312) (1,730,050) Operating margin 371,518 370,664 621,148 363,809 27,402 17,251 25,983 35,758 (11,982) (31,659) 1,034,069 755,823 Selling & Adm. Expenses (32,542) (34,042) (234,647) (180,314) (8,270) (3,872) (30,528) (35,869) 26,462 30,918 (279,525) (223,179) Operating income 338,976 336,622 386,501 183,495 19,132 13,379 (4,545) (111) 14,480 (741) 754,544 532,644 ENERSIS 20 02 ANNUAL REPORT 215 214 214 b. Non–operating Income Non-Operating Income shows a greater loss of Ch$ 796.530 million. This is mainly explained by the Accounting Adjustments made by the Company. These adjustments are in accordance to Chilean generally accepted accounting rules and have been applied for the first time on our Financial Statements. Adjustments correspond to the acceleration of net balance of negative and positive goodwill of investments in distribution and generation located in Argentina and Brazil, and due to the socioeconomic instability experienced in that countries. Net Financial Result improved by Ch$ 41.957 million or 10.6%, from a loss of Ch$ 396.208 million as of December 2001 to a loss of Ch$ 354.251 million this year. This variation is the result of lower interest rates on the international markets respect to the previous year. Investment in Related Companies registered a net profit of Ch$ 8.264 million, a positive variation of Ch$ 18.963 million when compared to the net loss of Ch$ 10.699 million registered in December 2001. This is principally due to the better result of Ch$ 13.058 million of CIEN, and the effects of the exchange rates in the results for both periods of the Endesa Chile´s related companies. The Amortization on Positive Goodwill for the year 2002, amounted to Ch$ 506.344 million, an increase of Ch$ 425.768 million respect to Ch$ 80.576 million as of December 2001. The increase in the amortization is related to the acceleration of amortization of the net balance of Negative and Positive goodwill of investments in distribution and generation located in Argentina and Brazil, accelerating the amortization of positive goodwill of this investments for $424.698 million ($273.790 million net of minorities). The final net effect, including the negative goodwill, represent a loss of $362.179 million ($236.435 million net of minorities). Net Other Non-Operating Income increased by Ch$ 56.212 million, reaching a total amount of Ch$ 66.976 million. This increase is mainly due to: • An increase of Ch$ 156.799 million derived from the adjustment on converting over to Chilean Accounting Rules on applying the norms contained in Technical Bulletin N°64, particularly respect to subsidiaries in Brazil and Argentina. This was principally due to the devaluation of both Brazilian Real and the Argentine Peso against its monetary assets and liabilities structure. • An increase of Ch$ 10.567 million in profits from forward contracts, which recovered from a loss of Ch$ 5.752 million as of December 2001 to a profit of Ch$ 4.815 million this year. • Higher dividends received from related companies of Ch$ 5.307 million. This was partially compensated by: • Provisions made during 2002 of Ch$ 62.912 million for real estate projects in course. • Lower profits booked during the year 2001 of Ch$ 24.113 million, due to the repurchase of the Yankee Bonds made by Enersis and Endesa Chile on November 2001. ENERSIS 2002 ANNUA L REPORT 215 214 214 • An increase of Ch$ 13.130 million in provisions for contingencies and lawsuits. • Net losses of Ch$ 7.528 million resulting from the recalculations of energy in the SIC-SING system. • Taxes adjustment of the sales in a Brazilian subsidiary during the past year of Ch$ 6.731 million. • Adjustment to the market value of the Sovereign Bond of the Argentinean Government by Ch$ 5.103 million. Price Level Restatement and Exchange Differences show lower losses of Ch$ 17.223 million. This was caused principally by the effects of the nominal devaluation of 9.75% of the Ch$ against the US$, compared to a devaluation of 14.14% as the same date last year. These effects were compensated to a large extent by forward contracts held by the Company. Income Tax and Deferred Taxes registered a reduction of Ch$ 63.833 million. This is mainly explained by a fall of Ch$ 51.205 million in Income Tax, mainly due to the effects of the Argentinean subsidiaries and by a decrease of Ch$ 12.628 million in Deferred Taxes. Extraordinary Items as of December, 2002 show a loss of Ch$ 23.552 million as a result of a new tax imposed by the Colombian Government (Tax to contribute to security´s purposes) upon all companies established in that country. Interest rate risks On a consolidated basis, as of December 31st, 2001, 42% of the total debt was expressed in variable terms (mainly Libor USD and Chilean TAB), while 58% was at fixed rates and secure. At the end of 2002, the debt linked to variable rates represented 30% of the total debt, while 70% was at fixed rates. The reduction in the percentage of debt at variable rates during this year is explained basically by the refinancing of obligations (previously at variable terms) into fixed rates, and by hedge operations of Libor US$ rate for US$ 1,000 million, of which US$ 700 million were done by Enersis and US$ 300 million by Endesa Chile. The Company manages its interest rate risk by concentrating its debt structure on the long term with a suitable combination of debt at fixed rates and at variable rates. In the Argentinean subsidiaries, most of the debt is linked to the Libor.This rate have been decreasing, so we decide to maintain a high percentage of debt in variable rate. In Brazil, our subsidiaries has a natural coverage, tariffs are updated with the local price index correlated with the local interest rate. Because of that we have decided to maintain important part of the debt in variable rate, due to the good moments of the market to fixed some interest periods. ENERSIS 20 02 ANNUAL REPORT 217 216 216  Exchange risk The Company’s exposure to an exchange risk is derived from the assets and liabilities denominated in foreign currency, mainly US$. On a consolidated basis, as of December 2001, Enersis had 72% of its total debt expressed in US$. With the US$/Ch$ forward position, the weight of this debt in US$ was reduced to 67%. As of December 31st, 2002, 69% of the debt was denominated in US$. Considering the US$/Ch$ hedging policy mentioned below, the percentage of the debt denominated in US$ is reduced to 65%. The reason behind the largest part of our debt being denominated in US$ is the fact that an important proportion of our revenues is directly or indirectly related to US$. Thus, the tariffs of the majority of the countries in which we have operations are tied to a large extent to the evolution of the US$. Particularly in Chile and Peru. In countries where the indexation to the US$ is lower, the companies borrow a greater proportion of their loans in local currency. In our generation subsidiaries, in the case of Argentina, a large part of Central Costanera´s income come from exports to Brazil with contracts indexed to the US$. On the other hand, El Chocon contracts, expressed in US$, are currently being paid in Argentine Pesos. In Colombia the contracts are at spot and at short term and, to a large extent follow the variation of the US$ exchange rate. In Chile and Peru, the tariff process and the contracts are indexed to changes in the US$. Finally, the tariffs set for Cachoeira Dourada (in Brazil) are not indexed to US$. Revenues are in local currency and are indexed to the inflation. In the case of Distribution companies in Argentina which operates under a federal concession, their tariffs are established in US$ in contracts and are indexed to the United States inflation, this is the case of our subsidiary Edesur. Nevertheless, the Emergency Law promulgated in January 2002 expressed the tariffs in Pesos and has maintained them frozen. For this reason, the companies have had to absorb, with no compensation whatsoever, the effects of devaluation and of inflation. Within the framework of renegotiation that is ongoing between the government and the companies, must established the conditions under which the tariffs will be set in the future. In Brazil, tariffs are indexed to the General Market Price Index. In Colombia the Added Distribution Value (VAD) is adjusted in accordance with the Producers Price Index every time that this rises by more than 3% in any of its components. Operating income and expenses, for the year ended December 2002 and 2001, broken down by countries are shown below: Company Chile Argentina Brazil Perú Colombia Total Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dic-02 Dic-01 Dic-02 Operating Revenues 805,113 799,462 827,353 297,634 691,658 624,290 265,489 292,427 469,769 472,060 3,059,380 2,485,874 % r / consolidado 26% 32% 27% 12% 23% 25% 9% 12% 15% 19% Operating Costs (516,954) (479,952) (571,916) (262,424) (469,877) (499,243) (137,902) (160,438) (328,664) (327,993) (2,025,312) (1,730,050) % r / consolidado 26% 28% 28% 15% 23% 29% 7% 9% 16% 19% Operating Margin 288,159 319,510 255,437 35,210 221,781 125,047 127,587 131,989 141,105 144,067 1,034,068 755,824 % r / consolidado 28% 42% 25% 5% 21% 17% 12% 17% 14% 19% Selling & Adm, Expenses (68,485) (68,064) (76,185) (32,410) (78,028) (60,105) (23,942) (22,486) (32,884) (40,113) (279,524) (223,180) % r / consolidado 25% 30% 27% 15% 28% 27% 9% 10% 12% 18% Operating Income 219,674 251,446 179,252 2,800 143,753 64,942 103,645 109,503 108,221 103,954 754,544 532,644 ENERSIS 2002 ANNUA L REPORT 217 216 216 In Argentina, generating subsidiaries have their debts expressed in US$, given that their operating cash flows are largely related to that currency. Edesur has most of its debts in US$, because before the emergency law, its tariffs were indexed to that currency. Since then, the restrictions impossed, and the volatility on the local financial market have prevented any form of hedging the exchange risk. Thus, to date, the exposure to the US$ remains. On the other hand, in Brazil, our generating subsidiary is not exposed to the US$ as it has very low debt in Reales. Distribution subsidiaries used to have loans with third parties in local currencies. Only Cerj has received inter-company loans in US$ and for this reason has adopted a hedging policy, tending to maintain its US$ exposure at around 20%. In the particular case of Chile, the exchange risk depends on the variation in the exchange rates of the currencies in which assets and liabilities are booked. For accounting purposes and bearing in mind the instructions contained in Bulletin Nº 64, our results are also affected. According to this Chilean accounting norm, debts in foreign currency utilized to finance investments in countries considered to have an unstable currency are matched against the corresponding investments and the result of the variations of the Dollar against the Chilean Peso from the crossed debts are not reflected in the income statement. Currently, the exchange risk is managed on a consolidated basis, taking into consideration the part of these risks that our Chilean subsidiaries have not covered. The company’s policy is set on maintaining between 70% and 85% of the booked exposure to exchange risk covered. The current exchange exposure between the Chilean Peso and the US Dollar is controlled with financial derivative instruments, basically USD/CLP forward contracts, to cover the exchange risk. Others As is customary in most of debts contracts from bank borrowings, and also on the capital markets, a substantial proportion of the financial debt of Enersis S.A. is subject to cross-default conditions. Some defaults on the part of Endesa Chile or its subsidiaries, if not cured in time (in those specific conditions that permit some time to resolve the problem), could result in a cross-default for Endesa Chile and for Enersis S.A. We give below a detail of the defaults by Enersis or its subsidiaries that, if not cured in time, could result in a cross-default for Enersis and/or its subsidiaries: • Failure to pay capital and interest on the corresponding debt. • Failure by Enersis, Endesa Chile or of one of their respective subsidiaries to pay a single debt of USD 30 million or more on the date the corresponding payment should be paid (be it on the maturity date or by acceleration). • Bankruptcy or suspension of payments by Enersis, Endesa Chile or one of their respective subsidiaries. • Legal resolutions against Enersis, Endesa Chile or of one of their respective subsidiaries that imply an obligation for an amount equivalent or superior, jointly, to USD 30 million, and legal resolutions whose contents are different to a payment of a monetary obligation against Enersis, Endesa Chile or of one of their respective subsidiaries that could have an important adverse effect on Enersis (consolidated), or on Endesa Chile (consolidated), whichever the case. • Government action by virtue of which all or a major part of the property or assets of Enersis, Endesa Chile or of one of their respective subsidiaries is nationalized, embargoed, expropriated, or government action impedes the continuity of operations, or a major part of them, of Enersis, Endesa Chile or of one of their respective subsidiaries. ENERSIS 20 02 ANNUAL REPORT 219 218 218 • In certain cases, Enersis.’s or Endesa Chile’s (whichever the case) debt expressed in US Dollars is rated below the “investment grade” category by the corresponding Risk Rating Agency (which, in this case, is Standard & Poor’s). • Failure to comply with the clauses of the corresponding contract and that are not regularized during the grace period established such as commitments to maintain specific ratios on debt, interest coverage and a minimum net worth. In most credits –and in general terms– the expression “affiliate” relates to those which are relevant, both in Chile and abroad. Liabilities which could become due and payable regarding each default and the respective creditor subsidiary are detailed below: Bilateralls and Sindicated Bank Loans Amounts in US$ millions at December 31, 2002 Bilateral Syndicated Enersis Endesa Chile Total 614 162 776 900 556 Total 1,514 718 1,456 2,232 Potentially Active Events of Default in Affiliates (would trigger cross cross default in parent company) Enersis 1. Default of debt >= 30 MMUS$ (1) 2. Bankruptcy or Discontinuance of payment (2) 3. Material Adverse Effect Fallos 4. Government Action (3) Endesa Chile 1. Default of debt >= 30 MMUS$ (1) 2. Bankruptcy or Discontinuance of payment (2) 3. Material Adverse Effect Fallos 4. Government Action (3) Principal Subsidiaries Subsidiaries Endesa Chile Cono Sur Endesa Argentina Other affiliates (affected amounts in brackets, MMUS$) sí ($1,514) sí ($1,514) sí ($1,150) sí ($1,464) n/a n/a n/a n/a n/a n/a n/a n/a no n/a n/a n/a n/a no yes ($718) yes ($500) yes ($718) yes ($718) yes ($500) yes ($718) no no yes ($1,150) yes ($1,464) no no yes ($500) yes ($718) Notes: (1) For an individual debt or for a sum of debts of a Principal Subsidiary Cono Sur and Endesa Argentina have no debts with third parties (2) Only affecting Principal Subsidiaries (3) Nationalization, expropriation, dissolution, etc. International Yankee Bonds Amounts in US$ millions at December 31, 2002 Enersis Endesa Chile Total Yankee B. 700 1,416 2,116 ENERSIS 2002 ANNUA L REPORT 219 218 218 Potentially Active Events of Default in Affiliates (would trigger default in parent cross company) Enersis 1. Default of debt> 30 MMUS$ (1) 2. Start-up of Bankruptcy Process (2) Endesa Chile 1. Default of debt > 30 MMUS$ (1) 2. Start-up of Bankruptcy Process (2) Chilectra Edesur Enersis Internacional Endesa Chile Cono Sur Endesa Argentina Endesa Chile Internacional (affected amounts in brackets, MMUS$) Significant Subsidiaries no no no yes ($700) yes ($700) yes ($700) sí ($700) yes ($700) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a no n/a n/a no yes ($1,416) yes ($1,416) n/a n/a yes ($1,416) yes ($1,416) Subsidiaries (3) Celta San Isidro Pehuenche A. Del Sol Costanera (affected amounts in brackets, MMUS$) Enersis 1. Default of debt > 30 MMUS$ (1) yes ($700) yes ($700) yes ($700) yes ($700) yes ($700) 2. Start-up of Bankruptcy Process (2) no no no no no Endesa Chile 1. Default of debt > 30 MMUS$ (1) yes ($1,416) yes ($1,416) yes ($1,416) yes ($1,416) yes ($1,416) 2. Start-up of Bankruptcy Process (2) no no no no no Notes: (1) (2) (3) Only for individual debt. Significant Subsidiaries having a “no” in default of debt, have no individual debts with third parties over $30 m. Voluntarily or involuntarily, or else a court rules 1) its bankruptcy, 2) its insolvency, 3) names a receiver or 4) decides on dissolution/winding-up. Subsidiaries with individual debts of over $30 m (at December 2002). CHILE: Pehuenche $170 Yankee and $55 Private Placement. Celta $40 Banesto; San Isidro $58 Mitsubishi; Autopista del Sol $130 Local Bonds; ARGENTINA: Costanera $95 Syndicated and $179 Mitsubishi; Betania $45 Syndicated. Local Bonds Amounts in US$ millions at December 31, 2002 Enersis Endesa Chile Total Local Bonds 140 208 348 The ENERSIS bond has cross default with its own debt exceeding 3% of assets (>500 MMUS$) Potentially Active Events of Default in Affiliates woud (would trigger cross default in parent company) Endesa Chile 1. Insolvency or inability to pay debts 2. Default of debt >= 2 MMUF 3. Start-up of Bankruptcy Process Important Affiliates Cono Sur Affiliates Others Affiliates (affected amounts in brackets, MMUS$) yes ($208) yes ($31) no yes ($178) no no ENERSIS 20 02 ANNUAL REPORT 221 220 220 2. ANALYSIS OF THE BALANCE SHEET Total assets of the Company show a decrease of $138,635 million compared to the same period the year before. This is mainly due to: Assets (millions of $) Current Assets Fixed Assets Other Assets Dec-01 1,162,447 9,625,049 1,972,303 Dec-02 1,223,963 9,879,458 1,517,743 Var Deec 02- 01 %Var 02-01 61,516 254,409 (454,560) 5.3% 2.6% (23.0%) Total Assets 12,759,799 12,621,164 (138,635) (1.1%) • An increase in fixed assets by $254,409 million as a result of new capitalizations of $317,915 million and of the methodology of booking the non-monetary assets in historical dollars, in accordance with Technical Bulletin No. 64, in the affiliates located in unstable countries. This is partially offset by the depreciation in the period of $454,471 million. • Current assets show an increase of $61,516 million, mainly due to the increase in accounts collectable from EE.RR. in the short term, by a transfer from the long term of $177,379 million, an increase in short-term deferred taxes of $27,794 million, an increase in cash of $10,536 million and the increase of other current assets by $4.780 million, partially offset by the decrease in debtors for sales by $91,409 million, a decrease in time deposits by $32,486 million, a decrease in inventories by $17,041 million and a decrease in various debtors of $9,445 million. • Other long-term assets show a reduction of $454,560 million, explained by the decrease in the net balance of goodwill and negative goodwill by $385,297 million, basically as a result of the write-off carried out for the impairment of goodwill and negative goodwill of investments in Argentina and Brasil. A decrease in accounts collectable from EE.RR. in the long term of $169,770 million, partially offset by the increase in capital expenditures in related companies of $26,716 million, an increase in long-term debtors for $23.947 million and the increase of other long-term assets for $40,220 million. Total liabilities of the Company show a reduction of $138,635 million in respect of the same period the year before. This is mainly due to: Liabilities (millions of $) Current Liabilities Long-term Liabilities Minority Interest Shareholders’ Equity Dec-01 1,639,303 5,832,363 4,073,571 1,214,562 Dec-02 2,151,373 5,413,608 4,050,603 1,005,580 Var Dec 02- 01 %Var 02-01 512,070 (418,755) (22,968) (208,982) 31.2% (7.2%) (0.6%) (17.2%) Total Liabilities 12,759,799 12,621,164 (138,635) (1.1%) Due and payable liabilities show a net increase of $512,070 million, equivalent to 31.2%, mainly explained by the increase in Public Obligations of $435,653 million, due to the transfer from the long term to the short term of the Pehuenche Bonds and the Endesa Chile Euro Bonds, an increase in long-term Bank Obligations, current portion, by $179,725 million, and an increase in short-term Bank Obligations byr $124,039 million, partially offset by a decrease in other current liabilities by $90,842 million, a reduction in income tax of $49,751 million and a decrease in accounts payable for $40,596 million. ENERSIS 2002 ANNUA L REPORT 221 220 220 Long-term liabilities decreased by $418,755 million, mainly as a result of a reduction in long-term Bank Obligations by $279,911 million, basically due to the transfer, and also the reduction in Public Obligations of $173,623 million due to the transfer from the long term to the short term of the Pehuenche Bonds and the Endesa Chile Euro Bond, partially offset by the increase of bonds due to the issuance made by Autopista del Sol, equivalent to $92,355 million. Minority interest decreased by $22,968 million due to a decrease in shareholders’ equity because of the losses for the accounting period 2002, offset by an increase in the equity of the foreign affiliates due to the methodology of booking the non-monetary liabilities (equity) in historical dollars. Regarding shareholder’s equity, it should be stated that it decreased by $208.982 compared to December, 2001. This variation is explained mainly by the recognition of the loss for the period of $ 223,748 million, the increase in shortfall in tax revenue by $5,830 million, partially offset by an increase in reserves by $20,597. The evolution of the main financial indicators is as follows: Indicator Liquidity Current Liquidity Acid-test ratio (1) Working Capital Indebtedness Indebtedness Ratio Short-term Debt Long-term Debt Unit Times Times MM$ Times % % Interest expense coverage (2) Times Profitability Return on Investment Return on Assets % % (1) Current assets, net of prepaid expenses (2) RAIIDAIE divided by interst expense was used Dec-01 Dec-02 Var Dec 02-01 %Var 02-01 0,71 0,70 0,57 0,56 (0,14) (0,14) (476,856) (927,410) (450,554) 1,41 0.22 0.78 2,67 3.47 0.33 1,50 0.28 0.72 2,46 (22.25) (1.77) 0,09 0.06 (0.06) (0,21) (25.72) (2.10) (19.7%) (20.0%) (94.5%) 6.4% 29.6 % (8.3)% (7.8%) (741.1)% (636.6)% Liquidity ratio at December, 2002 is 0.57, showing a worsening of 0.14 points compared to the same date the year before. Such worsening is because there is less than one year left for the maturity dates of the Endesa Chile Internacional Bond por MM$ 400 Euros, the Pehuenche Bond for MM US$ 170 and, at the Cayman Branch of Enersis, the bank debt for MM US$ 460, which were transferred to the short term. The company is negotiating with the Banks for the refinancing of its debt which will mature in the following years, therefore, once such operation is performed, the liquidity ratio will substantially improve. The indebtedness ratio, which at December 31, 2002 was 1.50 times higher than in the same period of 2001, shows an increase of 0.09 points. The increase is basically due to the effect of the exchange rate, because a great portion of the debt is indexed to the US dollar, and to the equity reduction due to the loss in the accounting period. On the other side, return on investment is (22,25%), compared to the same date the year before when it reached 3.47%. This decrease in return is the result of the loss obtained at December 2002, compared to the profits obtained at the same date the year before, going from a profit of $ 42,154 million to a loss of $223,748 million. Return on assets changed from 0.33% in December, 2001 to (1.77%) in December, 2002. This is basically explained by the decrease in the profits of the period. ENERSIS 20 02 ANNUAL REPORT 223 222 222 3. PRINCIPALES FLUJOS DE EFECTIVO During the period, the Company generated a net cash flow of Ch$ 5,864 million, explained as follows: Cash Flow (millions of $) Operating Fixancing Investing Dec-01 560,521 40,985 (503,639) Dec-02 627,783 (285,040) (336,879) Var Dec 02-01 %Var 02-01 67,262 (326,025) 166,760 12.0% (795.5%) (33.1%) Net cash flow 97,867 5,864 (92,003) (94.0%) Operating activities generated a net positive cash flow of Ch$ 627,783 million, 12% greater than year 2002. This flow is mainly related to a loss for the period of Ch$ 223,748 million, plus net charges to income that do not represent cash flow for Ch$ 836,377 million that correspond mainly to Depreciation by Ch$ 454,471 million and Amortization of Negative and Positive Goodwill for Ch$ 394,096 million. Financing activities produced a negative cash flow of Ch$ 285,040 million mainly due to loan payment for Ch$ 1,094,546 million, dividend payment for Ch$ 100,446 million, Bonds payment for Ch$ 29,347 million and capital reduction in subsidiaries for Ch$ 119,287 million. These were partially compensated by loans received and Bonds issued fur Ch$ 978,914 million and Ch$ 131,515 million, respectively. Investment activities generated a net negative cash flow of Ch$ 336,879 million, basically explained by the addition of fixed assets by Ch$ 317,915 million, here it is worth mentioned Endesa Chile’ investment in Ralco for Ch$ 122,725 million. Other important factors in Investment Activities are, investment in subsidiaries, basically Central Fortaleza in Brazil, for Ch$ 15,480 million, investments in financial instruments for Ch$ 724 million and other disbursements for Ch$ 35,935 million. These were partially compensated by the sale of fixed assets for Ch$ 22,605 million and other income for Ch$ 18,556 million. Fixed Assets by Company (millions of Ch$) Empresa Endesa S.A. Chilectra S.A. Río Maipo S.A. Edesur S.A. Edelnor S.A. Cerj Coelce Codensa S.A. Cam Ltda. Inmobiliaria Manso de Velasco Ltda. Synapsis Soluciones y Servicios Ltda. Holding Enersis Payments of additions of fixed Assets Fixed Asset Depreciation Dec-01 52,973 11,915 3,476 85,880 29,608 64,839 52,144 40,128 433 - 159 - Dec-02 134,858 Dec-01 185,421 Dec-02 195,859 19,750 6,067 21,410 23,621 34,402 48,141 28,468 314 441 443 - 11,953 1,553 69,258 15,612 45,243 38,079 55,645 959 242 1,255 801 12,683 1,889 65,881 17,322 54,971 42,084 60,072 1,083 220 1,366 1,041 Total Consolidado 341,554 317,915 426,020 454,471 ENERSIS 2002 ANNUA L REPORT 223 222 222 4. BOOK VALUE AND ECONOMIC VALUE OF THE ASSETS Among the most important assets, we can mention the following: The values for fixed assets are adjusted according to the accounting criteria established by the Superintendencia de Valores y Seguros (S.V.S., Superintendence of Securities and Insurance) in Resolutions Nos. 550 and 566 of 1985. In the case of Sociedad Extranjera Inversiones Distrilima S.A., the fixed asset values were adjusted according to the exception criterium established in Technical Bulletin No. 45 of the Colegio de Contadores de Chile A.G. (Chilean Accounting Association), a rule in force at the time when the investment was made and which was not modified by Technical Bulletin No.51 which replaced the former. Depreciation is calculated on the updated value of the property according to the remaining years of useful life of each piece of property. Investments in related companies are presented updated to their proportional equity value. In the case of foreign companies, as of the second quarter of 1998, this methodology has been applied on financial statements prepared according to Technical Bulletin No.64 of the Colegio de Contadores de Chile A.G., and the intangible values are price level restated and amortized according to the dispositions of Technical Bulletin No.55 of the Colegio de Contadores de Chile A. G. According to Oficio Circular No. 150 of January 31, 2003 of S.V.S., the company has evaluated the recovery of the assets associated to its investments at the closing date of the financial statements, by applying the accounting principles generally accepted in Chile, which are Technical Bulletins No.33 for fixed assets and, according to the ranking defined in Technical Bulletin No. 56, NIC 36 has been applied for goodwill and negative goodwill related to such investments. Assets expressed in foreign currency are presented at the exchange rate effective at the closing of the period. Investments in financial instruments in repos are presented according to their purchase value plus the proportion of the corresponding interests according to the implicit rate for each operation. Accounts and documents to be collected from related companies are classified according to their maturity dates into short- and long-term documents. The operations are adjusted to fairness conditions similar to those customarily prevailing in the market. In summary, the assets are shown updated according to generally accepted accounting principles and rules, and to the instructions issued by the Superintendencia de Valores y Seguros, as disclosed in Note 2 to the Financial Statements. ENERSIS 20 02 ANNUAL REPORT 225 224 224 ENERSIS 2002 ANNUA L REPORT 225 224 224 Unconsolidated Enersis Unconsolidated Financial Statements ENERSIS 2002 ANNUAL RE POR T INDEX Accounts Inspector`s Report Independent Accountant’s Report Unconsolidated Balance Sheets Unconsolidated Statements of Income Unconsolidated Statements of Cash Flow Notes to the Unconsolidated Financial Statements Unconsolidated Relevant Facts Unconsolidated Management Analysis 228 229 230 232 233 235 271 274 ENERSIS 2002 ANNUA L REPORT 227 226 226 ACCOUNTS INSPECTOR’S REPORT Pursuant to the provisions in law No. 18,046 on Limited Liability Stock Companies and in compliance with the mandate granted by the Ordinary Shareholders’ Meeting held on April 11, 2002, we have examined the Consolidated Financial Statements of Enersis S.A. for period between January 1 and December 31, 2002. Our assignment was focused on verifying, on a selecyive basis, the coincidence of the fi gures presented in the Financial Statements with the offi cial records of the Company and its subsidiaries and to such and end we compared the fi gures presented in the ledger with the grouping and classifi caton worksheets. To subsequently ascertain if these amounts which are the balances of accounts of the same nature match with those included in the Financial Statements, a revision which entailed no objections. Marcela Araya Accounts Inspector Marco Acevedo Accounts Inspector Santiago, January 31, 2003 ENERSIS 20 02 ANNUAL REPORT 229 228 228  ENERSIS 2002 ANNUA L REPORT 229 228 228 Enersis S.A. Balance Sheets (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) ASSETS CURRENT ASSETS: Cash Time deposits Notes receivable, net Other accounts receivable, net Amounts due from related companies Income taxes recoverable Prepaid expenses Deferred income taxes Other current assets Total current assets PROPERTY, PLANT AND EQUIPMENT Buildings and infrastructure Machinery and equipment Other assets Technical appraisal Sub-total Less: accumulated depreciation Total property, plant and equipment, net OTHER ASSETS: 2001 ThCh$ 2002 ThCh$ 554,859 3,339,638 759 9,653,095 78,688,804 11,993,039 23,545 2,890,033 113,427,127 220,570,899 20,592,396 1,547,428 1,351,831 32,871 23,524,526 (9,832,948) 13,691,578 419,971 4,599,104 737 4,723,505 187,939,210 9,252,460 23,946 13,703,886 5,003,039 225,665,858 20,592,331 2,237,900 778,024 32,853 23,641,108 (10,674,829) 12,966,279 Investments in related companies 2,422,927,530 2,293,369,227 Goodwill, net Negative goodwill, net Long-term receivables 845,668,431 (1,104,295) 489,642 787,722,648 (753,014) 475,380 Amounts due from related companies 663,834,927 500,634,149 2002 ThUS$ (Note 2) 584 6,400 1 6,573 261,532 12,876 33 19,070 6,962 314,031 28,656 3,114 1,083 46 32,899 (14,855) 18,044 3,191,396 1,096,175 (1,048) 662 696,670 1,981 (484) 73,218 Intangibles Accumulated amortization Other assets Total other assets 1,423,691 (276,786) 14,444,523 1,423,691 (348,105) 52,615,157 3,947,407,663 3,635,139,133 5,058,570 TOTAL ASSETS 4,181,670,140 3,873,771,270 5,390,645 The accompanying notes are an integral part of these financial statements ENERSIS 20 02 ANNUAL REPORT 231 230 230 2002 ThUS$ (Note 2) 370,953 15,277 292 489 314 49,178 7,651 281 23 276 5,648 450,382 1,150,000 926,489 1,402,906 2,775 5,843 52,909 LIABILITIES AND SHAREHOLDERS’ EQUITY 2001 ThCh$ 2002 ThCh$ CURRENT LIABILITIES: Current portion of long-term debt due to banks and financial institutions 41,978,939 266,570,546 Current portion of bonds payable 10,407,623 10,978,002 Dividends payable Accounts payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income taxes payable Unearned income Other current liabilities Total current liabilities LONG-TERM LIABILITIES: Due to banks and financial institutions Bonds payable 388,968 487,375 1,103,337 105,642,409 2,580,316 919,521 17,175 423,677 114,353,517 278,302,857 210,095 351,012 225,262 35,340,092 5,498,327 201,903 16,675 198,493 4,058,871 323,649,278 992,321,281 637,946,436 826,401,500 665,784,177 Amounts payable to related companies 1,052,651,113 1,008,142,313 Accrued expenses Deferred income taxes Other long-term liabilities Total long-term liabilities SHAREHOLDERS’ EQUITY: Paid-in capital, no par value shares Additional paid-in capital Other reserves Retained earnings Net income (loss) for the year Accumulated development period surplus (deficit) of subsidiaries Total shareholders’ equity 1,820,408 4,066,066 - 1,994,209 4,198,442 38,021,057 2,688,805,304 2,544,541,698 3,540,922 751,208,197 33,370,057 26,282,673 360,653,617 751,208,197 33,370,057 46,879,587 402,807,650 42,154,033 (223,748,087) 1,045,363 46,437 65,236 560,537 (311,362) 893,402 (4,937,110) (6,870) 1,214,561,979 1,005,580,294 1,399,341 ENERSIS 2002 ANNUA L REPORT 231 230 230 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 4,181,670,140 3,873,771,270 5,390,645 The accompanying notes are an integral part of these financial statements Unconsolidated Statements of Income (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) OPERATING INCOME: Sales Cost of sales 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ (Note 2) 4,300,825 (844,901) 4,281,520 (1,085,952) 5,958 (1,511) GROSS PROFIT 3,455,924 3,195,568 4,447 ADMINISTRATIVE AND SELLING EXPENSES (20,641,463) (21,829,565) (30,378) OPERATING LOSS (17,185,539) (18,633,997) (25,931) NON-OPERATING INCOME AND EXPENSE: Interest income Equity in income of related companies Other non-operating income Equity in losses of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatements, net Exchange difference, net 47,004,483 248,764,514 29,498,296 (10,134,537) (50,470,996) (161,691,390) (16,282,459) 1,583,108 (37,302,866) 57,094,170 71,887,722 22,378,615 (80,331,239) (107,888,725) (144,154,767) (18,068,458) 1,580,699 (18,141,777) 79,451 100,037 31,141 (111,787) (150,135) (200,602) (25,144) 2,200 (25,246) NON-OPERATING RESULT 50,968,153 (215,643,760) (300,085) INCOME (LOSS) BEFORE INCOME TAXES AND AMORTIZATION OF NEGATIVE GOODWILL 33,782,614 (234,277,757) (326,015) Income Tax 8,306,245 9,486,627 13,201 INCOME (LOSS) BEFORE AMORTIZATION OF NEGATIVE GOODWILL 42,088,859 (224,791,130) (312,814) Amortization of negative goodwill 65,174 1,043,043 1,451 NET INCOME (LOSS) FOR THE YEAR 42,154,033 (223,748,087) (311,362) The accompanying notes are an integral part of these financial statements ENERSIS 20 02 ANNUAL REPORT 233 232 232 Unconsolidated Statements of Cash Flows (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) Years ended December 31, 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ (Note 2) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) for the year 42,154,033 (223,748,087) (311,362) Gain (losses) from sales of assets: Losses on sales of property, plant and equipment 5,794 - - Charges (credits) to income which do not represent cash flows: Depreciation Amortization of intangibles Equity in income of related companies Equity in losses of related companies Amortization of goodwill Amortization of negative goodwill Price-level restatement, net Exchange difference, net Other credits to income which do not represent cash flows Other charges to income which do not represent cash flows Changes in assets which affect cash flows: 800,193 71,317 (248,764,514) 10,134,537 50,470,996 (65,174) (1,583,108) 37,302,866 - - 1,041,243 71,319 (71,887,722) 80,331,239 107,888,725 (1,043,043) (1,580,699) 18,141,777 (13,949,057) 21,108,650 1,449 99 (100,037) 111,787 150,135 (1,452) (2,200) 25,246 (19,411) 29,374 Decrease (increase) in trade receivables Decrease in other assets (30,322) 414,999 83,828,481 30,360,554 578 42,249 Changes in liabilities which affect cash flows: Increase (decrease) in accounts payable associated with operating results Increase in interest payable Decrease in income tax payable Increase in other accounts payable associated with non-operating results Net decrease in value added tax and other similar taxes payable (15,756,346) 1,108,510 1,543 32,220,008 (8,306,245) 41,853,397 (9,486,628) 58,242 (13,201) 16,250,794 9,771,445 13,598 (2,274,805) (675,243) (940) Net cash flows used in operating activities (3,541,495) (10,278,621) (14,303) The accompanying notes are an integral part of these financial statements ENERSIS 2002 ANNUA L REPORT 233 232 232 Unconsolidated Statements of Cash Flows (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002 and thousands of US dollars) CASH FLOWS FROM FINANCING ACTIVITIES: Loans obtained Proceeds from bond issuances Loans obtained from related companies Dividends paid Payment of loans Payment of bonds Payment of loans granted by related companies Payment of other loans obtained from related companies Payment of bond issuance costs Other disbursements for financing Years ended December 31, 2001 ThCh$ 2002 ThCh$ 2002 ThUS$ (Note 2) 730,193,952 102,320,957 66,040,029 91,900 - - 7,174,169 56,352,557 (15,856,258) (136,002) (405,705,901) (76,693,051) (3,399,930) (153,799,591) (161,245,309) (996,147) (5,741,087) (7,050,306) (98,911,652) (22,172,355) - - 78,419 (189) (106,724) (9,811) (137,643) (30,855) - - Net cash provided by (used in) financing activities 92,944,855 (82,570,780) (114,903) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of long-term investments Proceeds from loans obtained from related companies Other receipts from investments Additions to property, plant and equipment Long-term investments Loans granted to related companies Other loans granted to related companies Other investment disbursements - 95,851,021 13,400,097 (73,425) 1,131 254,952,492 29,481,330 - (11,392,238) (16,732,134) (183,688,465) (162,862,889) - (20,756) (1,576,335) (9,060,476) 2 354,786 41,025 - (23,284) (226,636) (2,194) (12,608) Net cash provided by (used in) investing activities (85,923,766) 94,203,119 131,091 NET CASH FLOW FOR THE YEAR 3,479,594 1,353,718 1,884 EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS 377,555 (229,140) (319) NET INCREASE IN CASH AND CASH EQUIVALENTS 3,857,149 1,124,578 1,565 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,348 3,894,497 5,419 CASH AND CASH EQUIVALENTS AT END OF YEAR 3,894,497 5,019,075 6,984 The accompanying notes are an integral part of these financial statements ENERSIS 20 02 ANNUAL REPORT 235 234 234 Enersis S.A. Notes to the Financial Statements (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2002, except as stated) 1. 2. DESCRIPTION OF BUSINESS Enersis S.A. (the “Company”) is registered in the Securities Register under N°0175 and is regulated by the Chilean Superintendency of Securities and Insurance (the “SVS”). The Company issued American Depositary Receipts in 1993 and 1996 and is also subject to the regulation of the securities and exchange Commission (SEC) of the United States. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Periods covered These financial statements cover the years ended December 31, 2002 and 2001. b. Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting principles in Chile and the regulations established by the SVS (collectively “Chilean GAAP”), except for the investment in subsidiaries, which is shown in one line of the balance sheet under the equity method and, therefore, have not been consolidated line by line. This treatment does not affect the net income of the year or shareholders’ equity. These financial statements have been prepared order an individual analysis of the Company and they should be read along with the consolidated financial statements required by accounting principles accepted in Chile. These financial statements include assets, liabilities and result of the agency established in 1996 by Enersis S.A. in Cayman Islands. c. Basis of presentation The 2001 financial statements and its corresponding notes are presented updated and restated by 3.0% to facilitate comparison. This percentage corresponds to the Consumer Price Index variation within the last twelve months, with a one-month lag. d. Price-level restatement The financial statements have been price-level restated in accordance with generally accepted accounting principles, to reflect the effects of the changes in the purchasing power of the Chilean peso for the years ended December 31, 2002 and 2001 in 3.0% and 3.1% respectively. The effects of these off-the-books restatements are shown in Note 17. e. Currency conversion Assets and liabilities denominated in foreign currencies and/or Unidad de Fomento (UF, Inflation index linked units of accounts) are shown at their corresponding values and/or exchange rates effective at each year end using the following year-end rates: Currency United States dollar (Observed) Euro Symbol used US$ 2001 Ch$ 654.79 578.18 2002 Ch$ 718.61 752.55 Unidad de Fomento (UF) UF 16,262.66 16,744.12 ENERSIS 2002 ANNUA L REPORT 235 234 234  Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translations of Chilean pesos into US dollars are included solely for the convenience of the reader, using the observed exchange rate reported by the Chilean Central Bank as of December 31, 2002 of Ch$718.61 to US$1.00. The convenience translations should not be construed as representations that the Chilean peso amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange. f. Time deposits Time deposits are presented at original placement plus accrued interest and UF indexation adjustments at each year end. g. Property, plant and equipment Property, plant and equipment are stated at cost plus price-level restatement. In 1986, the increase resulting from a technical appraisal of property, plant and equipment was recorded in the manner authorized by the SVS in Circulars No.’s 550 and 566 dated October 15 and December 16, 1985, respectively, and Communication N°4790, dated December 11, 1985. The Company has evaluated the recoverability of the book value of its property, plant and equipment in accordance with Technical Bulletin N°33 of the Chilean Accounting Association. As a result of this evaluation no adjustments have been determined that affect the book values of these assets. h. Depreciation Depreciation expense is calculated on the revalued balances using the straight-line method over the estimated useful lives of the assets. Depreciation expense was ThCh$800,193 and ThCh$1,041,243 in 2001 and 2002, respectively. i. Intangibles Intangibles are mainly easements, and amortized in accordance with Technical Bulletin N°55 of the Chilean Association of Accountants. j. Investments in related companies Investments in related companies are presented under the equity method of accounting, on the basis of the corresponding financial statements of the investee. Investments in foreign affiliates are recorded in accordance with Technical Bulletin No.64 of the Chilean Association of Accountants. The Company has evaluated the recoverability of the book value of its investments abroad in accordance with Technical Bulletins N°33 and N° 42 of the Chilean Accounting Association. As a result of this evaluation no adjustments have been determined that affect the book values of these assets. k. Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular N°368 of the SVS. Amortization is calculated using the straight-line method, considering the nature and characteristic of each investment, foreseeable life of the business and investment return, and does not exceed 20 years. ENERSIS 20 02 ANNUAL REPORT 237 236 236  The Company has evaluated the recoverability of its goodwill and negative goodwill arising on investments abroad, and in virtue of Technical Bulletin N°56 of the Chilean Association of Accountants, it has resorted to IAS 36 “Impairment of Assets Value” (See Note 9). l. Bonds Bonds payable are recorded at the face value of the bonds. The difference between the face value and the placement value, equal to the premium or discount, is deferred and amortized over the term of the bonds. m. Income tax and deferred income taxes At December 31, 2002 and 2001, the Company recorded current tax expense according to the tax laws and regulations in each country. The Company records income taxes in accordance with Technical Bulletin N°60 and its complements of the Chilean Association of Accountants, and with circular N°1466 issued on January 27, 2000 by the SVS, recognizing, using the liability method, recognizing the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities. n. Severance indemnity The severance indemnity that the Company is obliged to pay to its employees under collective bargaining agreements is stated at the present value of the benefit under the vested cost method, discounted at 9.5% and assuming an average employment span which varies based upon years of service with the Company. o. Revenue recognition The Company recognizes revenues for amounts received from substations rental and electrical distribution lines in accordance with contracts with Chilectra S.A. These amounts are presented in current assets as amounts due from related companies and the corresponding cost is included in cost of sales as depreciation of the aforementioned equipment and electrical installations. p. Pension and post-retirement benefits Pension and post-retirement benefits are recorded in accordance with the respective Collective Bargaining Contracts of the employees based on the actuarially determined projected benefit obligation. q. Accrued vacation expense In accordance with Technical Bulletin No.47 issued by the Chilean Association of Accountants, employee vacation expense is recorded on the accrual basis. r. Financial derivative contracts As of December 31, 2002 the Company has forward contracts, currency swaps, and interest swaps and collars with several financial institutions, defined as cover, which are recorded according to Technical Bulletin N°57 of the Chilean Association of Accountants. s. Software Software has acquired by the Company and its subsidiaries as computing packages and is amortized over a 3-year term. t. Research and development costs During 2001 and 2002 there have been no expenses under this caption which require footnote disclosure as required by Circular No. 981 of SVS dated December 28, 1990. ENERSIS 2002 ANNUA L REPORT 237 236 236 u. Statements of cash flows Investments considered as cash equivalents, as indicated in point 6.2 of Technical Bulletin N°50 issued by the Chilean Association of Accountants, include cash and time deposits. For classification purposes, cash flows from operations include collections and payments to related companies for services and dividends paid. v. Reclassification The following reclassification was made at December 31, 2001: • From “other reserves”, a charge of M$1,210,739 to “Accumulated development period deficit of subsidiaries”. 3. CHANGE IN ACCOUNTING PRINCIPLES There were no changes in accounting principles during 2002 that would effect comparison with the prior year financial statements. ENERSIS 20 02 ANNUAL REPORT 239 238 238 4. TRANSACTIONS WITH RELATED COMPANIES Balances of accounts receivable and payable are as follows at December 31, 2001 and 2002: a. Notes and accounts receivable: Company Chilectra S.A. Synapsis, Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. Cía. Americana de Multiservicios Ltda. (*) Compañía Eléctrica del Río Maipo S.A. Enersis Internacional Chilectra S.A. (Cayman Islands Agency) Enersis de Argentina S.A. Empresa Eléctrica de Panamá S.A. Edelnor S.A. Sociedad Panameña de Electricidad S.A. Companhia de Eletricidade do Río de Janeiro Interocean Developments Inc. Luz de Bogotá S.A. Edesur S.A. Luz de Río Ltda. Cerj Overseas Codensa S.A. Empresa Eléctrica de Colina Ltda. Endesa S.A. (Chile) Cía. Americana de Multiservicios Uno Ltda. (*) Elesur S.A. Inversiones Distrilima S.A. Ingendesa S.A. Infraestructura 2000 S.A. Túnel el Melón S.A. Smartcom S.A. Compañía Eléctrica Tarapacá (Celta) Autopista Los Libertadores S.A. Endesa S.A. (España) Endesa Inversiones Generales S.A. Autopista del Sol S.A. Chispa Uno S.A. Luz Andes Ltda. Agencia Endesa Chile S.A. Endesa Internacional S.A. Empresa Eléctrica Pangue S.A. Empresa Eléctrica Pehuenche S.A. Compañía Eléctrica San Isidro S.A. - - - - - - - - - - - - - As of December 31, Short -term Long-term 2001 M$ 2002 M$ 2001 M$ 2002 M$ 3,929,476 145,737,576 266,810,206 37,809,713 44,952,377 309,730,584 355,502,853 - 15,762,739 79,637 11,115,948 6,531,582 80,700 538,764 11,012 1,164 45,072 64,875 361 20,220 1,111 23,410 60,115 16,160 35,785 36,812 4,573,693 3,851,691 2,201,202 9,631 1,234 69,123 - 21,544 - 24,944 64,053 17,219 - - - - - - - - - - - - 41,032,618 1,132,342 1,122,995 33,721,685 35,930,500 13,795 1,147 49,286,910 5,016,632 17,098 503 69,341 180,391 52,178 18 11,077 1,676 364,605 16,238 2,618 - 170 14,698 735 29,318,877 - 21,094 488 59,209 42,592 79,817 341 31,875 2,526 322,122 - 3,363 279 52 - 241,975 2,458 - - - - 52 31,561 52 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23,215,801 - - - - ENERSIS 2002 ANNUA L REPORT 239 238 238 Total 78,688,804 187,939,210 663,834,927 500,634,149 (*) As of January 1, 2002, these companies merged with Compañía Americana de Multiservicios Ltda. b. Notes and accounts payable: Sociedad Chilectra S.A. Synapsis, Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. Cía. Americana de Multiservicios Ltda. (*) Compañía Eléctrica del Río Maipo S.A. Enersis Internacional Endesa S.A. (Chile) Edelnor S.A. Cía. Americana de Multiservicios Uno Ltda. (*) Enersis de Argentina S.A. Edesur S.A. Elesur S.A. Smartcom S.A. Infraestructura 2000 S.A. Túnel el Melón S.A. Ingendesa S.A. Interocean Developments Inc. Chilectra Internacional Chilectra S.A.(Cayman Islands Agency) Endesa Inversiones Generales S.A. As of December 31, Short - term Long- term 2001 M$ 79,520,696 4,745,883 72,232 146,446 3,239,105 16,333 410,965 15,829 80,414 36,150 15,065 2002 M$ 2,231,300 6,208,252 6,114,375 243,558 7,183,321 1,601,141 66,590 16,866 - 38,872 24,802 2001 M$ 2002 M$ 60,326,128 13,263,199 - - - - 2,274,676 5,070,293 2,314,836 5,193,212 - - - - - - - - - - - - 17,289,294 11,465,695 984,980,016 987,371,066 19,978 422 63 387 4,423 - - 28,724 19,397 410 61 376 - 49 36,753 88,274 - - - - - - - - - - - - - - - Total 105,642,409 35,340,092 1,052,651,113 1,008,142,313 (*) As of January 1, 2002, these companies merged with Compañía Americana de Multiservicios Ltda. ENERSIS 20 02 ANNUAL REPORT 241 240 240 c. Effects in income (expense) in each year are as follows: Company Nature of Transaction Chilectra S.A. Inmobiliaria Manso de Velasco Ltda. Compañía Americana de Multiservicios Ltda. (*) Synapsis, Soluciones y Servicios IT Ltda. Compañía Eléctrica del Río Maipo S.A. Empresa Distribuidora Sur S.A. Elesur S.A. Endesa S.A. ( Chile ) Enersis Internacional Endesa Inversiones Generales S.A. Loans Property rental Services Loans Property rental Loans Services Materials Property maintenance Loans Services Loans Services Services Loans Loans Services Loans Property rental Property rental Compañía Americana de Multiservicios Uno Ltda. (*) Property maintenance Endesa S.A. (España) By agency intermediation: Chilectra S.A. (Cayman Islands Agency) Luz de Río Empresa Eléctrica de Panamá S.A. Enersis Internacional Endesa Chile Internacional Chilectra Argentina Cerj Overseas Endesa Agencia Total Services Services Loans Loans Loans Loans Loans Dividend Loans Loans (*) As of January 1, 2002, these companies merged with Compañía Americana de Multiservicios Ltda. Income (expense) 2001 ThCh$ 9,484,345 4,284,015 4,406,319 1,966,529 (468,575) 251,133 196,741 (159,444) - (549,590) (557,875) (43,535) 550,635 6,993,370 (51,512,360) (295,391) - 125,029 (209,716) 320,387 (472,297) 400,968 346,528 20,910,865 - 1,253,136 (1,957,587) - (15,483,679) 1,168,581 647,454 2002 ThCh$ 12,982,335 4,281,520 3,994,044 137,190 (373,130) 345,502 128,439 (18,054) (414,343) (446,668) (554,104) (282,920) 514,630 1,772,601 (43,408,831) 2,828,813 714,607 - (678,420) - - - 322,122 24,543,397 2,417,389 - 1,487,546 434,481 - 2,820,765 280,544 (18,404,014) 13,829,455 ENERSIS 2002 ANNUA L REPORT 241 240 240  The transfer of short-term funds between related companies is on the basis of a current cash account, at a variable interest rate based on market conditions. The resulting accounts receivable and accounts payable are essentially on 30 day terms, with automatic rollover for the same period and settlement in line with cash flows. Conditions of the long-term receivables and payables are as follows: Company Tipo Due Date Currency Capital Chilectra S,A, Compañía Americana de Multiservicios Ltda. Compañía Eléctrica del Río Maipo S.A. Elesur S.A. By agency intermediation: Chilectra S.A. (Cayman Islands Agency) Enersis Internacional Cerj Overseas Luz de Río Ltda. Endesa S.A. (Cayman Islands Agency) Account payable Account payable Account payable Account payable Account payable Account payable Account payable Account receivable Account receivable Account receivable Account receivable Account receivable Account receivable Account receivable 29/8/04 29/8/04 5/6/04 25/7/04 13/5/04 13/5/04 28/8/04 28/4/07 7/12/04 7/6/04 5/7/04 2/8/04 26/2/07 25/3/04 UF UF UF UF UF UF UF US$ US$ US$ US$ US$ US$ US$ 339,609.70 452,501.10 138,247.70 310,151.38 35,827,779.56 22,873,999.43 266,447.80 494,709,026.48 35,055,847.92 10,156,566.67 17,342,208.65 50,000,000.00 57,099,981.62 32,306,537.11 Interest Rate 1.52% 1.52% 3.63% 2.33% 4.57% 1.46% 2.95% 7.01% 3.45% 3.45% 2.95% 7.88% 6.80% 2.72% 5. DEFERRED INCOME TAXES a. The income tax to be received and to be paid as of December 2002 and 2001, is shown as follows: Credit for absorbed profits PPM, donations, training expense Total income taxes recoverable Income tax prior year As of December 31, 2001 ThCh$ 11,859,244 133,795 11,993,039 17,175 2002 ThCh$ 9,122,561 129,899 9,252,460 16,675 Total income tax payable 17,175 16,675 ENERSIS 20 02 ANNUAL REPORT 243 242 242 b. The Company has tax losses of ThCh$110,967,917 and ThCh$89,744,825 for the years ended December 31, 2002 and 2001, respectively. c. The balance of taxed retained earnings and related tax credits are as follows: Year 2002 2001 Loss ThCh$ 23,698,947 18,159,574 Credit ThCh$ 4,524,557 - d. In accordance with BTs N°60 and 69 of the Chilean Association of Accountants, and Circular N°1,466 of the SVS, the Company has recorded deferred income taxes as of December 31, 2002 and 2001 as follows: As of December 31,2001 As of December 31,2002 Asset Liability Asset Liability Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Depreciation Severance indemnities Tax losses Unearned income Deferred charges Vacation accrual Other events Provisions Differences between the financial and tax value of Río Maipo S.A. Bond discount Complementary account, net - - 2,905,532 72,025 39,777 88,543 13,656 193,618 - - - - - - - - - 91,600 - - - - Long-term ThCh$ 1,907,756 96,345 - - - - 15,305,920 33,744 - - - - 259,464 604,637 - - - - - 98,178 72,829 5,659 13,103 387,316 - - 161,469 1,704,883 (3,474) (169,058) - - - Long-term ThCh$ 1,831,029 103,679 - - - - - - 561,812 1,035,445 - - - - 5,494 6,884 1,475,222 - 154,508 1,482,485 (2,935) (166,996) - - - - - - 94,084 - - - - Total 3,313,151 91,600 423,118 4,157,666 15,897,987 94,084 2,194,101 4,292,526 e. Income tax expense for the years ended December 31, 2001 and 2002 is as follows: Effect on deferred tax assets or liabilities for the year Adjustment for tax expense-prior year Benefits for tax losses Amortization of complementary accounts Other charges or credits As of December 31, 2001 ThCh$ (1,031,239) (1,286,954) 10,535,996 105,617 (17,175) 2002 ThCh$ 10,644,800 (1,160,596) - 2,423 - Total 8,306,245 9,486,627 ENERSIS 2002 ANNUA L REPORT 243 242 242 6. OTHER CURRENT ASSETS Other current assets as of each year-end are as follows: Forward contracts Deferred costs-loans Post-retirement benefits Deferred expense Collar contracts Bond discount Unrealized lesson fair value-of interest rate swap Other Total As of December 31, 2001 ThCh$ 110,607,126 810,843 35,368 810,810 1,009,179 - 153,801 2002 ThCh$ 11,782 810,844 34,338 2,700,479 965,677 349,531 130,388 113,427,127 5,003,039 ENERSIS 20 02 ANNUAL REPORT 245 244 244 7. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment as of each year-end is as follows: Buildings and infrastructure Machinery and equipment Other assets in transit Technical appraisal of buildings and infrastructure As of December 31, 2001 ThCh$ 20,592,396 1,547,428 1,351,831 32,871 2002 ThCh$ 20,592,331 2,237,900 778,024 32,853 Total fixed assets 23,524,526 23,641,108 Accumulated depreciation at beginning of year Buildings and infrastructure Machinery and equipment Other assets in transit (8,414,833) (597,691) - (8,869,519) (709,508) (33,160) Total accumulated depreciation at beginning of year (9,012,524) (9,612,187) Accumulated depreciation at beginning of year- technical appraisal of buildings and infrastructure (20,231) (21,399) Total accumulated depreciation at beginning of year Technical appraisal (20,231) (21,399) Depreciation of the year (800,193) (1,041,243) Total accumulated depreciation at end of year (9,832,948) (10,674,829) Total property, plant and equipment, net 13,691,578 12,966,279 The depreciation charge was ThCh$1,041,243 and ThCh$800,193 as of December 31, 2002 and 2001, respectively. Depreciation expense of ThCh$1,014,633 and ThCh$773,582 were included in cost of sales and ThCh$26,610 and ThCh$26,610, were included in Administrative and selling expenses, respectively. ENERSIS 2002 ANNUA L REPORT 245 244 244 8. INVESTMENT IN RELATED COMPANIES a. Investments as of each year-end are as follows: Related Companies Empresa Nacional de Electricidad S.A. Chilectra S.A. Enersis Internacional Luz de Bogotá S.A. Number of shares 4,919,488,794 359,602,436 360,557,687 100.00% 8,660,073,943,175 Companhia de Eletricidade do Río de Janeiro 432,923,636,114 Empresa Distribuidora Sur S.A. Investluz S.A. Distrilec Inversora S.A. Inmobiliaria Manso de Velasco Ltda. Inversiones Distrilima S.A. Compañía Eléctrica del Río Maipo S.A. Central Geradora Termelétrica Fortaleza S.A. Compañía Americana de Multiservicios Ltda. (*) Synapsis, Soluciones y Servicios IT Ltda. Endesa Market Place Enersis Energía de Colombia S.A. Enersis de Argentina S.A. Synapsis Colombia S.A. Constructora El Gobernador Codensa S.A. Luz de Río Ltda. Interocean Developments Inc. (**) Empresa Eléctrica de Panamá S.A. (**) Compañía Americana de Multiservicios Uno Ltda. (*) Total 143,996,758 15,681,945,734 101,684,374 29,462,253 95,363,337 356,078,645 20,246,908 - - 210 30,000,001 119,999 1 - 1 - - - - Percentage owned Shareholders’ equity of investee Net income of investees Equity in income Share of equity Unrealized income Investment book value % 2001 59.98% 98.24% 25.71% 7.99% 16.02% - 20.43% 99.99% 14.79% 98.74% 48.82% 99.93% 99.99% 15.00% 99.99% 99.99% 0.10% - - - 100.00% 80.99% 99.99% % 2002 59.98% 98.24% 100.00% 25.71% 20.38% 16.02% 15.61% 20.43% 99.99% 15.93% 98.74% 48.82% 99.99% 99.99% 15.00% 99.99% 99.99% 0.10% 0.00% 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 1,446,549,434 1,430,635,321 72,160,017 (9,319,056) 43,282,249 (5,589,656) 867,653,826 858,108,391 498,295,654 421,691,742 73,185,247 (31,001,664) 71,803,197 (30,455,987) 489,524,879 414,269,316 302,294,900 348,705,819 61,920,890 38,943,177 56,389,840 38,493,177 302,294,900 348,705,819 643,243,838 600,529,806 11,524,049 (4,512,003) 2,963,329 (1,160,229) 165,405,561 154,421,958 489,488,447 579,561,108 (3,400,351) (9,012,430) (271,964) (1,836,324) 39,149,928 118,088,246 677,251,929 729,817,969 83,679,490 8,205,141 13,409,499 1,314,860 108,528,496 116,952,117 - 357,552,301 - (198,253,211) - (30,947,018) - 55,813,358 381,690,644 411,308,793 47,181,754 4,616,907 943,440 77,996,456 84,048,767 50,236,353 40,188,546 5,596,173 (9,936,221) (9,936,217) 50,236,335 40,188,532 159,715,296 172,793,816 12,342,281 13,071,302 2,082,258 23,621,892 27,526,055 22,260,807 22,623,680 9,261,986 11,727,292 11,579,815 21,980,865 22,339,175 11,033,676 43,697,439 - - - - 5,386,640 21,333,090 5,275,364 7,530,032 4,015,840 302,146 98,015 592,009 25,033,298 8,759,604 3,199,945 216,301 79,107 821,658 20,481,983 21,085,334 4,115,693 5,473,684 7,981,909 4,396,039 (2,242,714) (1,875,096) (253,587) (105,636) 15,469,249 458,354 1,830,559 (18,908) 573,630 267,223 - 1,112,677,346 1,009,464,988 22,799,906 (6,655,951) 43.24% - 3,629,879 - 22,334,017 9,658,166 1,569,712 - - - 136,776,971 134,654,968 11,496,195 - - - 5,477,758 (11,447,640) 4,192,075 - - - 5,477,758 (9,272,580) 4,192,074 238,629,977 (8,443,517) 2,422,927,530 2,297,930,593 (4,561,366) 2,422,927,530 2,293,369,227 9,641,341 5,596,171 1,825,424 9,128,053 4,112,862 5,473,137 (336,406) (253,587) 15,469,120 457 3 - - 4,775,935 3,039,497 (281,264) (105,636) (18,908) 574 - - - - - 5,271,737 7,529,280 602,376 302,146 98,014 591 32 6 - 136,776,971 109,070,408 11,496,191 25,031,071 8,758,728 479,992 216,301 79,106 822 32 5 - - - - - - - - - - - - - - - - - - - - - - - - - 867,653,826 858,108,391 489,524,879 414,269,316 302,294,900 348,705,819 165,405,561 154,421,958 39,149,928 118,088,246 108,528,496 116,952,117 - 55,813,358 77,996,456 84,048,767 50,236,335 40,188,532 23,621,892 27,526,055 21,980,865 22,339,175 5,386,640 21,333,090 5,271,737 7,529,280 602,376 302,146 98,014 591 32 6 - 136,776,971 109,070,408 11,496,191 21,825,807 7,402,626 479,992 216,301 79,106 1,569,712 822 32 5 - - - (3,205,264) (1,356,102) - - - - - - - - - - - - - - - - - - - - - - - - - (*) As of January 1, 2002, these companies merged with Compañía Americana de Multiservicios Ltda. (**) Companies dissolved in 2002.. b. In accordance with Technical Bulletin N°64 of the Chilean Association of Accountants, at December 31, 2002 and 2001, the Company has recorded foreign exchange gains and losses on liabilities related to net investments in foreign countries that are denominated in the same currency as the functional currency of those foreign investments. Such gains and losses are included in the cumulative translation adjustment account in shareholders’ equity, and in this way, act as a hedge of the exchange risk affecting the investments. As of December 31, 2002 the corresponding amounts are as follows: Company Edesur S.A. Country of origin Argentina Companhia de Eletricidade do Río de Janeiro Brasil Luz de Bogotá S.A. (Codensa S.A.) Investluz S.A. (Coelce) Colombia Brasil Total Reporting currency US$ US$ US$ US$ Investment ThCh$ 198,370,509 118,088,246 158,042,551 55,813,358 530,314,664 Liability ThCh$ 186,980,271 188,262,271 232,445,627 97,921,693 705,609,862 ENERSIS 20 02 ANNUAL REPORT 247 246 246 Percentage owned Shareholders’ equity of investee Net income of investees Equity in income Share of equity Unrealized income Investment book value 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ Empresa Nacional de Electricidad S.A. 1,446,549,434 1,430,635,321 72,160,017 (9,319,056) 43,282,249 (5,589,656) 867,653,826 858,108,391 360,557,687 100.00% 302,294,900 348,705,819 61,920,890 38,943,177 56,389,840 38,493,177 302,294,900 348,705,819 8,660,073,943,175 643,243,838 600,529,806 11,524,049 (4,512,003) 2,963,329 (1,160,229) 165,405,561 154,421,958 498,295,654 421,691,742 73,185,247 (31,001,664) 71,803,197 (30,455,987) 489,524,879 414,269,316 Companhia de Eletricidade do Río de Janeiro 432,923,636,114 489,488,447 579,561,108 (3,400,351) (9,012,430) (271,964) (1,836,324) 39,149,928 118,088,246 - - 357,552,301 - (198,253,211) - (30,947,018) - 55,813,358 677,251,929 729,817,969 83,679,490 8,205,141 13,409,499 1,314,860 108,528,496 116,952,117 381,690,644 411,308,793 47,181,754 4,616,907 50,236,353 40,188,546 5,596,173 (9,936,221) 159,715,296 172,793,816 12,342,281 13,071,302 22,260,807 22,623,680 9,261,986 11,727,292 9,641,341 5,596,171 1,825,424 9,128,053 943,440 77,996,456 84,048,767 (9,936,217) 50,236,335 40,188,532 2,082,258 23,621,892 27,526,055 11,579,815 21,980,865 22,339,175 11,033,676 43,697,439 - - - - 5,386,640 21,333,090 5,275,364 7,530,032 4,015,840 302,146 98,015 592,009 25,033,298 8,759,604 3,199,945 216,301 79,107 821,658 20,481,983 21,085,334 4,115,693 5,473,684 7,981,909 4,396,039 (2,242,714) (1,875,096) (253,587) (105,636) 15,469,249 458,354 1,830,559 (18,908) 573,630 267,223 - 1,112,677,346 1,009,464,988 22,799,906 (6,655,951) - 3,629,879 - 22,334,017 4,112,862 5,473,137 (336,406) (253,587) 15,469,120 457 3 - - 4,775,935 3,039,497 (281,264) (105,636) (18,908) 574 - - 9,658,166 5,271,737 7,529,280 602,376 302,146 98,014 591 32 6 - - - - 136,776,971 134,654,968 11,496,195 - - - 5,477,758 (11,447,640) 4,192,075 - - - 5,477,758 (9,272,580) 4,192,074 - - - 136,776,971 109,070,408 11,496,191 25,031,071 8,758,728 479,992 216,301 79,106 822 32 5 1,569,712 - - - 238,629,977 (8,443,517) 2,422,927,530 2,297,930,593 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 867,653,826 858,108,391 489,524,879 414,269,316 302,294,900 348,705,819 165,405,561 154,421,958 39,149,928 118,088,246 108,528,496 116,952,117 - 55,813,358 77,996,456 84,048,767 50,236,335 40,188,532 23,621,892 27,526,055 21,980,865 22,339,175 5,386,640 21,333,090 (3,205,264) (1,356,102) - - - - - - - - - - 5,271,737 7,529,280 602,376 302,146 98,014 591 32 6 - 136,776,971 109,070,408 11,496,191 21,825,807 7,402,626 479,992 216,301 79,106 822 32 5 1,569,712 - - - (4,561,366) 2,422,927,530 2,293,369,227 Related Companies Chilectra S.A. Enersis Internacional Luz de Bogotá S.A. Empresa Distribuidora Sur S.A. Investluz S.A. Distrilec Inversora S.A. Inmobiliaria Manso de Velasco Ltda. Inversiones Distrilima S.A. Compañía Eléctrica del Río Maipo S.A. Central Geradora Termelétrica Fortaleza S.A. Compañía Americana de Multiservicios Ltda. (*) Synapsis, Soluciones y Servicios IT Ltda. Endesa Market Place Enersis Energía de Colombia S.A. Enersis de Argentina S.A. Synapsis Colombia S.A. Constructora El Gobernador Codensa S.A. Luz de Río Ltda. Interocean Developments Inc. (**) Empresa Eléctrica de Panamá S.A. (**) Compañía Americana de Multiservicios Uno Ltda. (*) Total Number of shares 4,919,488,794 359,602,436 143,996,758 15,681,945,734 101,684,374 29,462,253 95,363,337 356,078,645 20,246,908 - - 210 30,000,001 119,999 % 2001 59.98% 98.24% 25.71% 7.99% 16.02% 20.43% 99.99% 14.79% 98.74% 48.82% 99.93% 99.99% 15.00% 99.99% 99.99% 0.10% 1 - 1 - - - - - - - 100.00% 80.99% 99.99% % 2002 59.98% 98.24% 100.00% 25.71% 20.38% 16.02% 15.61% 20.43% 99.99% 15.93% 98.74% 48.82% 99.99% 99.99% 15.00% 99.99% 99.99% 0.10% 0.00% 43.24% c. Investments The investments made by Enersis S.A. during the year ended December 31, 2002, are detailed as follows: Acquisitions Central Geradora Termelétrica Fortaleza S.A. Inversiones Distrilima S.A. Luz de Río Ltda. Chilectra S.A. Compañía Eléctrica del Río Maipo S.A. As of December 31, 2001 ThCh$ 5.911.275 - - 4.982.826 498.137 2002 ThCh$ 15.480.376 1.190.289 61.469 - - Total 11.392.238 16.732.134 ENERSIS 2002 ANNUA L REPORT 247 246 246 • In May 2002, Enersis S.A. acquired 6,824,495 Sociedad Inversiones Distrilima S.A. shares equivalent to 1.14% of issued capital for US$1,767,761,22 increasing its direct interest from 14.79% to 15.93%. • In February and April 2002 Enersis S.A. made contributions of US$22,773,195.87 and US$86,600 to Central Geradora Termelétrica Fortaleza S.A. and Luz de Río for a capital increase, respectively maintaining its 48.82% and 43.24%. d. Dissolution of investment vehicles At December 31, 2002, Empresa Eléctrica de Panamá S.A. and Interocean Development Inc. were liquidated and absorbed by Agencia Enersis Cayman. As a result of the liquidation of Empresa Eléctrica Panamá S.A., Agencia Enersis Cayman received 296,633,449,926 shares in Companhia de Electricidade do Rio de Janeiro, thus increasing its interest to 25.41%, and as a result of the liquidation of Interocean Development Inc., 15,681,945,734 shares were received from Investluz, thus increasing the direct interest to 15.61%. e. Debenture capitalization in Cerj On July 11, 2002, the company Luz de Río Ltda. and Endesa Internacional Energía Ltda., holders of convertible bonds issued by Companhía de Electricidade do Río de Janeiro, exercised the option to capitalize their investment. To that effect, 420,705,127,532 no par value shares were issued. f. Recoverability of investment Enersis and its local subsidiaries have carried out an analysis of the book values of their property, plant and equipment and of the companies in which it has invested abroad. This analysis is motivated by the appearance of negative circumstances in the economies of the region’s countries and by the fact that the property, plant and equipment in these countries are measured in US dollars. The analysis consisted of evaluating both the recoverability of property, plant and equipment of these companies’, and the recorded goodwill and negative goodwill, in accordance with accounting principles generally accepted in Chile. The property, plant and equipment recoverability analysis in these companies, as explained in Note 2j, was carried out considering that when there is evidence that the company’s operations do not permanently have sufficient earnings to cover all costs, including the depreciation of property, plant and equipment taken as a whole, and when the book value of said assets exceeds their realization value, these values must be written down to recoverable amounts by charging non operating income. The results of this analysis determined that no adjustments affecting the Company and its Subsidiaries’ book values of property, plant and equipment are required. g. Situation in Argentina In Argentina, at the end of 2001, as a result of the serious economic crisis, a change in the economic model and in the law of convertibility was implemented with the promulgation of new National Government regulations. This situation gave rise to, among other consequences: devaluation of the Argentinean peso with respect to the US dollar and the pesification of certain assets and liabilities recorded in foreign currency in said country, pesification of public service tariffs, introduction of deposit withdrawal limitations in financial institutions, limitations to make certain transfers abroad for capital services and financial loan interest without prior authorization of the Central Bank of the Republic of Argentina. ENERSIS 20 02 ANNUAL REPORT 249 248 248  Considering the above mentioned unstable environment, the company performed an evaluation of the recoverability of its investments in Argentinean companies. Management believes that the evolution of the aforementioned measures will not result in significant adjustments other than those recognized in these financial statements. At December 31, 2002 the investment in these companies represents 5.2% of total assets of the company and equity in income of investees was recognized for M$2,258,300. 9. GOODWILL AND NEGATIVE GOODWILL a. In accordance with current standards, recognition has been given to the excess of purchase price over the equity in net assets acquired (goodwill) in the purchase of shares as of December 31, 2001 and 2002, as follows: Sociedad As of December 31, 2001 2002 Amortization ThCh$ Net balance ThCh$ Amortization ThCh$ Net balance ThCh$ Empresa Nacional de Electricidad S.A. (42.958.281) 710.600.834 (42.958.280) 667.642.554 Distrilec Inversora S.A. Chilectra S.A. Inversiones Distrilima S.A. Compañía Eléctrica del Río Maipo S.A. Empresa Distribuidora Sur S.A. Companhia de Eletricidade do Río de Janeiro (1) Investluz S.A. (2) Luz de Bogotá S.A. Total (1) Recorded after Empresa Eléctrica de Panamá S.A. dissolution (2) Recorded after Interocean Development Inc. dissolution (257.087) (6.178.814) (1.408) (566.455) (278.825) 4.298.745 112.424.542 18.301 10.802.028 3.880.324 - - - - (230.126) 3.643.657 (4.580.318) (6.210.655) (1.500) (574.414) (4.134.489) (48.540.702) (626.637) (261.730) - 106.213.887 18.000 10.227.614 - - - 3.620.593 (50.470.996) 845.668.431 (107.888.725) 787.722.648 b. In accordance with current standards, recognition has been given to the excess of purchase price over the equity in net assets acquired (negative goodwill) in the purchase of shares as of December 31, 2001 and 2002, as follows: Company As of December 31, 2001 2002 Amortization ThCh$ Net balance ThCh$ Amortization ThCh$ Net balance ThCh$ Inversiones Distrilima S.A. Synapsis, Soluciones y Servicios IT Ltda. Companhia de Eletricidade do Río de Janeiro - 15.316 49.858 - (156.983) (947.312) 18.366 15.315 1.009.362 (611.346) (141.668) - Total 65.174 (1.104.295) 1.043.043 (753.014) ENERSIS 2002 ANNUA L REPORT 249 248 248 c. Recoverability of goodwill To carry out the analysis of the recoverability of goodwill and negative goodwill on investments abroad, as explained in Note 2 k, the Company used International Accounting Standard (IAS) N°36. The analysis determined that the impairment of goodwill and negative goodwill in the companies, related to investments in Argentina and Brazil, is 100%, as, when comparing cash flows generated by the companies in said countries, such flows do not cover the recorded goodwill and negative goodwill. Thus, these balances have been fully amortized, resulting in a higher net charge to income for the period of ThCh$53,116,770, which is included in goodwill and negative goodwill amortization in the income statement. 10. DUE TO BANKS AND FINANCIAL INSTITUTIONS a. Current portion of long-term debt due to banks and financial institutions: US$ Other foreign UF Ch$ Currency Total 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 ThCh$ 2001 ThCh$ 2002 M$ Financial Institution Bank of América Citibank Dresdner Bank ABN Amor Banco Santander Central Hispano HSBC BBVA 5,392,383 29,494,243 406,445 - 235,839 82,932,830 514,881 461,208 1,088,041 104,195,014 21,590 10,824,955 586,366 1,447,394 Bank of Tokio Mitsubishi 33,733,394 36,012,111 JP Morgan - Chase (swap) Santander Central Hispano (swap) Banco Bilbao Viscaya Argentaria (swap) Deutsche Bank (swap) - - - - 250,615 248,738 249,806 453,632 Total 41,978,939 266,570,546 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Percentage of debt in foreign currency: Percentage of debt in local currency: Total - - - - - - - - - - - - - 2001 % 100.00 - 100.00 - - - - - - - - - - - - - 5,392,383 29,494,243 406,445 - 235,839 82,932,830 514,881 461,208 1,088,041 104,195,014 21,590 10,824,955 586,366 1,447,394 33,733,394 36,012,111 - - - - 250,615 248,738 249,806 453,632 41,978,939 266,570,546 As of December 31, 2002 % 100.00 - 100.00 ENERSIS 20 02 ANNUAL REPORT 251 250 250 11. OTHER CURRENT LIABILITIES Other current liabilities at each year-end are as follows:: Swap Enersis bonds-rate and currency (*) Unrealized gain on fair value of forward contract Account payable swap-contract Forward contract obligations Swap collar rate contract ( ** ) Swap collar rate-currency contract (***) As of December 31, 2001 ThCh$ - - - 113,160,188 1,403,204 (209,875) 2002 ThCh$ 2,270,807 4,556 349,531 - 1,434,077 - Total 114,353,517 4,058,971 (*) Net effect of the contracts for hedging Series B1 Bonds that relate to a ThCh$85,988 decrease in financial expenses and a ThCh$2,356,795 negative exchange difference, the detail of which contracts is shown in note 19. (**) The effects in results are in Interest expense (***) The effects in results are in Other non-operating expenses 12. LONG-TERM PORTION OF DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS Financial Institution Currency Bank of América ABN Amro Citibank Dresdner Bank Banco Santander Central Hispano HSBC BBVA BBVA US$ US$ US$ US$ US$ US$ US$ US$ After 1 year but within 2 years ThCh$ - 71,861,000 - - 287,444,000 - 107,791,500 359,305,000 Totales 826,401,500 Years to maturity After 2 year but within 3 years ThCh$ After 3 year but within 5 years ThCh$ After 5 year but within 10 years ThCh$ After 10 years years ThCh$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total long-term portion ThCh$ - 71,861,000 - - 287,444,000 - 107,791,500 359,305,000 Average annual interest rate % 0.00 2.81 0.00 0.00 2.64 0.00 2.76 2.56 Total long-term portion-2001 ThCh$ 27,587,424 67,443,370 36,311,511 77,624,232 366,386,108 10,116,506 406,852,130 - 826,401,500 992,321,281 Percentage of debt in foreign currency: Percentage of debt in local currency: As of December 31, 2001 % 100.00 - 2002 % 100.00 - Total 100.00 100.00 ENERSIS 2002 ANNUA L REPORT 251 250 250 13. BONDS PAYABLE a. Details of the current portion of bonds payable is as follows at each year-end: Instrument Series 269 269 Yankee Bonds Yankee Bonds Yankee Bonds Total B-1 B-2 1 2 3 Face value outstanding ThCh$ 445,863,21 - - - - Currency U.F. U.F. US$ US$ US$ Interest Rate % 5.50 5.75 6.90 7.40 6.60 Maturity Date Jun-09 Jun-22 Dec-06 Dec-16 Dec-26 b. Details of the long-term portion of bonds payable is as follows at each year-end: Instrument Series 269 269 Yankee Bonds Yankee Bonds Yankee Bonds Total B-1 B-2 1 2 3 Face value outstanding ThCh$ 2,928,543,94 2,500,000 300,000,000 350,000,000 150,000,000 Currency U.F. U.F. US$ US$ US$ Interest Rate % 5.50 5.75 6.90 7.40 6.60 Maturity Date Jun-09 Jun-22 Dec-06 Dec-16 Dec-26 Par Value 2001 M$ 7,232,494 105,520 1,124,617 1,407,131 537,861 2002 M$ 7,601,852 105,480 1,198,281 1,499,298 573,091 10,407,623 10,978,002 Par Value 2001 M$ 56,523,126 41,876,350 202,330,110 236,051,795 101,165,055 2002 M$ 49,035,877 41,860,300 215,583,000 251,513,500 107,791,500 637,946,436 665,784,177 c. Bonds payable are comprised of the following: i. Enersis S.A. Series B1-B2 On September 11, 2001, Enersis S.A. registered two series of bearer bonds as of June 14, 2001, as follows: Series B1 B1 B2 B2 Total amount In UF 1,000,000 3,000,000 1,000,000 1,500,000 N° of bonds per series 1,000 300 1,000 150 Face Value In UF 1,000 10,000 1,000 10,000 The scheduled maturity of the Series B-1 bonds is 8 years, interest and principal payable semi-annually. Annual interest is 5.50%, compounded semi-annually. The scheduled maturity of the Series B-2 bonds is 21 years, principal payments beginning after 5 years, interest and principal payable semi-annually. Annual interest is 5.75%, compounded semi-annually. ENERSIS 20 02 ANNUAL REPORT 253 252 252 ii. Enersis S.A. (Yankee Bonds) On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes (Yankee Bonds) for US$800 million in three series, as follows: Series 1 2 3 Total amount In US$ 300,000,000 350,000,000 150,000,000 Years to Maturity 10 20 30 Stated annual Interest rate 6.9% 7.4% 6.6% Interest is payable on a semi-annual basis and principal is due upon maturity. The Series 3 bond holders have an option to require the Company to redeem all or any US$1,000 portion thereof on December 31, 2003 at a redemption price equal to face value. iii. Discount on bonds placed The discounts on Enersis S.A. bonds placed have been deferred over the same periods as the periods of the related bonds issues. The balance at December 31, 2002 amounts to ThCh$9,714,009 (ThCh$12,343,837 in 2001), of which ThCh$965,677 (ThCh$1,009,179 in 2001) are included in “Other current assets”; and ThCh$8,748,332 (ThCh$11,334,659 in 2001), in “Other assets”. 14. ACCRUED EXPENSES a. Short-term accruals: Accrued expenses included in current liabilities as of each year-end are as follows: Profit sharing and other employee benefits Notes receivable provision As of December 31, 2001 ThCh$ 1,749,590 830,726 2002 ThCh$ 2,278,402 3,219,925 Total 2,580,316 5,498,327 During 2002 there were no debt write-offs. ENERSIS 2002 ANNUA L REPORT 253 252 252 b. Long-term accruals: Long-term accruals include employee severance indemnities, calculated in accordance with the policy described in Note 2n, post-retirement benefits and others. An analysis of the changes in the accruals in each year is as follows: Opening balance as of January 1 Increase in accrual Payments during the year As of December 31, 2001 ThCh$ 1,047,955 1,055,075 (823,950) 2002 ThCh$ 1,241,825 653,260 (456,748) Sub-total 1,279,080 1,438,337 Post-retirement benefits 541,328 555,872 Total 1,820,408 1,994,209 15. SHAREHOLDERS’ EQUITY a. Dividends There are no restrictions on the payment of dividends. The following dividends were paid as of each year-end: Dividend Number 71 Payment date Historical Value Ch$ per share April/2001 1.806391 Type of dividend Final Related to 2000 b. Number of shares Series First As of December 31, 2002 Number of shares Subscribed 8,291,020,100 Paid 8,291,020,100 With vote 8,291,020,100 c. Subscribed and paid capital is as follows as of the year-end: Series First As of December 31, 2002 Capital subscribed ThCh $ 751,208,197 Capital paid ThCh$ 751,208,197 ENERSIS 20 02 ANNUAL REPORT 255 254 254 d. Accumulated net income (losses) of development-stage subsidiaries are as follows: Company Central Geradora Termeléctrica Fortaleza S.A. Aguas Santiago Poniente S.A. Compañía Eléctrica Tal Tal Ltda. Infraestructura 2000 S.A. Nopel Ltda. Ingendesa (Ingendesa do Brasil) Enigesa (Ingendesa do Brasil) As of December 31, 2002 Net income (losses) Of the period ThCh$ (939,553) (111,586) - - - 1,451 19 Accumulated ThCh$ (1,302,505) (111,586) 146,371 347,252 811,149 (46,306) (642) Compañía Eléctrica Cono Sur S.A. (CIEN) (4,780,843) (4,780,843) Total (5,830,512) (4,937,110) e. Other information Detail of other reserves is as follows: Reserve for equity fluctuations Reserve for accumulated conversion differences Total ThCh$ 1,177,508 45,702,079 46,879,587 Detail of changes in the reserve for accumulated conversion differences are as follows for the year ended December 31, 2002: Initial Balance ThCh$ Reserve for Assets ThCh$ Reserve for Liabilities ThCh$ Final Balance ThCh$ Cumulative translation adjustment 25,105,169 96,536,552 (75,939,638) 45,702,079 ENERSIS 2002 ANNUA L REPORT 255 254 254  The detail of the accumulated conversion difference reserve at December 31, 2002 is as follows: Enersis Energía de Colombia S.A. Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Cía. de Electricidade do Río de Janeiro Luz de Bogotá Investluz Endesa Market Place Central Geradora Termelétrica Fortaleza S.A. Total ThCh$ 19,753 2,494,214 3,034,207 5,027,002 13,222,829 10,996,981 2,370,986 7,012,529 280,302 1,243,276 45,702,079 16. OTHER INCOME AND EXPENSES a. The detail of other non-operating income in each year is as follows: Gain on forward contracts Gain on swap contracts Gain on repurchase of bonds Adjustments to investments in related companies Project administration,maintenance and construction Other Total Years ended December 31, 2001 ThCh$ 2002 ThCh$ 8,171,752 1,493,044 5,531,051 1,211 13,407,217 894,021 4,815,297 - - 9,133,760 7,642,591 786,967 29,498,296 22,378,615 ENERSIS 20 02 ANNUAL REPORT 257 256 256 b. Other non-operating expenses in each year are as follows: Adjustments to investments in related companies Loss for non-participation in Cerj capital increase (*) Usufruct contract Provisions Other Total (*) See Note 8d. Years ended December 31, 2001 ThCh$ 212,536 - 15,483,679 - 586,244 2002 ThCh$ 233,326 17,020,030 - 359,305 455,797 16,282,459 18,068,458 17. PRICE-LEVEL RESTATEMENT The (charge) credit to income for price-level restatement as of each year-end is as follows: As of December 31, Assets Accounts receivable from subsidiaries short-term Accounts receivable from subsidiaries long-term Property, plant and equipment Investment in subsidiaries Investment in other companies Amortization of goodwill Other current assets Other assets Credit for cost and expense accounts 2001 ThCh$ (43,106) 16,134,682 436,065 53,963,202 10,739,202 26,919,672 307 648,361 3,192,735 2002 ThCh$ 8,361,377 14,086,764 428,905 50,820,537 15,529,085 25,929,210 19,891 1,054,443 3,193,805 Net credit - assets 111,991,120 119,424,017 Liabilities and Shareholders’ equity Accounts payable to subsidiaries short-term Accounts payable to subsidiaries long-term Due to banks and financial institutions long-term Bonds payable long-term Shareholders’ equity Non-monetary liabilities Charge to income accounts (724,227) (32,486,852) (23,008,735) (14,653,316) (34,756,513) (3,578,371) (1,199,998) (606,331) (30,424,108) (31,288,235) (15,714,960) (35,375,590) (3,012,063) (1,422,031) Net charge-liabilities and shareholders’ equity (110,408,012) (117,843,318) Net credits to income 1,583,108 1,580,699 ENERSIS 2002 ANNUA L REPORT 257 256 256 18. EXCHANGE DIFFERENCES The (charge) credit to income for foreign currency translation as of each year-end is as follows Assets Current assets Currency US$ US$ US$ US$ US$ US$ US$ Cash Time deposits Other accounts receivable, net Amounts due from related companies Other current assets Non-current assets Amounts due from related companies Other assets Total gain Liabilities Current liabilities Currency Amount payable to related companies Due to banks and financial institutions Bonds payable Other liabilities Long-term liabilities Amount payable to related companies Due to banks and financial institutions Bonds payable Total loss US$ US$ US$ US$ US$ US$ US$ As of December 31, 2001 ThCh$ 127,983 161,722 - 2,297,453 51,605 53,406,731 68,117 2002 ThCh$ (221,604) 321,042 (570,924) 16,363,992 (61,042) 29,789,291 - 56,113,611 45,620,755 As of December 31, 2001 ThCh$ (6,511,091) (311,974) (1,124,563) (423,674) (5,532,444) (55,923,754) (23,588,977) 2002 ThCh$ (43,018) (318,147) 421,931 - 25,800 (44,144,658) (19,704,440) (93,416,477) (63,762,532) Exchange difference-net loss (37,302,866) (18,141,777) ENERSIS 20 02 ANNUAL REPORT 259 258 258 19. FINANCIAL DERIVATIVES As of December 31, 2002 the Company and its subsidiaries held the following financial derivative contracts with financial institutions with the object of decreasing exposure to interest rate and foreign currency risk, as follows: Type FR S S S S COLLAR COLLAR COLLAR COLLAR COLLAR Nominal Amount US$ 47,000,000 81,905,702 100,000,000 50,000,000 50,000,000 50,000,000 275,000,000 50,000,000 150,000,000 600,000,000 (1) Fr = Forward, S = Swap Date of Maturity II - 2003 II -2009 I- 2003 I- 2004 III- 2004 II -2004 III- 2004 III- 2005 I- 2006 II- 2006 Item Sales/ Purchase Exchange rate Exchange rate Interest rate Interest rate Interest rate Interest rate Interest rate Interest rate Interest rate Interest rate P P P/S P/S P/S P/S P/S P/S P/S P/S Hedged Item Bank obligations Bonds Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations As of December 31, 2002 Initial hedge amount ThCh$ 33,774,670 56,637,729 71,861,000 35,930,500 35,930,500 35,930,500 197,617,750 35,930,500 107,791,500 431,166,000 Closing hedge amount ThCh$ 11,782 6,290,474 (848,083) (2,166,192) (2,276,833) (1,609,146) (6,604,400) (1,693,181) (3,509,708) (13,738,659) 20. COMMITMENTS AND CONTINGENCIES a. Litigation and other legal actions: i. Arbitration award (Case ICC N° 11046/KGA) substantiated before the Court of Arbitration of the International Chamber of Commerce with headquarters in Paris, France, started with occasion of the claim lodged by Pérez Companc S.A. and PCI Power Edesur Holding Limited. The claim requests that the Arbitration Court declare a sought after right of PCI Power Edesur Holding Limited to designate a Regular Director and an Alternate Director in the Argentinean company Distrilec Inversora S.A., a company holding Class “A” shares of Empresa Distribuidora Sur S.A. (Edesur S.A.), and on a subsidiary basis, for the event that said Court estimates that PCI Power Edesur Holding Limited lacks such right, declare that Grupo Enersis and Grupo Pecom, former Pérez Companc, have the same number of directors in Distrilec Inversora S.A. The claim was answered opportunely by the Company on August 4, 2000. Together with the answer to the aforementioned claim, Enersis S.A. presented a reconventional claim against the claimants, that is, against Pecom S.A. and PCI Power Edesur Holding Limited, in order to request the annulment of various agreements entered into by the parties. This reconvention was answered by the reconventional defendants on October 13, 2000. On December 4, 2000, Grupo Enersis filed its arguments expansion writ and the answer to the reply of the reconventional defendants. On December 6, 2000, the reconventional defendants, in an “Additional Statements” writ, request, among other things that, in case the reconventional claim lodged by Grupo Enersis is accepted, that a damages indemnity be declared in its favor. The reconventional defendants have provisionally estimated this possible and required indemnity in an amount between US$180 and US$200 million. ENERSIS 2002 ANNUA L REPORT 259 258 258  On April 8, 2001 a Minutes of Mission was signed establishing the unquestionable facts, the controversial facts, the parties’ aims and the matters on which the Court will pronounce a judgment. On June 14, 2001 the parties submitted their evidence presentation writs. On August 27 2001 presentation of the offered witnesses’ affidavits ceased. The testimonial audience was carried out on November 12, 2001, in the city of Montevideo. On December 14, 2001 the parties presented their closing allegations and on December 20 the Court officially closed the Arbitration proceeding. On September 6, 2002 the Final award dated September 2, 2002 the parties were notified, substantively establishing that Grupo Pecom and Grupo Enersis maintain the right to designate the same number of directors in the Distrilec Inversora S.A. Board and rejecting the contravention claim of Grupo Enersis. It also rejects the indemnity amounting between US$180 and 200 million claimed by Grupo Pecom against Grupo Enersis. The Final Award has been impugned opportunely through an annulment appeal filed before Uruguayan Justice on September 18, 2002, based on that it has gross procedural vices that invalidate it. The filing of said appeal suspends compliance with the verdict. On December 12, 2002 Pecom Energía answered said impugnation. ii. Court : Honorable resolutive commission Process number : 577-99 Cause : Requirements of the “Fiscal Nacional Económico” against Enersis S.A. for the increase of ownership in Endesa- Chile S.A., asserting the transaction has considerably increased the vertical integration in the electric sector, affecting free competition. Process status: The discussion stage has ended and the corresponding complaints have been made. The case is now in the sentencing stage. It is important to note the Commission decided not to receive the case in trial. Additionally, the petitions of the Fiscalía Nacional Económica have changed since the beginning of the case, limiting the request to the inability of Enersis S.A. and Endesa Chile to have common directors and the necessity for these companies to hire different external auditors. Amounts involved: Undetermined. On October 30, 2002 the Resolutive Commission pronounced sentence on the case, and which is summarized as follows: a) “The position of principal or alternate director of Enersis S.A., Empresa Nacional de Electricidad S.A., or of some of them with Chilectra S.A. and Compañía Eléctrica del Río Maipo S.A., shall be held by different and independent individuals. A director will be regarded as independent when holding positions or carrying out employment or activities in a position of dependence of any of these companies or of any of its directors; and b) “The external audit of Enersis S.A., Empresa Nacional de Electricidad S.A., and Chilectra S.A. or Compañía Eléctrica del Río Maipo S.A., which, pursuant to current open stock company legislation, will be performed by different external auditing firms, having any relationship or tie of any nature between them. The same stipulation will be applied should the bylaws of said companies contemplate the appointment of account inspectors;” c) “By the exercise of its official faculties, the following measures will be adopted and in effect until the issue by the Resolutive Commission of a resolution to the contrary: ENERSIS 20 02 ANNUAL REPORT 261 260 260 “Enersis S.A., Elesur S.A., Empresa Nacional de Electricidad S.A., Chilectra S.A. and Compañía Eléctrica del Río Maipo S.A., may not enter into or execute any operation the objective of which would be the merger of the companies controlled by the Enersis group, whose activity would be the generation and distribution of electricity, with Enersis S.A. having to maintain the development of both segments separately, through different companies representing independent business units; and” “Enersis S.A., Empresa Nacional de Electricidad S.A., Chilectra S.A. and Compañía Eléctrica del Río Maipo S.A., shall continue to be subject to supervision of the Superintendency of Securities and Insurance and comply with provisions applicable to open stock companies, even if they have ceased to have the staus of open stock companies;” d) “In exercising the powers established in Decree Law Nº 211 article 17, letter b), this Resolutive Commission issues the following general instructions which any individual who, by application of Ministry of Mining Electric Code article 240, Decree Nº 317, of 1998, must publicly open to bid the supply and load in the terms of said norm: e) All those companies, associations, or company consortiums with existing or potential supply capacity will be able to participate in the supply bidding processes; f) The bidding conditions shall allow the applicants to present bids for the total amount of the supply intended to be contracted or for a part of the energy blocks and load open to bidding, and will include in their entirety the contracts which will be signed by the parties to execute the delivery of the supply bid; and, g) The receipt and opening of bids will be public. The bidding conditions to be established, as well as the result of the awarding, shall be reported to the Economic National Legal Department simultaneously upon the execution of said acts. h) Any other measure of a cautionary or precautionary nature taken in these cases are invalidated in particular, that ordered in Resolution N° 542 numeral 1, dated May 10, 1999, as evidenced on page 132 of the precautionary measures record.” On November 6, 2002, Messrs. Briones and Bosselin filed an appeal as a complaint against the aforementioned sentence, which is currently in the procedural phase. Together with filing the appeal, the petitioners requested that an injunction order be decreed, which was issued on November 14, 2002, thus suspending the sentence’s effects. Amount: Not determined. iii. Accusation filed by Empresa Nacional de Telecomunicaciones S.A. (ENTEL) before the Resolutive Commission against Enersis S.A., started by presentment dated May 13, 2002. The aim was to inform the Commission about the data transmission services provided through the electric networks by Compañía Americana de Multiservicios Limitada, Enersis S.A.’s subsidiary, so as it took the necessary protection measures to guarantee free competition. The Commission requested the Telecommunications Under-department some information, which was provided in a report dated May 31, 2002. On June 5, 2002, Enersis S.A. answered ENTEL’s presentations, requesting that the precautionary measures requested by ENTEL be rejected as they are contrary to law and unnecessary and, also, because if they were accepted they would establish an entry barrier to the industry and postpone the investments necessary for rendering the aforementioned services. ENERSIS 2002 ANNUA L REPORT 261 260 260 The issuance of a report by the Economic National Legal Department is pending, as well as the resolution of the precautionary measures requested by ENTEL. On July 19 of 2002, the Resolutive Commission acknowledged the Economic Legal National Department report, resolving to thoroughly investigate the matter and rejecting the precautionary measured requested. On last September 25, the case was heard and the trial turned into judicial decision stage. iv. Court : 2nd Labor Court of Santiago Process number : 6061-2001 Cause : Complaint filed for severance pay for years of service on December 19, 2001 by Mr. Guillermo Calderón Ortega against Enersis S.A. Process status : First petition sentencing stage Amounts involved: ThCh$52,858 v. The Ordinary Labor Trial, titled “Acevedo Bravo, Efraín and Others with Enersis S.A.”, case list N°4.175-2002, heard before the 4th Labor Court for Santiago, arising from the claim for the payment of 2% monthly contribution made to finance the claimants’ conventional severance indemnity. The claim was notified on 11/06/2002, against which dilatory exceptions were opposed on 12/09/2002 and the claim was answered on a subsidiary basis. The case is currently in the proof stage. vi. Court : 25th Civil Court of Santiago Process number : 3151-00 Cause : Complaint filed for compensation of damages by Mrs. Odette Legrand Halcartegaray against Enersis S.A.. Process status : First petition sentencing stage Amounts involved: ThCh$50,000 vii. Economic protection appeal, filed before the Court of Appeals for Santiago, List N°4591-2002, for Compañía de Teléfonos Complejo Manufacturero de Equipos Telefónicos S.A.C.I., CMET, against Enersis S.A.. The appeal was filed on 08/27/02 by CMET against Enersis S.A., which seemed to be based on the fact that Enersis S.A., through various acts, facts or omissions, would have breached article 19 N°21 of the Political Constitution of the Republic, preventing CMET from developing its commercial activities. On 09.17.02, Enersis S.A. informed to Court, as requested, carrying out all the discharges it deemed reasonable in accordance to law, expressly rejected CMET’s accusations because of their unfounded nature. To date, the appeal is pending for its hearing and judgment, which is estimated to take place during March. viii. Chilean Internal Revenue Service review of taxable income for the 2000, 2001 and 2002 tax years, and the tax trial in first petition for the difference of First Category Income Tax and Reintegration of Monthly Tax Prepayments for absorbed net income in the amount of ThCh$62,400, corresponding to the 1998 tax year. ix. First instance tax suit, that is, before the Internal Revenue Service, for a tax difference in First Category Income Tax and Repayment of Monthly Provisional Payments for absorbed earnings, in the amount of Th$1,461,000 corresponding to the 1999 tax This proceeding is in the discussion stage. ENERSIS 20 02 ANNUAL REPORT 263 262 262 b. There are no documents and loans in legal collection. c. Direct guarantees Guarantee creditor Debtor Type Guarantee Assets Committed Outstanding balances on finacial statement closing date Assets type Enersis S.A. Pledge Note-UF Book Value 1,675 2002 - 2001 1,675 Compañia de Telecomunicaciones de Chile d. Restrictions: • The Company’s loan agreements establish an obligation to comply with the following financial ratios, on a consolidated level: • The ratio between debt and debt plus equity, not exceeding 0.7; • The ratio between operational cash flow and payment of debt interest, not less than 2.4; • Net tangible equity not less than UF45 million; • Assets corresponding to companies whose business is regulated, not less than 50% of total consolidated assets. As of December 31, 2001 and 2002 all these obligations have been met. • As a common and habitual practice for some bank loan debts and also in capital markets, a substantial portion of Enersis S.A.’s financial indebtedness is subject to cross-failure provisions. Some failures of Endesa-Chile or of its subsidiaries, if not corrected in time (as to those specific provisions allowing a period of time to correct the problem), might result in the cross-failure at Endesa-Chile and Enersis S.A. level., and, in this case, some sixty percent of Enersis S.A.’s consolidated liabilities might eventually become on demand. On the other hand, certain failures of a distribution subsidiary, if not corrected in time, would not affect Endesa-Chile, and the amount at risk of Enersis S.A.’s consolidated liabilities would decrease by thirty percent. • Some loan agreements include clauses should the risk category of the debt expressed in US dollars fall below the “investment grade” level, according to the risk classification agency determining the applicable margin of the interest rate (which, for practical purposes hereof, is S & P). Should the long-term US dollar unsecured debt fall into a “non-investment grade” category, or below BBB – according to the nomenclature used by S & P, then, the obligation to prepay all the outstanding principal existing under these loans within the following sixty days, unless agreed upon otherwise by the parties, arises. At December 31, 2002, US$1,464 million of the company’s borrowings and US$718 million of Endesa-Chile’s loan agreements, include compulsory prepayment clauses for the mentioned circumstances. There are no clauses in the loan agreements penalizing the Company if it is ranked below the “Investment Grade” level. Because of the above, no provisions have been recorded for said item. • At December 31, 2002 these obligations and restrictions have been fully met. ENERSIS 2002 ANNUA L REPORT 263 262 262 21. SURETIES OBTAINED FROM THIRD PARTIES As of December 31, 2001, the Company has received sureties as follows: Operation Contractor Relation Support contract Support contract Propuesta internacional Seriousness of supply Proposal GA/003/2001 International proposal Cía. de Telecomunicaciones de Chile Metropolis Intercom Asea Brown Boveri Indequipos S.A. Skaiteeks Internacional S.A.C. Disico S.A. Public licitation GA /003/2001 Industrias de Aparellaje Eléctrico S.A. Proposal GA/003/2001 International proposal Lamparas y Equipos Progos Ltda. Seriousness of supply 3266 Proveedora Industrial Minera Andina S.A. International proposal International proposal Proposal GA/003/2001 Siemens S.A. Sural S.A. Tyco Electronics Chile Ltda. Guarantee support contract Enpresa Nacional de Telcomunicaciones Support contract Guarantee support contract International proposal Licitation GA/004/2001 International proposal International proposal Proposal GA/001/2001 Private proposal GA/002/2001 Licitation GA/004/2001 Licitation GA/004/2001 Proposal GA/002/2001 International proposal Seriousness of supply International proposal Proposal GA/002/2001 Proposal GA/002/2001 Proposal GA/002/2002 Private proposal GA/004/2001 Proposal GA/002/2001 Proposal GA/002/2001 Licitation GA/004/2001 VTR Global Com S.A. GTD Teleductos Celsa S.A. Comercializadora Multinacional Cooper Industries Inc. Delixi Group Co., Ltd. Distribuidora de Productos Eléctricos Ltda. Eléctricas de Medellin Ltda. Electroporcelana Gamma Electrovidro GE Lighting Peru S.A. General Electric de Chile H. Briones Comercial S.A. Industria Electrónica Balestro Ltda. Industria Electrónica Linsa Ltda. Inpronet Ingeniería Internacional Luminarias Isoladores Santana S.A. Isolux Ltda. Josfel Comercial S.A.C. K-Line Private proposal GA/004/2001 Masol Distribución Iluminación S.A. International proposal Proposal GA/003/2001 Proposal GA/002/2001 Proposal GA/002/2001 Proposal GA/004/2001 Private proposal GA/002/2001 International proposal International proposal Contract CD-295/99 Others Total Medex S.A. Metálicas y Eléctricas -Melec Philips Peruana Prospective Enterprise Pyung-Il Ind.Co.Ltd. Roy Alpha S.A. S & Electric Company Schneider Electric Chile S.A. Xerox De Chile Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Amount ThCh$ 58,627 58,627 54,071 47,507 40,553 27,035 27,035 27,035 27,035 27,035 27,035 27,035 27,035 16,081 15,746 14,992 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 13,518 12,965 58,340 972,286 ENERSIS 20 02 ANNUAL REPORT 265 264 264 • As of December 31, 2002, the Company has received sureties as follows: Operation Contractor Relation Fulfillment of supply contract Cía. de Telecomunicaciones de Chile Supply contract Seriousness of supply Supply contract Fulfillment of supply contract Guarantee supply contract Guarantee fulfillment contract Supply contract Metropolis Intercom S.A. Holley Group Co Ltd. VTR Global Com GTD Teleductos Empresa Nacional de Telcomunicaciones Manquehue Net Aguas Andina Guarantee fulfillment contract Bellsouth Comunicaciones Supply contract Guarantee supply contract Guarantee supply contract Fulfillment of contract Fulfillment of contract Others Total Gtd Telesat Alfredo Ruiz Cornejo Zerox De Chile S.A. Resguardo Aguas Cordillera Third Third Third Third Third Third Third Third Third Third Third Third Third Third Third Amount ThCh$ 58,604 58,604 28,495 25,116 18,251 16,074 15,070 8,372 8,372 8,372 5,023 1,674 1,641 1,005 787 255,462 ENERSIS 2002 ANNUA L REPORT 265 264 264 22. FOREIGN CURRENCIES As of December 31, 2001 and 2002, foreign currency denominated assets and liabilities are as follows: a. Current assets Account Currency Cash Time deposits Other receivables Notes receivable Amounts due from related companies Income taxes recoverable Prepaid expenses Deferred income taxes Other current assets CH$ US$ US$ CH$ CH$ U.F. CH$ US$ CH$ CH$ CH$ CH$ US$ As of December 31, 2001 ThCh$ 554,859 - 3,339,638 9,653,095 759 1,069,428 72,900,473 2002 ThCh$ 278,009 141,962 4,599,104 4,723,505 737 548,981 38,372,273 4,718,903 149,017,956 11,993,039 23,545 2,890,033 2,820,000 110,607,127 9,252,460 23,946 13,703,886 4,991,257 11,782 Total current assets 220,570,899 225,665,858 b. Property, plant and equipment Account Currency Buildings and infrastructure Machinery and equipment Other fixed assets Technical appraisal Depreciation Ch$ Ch$ Ch$ Ch$ Ch$ As of December 31, 2001 ThCh$ 20,592,396 1,547,428 1,351,831 32,871 2002 ThCh$ 20,592,331 2,237,900 778,024 32,853 (9,832,948) (10,674,829) Total property, plant and equipment 13,691,578 12,966,279 ENERSIS 20 02 ANNUAL REPORT 267 266 266 c. Other assets Account Currency Investment in related companies Goodwill, net Negative goodwill, net Other receivables Amounts due from related companies Intangibles Less: Accumulated amortization Other assets Ch$ Euros US$ Ch$ US$ Ch$ US$ Ch$ US$ Ch$ Ch$ CH$ As of December 31, 2001 ThCh$ 2002 ThCh$ 2,001,934,027 1,714,489,338 602,376 420,391,127 833,827,404 11,841,027 (156,983) (947,312) 489,642 479,992 578,399,897 784,084,055 3,638,593 (141,668) (611,346) 475,380 663,834,927 500,634,149 1,423,691 (276,786) 14,444,523 1,423,691 (348,105) 52,615,157 Total other assets 3,947,407,663 3,635,139,133 d. Current liabilities Within 90 days 91 days to 1 year As of December 31, 2001 As of December 31, 2002 As of December 31, 2001 As of December 31, 2002 Account Currency Due to banks and financial institutions Bonds payable Dividends payable Accounts payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income tax payable Deferred income Other current liabilities US$ US$ U.F. Ch$ US$ Ch$ Ch$ U.F. Ch$ US$ Ch$ Ch$ Ch$ Ch$ US$ Ch$ Amount ThCh$ 8,257,254 - - 388,968 487,375 - 1,103,337 17,382,835 87,887,700 87,800 2,580,316 919,521 - 17,175 423,677 1,193,328 113,160,189 Avg Rate % - - - - - - - - - - - - - - - - - Amount ThCh$ 4,813,564 - - 210,095 696 350,316 225,262 11,594,646 22,026,963 104,637 2,982,587 201,903 16,675 198,493 4,058,871 - Avg Rate % - - - - - - - - 5.04 - - - - - 1.85 - Amount ThCh$ 33,721,685 3,069,608 7,338,015 - - - - 284,074 - - - - - - - - Avg Rate % - - - - - - - - - - - - - - - Amount ThCh$ 261,756,982 3,270,670 7,707,332 Avg Rate % 2.69 7.06 5.50 - - - - - - 1,613,846 2,515,740 - - - - - - - - - - - - - - - - - - - - Total current liabilities 233,889,475 46,784,708 44,413,382 276,864,570 ENERSIS 2002 ANNUA L REPORT 267 266 266 e. Long-term liabilities, December 31, 2002 Account Currency Due to banks and financial institutions Amounts payable to related companies Bonds payable Accrued expenses Deferred income taxes Other liabilities US$ U.F. US$ U.F. Ch$ Ch$ US$ 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Amount ThCh$ Avg Rate % 826,401,500 2.64 1,008,142,313 3.33 Amount ThCh$ - - - - 230,863,000 16,185,590 5.50 20,547,091 - 4,198,442 38,021,057 - - - - - - Avg Rate % - - 6.90 5.53 - - - Amount ThCh$ Avg Rate % - - - - - - Amount ThCh$ - - 344,025,000 24,987,254 5.60 29,176,242 555,872 - - - - - 1,438,337 - - Avg Rate % - - 7.16 5.75 - - - Total current liabilities 1,892,948,902 251,410,091 25,543,126 374,639,579 f. Long-term liabilities, December 31, 2001 Account Currency Due to banks and financial institutions Amounts payable to related companies Bonds payable Accrued expenses Deferred income taxes US$ U.F. US$ US$ U.F. CH$ CH$ 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Amount ThCh$ 992,321,281 1,039,153,679 13,497,434 Avg Rate % 3.85 4.90 5.38 - - Amount ThCh$ Avg Rate % - - - - - - - - Amount ThCh$ - - - 202,330,110 15,347,667 5.50 17,903,179 5.51 33,696,740 - 4,066,066 - - - - - - 541,328 - Avg Rate % - - - 6.90 5.57 - - Amount ThCh$ - - - 337,216,850 31,451,890 1,279,080 - Avg Rate % - - - 7.16 5.75 - - Total long-term liabilities 2,064,386,127 17,903,179 236,568,178 369,947,820 ENERSIS 20 02 ANNUAL REPORT 269 268 268 23. SANCTIONS As of December 31, 2002, neither the Company nor its Board of Directors has been fined by the Superintendency of Securities and Insurance or any other administrative authority. . 24. SUBSEQUENT EVENTS • On December 10, 2002, a Special General Shareholders’ Meeting of Cerj, an Enersis S.A. subsidiary, was held, where a capital increase was approved for Cerj, in an amount of ThUS$105,000, approximately. This increase took place on January 10, 2003, through the issuance and subscription of 770,833,333,333 new ordinary shares, at a value of R$0.48 in one thousand-share batches, totaling the ThUS$100,000 approved at the Meeting, with the Company’s capital amounting to ThUS$259,085. With this operation, the percentage of direct participation held by Enersis S.A., through its agency, will increase from 20.38% to 40.03%. • As a relevant event on January 15, 2003, it was reported that Enersis S.A.’s Board of Directors, at a special meeting held on that day, agreed to take note that the Company will make accounting adjustments and special charges in its balance sheet for its investments in its Chilean and foreign subsidiaries for a total of US$387 million, in its equivalence in Chilean pesos, these special adjustments being reflected in 2002 income. Such special adjustments and charges have no impact on the Company’s cash flow and will be reflected in Enersis’ 2002 financial statements. The special adjustments and charges made as well as the provisions made at November 30, 2002, are detailed as follows: (the figures shown correspond to the impact on Enersis S.A.’s financial statements): Generation: Brazil Argentina US$ 60 million US$ 23 million Total Generation US$ 83 million Distribution: Brazil Argentina US$ 255 million US$ 26 million Total distribution US$ 281 million Services: Chile US$ 23 million Total services: US$ 23 million Total adjustment US$ 387 million ENERSIS 2002 ANNUA L REPORT 269 268 268 It should be noted that, of the US$387 million, US$329 million will be from the acceleration of the amortization of the net balance of negative goodwill and goodwill of investments made in Brazil and Argentina in generation and distribution. Subtracted from the figure above are the provisions made at November 30, 2002, as shown below: Brazil Argentina US$ 81 million US$ l6 million Total Provisions US$ 97 million In view of the above, and having considered these provisions, the effect of the adjustments and special charges on the company’s income will amount to the equivalent in Chilean pesos of US$290 million, approximately. In the period between January 1, 2003 and the date of presentation of these financial statements, no other significant event that might affect their presentation has occurred. 25. ENVIRONMENT As of December 31, 2002, the Company has not incurred in environmental expenses. JUAN CARLO WIECZOREK General Account ENRIQUE GARCIA Chief Executive Officer ENERSIS 20 02 ANNUAL REPORT 271 270 270 Enersis S.A. Relevant Facts Provisional Dividends The Board of Directors of Enersis S.A., as of January 31, 2002 agreed, upon unanimous vote of its members, not to distribute in February 2002, a provisional dividend charged to the results of December 2001, due to not satisfying the requirements provided for such action in the Dividend Policy of the Company. In the Ordinary Meeting of the month of May, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, not to distribute in May 2002, a provisional dividend charged to the results of March 2002, according to the policy in force on this subject, due to not satisfying the requirements provided for such action in the above mentioned Dividend Policy of the Company. In the Extraordinary Meeting held on July 31, 2002, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, not to distribute in August 2002, a provisional dividend charged to the results of June 2002, according to the policy in force on this subject, due to not satisfying the requirements provided for such action in the above mentioned Dividend Policy of the Company. In the Ordinary Meeting held on October 28, 2002, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, not to distribute in November 2002, a provisional dividend charged to the results of September 2002, according to the policy in force on this subject, due to not satisfying the requirements provided for such action in the above mentioned Dividend Policy of the Company. Changes to the Board of Directors In the Extraordinary Meeting held on July 25, 2002, the resignation of Director Mr. Luis Rivera to the Board of Directors of the Company was accepted. Likewise, in the Ordinary Meeting held on July 26, 2002, the resignation of Mr. Alfredo Llorente to the positions held by him as Chairman of the Board, Director, President of the Committee of Directors and member of this Committee, was accepted. In the same Ordinary Meeting held on July 26, 2002, the following was agreed upon: - To appoint Mr. Pablo Yrarrázaval as Director and Chairman of the Board of Enersis S.A. - To appoint Mr. Pablo Yrarrázaval, Mr. Hernán Somerville and Mr. Ernesto Silva as members of the Committee of Directors. - Finally, Mr. José Luis Palomo was appointed Director. Relevant aspects on the businesses of Endesa España As of September 20, 2002, our parent company, Endesa S.A. (Spain) has presented to the Comisión Nacional de Mercado de Valores de Madrid (Madrid Stock Exchange National Commission), the Superintendence of Securities and Insurance and the S.E.C., a report on the relevant aspects of its businesses. This report and how the situation of its businesses in Latin America affects Endesa España, states the following: ENERSIS 2002 ANNUA L REPORT 271 270 270 “No extraordinary rightoffs, such as those already carried out by other national and international companies, are foreseen. The rightoffs have been made in each quarter by adjusting the value of the investments according to the devaluation of the Latin American currencies, additionally supplying the provisions deemed necessary. This has meant an accumulated rightoff, from the time when these investments were made, of 2,700 million euros of the Latin American investment. The book value of the Latin American assets reasonably corresponds to the market value of same. Businesses in Latin America show a general positive behavior during the year, as reflected in the operating result of the Latin American business which was increased by 6% in the first half of the year compared to the previous year. Without taking Argentina into consideration, the operating result has increased by 25%. Brazil. The impact caused by the devaluation of the Real is very limited, because 55% of the debt of our Brazilian subsidiaries is denominated in Reales. The remainder is in US dollars, financing a company, CIEN, whose income is linked to the US dollar. The strong increase in the demand during July and the full operation of the second interconnection line between Argentina and Brazil will contribute to improve the profitability of our operations between these two countries. Additionally, US$ 62 million have already been collected from the BNDES loan due to the electric rationing. Chile. The recovery of the hydraulic production in Chile is largely contributing to a strong operating improvement during the year. The operating result for the generation business in Chile was increased by 55% during the first half. Argentina. Provision has been made for 100% of Endesa’s investment in that country. Taken together, the Argentinean companies have a positive operating result, which is higher than the interests corresponding to the debt. Indebtedness and liquidity of the Latin American companies. - Neither Enersis nor Endesa (Chile) have liquidity problems. - The Enersis group has reduced its indebtedness by 1,140 million euros during the first half. - These companies may, in the short term, dispose assets for a minimal amount of 600 million euros which, taken together with the debt associated with these assets, will represent a total reduction in indebtedness of 1,000 million euros. - The companies have closed August with a positive cash situation of US$ 460 million, and maintain an absolutely normal financial situation with the exception of Argentina, where the general situation of the country is affecting the financial activities. Notwithstanding, the Endesa subsidiaries are serving the interest payments and are obtaining extensions for the maturities of the principal of their debts. - Endesa (España) would be willing to capitalize the loan granted to Enersis for an amount of 1,440 million euros, which would represent an important improvement of its equity situation. - Standard & Poors has ratified in last July, the BBB+ rating for the long term debt of Enersis and Endesa Chile. - Finally, the debt of Enersis with Endesa has no warranty or coverage and there are no “cross-default” clauses with said debt. Financial strengthening plan In the Extraordinary Meeting held on October 4, 2002, the Board of Directors of Enersis S.A. agreed, upon unanimous vote of its present members, to announce that a financial and economic strengthening plan has been approved for Enersis S.A., intended to strengthen its equity, via improving its financial structure and allowing the Company to face the regional situation which affects its investments. Said plan contemplates the following operations: ENERSIS 20 02 ANNUAL REPORT 273 272 272 a) Increase of capital: The Board of Directors of Enersis has decided to initiate a capital increase process for an amount of up to US$ 1,500 million, which includes cash and/or financial loan contributions. Said process will involve summoning, in one of the following meetings of the Board of Directors of the Company, an Extraordinary Shareholders’ Meeting which will decide on the terms of this capital increase, anticipating that this meeting should take place during the first four months of 2003; b) Disposal of the following assets: (1) Compañía Eléctrica del Río Maipo S.A. distributing company. (2) Inmobiliaria Manso de Velasco Limitada real estate company. (3) Several real properties owned by Enersis S.A. and its subsidiaries. Regarding the sale of Compañía Eléctrica del Río Maipo S.A., and considering that it is an asset deemed essential within the policy of investment and financing of Enersis, said divestment should be authorized by the Extraordinary Shareholders’ Meeting which will be summoned in due time. Regarding the real properties owned by the subsidiaries of Enersis S.A., this Company will propose the divestment of same to the pertinent companies. The amount expected to be raised through the process of divestment of assets contemplated in the financial and economic strengthening plan of Enersis S.A. will be assigned to reduce the financial indebtedness of the Company; c) Refinancing the intercompany loans of some of the subsidiaries with Enersis S.A.: Part of the Enersis financing with its subsidiaries will be substituted by loans directly contracted in the market. This will result in a substantial improvement in the leverage (ratio between debt and equity) of the balance sheet of Enersis S.A.; and d) Improvement in free cash flow. Enersis S.A. will continue to enforce the efficiency measures for operations and investments, in order to increase its yearly operating consolidated free cash flows by at least US$ 130 million, achievable in a three-year term. These higher flows will be in addition to those derived from demand variations and unit margins for energy sales and purchases. On the other hand, the above mentioned capital increase will benefit the company with an additional increase in cash flow due to the consequent reduction in financial expenses. All of these measures should allow a reduction in the indebtedness of Enersis, S.A. by up to US$ 2,200 million, as well as the attainment of a ratio of debt/funds of its own of about 0.6. The Board of Directors agreed to authorize the Management of the Company to propose to the Board of Directors the appointment of an investor bank to conduct the above mentioned alienation processes, as well as to adopt all of the measures leading to the adequate materialization of the above described operations. Study of stock placement As of November 7, Enersis S.A. has initiated negotiations with the following investment banks, in order to study the possibility of placing shares in foreign markets: Deutsche Bank, Salomon Smith Barney and Santander Investment, leading the process jointly. ENERSIS 2002 ANNUA L REPORT 273 272 272 Unconsolidated Management Analysis For the years ended December 2001 and 2002 ECONOMIC-FINANCIAL SUMMARY As of December, 2002, Net Income registered a loss of Ch$ 223,748 million, compared to the profit of Ch$ 42,154 million as of December, 2001. This decrease is basically related to the Accounting Adjustments made by the Company for our investments in Argentina and Brasil. In any event, it is important to highlight that these one time adjustments, are merely accounting issues, and do not represent cash flow reduction. Therefore, these will not affect the liquidity of the Company. Operating Income amounted to Ch$ 532,644 million, which represents a decrease of 29.4% respect to the year 2001. This fall is mainly explained by the economic instability in Argentina and the strong devaluation in Brazil. It is important to highlight, however, the improved Operating Income achieved during this period by Chilean subsidiaries. In this respect, this is clearly shown when isolating the effect of subsidiaries in Argentina, in which case the Operating Income decreased only 8.6%, equivalent to Ch$ 50,009 million, as shown in the Pro-Forma Income Statement. In the Distribution Business, it is important to highlight the improvement of 1.6% in consolidated Physical Sales, reaching 48,955 GWh, equivalent to 767 GWh of higher sales compared to 2001. This shows the recovery of some key ratios of the business. On the other hand, physical sales in generation, decrease mainly in Argentina, from 12,988 GWh to 7,897 GWh. Also in the Distribution Business, the number of clients in increase by 2.8% or 275,000 new customers, equivalent to add in a year, a company like Río Maipo. This growth in clients, jointly with the recovery of the demand, makes us to believe that sales will increase during the year 2003. Another important fact in the operating side is the labor productivity, that increase 2.2%, from 1,379 clients per employee to 1,409 clients per employee, confirming the positive trend shown in the last three years. Energy losses, another key variable in the distribution business, increase from 11.9% to 12.1%, primarily due to the increase in Edesur, offset by the decrease in Codensa, from 11.8% to 10.3%, as well as most of the other subsidiaries. Ch$ 573,508 million of lower operating revenues, were offset by a decrease of operating costs in 14.6%, equivalent to Ch$ 295,262 million, additionally Ch$ 56,346 million of lower administrative and selling expenses, equivalent to a 20%. Excluding our Argentinean subsidiaries, the decrease in operating revenues have been only 2.2%. Net Financial Result improved by Ch$ 41,957 million or 10.6%, respect December 2001. This variation is the result of lower interest rates, as well as the decrease of indebtness measured in dolars. ENERSIS 20 02 ANNUAL REPORT 275 274 274 In respect to the financial area, the company lunched in October a Financial Strengthening Plan. Said plan contemplates the following operations: a) A capital increase process for an amount of up to US$ 1,500 million b) Disposal of assets for an amount of up to US$ 1,000 million c) Debt payments from subsidiaries to Enersis for an amount of US$ 500 million d) Improvement in free cash flow for an amount of US$ 130 million, achievable in a three-year term. Up to date, Enersis and its subsidiaries, are working hard to successfully achieve the different tasks previously mentioned. In relation to the capital increase, it is expected to finish as soon as possible the definition of the main characteristics of the issuance (size, price, date of preemptive offering rights, etc.) In terms of the divestment of assets, as of January 27th., 13 offers had been received for Rio Maipo and Canutillar. From the best offers it is expected to end the selling process by the end of March. On the other hand, Enersis is carrying out a refinancing process which is expected to be finished during the coming months. In relation to the net result coming from investments, this grew from a loss of Ch$ 10,699 million up to a profit of Ch$ 8,264 million, as consequence of a higher profit on investments in related companies by Ch$ 11,367 million, combined with a lower loss -in the same concept- by Ch$ 7,596 million. Details of main variations on P&L and balance sheet, as well as a deeper analysis of our main business can be found in the following pages, under the chapter Financial Statement Analysis, where a comparison is made between December 31st., 2002, and December 31st., 2001 ENERSIS 2002 ANNUA L REPORT 275 274 274  MARKETS IN WHICH THE COMPANY OPERATES Enersis’ commercial activities are handled through subsidiaries that operate the various businesses in the countries where the company has a presence. For Enersis, the most important activities are the Distribution and Generation of electricity. The following tables illustrate the evolution of the key ratios in the different countries Distribution Business Company Chilectra Río Maipo Edesur Edelnor Cerj Coelce Codensa Energy sales (GWh) ( * ) Energy losses (%) Clients (thousand) Clients / Employees (thousand) Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 Dec-01 Dec-02 9,585 1,245 9,952 1,274 12,909 12,138 3,685 6,739 5,352 8,673 3,872 7,146 5,558 9,015 5.4% 6.4% 9.9% 8.9% 22.7% 13.0% 11.8% 5.6% 6.2% 11.6% 8.5% 22.6% 12.9% 10.3% 1,289 294 2,097 867 1,691 1,917 1,850 1,319 302 2,090 871 1,778 2,009 1,911 1,785 3,764 925 1,557 1,249 1,309 2,276 1,833 4,021 928 1,465 1,226 1,434 2,382 Total 48,188 48,955 11.9% 12.1% 10,005 10,280 1,379 1,409 (*) It includes sales to final clients, tolls, and intercompany sales. Generating Business Country Chile Argentina Perú Colombia Brasil Total Market of operations SIC y SING SIN SICN SIN SICN Energy sales (GWh) Market share Dec-01 18,673 12,988 4,239 14,590 3,743 Dec-02 18,344 7,897 4,158 14,639 3,591 Dec-01 Dec-02 49.0% 13.5% 23.0% 23.3% 1.2% 46.1% 10.9% 21.2% 21.4% 1.1% 54,233 48,629 ANALYSIS OF THE FINANCIAL STATEMENTS 1.- ANALYSIS OF THE INCOME STATEMENTS As of December, 2002, Net Income registered a loss of Ch$ 223.748 million, compared to the profit of Ch$ 42.154 million as of December 2001, a decrease of 631% or $ 265,902. ENERSIS 20 02 ANNUAL REPORT 277 276 276  The variations of the income statements are as follows: Income Statement (million Ch$) Dec-01 Dec-02 Var Dec 02- 01 %Var 02-01 Operating Revenues Operating Costs Operating Margin Selling and Administrative Expenses Operating Income Profit (Loss) in Related Companies. Inet Others non Operating Income Net Financial Margin Positive Goodwill Amortization Monetary Exchange Difference Non Operating Income Income Tax Negative Goodwill Amortization Net Income 4.301 (845) 3.456 (20.641) (17.185) 238.630 13.216 4.282 (1.086) 3.196 (21.830) (18.634) (8.443) 4.310 (114.687) (87.061) (19) (241) (260) (1.189) (1.449) (247.073) (8.906) 27.626 (0,4%) (28,5%) (7,5%) (5,8%) (8,4%) (103,5%) (67,4%) 24,1% (50.471) (107.889) (57.418) (113,8%) 1.583 1.581 (37.303) (18.142) (2) 19.161 (0,1%) 51,4% 50.968 8.306 65 (215.644) (266.612) (523,1%) 9.487 1.043 1.181 978 14,2% 1504,6% 42.154 (223.748) (265.902) (630,8%) R.A.I.I.D.A.I.E. (*) Earnings per Share $ 241.971 5.08 69.855 (26.99) (172.116) (71,1%) (32.07) (630,8%) (*) Earning before taxes, interests, depreciation, amortization and extraordinary items. Non-Operating Income shows a loss of Ch$ 215,644 million, which represents a decrease of Ch$ 266,612 million compared with the year 2001. Net Financial Result improved by Ch$ 27,626 million compared with the same period last year. This variation is the result of higher financial income of Ch$ 10,100 million due to the increase in accounts receivables to related companies, lower financial expenses for Ch$ 17,536 million due to lower interest rates on the international markets. Investment in Related Companies registered a net loss of Ch$ 8,443 million, a negative variation of Ch$ 247,073 million when compared to the net profit of Ch$ 238,630 million registered in December 2001. Principally due to the lower results of our investments in Chilectra, Endesa, Manso de Velasco for Ch$ 169,097 million, in Edesur, Distrilec and Enersis Argentina for Ch$ 36,281, in Investluz and Cerj for Ch$ 32,511 million, in Enersis International for Ch$ 17,897 million and in Luz de Bogotá for Ch$ 4,124 million, compensated by better results in Luz de Río for Ch$ 9,658 million. Amortization on Positive Goodwill for the year 2002, amounted to Ch$ 107,889 million, an increase of Ch$ 57,418 million in respect to December 2001. The increase in the amortization is related to the acceleration of amortization of the net balance of Negative and Positive goodwill of investments in Argentina and Brazil, representing a higher charge of Ch$ 53,117 million and the increase of the positive goodwill due to the adquisition of Chilectra and Rio Maipo’s shares during the last months of the year 2001. Net Other Non-Operating Income decreased by Ch$ 8,906 million, reaching a profit of Ch$ 4,310 million as of December 2002. ENERSIS 2002 ANNUA L REPORT 277 276 276  This increase is mainly due to: • An increase in the amortization of the differed charge as a consequence of the equity change in Cerj of Ch$ 17,020 million. • • A decrease in the profit as a consequence of the repurchase of bonds for Ch$ 5,531 million. A decrease in income from forwards and swaps for Ch$ 4,850 million. This was partially compensated by: • • Lower losses for dividends distributed to Chilectra de Argentina for Ch$ 15,484 million. An increase in profits due to the conversion effect to related companies for Ch$ 9,133 million. Price Level Restatement and Exchange Differences show a net profit of Ch$ 19,159 million. This was caused principally by the effects of the nominal devaluation of 6,76% of the Ch$ against the US$, compared to a devaluation of 11.04% as the same date last year. Interest rate risks As of December 2002, 22% of the total debt was expressed in variable terms (mainly Libor USD and Chilean TAB), compared to a 41 % as of December 2001. The reduction in the percentage of debt at variable rates during this year is explained basically by the refinancing of obligations (previously at variable terms) into fixed rates, and by hedge operations of Libor US$ rate for US$ 700 million. Considerating de debt of all subsidiaries, the company structure will be 30% for the year 2002 and 42% for the year 2001. Exchange risk The Company’s exposure to an exchange risk is derived from the assets and liabilities denominated in foreign currency, mainly US$. As of December 2002, 62% of the debt was denominated in US$. Considering the US$/Ch$ hedging policy mentioned below, the percentage of the debt denominated in US$ is 60%. As of December 2001, Enersis had 60% of its total debt expressed in US$. With the US$/Ch$ forward position, the weight of this debt in US$ was reduced to 56%. The reason behind the largest part of our debt being denominated in US$ is the fact that an important proportion of our revenues is directly or indirectly related to US$. Currently, the exchange risk is managed on a consolidated basis, taking into consideration the part of these risks that our Chilean subsidiaries have not covered. The company’s policy is set on maintaining between 70% and 85% of the booked exposure to exchange risk covered. The current exchange exposure between the Chilean Peso and the US Dollar is controlled with financial derivative instruments, basically USD/CLP forward contracts, to cover the exchange risk. As of December 2002, 2001 Enersi has forward for US$ 47 million and US$ 164 million, respectively. ENERSIS 20 02 ANNUAL REPORT 279 278 278 2. ANALYSIS OF THE BALANCE SHEET Total assets of the Company show as follows: Assets (millions of $) Current Assets Fixed Assets Other Assets Dec-01 220,571 13,691 3,947,408 Dec-02 Var Dec 02-01 %Var 02-01 225,666 12,966 3,635,139 5,095 (725) (312,269) 2.3% (5.3%) (7.9%) (7.4%) Total Assets 4,181,670 3,873,771 (307,899) Total assets of the Company show a decrease of $ 307,899 million compared to the same period the year before. Mainly due to: • Decrease in investments in related companies by $ 129,558 million compared to the previous year, primarily due to the liquidation of the investment vehicles in Panamá. On the other hand, a decrease in the investment on Chilectra and Endesa, offset by a increase in the investment on Edesur, Distrilec, Central Generadora Termeléctrica Fortaleza and Enersis International. • Decrease in positive and negative goodwill, with a net effect of $ 57,594 million. • Decrease of $ 53,951 million in short and long term accounts receivable to related companies. • Decrease on forward contracts for $ 110,595 million. • Increase in other long-term assets for $ 38,171 million. Liabilities (millions of $) Dec-01 Current Liabilities Long-term Liabilities Shareholders’ Equity 278,303 2,688,805 1,214,562 Dec-02 323,649 2,544,542 1,005,580 Var Dec 02-01 %Var 02-01 45,346 (144,263) (208,982) 16.3% (5.4%) (17.2%) Total Liabilities 4,181,670 3,873,771 (307,899) (7.4%) Due and payable liabilities show a net decrease of $ 98,917 million in respect to the previous year, equivalent to 3,33%, mainly explained by the decrease in accounts payable to related companies for $ 114,811 million, forward contracts for $ 113,160 million and Bank Obligations for $ 10,840 million, partially offset by the exchange variation between December 2002 and 2001, with a net effect of $ 66,942 million. Additionally an increase of other long-term liabilities for $ 38,021. Regarding shareholder’s equity, it should be stated that it decreased by $ 208,982 compared to December, 2001. This variation is explained mainly by the recognition of the loss for the period of $ 223,748 million, the increase in shortfall in tax revenue by $ 5,830 million, partially offset by an increase in other reserves for $ 20,597 million. ENERSIS 2002 ANNUA L REPORT 279 278 278  The evolution of the main financial indicators is as follows: Indicator Liquidity Current Liquidity Acid-test ratio (1) Working Capital Indebtedness Indebtedness Ratio Short-term Debt Long-term Debt Unit Veces Veces MM$ Veces % % Interest expense coverage (2) Veces Profitability Return on Investment Return on Assets (1) Current assets, net of prepaid expenses (2) RAIIDAIE divided by interst expense was used % % Dec-01 Dec-02 Var Dec 02-01 % Var 02-01 0,79 0,79 0,70 0,70 (0,09) (0,09) (57.732) (97.983) (40.251) 2,44 0,09 0,91 1,50 3,47% 1,01% 2,85 0,11 0,89 0,48 0,41 0,02 (0,02) (1,01) (22,25%) (25,72%) (741,1%) (5,78%) (6,78%) (673,0%) (11,4%) (11,4%) 69,7% 16,8% 20,3% (2,1%) (67,6%) Liquidity ratio at December, 2002 is 0.70, showing a worsening of 0.09 points compared to the same date the year before. Such worsening is because of the Company’s higher commitments with banks in the short term, affecting the working capital. The indebtedness ratio, which at December 31, 2002 was 2.85 times higher than in the same period of 2001, shows an increase of 0.41 points. The increase is basically due to the effect of the equity reduction of 17.2% due to the loss in the accounting period. On the other side, return index were negatively affected by the decrease in the profits of the period. 3. PRINCIPAL CASH FLOWS During the period, the Company generated a net cash flow of Ch$ 1,354 million, explained as follows: Cash Flow (millions of $) Operating Fixancing Investing Dec-01 (3,541) 92,945 (85,924) Dec-02 (10,278) (82,571) 94,203 Var Dec 02-01 %Var 02-01 (6,737) (175,516) 180,127 190.3% (188.8%) (209.6%) Net cashflow 3,480 1,354 (2,126) (61.1%) Operating activities generated a net negative cash flow of Ch$ 10,278 million. This flow is mainly related to a loss for the period of Ch$ 223,748 million, plus net charges to income that do not represent cash flow for Ch$ 140,123 million, a decrease of assets that affect the cash flow for $ 30,775 million as a consequence of dividends from related companies and the increase of liabilities that affect the cash flow for $ 42,571 million, primarily interests. Financing activities produced a negative cash flow of Ch$ 82,571 million mainly due to loans payment to related companies for Ch$ 121,084 million, bank payments and bonds payments for Ch$ 83,879. These were partially compensated by loans received for $ 66,040 million and loans received by related companies for Ch$ 56,353 million. ENERSIS 20 02 ANNUAL REPORT 281 280 280 Investment activities generated a net positive cash flow of Ch$ 94,203 million, basically explained by loans received by related companies for Ch$ 254,952 million, derivatives for $ 11,311 million, income from capital reduction from Luz de Bogotá and Investluz for $ 18,170 million, compensated by loans to related companies for Ch$ 164,439 million, permanent investments for $ 16,732 million and $ 9,060 million payments due to forwards. 4. BOOK VALUE AND ECONOMIC VALUE OF THE ASSETS Among the most important assets, we can mention the following: The values for fixed assets are adjusted according to the accounting criteria established by the Superintendencia de Valores y Seguros (S.V.S., Superintendence of Securities and Insurance) in Resolutions Nos. 550 and 566 of 1985. In the case of Sociedad Extranjera Inversiones Distrilima S.A., the fixed asset values were adjusted according to the exception criterium established in Technical Bulletin No. 45 of the Colegio de Contadores de Chile A.G. (Chilean Accounting Association), a rule in force at the time when the investment was made and which was not modified by Technical Bulletin No.51 which replaced the former. Depreciation is calculated on the updated value of the property according to the remaining years of useful life of each. Investments in related companies are presented updated to their proportional equity value. In the case of foreign companies, as of the second quarter of 1998, this methodology has been applied on financial statements prepared according to Technical Bulletin No.64 of the Colegio de Contadores de Chile A.G., and the intangible values are price level restated and amortized according to the dispositions of Technical Bulletin No.55 of the Colegio de Contadores de Chile A.G. According to Oficio Circular No. 150 of January 31, 2003 of S.V.S., the company has evaluated the recovery of the assets associated to its investments at the closing date of the financial statements, by applying the accounting principles generally accepted in Chile, which are Technical Bulletins No.33 for fixed assets and, according to the ranking defined in Technical Bulletin No. 56, NIC 36 has been applied for goodwill and negative goodwill related to such investments. Assets expressed in foreign currency are presented at the exchange rate effective at the closing of the period. Investments in financial instruments in repos are presented according to their purchase value plus the proportion of the corresponding interests according to the implicit rate for each operation. Accounts and documents to be collected from related companies are classified according to their maturity dates into short- and long-term documents. The operations are adjusted to fairness conditions similar to those customarily prevailing in the market. In summary, the assets are shown updated according to generally accepted accounting principles and rules, and to the instructions issued by the Superintendencia de Valores y Seguros, as disclosed in Note 2 to the Financial Statements. ENERSIS 2002 ANNUA L REPORT 281 280 280 ENERSIS 20 02 ANNUAL REPORT 283 282 282 Financial Statements of Subsidiaries Subsidiaries 2002 283 282 Comparative Balance Sheets For the years ended 2001 & 2002 (thousand Ch$ as of December 2002) ASSETS Current assets Fixed assets Others assets TOTAL ASSETS LIABILITIES AND EQUITY Short-term liabilities Long-term liabilities Minority interest Equity and reserves Subsidiary`s organization cost Accumulated profits (losses) Net income Interim dividends CHILECTRA RÍO MAIPO SYNAPSIS 2002 2001 2002 2001 2002 2001 MANSO DE VELASCO 2001 2002 CAM 2002 2001 ENERSIS ARGENTINA 2001 2002 ENERSIS INTERNATIONAL DISTRILIMA EDESUR ENDESA CHILE ENERSIS ENERGIA DE COLOMBIA LUZ DE BOGOTÁ CERJ INVESTLUZ 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 94,667,803 301,028,242 741,173,412 154,061,685 270,745,916 816,108,844 19,958,225 40,431,285 5,807,788 12,105,323 37,500,044 6,033,278 22,815,893 2,351,405 13,398 22,166,819 3,979,074 9,824 42,307,139 39,130,294 4,417,262 47,392,695 51,462,221 8,361,927 39,187,252 13,127,159 2,781,639 22,931,552 1,195,807 2,917,353 90,583 - 703 100,082 - 187 269,328,382 - 126,608,267 230,067,704 - 117,564,881 45,672,767 396,012,288 3,076,664 42,976,264 370,326,824 925,323 57,725,457 865,846,490 32,664,804 68,044,290 875,924,140 19,805,420 542,197,771 5,669,849,128 312,154,497 315,256,021 5,564,893,072 481,422,276 219,176 - - 955,673 7,418 - 136,580,837 1,031,003,787 147,348,509 190,621,941 997,189,343 149,923,914 198,402,822 760,960,046 284,340,921 152,094,916 707,830,982 345,950,092 132,754,801 751,462,649 77,009,779 112,084,137 720,158,282 260,936,375 1,136,869,457 1,240,916,445 66,197,298 55,638,645 25,180,696 26,155,717 85,854,695 107,216,843 55,096,050 27,044,712 91,286 100,269 395,936,649 347,632,585 444,761,719 414,228,411 956,236,751 963,773,850 6,524,201,396 6,361,571,369 219,176 963,091 1,314,933,133 1,337,735,198 1,243,703,789 1,205,875,990 961,227,229 1,093,178,794 241,242,949 451,152,830 22,781,936 327,685,712 164,731,344 (31,001,664) (39,723,650) - 88,592,790 634,422,654 19,605,347 316,256,751 141,669,441 73,185,248 (32,815,786) - 22,411,739 21,161,879 - 19,839,148 1,025,438 11,727,292 (9,968,198) - 12,048,780 21,329,058 - 19,839,148 1,032,361 9,261,986 (7,872,688) - 15,872,774 546,774 1,543 4,335,320 28,246 4,396,039 - - 18,190,149 433,457 2,078 4,259,620 16,478 5,473,684 (2,219,749) - 1,387,021 17,212,434 26,917,613 6,210,858 44,174,576 (9,936,221) - (111,586) 13,085,175 17,101,098 26,645,136 6,210,858 39,379,388 5,596,173 (800,985) - 23,940,680 6,121,502 571 3,626,503 13,424,885 7,981,909 - - 17,121,555 4,647,793 - 1,712,799 485,187 4,115,693 (1,038,315) - 12,179 - - 82,764 15,251 (18,908) - - 2,254 - - 82,764 20,353 15,469,128 (15,474,230) - 2,278,450 50,845,719 - 211,567,718 92,751,585 38,493,177 - - 624,792 45,914,403 - 208,341,809 65,620,906 56,123,402 (28,992,727) - 66,118,890 89,029,591 116,819,422 145,493,896 22,055,142 13,071,302 (7,826,524) - 81,396,054 64,255,322 108,861,692 135,510,591 18,735,094 12,342,137 (6,872,479) - 209,656,019 16,762,763 - 699,612,552 22,000,276 8,205,141 - - 207,591,367 78,929,650 - 653,282,110 (18,163,848) 83,679,687 (41,545,116) - 1,134,204,259 2,461,130,586 1,498,231,231 1,320,968,350 124,859,591 (9,319,056) - (5,873,565) 679,343,616 2,803,098,349 1,432,579,970 1,311,654,313 60,640,513 72,160,018 - 2,094,590 2,875 - - 588,541 (266,604) (105,636) - - 660,945 - - 552,361 3,372 (253,587) - - 142,154,503 51,471,236 520,777,588 576,554,672 28,487,137 (4,512,003) - - 73,033,751 48,234,824 573,222,784 604,360,713 27,359,077 11,524,049 - - 381,272,271 282,870,410 - 592,196,616 (3,623,078) (9,012,430) - - 378,063,253 338,324,270 - 492,888,962 - (3,400,495) - - 170,253,204 131,899,205 301,522,520 615,347,755 (59,542,244) (198,253,211) - - 228,020,639 47,101,775 285,937,632 579,116,660 (35,276,929) (11,720,983) - - TOTAL LIABILITIES AND EQUITY 1,136,869,457 1,240,916,445 66,197,298 55,638,645 25,180,696 26,155,717 85,854,695 107,216,843 55,096,050 27,044,712 91,286 100,269 395,936,649 347,632,585 444,761,719 414,228,411 956,236,751 963,773,850 6,524,201,396 6,361,571,369 219,176 963,091 1,314,933,133 1,337,735,198 1,243,703,789 1,205,875,990 961,227,229 1,093,178,794 Comparative Income Statements For the years ended 2001 & 2002 (thousand Ch$ as of December 2002) CHILECTRA RÍO MAIPO SYNAPSIS 2002 2001 2002 2001 2002 2001 MANSO DE VELASCO 2001 2002 CAM 2002 2001 ENERSIS ARGENTINA 2001 2002 ENERSIS INTERNATIONAL DISTRILIMA EDESUR ENDESA CHILE ENERSIS ENERGIA DE COLOMBIA LUZ DE BOGOTÁ CERJ INVESTLUZ 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 OPERATING INCOME Operating revenues Operating costs Selling and administrative expenses 397,937,409 (278,724,715) (31,892,672) 370,833,364 (257,610,946) (31,554,338) 56,670,097 (42,427,674) (3,968,811) 53,149,780 (38,976,390) (4,124,310) 49,532,757 (37,230,995) (6,116,784) 45,898,181 (32,651,406) (5,861,835) 11,378,337 (5,976,993) (1,624,742) 12,162,474 (7,438,074) (1,725,041) 93,945,571 (73,685,235) (7,914,919) 42,424,796 (33,144,476) (4,015,253) - - (7,550) 15,486,747 - (9,762) OPERATING INCOME 87,320,022 81,668,080 10,273,612 10,049,080 6,184,978 7,384,940 3,776,602 2,999,359 12,345,417 5,265,067 (7,550) 15,476,985 - - - - - - - - 203,633,683 (151,209,214) (19,534,139) 189,080,860 (135,219,910) (19,220,686) 199,478,546 (181,631,301) (30,585,536) 599,372,601 (408,059,366) (73,464,040) 938,099,151 (555,585,893) (36,288,767) 1,045,279,320 (662,607,797) (34,696,360) - - (15,091) 6,103,625 (6,147,463) (261,006) 331,504,692 (277,640,925) (32,495,703) 326,902,735 (269,908,367) (28,399,728) 345,161,404 (303,346,663) (21,410,367) 376,866,133 (274,819,593) (32,034,926) 227,724,739 (163,320,509) (40,412,024) 247,524,587 (158,452,128) (45,361,736) 32,890,330 34,640,264 (12,738,291) 117,849,195 346,224,491 347,975,163 (15,091) (304,844) 21,368,064 28,594,640 20,404,374 70,011,614 23,992,206 43,710,723 NON - OPERATING INCOME Non - operating income Non - operating expenses Price level restatement and foreign currency traslation 53,737,791 (168,745,711) (14,912,465) 96,860,404 (83,940,915) 553,250 6,663,252 (3,146,411) (47,342) 3,790,601 (2,766,149) 145,486 1,483,186 (2,316,192) 370,180 984,877 (1,526,939) 381,666 1,990,759 (17,715,890) (218,531) 8,229,979 (4,885,152) 749,694 547,221 (2,274,994) (229,769) 1,106,188 (871,098) (465,552) 401 - (11,759) 1,570 (182) (9,245) 24,682,847 (3,099,610) 16,909,940 32,480,802 (783,392) 24,425,992 8,552,759 (9,505,816) - 7,092,345 (14,998,731) - 25,002,726 (38,453,738) - 32,627,754 (23,275,381) - 132,752,867 (449,733,252) 3,555,467 79,004,458 (316,636,346) (10,166,608) 25,869 (116,414) - 180,748 (84,979) - 21,130,970 (18,794,749) - 16,799,469 (8,223,370) - 130,187,946 (169,953,501) - 54,726,923 (130,013,957) - 35,505,110 (253,601,525) - 11,774,938 (54,371,496) - NON - OPERATING INCOME (129,920,385) 13,472,739 3,469,499 1,169,938 (462,826) (160,396) (15,943,662) 4,094,521 (1,957,542) (230,462) (11,358) (7,857) 38,493,177 56,123,402 (953,057) (7,906,386) (13,451,012) 9,352,373 (313,424,918) (247,798,496) (90,545) 95,769 2,336,221 8,576,099 (39,765,555) (75,287,034) (218,096,415) (42,596,558) Income tax Extraordinary items Minority interest Negative goodwill amortization (9,028,776) (11,257,912) 31,885,387 (20,514,322) - (1,509,629) 68,380 (2,015,819) - - (1,957,032) - - - (1,326,017) (96) - (1,749,695) - (1,165) - 2,055,941 174,898 - (426,519) - (1,071,188) - (2,372,604) (33,540) 178 - (918,912) - - - - - - - - - - - - - - - - - - - (12,206,413) - (7,903,718) 1,244,160 (8,090,507) - (7,468,679) 1,167,445 34,394,444 - - - (43,521,881) - - - (70,628,398) (10,930,092) (46,478,294) 85,918,155 (39,911,895) - (34,015,850) 45,911,096 - - - - (44,512) - - - (20,233,426) (11,412,008) 3,429,146 - (13,901,427) - (11,745,263) - 10,348,751 - - - 1,874,925 - - - (4,491,295) - (8,834,766) 9,177,059 (7,487,563) - (5,834,526) 486,941 Net income (31,001,664) 73,185,248 11,727,292 9,261,986 4,396,039 5,473,684 (9,936,221) 5,596,173 7,981,909 4,115,693 (18,908) 15,469,128 38,493,177 56,123,402 13,071,302 12,342,137 8,205,141 83,679,687 (9,319,056) 72,160,018 (105,636) (253,587) (4,512,003) 11,524,049 (9,012,430) (3,400,495) (198,253,211) - Comparative Cash Flows For the years ended 2001 & 2002 (thousand Ch$ as of December 2002) CHILECTRA RÍO MAIPO SYNAPSIS MANSO DE VELASCO CAM ENERSIS ARGENTINA ENERSIS INTERNATIONAL DISTRILIMA EDESUR ENDESA CHILE ENERSIS ENERGIA DE COLOMBIA LUZ DE BOGOTÁ CERJ INVESTLUZ Net cash flows from operating activities Net cash flows from financing activities Net cash flows from investing activities 2002 98,497,264 (144,081,333) 46,100,858 2001 128,619,915 (126,952,325) 4,265,742 2002 8,859,947 (2,781,119) (6,067,397) 2001 12,512,809 (8,972,973) (3,476,839) 2002 4,302,371 (3,242,923) (1,604,797) 2001 4,671,466 (4,135,889) 629,863 2002 15,933,141 (11,884,227) (3,969,658) 2001 4,627,380 (6,034,214) 1,448,324 POSITIVE (NEGATIVE) NET CASH FLOW FOR THE YEAR Effect of price level restatement on cash and cash equivalents 516,789 (1,500,014) 5,933,332 (76,809) 11,431 (3,025) 62,997 (91,423) (545,349) (58,077) 1,165,440 (71,033) 79,256 (10,551) 41,490 (3,189) 2002 6,129,620 134,468 (7,437,791) (1,173,703) (228,724) 2001 1,430,683 2,149,836 (3,077,755) 502,764 (38,680) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (983,225) 5,856,523 8,406 (28,426) (603,426) 1,094,407 68,705 38,301 (1,402,427) 464,084 (7,569) (30,937) CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 8,013,527 578,165 19,396 47,822 2,937,878 1,843,471 57,901 19,600 2,992,955 237,666 CASH AN CASH EQUIVALENTS END OF YEAR 7,030,302 6,434,688 27,802 19,396 2,334,452 2,937,878 126,606 57,901 1,590,528 701,750 Note: Complete financial statements of the subsidiaries shown above are available for the public in Enersis and in the Superintendency of Securities and Insurance (SVS) 8,668 1,099 39,605 ANN UAL REPORT 2002 E NERSI S 285 284 2002 (18,049) 10,337 143 2001 15,443,293 (15,474,230) - 2002 27,645,687 2,438,323 (30,011,345) 2001 32,530,818 (20,049,871) (12,431,044) 2002 48,082,896 (21,999,313) (25,745,908) 2001 47,271,732 (15,762,864) (32,035,601) 2002 64,363,332 (10,943,788) (40,987,840) 2001 131,259,636 (48,295,523) (95,640,769) 2002 352,208,645 (218,971,912) (113,388,841) 2001 256,695,774 (83,836,187) (112,505,966) 2002 103,479 - 7,905 2001 (2,032,069) 675 - 2002 84,342,256 (98,701,609) (28,468,139) 2001 91,447,814 (10,502,282) (40,128,130) 2002 66,903,156 (25,276,733) (34,401,731) 2001 45,549,229 28,606,780 (68,832,704) 2002 42,793,831 (4,732,937) (27,983,392) 2001 33,130,207 40,203,667 (71,310,573) (7,569) - (30,937) - 72,665 (59,635) 13,030 31,558 49,903 (18,772) 337,675 - (526,733) - 12,431,704 - (12,676,656) - 19,847,892 9,040,813 60,353,621 3,278,431 111,384 (59,645) (2,031,394) (16,861) (42,827,492) (10,495,879) 40,817,402 (3,631,825) 7,224,692 7,949,182 5,323,305 (464,685) 10,077,502 (4,045,228) 2,023,301 (1,174,189) 31,131 337,675 (526,733) 12,431,704 (12,676,656) 28,888,705 63,632,052 51,739 (2,048,255) (53,323,371) 37,185,577 8,173,874 4,858,620 6,032,274 849,112 427 919,034 1,390,008 2,399,102 17,652,628 93,976,279 30,344,227 165,281 2,203,375 88,902,836 46,251,989 7,831,612 (2,491,358) 8,231,615 7,629,194 8,668 44,588 31,558 1,256,709 863,275 14,830,806 4,975,972 122,864,984 93,976,279 217,020 155,120 35,579,465 83,437,566 16,005,486 7,349,978 14,263,889 8,478,306 

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